State Taxation Tribunal - West Bengal
State Bank Of India (Overseas Branch) ... vs C.T.O. And Ors. on 11 February, 1998
Equivalent citations: [1998]111STC281(TRIBUNAL)
JUDGMENT
L.N. Ray, Chairman
1. The issue for decision in this application is whether purchase of "replenishment licences" (in short, "REP licences") or "exim scrips" (namely, export import licences) by the applicant No. 1 bank on payment of a premium of twenty per cent on the face value or unutilised face value thereof is exigible to purchase tax under Section 4(6)(iii) read with Section 5(6) of the Bengal Finance (Sales Tax) Act, 1941 (in short, "the 1941 Act"). This application is in the nature of a writ application under Article 226/227 of the Constitution of India.
2. Applicant No. 1 is a branch of applicant No. 2, State Bank of India, which is a statutory body corporate constituted under the State Bank of India Act, 1955 for the extension of banking facilities in the country, more particularly in rural and semi-urban areas and for diverse other public purposes. Their case is that the bank has to perform various functions according to directions issued by the Reserve Bank of India in keeping with economic and monetary policies, of the Central Government. Applicant No. 1 is a registered dealer under the 1941 Act and such registration was obtained at the advice of the taxing authorities without due examination of the question as to whether it could at all be a "dealer" under the statute. Imports into and exports outside the country are regulated by statutes and statutory instruments, i.e., the Imports and Exports (Control) Act, 1947 as amended from time to time, the Imports (Control) Order, 1955 and the policy notified thereunder from time to time. Such policy declared by the Government of India contained incentive schemes and subsidies to build up foreign exchange resources of the country. Under the import policy which was in force prior to July 4, 1991, there was provision for issuance of REP licences. With effect from July 4, 1991 the name of the licence was changed to exim scrip. The idea of REP licences/exim scrips was to encourage exports and for that purpose, such licences or scrips were issued equal to the prescribed percentage of the value of exports. Those were made freely transferable and were to be governed by the ordinary law. The object was to provide to the registered exporters by way of import replenishment the essential inputs required in manufacture of the exported products and also to allow certain flexibility to enable diversification. As a matter of policy the Reserve Bank of India (in short, "the R.B.I.") being an instrumentality of Government of India and responsible for securing monetary stability of the economy of the country, decided that unutilised exim scrips in the hands of holders who were willing to dispose of the same, should be mopped up through the specified branches of the State Bank of India. Accordingly, the R.B.I. issued circular No. 12/92 dated March 27, 1992 stating, inter alia, that : "The designated branches of the State Bank of India would be purchasing these exim scrips from March 23, 1992 up to the end of May, 1992, at a premium of 20 per cent of the face value". Pursuant to that, the R.B.I. wrote letter dated March 18, 1992 to the Chairman, State Bank of India, Bombay, authorising designated branches of the State Bank of India (in short, "the S.B.I.") to purchase exim scrips on payment of the said premium subject to certain terms and conditions. Applicant No. 1 is one of the designated or specified branches which were authorised for this purpose. Thereafter having been furnished with the procedure drawn up by the central office of the S.B.I., for the purpose of such transactions, applicant No. 1 paid 20 per cent of the face value of the exim scrips to the holders thereof who surrendered their scrips according to that procedure. When applicant No. 1 was informed by respondent No. 1 that in the assessment proceeding for the period of four quarters ending March 31, 1993 the former would be liable to pay purchase tax on purchases of exim scrips, it contended before respondent No. 1 in course of that hearing that the Exim scrips were not actually purchased, but surrendered by the holders. Several other contentions were also made before him, but respondent No. 1 levied purchase tax of Rs. 1,00,04,000 on the total taxable specified price of Rs. 25 crores. An appeal was preferred before respondent No. 2, Assistant Commissioner of Commercial Taxes, Calcutta (South) Circle, against the said order of assessment. The appeal was dismissed and the order of assessment was confirmed by an order dated September 19, 1996. The said assessment order and appellate order are challenged in this application on grounds, inter alia, that the REP licences or exim scrips are not "goods" within the meaning of the 1941 Act, applicant No. 1 is not a "dealer" within the meaning of the explanation 1 to the definition of "dealer" in Section 2(c) of the 1941 Act, there is conflict between the 1941 Act and the Banking Companies Regulation Act, 1949 ("the Act of 1949", for short) with regard to the concepts of "goods", "dealer" and "business" and hence the Act of 1949 should prevail over contrary provisions in the 1941 Act which is a State Act. Further, notwithstanding that applicant No. 1 was registered as dealer allegedly without proper appreciation of the correct legal position, it cannot be considered to be a dealer under the 1941 Act in view of the decision of the Karnataka High Court in the case of Canara Bank v. Commercial Tax Officer [1997] 107 STC 488 ; ILR 1996 Kar 810. One of the other contentions of the applicants is that purchase made by a registered dealer outside the line of his business cannot attract the levy of purchase tax. As an example, in the instant case, due to the fact that applicant No. 1 is a dealer in gold, casual purchase of exim scrips on a particular occasion cannot bring it within the mischief of Section 4(6)(iii). If such purchase is made from a person who is not a dealer at all, the transaction cannot be regarded as one in course of business. It is alleged that Section 4(6)(iii) suffers from vagueness, as it does not clearly specify that the existence of a purpose having nexus with the scheme of the Act is essential for attracting purchase tax. Unless Section 4(6)(iii) is restricted in application to a registered dealer making purchase from an unregistered dealer for the purpose of business, it gives rise to hostile discrimination or arbitrariness, thereby violating Article 14 of the Constitution. Exim scrips are not "goods" within the meaning of Section 2(b) of the 1941 Act and transactions are not purchases within the meaning of Section 4(6). These are merely surrenders by the holders of the scrips. Before imposing purchase tax, respondents Nos. 1 and 2 did not verify whether holders of exim scrips who surrendered their scrips to applicant No. 1, were registered dealers or not. If they are registered dealers, no purchase tax can be levied even if the transactions are treated as purchases by applicant No. 1. Moreover, applicants have taken a ground that no purchase tax can be levied under Section 4(6)(iii) on the ground that the purpose or intention of purchase was not resale. According to applicants, Section 4(6)(iii) should be construed to the effect that purchase tax can be levied under that provision where purchases are for the purpose of resale. Section 4(6)(i) deals with purchase for the purpose of direct use in manufacture. Hence, it is contended that under Section 4(6)(iii) the purpose should be resale, otherwise no purchase tax can be levied. As the transactions were for implementing the Government policy, it is contended that those cannot be brought to tax under Section 4(6)(iii).
