1998 (2) TMI 546 - AT - VAT and Sales Tax

Issues Involved:
1. Whether the purchase of "replenishment licences" (REP licences) or "exim scrips" by the applicant bank is exigible to purchase tax under the Bengal Finance (Sales Tax) Act, 1941.
2. Whether the applicant bank is considered a "dealer" under the Bengal Finance (Sales Tax) Act, 1941.
3. Whether exim scrips are "goods" within the meaning of the Bengal Finance (Sales Tax) Act, 1941.
4. Whether the transactions of purchasing exim scrips are considered "purchases" or "surrenders."
5. Whether the purchase of exim scrips by the applicant bank can be considered part of its "business" under the Bengal Finance (Sales Tax) Act, 1941.

Issue-wise Detailed Analysis:

1. Purchase of REP Licences/Exim Scrips and Purchase Tax:
The primary issue was whether the purchase of REP licences or exim scrips by the applicant bank is subject to purchase tax under section 4(6)(iii) read with section 5(6) of the Bengal Finance (Sales Tax) Act, 1941. The applicants contended that the transactions were surrenders, not purchases, and thus not taxable. However, the respondents argued that the transactions were purchases for valuable consideration and thus taxable. The Tribunal concluded that the transactions were indeed purchases subject to purchase tax under section 4(6)(iii).

2. Status of the Applicant Bank as a "Dealer":
The applicants argued that the bank was not a "dealer" under the 1941 Act, despite being registered as such. They cited the Karnataka High Court's decision in Canara Bank v. Commercial Tax Officer, which held that banking companies cannot be regarded as dealers. However, the Tribunal found that the applicant bank, being a registered dealer for the sale of gold, was also a dealer for purchasing exim scrips. The Tribunal noted that the registration was obtained in 1979 and had not been challenged until the impugned transactions in 1992-93, making the bank a "dealer" under the 1941 Act.

3. Exim Scrips as "Goods":
The applicants contended that exim scrips were not "goods" within the meaning of the 1941 Act. The Tribunal referred to the Supreme Court's decision in Vikas Sales Corporation v. Commissioner of Commercial Taxes, which held that exim scrips are "goods" and their transfer for consideration is a "sale." The Tribunal concluded that exim scrips are indeed "goods" under the 1941 Act.

4. Transactions as "Purchases" or "Surrenders":
The applicants argued that the transactions were surrenders, not purchases, and thus not taxable. The Tribunal examined the nature of the transactions and found that they involved the transfer of property in goods for valuable consideration, thus constituting purchases. The Tribunal noted that the transactions were voluntary and involved payment of a premium, making them purchases rather than surrenders.

5. Purchase of Exim Scrips as Part of "Business":
The applicants argued that the purchase of exim scrips was a one-time activity and not part of the bank's regular business. The Tribunal considered the definition of "business" under the 1941 Act, which includes any trade, commerce, or transaction ancillary or incidental to such trade or commerce. The Tribunal found that the purchase of exim scrips, conducted over nine weeks and involving a significant amount (Rs. 25 crores), constituted a business activity. The Tribunal also noted that the transactions were undertaken under the instructions of the Reserve Bank of India, further supporting the conclusion that they were part of the bank's business.

Conclusion:
The Tribunal dismissed the application, holding that the purchase of exim scrips by the applicant bank was subject to purchase tax under the Bengal Finance (Sales Tax) Act, 1941. The Tribunal directed the applicant bank to pay the demanded amount of tax within six weeks.

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