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2007 (3) TMI 366 - SC - VAT and Sales TaxWhether pledging of ornaments with the bank against a loan and sale of such goods if the loan is not discharged would be business within the meaning of section 2(1)(e) of the Andhra Pradesh General Sales Tax Act 1957 read with Explanation IV thereto? Held that - By Explanation IV to section 2(1)(e) of the 1957 Act banks financial institutions etc. are sought to be covered by an in-built expression deeming provision in the said Explanation. By the said deeming fiction the meaning of dealer is sought to be expanded so as to include banks financial institutions L.I.Cs. etc. By the said Explanation a liability is sought to be created for the first time on banks financial institutions L.I.Cs. etc. Further we are concerned with an indirect tax the incidence of which falls on the borrower/pledgor. The auction sale in the present case is as far back as on August 19 1987. The transaction has concluded since then. The bank (respondent) is not expected to recover the tax from the pledgor in respect of old auction sales which took place much prior to August 1 1996.
Issues Involved:
1. Whether the pledging of ornaments with a bank against a loan and the subsequent sale of such goods if the loan is not discharged constitutes "business" under section 2(1)(e) of the Andhra Pradesh General Sales Tax Act, 1957, read with Explanation IV. 2. Whether Explanation IV of the Andhra Pradesh General Sales Tax Act, 1957, inserted by Act No. 27 of 1996, operates retrospectively. Issue-wise Detailed Analysis: Issue 1: Definition of "Business" under Section 2(1)(e) The primary question in this civil appeal is whether the pledging of ornaments with a bank against a loan and the subsequent sale of such goods if the loan is not discharged would be considered "business" under section 2(1)(e) of the Andhra Pradesh General Sales Tax Act, 1957 ("the 1957 Act"), read with Explanation IV. The Commercial Tax Officer issued a demand notice to the respondent bank for payment of tax on the turnover of an auction sale of jewelry held on August 19, 1987. The respondent bank challenged this notice, contending that the provisions of the 1957 Act do not apply to banking transactions. The High Court quashed the impugned notices, holding that banks are not amenable to sales tax on the sale of gold pledged with them as security for loans. Issue 2: Retrospective Operation of Explanation IV The critical question is whether Explanation IV, inserted by Act No. 27 of 1996, would operate retrospectively. Explanation IV expanded the definition of "dealer" to include banks, LICs, and financial institutions. The amending Act received the Governor's assent on October 15, 1996, and was published on October 17, 1996, with effect from August 1, 1996. The court had to determine whether this amendment applied to the auction sale held on August 19, 1987. The court examined the nature of Explanation IV, citing Craies on Statute Law, which differentiates between declaratory acts, usually held to be retrospective, and consolidating acts, which are not. The court emphasized the rule of literal construction, stating that if the legislative intent is clear from the provision, other rules of construction are unnecessary. The court referenced Bihta Co-operative Development and Cane Marketing Union Ltd. v. Bank of Bihar, which held that an explanation should clear up ambiguity in the main section and not widen its scope unless legislative intent indicates otherwise. The court concluded that Explanation IV was not to clear any doubt or ambiguity but to expand the definition of "dealer" in section 2(1)(e) of the 1957 Act. It cited Doypack Systems Pvt. Ltd. v. Union of India, which held that deeming provisions generally enlarge the meaning of a word or include matters that may not fall within the main provision. Thus, Explanation IV, containing a deeming provision, aimed to expand the meaning of "dealer" and could not be read as a retrospective enactment to cover past transactions. The court also referenced Keshavji Ravji and Co. v. Commissioner of Income-tax, which stated that an explanation could supply content to a provision and might be retrospective or prospective. In Aphali Pharmaceuticals Ltd. v. State of Maharashtra, the court upheld the retrospective application of an explanation that clarified existing classifications without imposing new liabilities. Applying these principles, the court found that Explanation IV expanded the definition of "dealer" to include banks, financial institutions, and LICs, creating a new liability. The court noted that the auction sale in question occurred on August 19, 1987, long before the amending Act took effect on August 1, 1996. The bank could not be expected to recover the tax from the pledgor for old transactions. Conclusion The court concluded that Explanation IV would apply to transactions on and after August 1, 1996. Consequently, the civil appeal filed by the State was disposed of with no order as to costs, and the court did not examine whether the transaction occurred in the course of the bank's business, as the law had been amended prospectively.
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