3. The case of respondents is, according to their affidavit-in-opposition, that applicant No. 1 was compulsorily liable to get itself registered under Section 7 of the 1941 Act, because they incurred liability to pay tax under Section 4, and such liability has not been denied. By referring to definition of "dealer" in Section 2(c) of the 1941 Act, respondents have stated that from any point of view applicant No. 1 is a "dealer". Even commission agents, Governments and statutory bodies are dealers under that definition. The first applicant got itself correctly registered under the 1941 Act as dealer. It was held by the Supreme Court of India in the case of Vikas Sales Corporation [1996] 102 STC 106, that exim scrips are "goods" and transfer of such scrips for consideration is a "sale". Hence, purchases made by applicants in terms of the direction of Reserve Bank of India on payment of a premium of 20 per cent on the face value of the scrips are purchases for the purpose of Section 4(6)(iii). The transactions were not mere surrenders, but were purchases. The premium paid was valuable consideration. In this connection reference is made to the definition of "purchase price" in Section 2(ee) of the 1941 Act. Any event subsequent to purchase of the exim scrips does not, according to respondents, change the character of the transactions. In all respects, the transactions were purchases and taxable under Section 4(6)(iii). The fact that the exim scrips were later returned or surrendered to the R.B.I. by the applicants did not change the character of the transactions being purchases in the hands of applicants vis-a-vis the holders thereof. Applicants themselves are purchasers, and alternatively they are commission agents, and in both ways they are liable to tax under Section 4(6)(iii). Exim scrips may become scraps of paper by subsequent action of the applicants but that has nothing to do with the transactions which are purchases. The letter of the R.B.I. to the S.B.I. clearly mentioned that the designated branches of the S.B.I. could "purchase" exim scrips from holders who are willing to abide by the terms and conditions. The transactions were not of mandatory nature. In spite of certain compulsive elements regulating or restricting the area of operation of purchase of exim scrips, the transactions retained the basic character of "purchase". According to respondents, there was an implied contract of transfer of ownership of exim scrips for a money consideration. It was not obligatory on the part of the holders to deliver the scrips or to surrender them to the applicants. It was an act of volition on the part of the holders. It is well-settled that transactions of supply of goods pursuant to direction or orders of Central Government amounted to sale of goods. Section 4(6)(iii) nowhere lays down that purchase of goods must be for the purpose of resale. Purchase tax is levied on purchase of the goods, and not on the use thereof. Purchase is the taxing event and liability to pay tax is incurred as soon as purchase takes place, and it has not to wait till the goods purchased are put to some specific use. Reference is made to Section 4(7) under which the burden of proof lies on the applicants themselves to prove that purchases were made from registered dealers. The object of Section 4(6)(iii) is to take care of those purchases which are not covered by Clauses (i) and (ii) of Section 4(6). The object was to levy purchase tax on all purchases in order to discourage avoidance of liability to pay sales tax by unregistered dealers or persons and to induce them to get the selling dealers registered under the 1941 Act. The scheme of Section 4(6) is to levy purchase tax where liability to pay sales tax has been avoided on the point of sale by the selling dealers. The provision in Section 4(6)(iii) is very clear and unambiguous as to the taxable event, taxable person, taxable object and rate of tax. Taxable event is the purchase of goods. Taxable person is a registered dealer under the 1941 Act. Taxable object is the goods purchased. Rate of purchase tax is specified in Section 5(6)(a). Hence, allegations of uncertainty or vagueness are misconceived and baseless. It is of no consequence if the purpose for which the goods are purchased is not expressly specified. Profit-motive is immaterial in the definition in Section 2(1a). Purchases of exim scrips by the applicants are transactions ancillary to their trade or commerce. The applicant No. 1 is a registered dealer and it purchased exim scrips from unregistered persons or dealers and such purchases were ancillary or incidental to its business. Levy of purchase tax is not violative of Article 14. There is no hostile discrimination in the levy of purchase tax under Section 4(6)(iii). It is clearly within the plenary power of the State to levy tax on sales and purchases of goods under entry 54 of List II of the Seventh Schedule to the Constitution of India. The examples given in the application by the applicants is assailed by the respondents. Purchase of second hand motor car in those examples is said to be of no relevance because motor car is subjected to levy of a single point tax. There is no conflict, according to the respondents, between the Act of 1949 and the provisions of the 1941 Act.
4. The applicants have used an affidavit-in-reply. Hardly any new point is taken therein. However, in the said reply the applicants have reiterated that the transactions are surrenders and do not amount to purchases.
5. The applicants have taken numerous grounds to challenge the order of assessment dated June 30, 1995, passed by respondent No. 1 in respect of purchase tax under Section 4(6)(iii) of the 1941 Act for the impugned period of 4 quarters ending March 31, 1993. That order was confirmed in appeal by respondent No. 2 by a short order dated September 19, 1996. One of the grounds taken in the application is that the first applicant cannot be considered to be a "dealer", though already registered as such, because the registration was obtained allegedly without proper appreciation of the correct legal position. In course of oral arguments Mr. Pradip Ghosh, counsel for the applicants, submitted that in order to come within the mischief of Section 4(6)(iii) one must be liable to pay tax under Section 4(1), 4(2), 4(4) or 8(3) and also registered as a dealer. In reality, however, nothing was shown by the applicants to the effect that the registration was in any way unwarranted. Mr. K.K. Saha, advocate for the respondents, agreed, and very rightly, that Section 4(6)(iii) created an additional charge, only where a dealer is registered as well as liable to pay sales tax. If these qualifications were absent, there could be no liability of purchase tax. Mr. Saha submitted that under the scheme of the 1941 Act once registered as a dealer, he became a "dealer" for all purposes under the Act. This basic concept, he argued, cannot be lost sight of while deciding this case. Mr. Saha submitted that the first applicant-bank had applied for registration as a dealer on September 5, 1979, and was granted registration for sale of gold bars on September 25, 1979. These submissions were not disputed. It is significant to note that the impugned transactions took place during 1992-93, namely, after about 14 years of registration. It is evident from the order of assessment dated June 30, 1995 that the first applicant has been a reseller of gold and silver and in the relevant period sales of gold and silver amounted to Rs. 23,55,07,193. This fact is also undisputed. Thus, after inordinate delay of many years, the applicant No. 1 has tried to question the necessity of registration as a dealer, but the attempt is clearly without any substance. In paragraph 5 of the affidavit-in-opposition, the respondents stated that the bank was liable to be compulsorily registered under Section 7 of the 1941 Act, since it had incurred liability to pay tax under Section 4. In the same paragraph, the respondents stated in sufficient detail how and why the bank had become a "dealer" and why it had to be registered, and also that the applicants did not deny or dispute the taxable quantum which was pre-condition of registration. The applicants dealt with the said paragraph 5 in their affidavit-in-reply (also in paragraph 5). A scrutiny of the said paragraphs in the rival pleadings will bear out that the applicants merely reiterated their stand in the main application and led no evidence to establish that registration was in fact unwarranted. The statute lays down that registration is compulsory in certain circumstances. Unless the applicants can establish absence of such circumstances by undeniable facts, by advancing mere arguments they cannot succeed in establishing that registration as a dealer was erroneously obtained in the year 1979. In our opinion, the first applicant is a "dealer" under the 1941 Act, and it has continued to remain a registered dealer since 1979.
6. Let us now dispose of a connected submission of the applicants. In paragraph 39 of the main application they relied on the decision in Canara Bank v. Commercial Tax Officer [1997] 107 STC 488 (Kar) ; ILR 1996 Kar 810 and contended that banking companies governed by the Banking Companies Regulation Act, 1949, cannot be regarded as dealers. Mr. Ghosh, appearing for the applicants, urged this point. Mr. Saha, arguing on behalf of the respondents, contended that the said judgment was delivered by the Karnataka High Court on different facts and on a different point. On a careful perusal of the aforesaid Division Bench decision of the Karnataka High Court we like to agree with the submissions of Mr. K.K. Saha, learned advocate for the respondents. Apart from whether or not we would have agreed with the decision, the judgment is clearly distinguishable. The dispute in Canara Bank v. Commercial Tax Officer [1997] 107 STC 488 (Kar) ; ILR 1996 Kar 810 arose out of a notice dated July 20, 1988, issued by Commercial Tax Officer of Bangalore, to Canara Bank in respect of disposal of gold and silver forfeited by the Bank against outstanding loans. The Canara Bank took the stand that auction sale of gold ornaments by the bank for realisation of loans advanced cannot be equated with the expression "sale" as defined in the Karnataka Sales Tax Act, 1957. The Karnataka High Court considered various provisions of the Act of 1949 and came to conclusion that banking companies cannot be treated as "dealers" under Section 2(1)(k) of the Sales Tax Act of Karnataka while disposing of the securities for utilisation of the loans advanced. Therefore, clearly the issue before the Karnataka High Court was different and hence we need not record our views as to whether on the same set of facts we would have otherwise agreed with that decision or not. In our opinion, the decision of the Karnataka High Court in Canara Bank v. Commercial Tax Officer [1997] 107 STC 488 (Kar) ; ILR 1996 Kar 810 does not apply to the present case.
7. But that does not wholly dispose of the wider contention as to whether a banking company governed by the Act of 1949 can be a dealer under the 1941 Act. For the purpose of the Act of 1949 the expression "banking company" means any company which transacts "banking business" in India in terms of Section 5(c). In other words, the applicant S.B.I. is a banking company under the Act of 1949. In Part II of the Act of 1949 we find the provisions relating to business of banking companies. Sub-section (2) of Section 6 mandates that no banking company shall engage in any form of business other than those referred to in Sub-section (1). Clauses (a), (b) and (n) of Sub-section (1) of Section 6 are relevant for the present purpose. Under Section 6(1)(a), a banking company can validly engage in buying, selling, collecting, dealing in, receiving, etc., "scrips" or other instruments or securities. Exim scrips are scrips as well as instruments or securities. Under Section 6(1)(b), it can validly act as agent for any Government or carry on agency business. The admitted case of the applicants is that they acted in relation to the impugned transactions as agent of the R.B.I., which is an instrumentality of the Government of India, to accept exim scrips on payment of a premium to the holders thereof. The activity is thus covered by Section 6(1)(a) and (b). Under Section 6(1)(n), such activity is certainly "incidental" or "conducive" to the promotion or advancement of the business of the company, because admittedly the applicant-bank received commission for these transactions. Mr. Ghosh, counsel for the applicants, profusely relied on Section 8 of the Act of 1949 to contend that since trading has been prohibited, the applicant-bank could not engage in buying exim scrips, and hence the activity was other than purchase, and the bank was not a "dealer". The fallacy in the argument is that Section 8 actually does not prohibit purchase of exim scrips and even if it does, a transaction of purchase cannot become something other than purchase merely because Section 8 prohibits. When Section 8 is correctly construed, it will be clear that purchase of exim scrips is not prohibited by it. According to the Explanation below Section 8, "for the purposes of this section", the expression "goods" does not mean actionable claims, stocks, shares, money, bullion and specie, and "all instruments referred to in Clause (a) of Sub-section (1) of Section 6". Exim scrips are clearly covered by Section 6(1)(a), and particularly by the expression "instruments" used therein (see the meaning of "instrument" in Black's Law Dictionary). By reason of the Explanation below Section 8, exim scrips are not "goods" for the purpose of Section 8. What Section 8 then actually prohibits ? It prohibits buying or selling of "goods", as defined in the said explanation. So, it does not prohibit buying or selling of exim scrips which fall outside the definition of "goods" in the explanation below Section 8. Though exim scrips are "goods" within the meaning of the sales tax laws, those are not considered as "goods" within the meaning of Section 8 of the Act of 1949. This is the correct construction of Section 8. And, it must be so, because after laying down the business of banking companies in Section 6, there can be little sense in prohibiting the same in Section 8. The object of Section 8 was not to prohibit the activities permitted in Section 6. It was "intended to prohibit a bank from engaging directly or indirectly in trading activities and undertaking trading risks in addition to ordinary banking risks"--(see Objects and Reasons at page 599 of Volume 2 of 5th Edition of AIR Manual). S.B.I. was established by the State Bank of India Act, 1955 (in short, "the Act of 1955"). While construing the legally permitted business of the applicant-bank, the provisions of the Act of 1955 are to be harmoniously considered with those of the Act of 1949. Under Section 32 of Act of 1955, the applicant-bank is to act as agent of the Reserve Bank of India (R.B.I.) in the matter of, inter alia, receiving and collecting securities of any Government in India and Undertaking and transacting any other business which the R.B.I. may from time to time entrust to it. Under Section 33, it can engage in business of banking under Section 5(b) of the Act of 1949 and in any other form of business specified in Section 6 of that Act. The undisputed fact is that the impugned transactions of purchase of exim scrips were gone into under the R.B.I's instructions. Hence from any point of view the impugned transactions were validly undertaken. Arguments to the contrary are unacceptable to us.
8. Since the 1941 Act dealt with taxation on sale and purchase of goods, applicants took the point that exim scrips were not "goods". The question has been conclusively settled in Vikas Sales Corporation v. Commissioner of Commercial Taxes [1996] 102 STC 106 (SC). Although the judgment was rendered in the context of the Sales Tax Acts of Tamil Nadu, Karnataka and Kerala, its ratio is fully applicable to the present case under the 1941 Act. We cannot accede to the contention of Mr. Pradip Ghosh, the applicants' counsel that the present issue was not raised in that case, and hence that judgment cannot be applied.
9. The counsel for the applicants argued that in order to apply Section 4(6)(iii) of 1941 Act, a purchase must be for a purpose, and such purpose must be resale. In making this submission, the counsel sought to draw his conclusion from a conjoint reading of Clauses (i) and (iii) of Section 4(6). He emphasised that Clause (i) spoke of purchase for direct use in manufacture. So, he was of the view that under Clause (iii) the purpose must be resale. According to him, if this construction is not adopted, Section 4(6)(iii) becomes unconstitutional being hit by Article 14. Mr. Saha, appearing for the respondents, contested the argument by contending that Clauses (i) and (ii) of Section 4(6) took care of specific cases, and Clause (iii) was enacted as the residuary clause taking care of the rest. He submitted that when the Legislature did not contemplate or lay down that Clause (iii) would apply to purchases for the purpose of only resale, and left the expression unspecified and unqualified, there is no logic behind supplying the word "resale" for limiting the meaning of the word "purpose". He distinguished "purpose" from use of the goods after the transaction of "purchase" is complete. Mr. Saha also contended that Section 4(6)(iii) is in no way unconstitutional. If the whole of Section 4(6) is considered, in our view, there will be no cause for construing Section 4(6)(iii) as relating only to purchases for the purpose of resale. There is no indication in Section 4(6) to that effect. A purchase may not be taxable for many reasons, but not because its purpose was other than resale. The construction we have adopted does not make the provision unconstitutional either. The applicants' counsel did not show to us why it might be unconstitutional. It is well-settled that an enactment is presumed to be constitutionally valid, until the contrary is established. Mr. Saha, learned advocate for the respondents, quite rightly argued that tax was levied on the event of "purchase" under Section 4(6)(iii) without depending on its purpose, i.e., whether resale or not. We are of the opinion that since Section 4(6)(iii) used the word--"purpose"--, a purchase for any purpose other than those specified in Clauses (i) and (ii) of Section 4(6) would be enough to attract the clause. Resale can be one of the purposes, but not the sole one. In the present case, as per the R.B.I's letter dated March 18, 1992 (annexure "A") the purpose was to forward the "scrips" to the Joint Chief Controller of Imports and Exports, Government of India, after suitably cancelling them. According to the applicants' counsel, such a purpose does not attract the mischief of Section 4(6)(iii). We cannot agree with in this contention, because it is enough that there was a purpose (other than purely personal or domestic) behind the purchases. Use of the purchased scrips by way of cancellation and onward transmission to the Joint Chief Controller was clearly subsequent to completion of the transactions. Such use, in our opinion, cannot keep the transactions out of the mischief and purview of Section 4(6)(iii).
10. The contention persistently made on behalf of the applicant-bank was that the transactions were really "surrenders", not "purchases". On behalf of the respondents, however, Mr. Saha insisted that those were nothing but purchase. The expression--"purchase"--was not defined in the 1941 Act, but "sale" was defined in Section 2(g) as "transfer of property in goods for cash or deferred payment or other valuable consideration". It was rightly submitted by Mr. Saha that "purchase" is the counterpart or other side of "sale" of the same transaction. If a sale takes place, a purchase also takes place simultaneously. When one sells, another purchases the same goods. The definition of "purchase price" in Section 2(ee) helps us to find out the meaning of "purchase". "Purchase price" means the amount of "valuable consideration paid or payable" by a person for purchase. Thus, a "purchase" means acquisition (by transfer) of property in goods for "valuable consideration paid or payable". Before we scrutinise the line of argument by Mr. Ghosh, the applicants' counsel, it is to be kept in mind that we are considering the effect and character of the transactions from the angle of the applicant-bank. Mr. Ghosh relied on Black's Law Dictionary, Halsbury's Laws of England, and Gaur's annotated Transfer of Property Act and submitted that the transactions are "surrenders". Mr. Saha contended that those authorities dealt with "surrender" in relation to immovable property, and that principle cannot be applied to "goods". If voluntariness or volition is an essential characteristic of a "surrender", that is also essential in a "sale" or "purchase" of goods within the meaning of the 1941 Act. "Surrender" is also envisaged by operation of law, but in the absence of volition and mutual contract neither a "sale" nor a "purchase" can take place within the meaning of the 1941 Act and within the ambit of entry 54 of List II of the Seventh Schedule read with the Sale of Goods Act. Another important aspect of "surrender" is that it can take place by relinquishment of the right, title or interest of a subordinate holder (like lessee vis-a-vis lessor, sublessee vis-a-vis lessee) in favour of the owner of the immediate reversion or immediate superior-holder. Even if it is wholly impossible to apply the principle to movable property or "goods" (though generally it is foreign to transactions involving "goods"), in the instant case, the applicant-bank (or the R.B.I. whose agent it was for this purpose) was in no way holder of superior right, title or interest in the scrips in relation to the holders thereof. In fact, R.B.I. or S.B.I. had no interest in the scrips. S.B.I. was mopping up the scrips from the holders on payment of valuable consideration. Prior to that, it had no interest at all. Nor did the R.B.I. have any interest. So, the concept of "surrender" is irrelevant. Mr. Ghosh contended that the Government of India had issued the scrips and the ultimate receiver of the scrips was the Government of India after S.B.I. acquired the same. This argument implies a contention that the issuing authority of the scrips was the owner. But, in reality, while issuing the scrips as an incentive to exporters, the Government of India kept no ownership reserved for itself. It made the exporters full owners thereof, for which they were free to sell and transfer the scrips for consideration. Thus, the Government of India did not retain any ownership, and hence the concept of "surrender" is impossible of application in the present case. A critical analysis of the impugned transaction, therefore, leaves no room for doubt that they were in all respects "purchases" within the meaning of Section 4(6)(iii) of the 1941 Act (taxability being a different question) and could not be mere "surrenders". The R.B.I. had, in its letter to the S.B.I. dated March 18, 1992, described the activity as "purchase". Though thereafter the S.B.I. used the term "surrender" in its inter-departmental communication dated March 21, 1992 (annexure "B"), and in the form prescribed by the S.B.I. for application by holders of scrips, there was enough indication of "sale" and "purchase" and transfer of property in the scrips in the form at page 58 of the main application (part of annexure "B") which says that the holder of scrip was "encashing" them by completely foregoing his "entitlements" under it. And the S.B.I's internal communication dated March 20, 1992 at page 59 of the main application also refers to the activity as "handling purchase of exim scrips".
11. The last but very important contention of Mr. Pradip Ghosh, bank's counsel, was that the impugned purchase of exim scrips was undertaken only once during a brief period from March 23, 1992 to May 31, 1992 and hence it cannot be considered as a part of "business" of the bank within the meaning of the 1941 Act. It may be rioted at this stage that the aforesaid period mostly falls within the period of four quarters ending March 31, 1993, and only a small part thereof, namely, from March 23, 1992 to March 31, 1992, falls within the period of four quarters ending March 31, 1992. From page 69 of the main application (internal page 5 of the order of assessment dated June 30, 1995 for the period of four quarters ending March 31, 1993) we find that the amount of purchase price of exim scrips/R.E.P. licences was to the tune of Rs. 25 crores. Mr. K.K. Saha, respondent's advocate contended that the transactions should be treated part of the bank's business either as a main business or an ancillary or incidental one to the bank's main business. The expression--"business"--is found in Acts of 1949 and 1955 and also in 1941 Act. As far as the Acts of 1949 and 1955 are concerned, the word--"business"--means the activities which the bank may, and sometimes shall (for example, under the direction of the Reserve Bank of India), carry on. The Act of 1949 indicates the banking business of any bank governed by that Act. The Act of 1955 indicates the items of business which the State Bank of India may and shall carry on. But the 1941 Act envisages "business" for the purpose of taxation of sales and purchases. The two connotations of "business", one under the Acts of 1949 and 1955 and the other under the 1941 Act, may sometimes converge and bear the same meaning, but may also sometimes bear different meanings. In other words, some of the businesses of the bank may not amount to "businesses" as defined in the 1941 Act. As an illustration, we may point out that the main business of a bank is to render financial services to its customers by accepting deposits of money and by disbursing money under their instructions. The definition of "business" in Section 2(1a) of 1941 Act is as follows :
" 'business' includes--
(i) any trade, commerce or manufacture or execution of works contract or any adventure or concern in the nature of trade, commerce or manufacture or execution of works contract, whether or not such trade, commerce, manufacture, execution of works contract, adventure or concern is carried on with the motive to make profit and whether or not any profit accrues from such trade, commerce, manufacture, execution of works contract, adventure or concern ; and
(ii) any transaction in connection with, or ancillary or incidental to, such trade, commerce, manufacture, execution of works contract, adventure or concern."
Mr. K.K. Saha contended that sale of exim scrips has been held to be sales in the case of Vikas Sales Corporation [1996] 102 STC 106 (SC), and the decisions of the Madras and Karnataka High Courts in P.S. Apparels v. Deputy Commercial Tax Officer [1994] 94 STC 139 and Bharat Fritz Werner Ltd. v. Commissioner of Commercial Taxes [1992] 86 STC 175 were confirmed in that case. He, therefore, argued that purchase price of exim scrips has been lawfully brought to purchase tax. Mr. Pradip Ghosh, bank's advocate, however, submitted that the question now raised by the bank did not arise for consideration in the case of Vikas Sales Corporation [1996] 102 STC 106 (SC). According to him, in the present case the bank's business under the 1941 Act was sale of gold, for which it got itself registered as a "dealer". Hence, Mr. Ghosh argued that purchase of exim scrips was neither a main nor regular business of the bank, nor a business ancillary and incidental to that of sale of gold. Mr. Ghosh relied in this connection on State of Andhra Pradesh v. A.P. Housing Board [1988] 70 STC 203 (AP) and Commissioner of Sales Tax v. Billion Plastics Pvt. Ltd. [1995] 98 STC 184 (Bom). In the Andhra Pradesh case (State of Andhra Pradesh v. A.P. Housing Board [1988] 70 STC 203), it was held that the Housing Board was not a dealer ; and because the unserviceable materials, etc., sold by it had not been acquired with a view to carry on business, sales thereof were not taxable. In the case of Billion Plastics Pvt. Ltd. [1995] 98 STC 184, the Bombay High Court held that purchase tax was not leviable on purchase of a car effected from a person who was not a registered dealer on the reasoning that the liability to pay tax is only on a dealer and to become a dealer, one must carry on the business of buying or selling goods and that too only in respect of the goods bought or sold in course of such business. Mr. K.K. Saha, however, disagreed with Mr. Ghosh and distinguished those two cases. Mr. Ghosh, on behalf of the applicants, also strongly relied on the case of Board of Revenue v. A.M. Ansari [1976] 38 STC 577 (SC) and contended that the impugned purchase of exim scrips should not amount to carrying on a "business" within the meaning of the 1941 Act, as the activity was for a brief period and it lacked frequency and regularity. Mr. K.K. Saha, learned advocate for respondents, relied on the cases of Member, Board of Revenue, West Bengal v. Controller of Stores, Eastern Railway [1989] 74 STC 5 (SC), State of Tamil Nadu v. Burmah Shell Oil Storage and Distributing Co. of India Ltd. [1973] 31 STC 426 (SC), District Controller of Stores, Northern Railway, Jodhpur v. Assistant Commercial Taxation Officer [1976] 37 STC 423 (SC) and State of Tamil Nadu v. Binny Ltd. [1982] 49 STC 17 (SC). According to him, A.M. Ansari's case [1976] 38 STC 577 (SC), is not applicable to the present case.
12. Since the above point greatly depends on A.M. Ansari's case [1976] 38 STC 577 (SC), that judgment needs a thorough consideration. In that case, the Forest Department of Andhra Pradesh sold in auction in 1967, after giving sale notice with terms and conditions, various items of forest produce, viz., timber, fuel, bamboos, etc. The respondent was the highest bidder and hence was called upon to pay, inter alia, sales tax on the bid amount in terms of a clause in the sale notice. The demand for sales tax on the bid amount was challenged on the ground that, as the Government did not carry on any business of sale, the demand was illegal. The High Court of the Andhra Pradesh upheld the contentions of the respondent. In the judgment of the Supreme Court in Ansari's case [1976] 38 STC 577, this point was dealt with as the second question for consideration. The definitions of "dealer", "business" and "sale" in the Andhra Pradesh General Sales Tax Act, 1957, as will appear from the said judgment, are in pan materia with the corresponding definitions in the 1941 Act which is under our consideration. The court held at pages 584 and 585 of the Report :
"In order that the sales tax should be payable by the respondents in accordance with the obligation imposed on them by Clause (23) of the sale notice, it is necessary that the Government of Andhra Pradesh should have been carrying oh the business of selling the forest produce. In State of Gujarat v. Raipur Manufacturing Co. Ltd. [1967] 19 STC 1 (SC), this Court while examining the term 'business' in another context observed that whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit-motive. The court further went on to observe that when a subsidiary product is turned out in the factory of the assessee regularly and continuously and it is being sold from time to time, an intention to carry on business in such product may be reasonably attributed to the assessee. As the consideration of profit-motive cannot be regarded as an essential constituent of the term 'business' in view of the amendment introduced in the definition of the term 'dealer' in 1966, what we are left to consider is whether the other ingredients of the term 'business', viz., volume, frequency, continuity and regularity of transactions of sale and purchase are satisfied in the instant cases."
The court noted the fact that the auctions of the forest produce by the Government of Andhra Pradesh were admittedly carried on only annually and not at frequent intervals, and thus the important element of frequency was lacking, for which it could not be held that the Government was carrying on the business of sale of forest produce. Thereafter, the Supreme Court was pleased to consider the decisions in Pithapuram Taluk Tobacco, Cigars and Soda Merchants' Union v. State of Andhra Pradesh [1958] 9 STC 723 (AP), Raja Bhairabendra Narayan Bhup v. Superintendent of Taxes [1958] 9 STC 60 (Assam), Orient Paper Mills Ltd. v. State of Madhya Pradesh [1971] 28 STC 532 (MP) and a number of other decisions including that of Ramakrishna Deo's case [1955] 6 STC 674 (Orissa) and held that the Government of Andhra Pradesh by holding auction of forest produce was not carrying on business in the sale of that class of goods. It is worthy of note that all the above cases related to agricultural products or forest produce.
13. In A.M. Ansari's case [1976] 38 STC 577 (SC), the case of Raipur Manufacturing Co. Ltd. [1967] 19 STC 1 (SC) was followed. So, it is necessary to refer to that case where volume, frequency, continuity and regularity were considered to be ingredients constituting a business of sale. In that case, Raipur Manufacturing Co. Ltd. [1967] 19 STC 1 (SC), which was carrying on the business of manufacturing and selling cotton textiles, also sold during the accounting year 1953-54, 25 different items of discarded or unserviceable goods and waste products of the factory, such as, old containers, "kolsi" (cinders), waste caustic liquor and coal. The sales tax authorities brought the turnover from sales of those commodities to tax under the Bombay Sales Tax Act, 1953 and the assessment was confirmed by the Sales Tax Tribunal, which held that sales of those commodities must be regarded "as part of the business of the textile mill", if the transactions of sale were large and frequent. The company got a reference made to the High Court of Gujarat. The High Court did not agree with the Tribunal that the sales of stores and old machinery and sundry articles were liable to sales tax. The matter went to the Supreme Court of India. It was held by the Supreme Court that a person who sells goods which are unserviceable or unsuitable for his business does not on that account become a dealer in those goods, unless he has an intention to carry on the business of selling those goods. It also held that when a subsidiary product is turned out in the factory of the assessee regularly and continuously and it is being sold from time to time, an intention to carry on business in such product may be reasonably attributed to the assessee. While dealing with this problem, the Supreme Court held at page 6 of the Report in State of Gujarat v. Raipur Manufacturing Co. Ltd. [1967] 19 STC 1 :
"Where a person in the course of carrying on a business is required to dispose of what may be called as fixed assets or his discarded goods acquired in the course of the business, an inference that he desired to carry on the business of selling his fixed assets or discarded goods would not ordinarily arise. To infer from a course of transactions that it is intended thereby to carry on business ordinarily the characteristics of volume, frequency, continuity and regularity indicating an intention to continue the activity of carrying on the transactions must exist. But no test is decisive of the intention to carry on the business : in the light of all the circumstances an inference that a person desires to carry on the business of selling goods may be raised."
Again at page 7 of the Report, the court held :
"It is clear from these cases, i.e., State of Bombay v. Ahmedabad Education Society [1956] 7 STC 497 (Bom), State of M.P. v. Bengal Nagpur Cotton Mills Ltd. [1961] 12 STC 333 (MP), Commissioner of Sales Tax, Madhya Pradesh v. Ram Dulare Balkishan and Bros. [1963] 14 STC 202 (MP) and State of Mysore v. Bangalore Woollen, Cotton and Silk Mills Company Ltd. [1962] 13 STC 106 (Mys.) that to attribute any intention to carry on business of selling goods it is not sufficient that the assessee was carrying on business in some commodity and he disposes of for a price articles discarded, surplus or unserviceable....... But the question is of intention to carry on business of selling any particular class of goods. Undoubtedly from the frequency, volume, continuity and regularity of transactions carried on with a profit-motive, an inference that it was intended to carry on business in the commodity may arise....... An attempt to realise price by sale of surplus unserviceable or discarded goods does not necessarily lead to an inference that business is intended to be carried on in those goods, and the fact that unserviceable goods are sold and not stored so that badly needed space is available for. the business of the assessee also does not lead to the inference that business is intended to be carried on in selling those goods."
In the said case of Raipur Manufacturing Co. Ltd. [1967] 19 STC 1 (SC), there were frequent sales of large volume of old discarded machinery, stores, scrap and miscellaneous goods, such as, coal and by-products and subsidiary products like "kolsi" and waste caustic liquor. Still, the court held as follows at page 9 of the Report :
"These sales were frequent and the volume was large, but it cannot be presumed that when the goods were acquired, there was an intention to carry on the business in those discarded materials ; nor are the discarded goods, byproducts or subsidiary products of or, arising in the course of manufacturing process. They are either fixed assets of the company or are goods which are incidental to the acquisition or use of stores or commodities consumed in the factory.......... In order that receipts from sale of a commodity may be included in the taxable turnover, it must be established that the assessee was carrying on business in that particular commodity, and to prove that fact it must be established that the assessee had an intention to carry on business in that commodity...........".
In the same case, it was held that the burden of proving that the company was carrying on business of selling coal lay upon the sales tax authorities and if they made no investigation and came to the conclusion merely because of the frequency and volume of the sales, the inference cannot be sustained.
14. If we read AM Ansari's case [1976] 38 STC 577 (SC), together with Raipur Manufacturing Co. 's case [1967] 19 STC 1 (SC) what we find is that the Supreme Court considered the intention to carry on business in a commodity or class of commodities as the primary and basic determining factor for holding one to be a "dealer" for the purpose of paying sales tax. We also find that the ingredients of volume, frequency, continuity and regularity of transactions of purchase and/or sale come only next to that. In A.M. Ansari's case [1976] 38 STC 577, the Supreme Court held that annual auction sale of forest produce by the Government of Andhra Pradesh was not exigible to sales tax, not only because the element of frequency was lacking, but actually the Government was not carrying on a business of sale of forest produce and hence it was not a dealer. In the instant case, it is undisputed that exim scrips were purchased by the applicant-bank during the period from March 23, 1992 to May 31, 1992, the period of transactions spreading over nine weeks. As regards volume it was large, since the purchase price amounted to Rs. 25 crores during the period of eight weeks falling within four quarters ending March 31, 1993 alone. In view of the length of period of nine weeks, it is difficult to say that the transactions were stray or occasional in nature, or that the element of continuity was lacking. Since the contention was that during the said period of nine weeks only the transactions took place, it may perhaps be said that the element of frequency or regularity is lacking. Then, a question may arise, whether mere lack of the element of regularity or frequency, where other elements are present, would be sufficient to take the transactions out of the concept of "business". In our opinion, where an intention to carry on business is clearly established, as we shall presently see, mere lack of the element of regularity or frequency will not convert business transactions into non-business transactions, and would not make a "dealer" a "non-dealer". We have already quoted from Section 2(1a) of the 1941 Act the definition of "business". Without the Explanations (1) and (2), the definition of "dealer" in Section 2(c) is the following :
" 'dealer' means any person who carries on the business of selling goods in West Bengal or of purchasing goods in West Bengal in specified circumstances or any person making a sale under Section 6D and includes--
the Central or a State Government, a local authority, a statutory body, a trust or other body corporate which, or a liquidator or a receiver appointed by a court in respect of a person defined as a dealer under this clause who, whether or not in the course of business sells, supplies or distributes directly or otherwise, for cash or for deferred payment or for commission, remuneration or other valuable consideration."
The above definition has two parts, the primary or main part and the inclusive part. The inclusive part does not deal with purchases. The main or primary part deals with purchases. Undisputedly the applicant-bank is a registered "dealer" for sales of gold. The question is : whether it is also a "dealer" for purchasing exim scrips which have been held by the Supreme Court to be "goods". So, in terms of Section 2(c) the bank will be a dealer for this purpose if it carries on the "business" of purchasing exim scrips. The definition of "business" in Section 2(1a) has also two parts. Since it is an inclusive definition, the natural meaning of the word "business" will constitute the main or primary part of the definition. According to "Dictionary of Finance" by E.A. Avneyon (McMillan Publishing Co., New York) "business" in the present context means : (i) "An individual, corporation or partnership who deal in purchasing, selling, trade, profession, the provision of a service or some other commercial economic activity with the purpose of making a profit", and (ii) "the scope of trade carried out during a certain period". According to Black's "Law Dictionary", Fifth Edition, "business" means employment, occupation, profession, or commercial activity engaged in for gain or livelihood ; activity or enterprise for gain, benefit, advantage or livelihood ; enterprise in which person engaged shows willingness to invest time and capital on future outcome. According to Aiyar's "Judicial Dictionary", tenth edition, to regard an activity as business there must be a course of dealings either actually continued or contemplated to be continued with a profit-motive, and not for sport or pleasure (State of Andhra Pradesh v. H. Abdul Bakshi and Bros. [1964] 15 STC 644 (SC) ; AIR 1965 SC 531 and Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211 (SC) ; AIR 1970 SC 253, 256). As the law stands today, profit-motive is irrelevant, but yet "business" connotes some activity actually in the nature of trade or commerce or manufacture which is done not for sport or pleasure or for charity. Thus, there is little difference between the primary or main part of the definition of "business" and its inclusive part which basically means, in the present context, any trade or commerce or similar activity and any transaction in connection with, or ancillary or incidental to, such trade or commerce. According to "Dictionary of Finance" (Ibid), "commerce" is a general term which stresses the trade or exchange aspect of a business, organisation, firm, or country, as opposed to the manufacturing or industrial aspect, and it is sometimes used instead of "business" or "trade". It includes "those services meant to aid in the implementation of trade, such as, banking, insurance and transportation". The same dictionary defines "trade" as a process in which exchange of goods and services takes place. "In modern times, the process of exchange is done by the exchange of goods and services for money, but the term includes also barter, foreign exchange trade, exchange of financial instruments by others, etc., both in domestic and foreign trade". (It may be noted that in the present case the purchase of exim scrips was by way of exchange of the scrips, which are financial instruments, for money). According to Black, "commerce" means : "Intercourse by way of trade or traffic between two different peoples or States and the citizens or inhabitants thereof including not only the purchase, sale and exchange of commodities but also the instrumentalities and agencies by which it is permitted and the means and appliances by which it is carried on and transportation of persons as well as of goods both by land and sea". The same author defines "trade" as the act or the business of buying and selling for money. According to Aiyar's Judicial Dictionary, "commerce" means the exchange or buying and selling of commodities specially on a large scale, and "trade" means in its narrow popular sense exchange of goods for goods or for money with the object of making profits and in a wider sense means any business carried on with a view to earn profit. Thus, purchase of exim scrips for money, comprising a large volume (at least Rs. 25 crores) is in every sense a "business" within the meaning of Section 2(1a). That being so, having carried on such a "business" the applicant-bank became a "dealer" under Section 2(c), even apart from the fact that it was already a registered dealer for sale of gold. Since sale of gold has no connection with purchase of exim scrips, the latter transactions cannot be said to be either in connection with or ancillary or incidental to sale of gold. In our view, purchase of exim scrips was a separate "business" of the applicant-bank. A point was argued on behalf of the bank that it had to undertake this activity under instructions from the Reserve Bank of India. The fact that it was so, indicates that it was carried on as a business and with the intention to carry it on as a business. Let us explain it a little. The State Bank of India is not an ordinary "dealer" or businessman. It is an institution or "body" created by a statute, namely, Act of 1955. That Act laid down the purpose and duties of the bank. An individual dealer or a dealer being an association of individuals in any form, may perhaps plead that an activity was carried on without an intention to do it as a business. But when a statutory body like the applicant does something within the parameters of the provisions of the Act of 1955 which created it, it cannot plead that it had some intention other than that or those laid down in the statute. We have to keep this distinction in mind when we consider whether purchase of exim scrips was done by the bank as a business with the intention to do a business. It is undisputed that not only the bank paid money for purchasing exim scrips but also it made some gain by receiving commission out of the transactions. Even without any commission the activity clearly constitutes a "business". Another question is : when the activity was carried on under the instructions of the Reserve Bank of India, can it be said to be a "business" ? In the facts of the case, the apparently compulsory nature of purchase of exim scrips was not such as to take it out of the ambit of "business". The bank could not compel any holder of exim scrips to sell the same to it. It was wholly voluntary on the part of a holder to sell scrips to the bank. As soon as a holder exercises his option to sell and gives a scrip to the bank, the bank purchases it on payment of money. As already said, the compulsory nature of performance of the duty of purchase of exim scrips emanates from the Act of 1955 which created the bank. Unlike any other dealer, the applicant-bank could not think of acting beyond the provisions of the Act of 1955. That being so, in the special circumstances of the case, the element of compulsion involved in the instruction of the Reserve Bank of India is irrelevant. Apart from that aspect, we may refer to the case of Coffee Board v. Commissioner of Commercial Taxes [1988] 70 STC 162 (SC) in which it was held that there was a sale, where the growers of coffee delivered coffee to the Board, though the growers did not actually sell it. It was a sale by operation of law. The imposition of sales tax on such sales of coffee was upheld. From the above points of view we hold that the purchases of exim scrips by the applicant-bank were rightly brought to purchase tax under the 1941 Act.
15. In the result, all the points urged on behalf of the applicants are answered in the negative and the application is dismissed. By interim order dated January 27, 1997 the respondents were restrained from giving effect to the order of assessment for the impugned period of four quarters ending March 31, 1993 and also the appellate order, on condition that applicant No. 1 (the bank) would pay the demanded amount of tax of Rs. 1,00,10,019 within a period of six weeks from the date of judgment, if the present application fails. The said undertaking was subsequently given by the bank. Accordingly, we direct the applicant No. 1 to make payment of the said amount of tax within a period of six weeks from this day to the respondents. No order is made for costs.
M.K. Kar Gupta, Technical Member
16. I agree.
J. Gupta, Judicial Member
17. I agree.