1999 (8) TMI 923 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to levy of sales tax on auction of gold by private small financiers under Kerala General Sales Tax Act, 1963.
Constitutionality of amendments to section 2 of the Kerala General Sales Tax Act, 1963.
Validity of section 2 of the Kerala General Sales Tax Act, 1963 as amended.
Fundamental rights violation of the petitioners.
Applicability of Supreme Court judgment on sales tax levy by pawnbrokers.

Analysis:
The petitioners, members of the Kerala Small Financier's Association, challenged the entitlement of the respondents to levy sales tax on the auction of gold pledged by private small financiers. They sought a declaration that the amendments to section 2 of the Kerala General Sales Tax Act, 1963, introduced by exhibit P8, were unconstitutional and void. The petitioners argued that they act as bailees, not owners of the goods, and have the right to sell the goods after notifying the pawner, with the proceeds appropriated to the amount due, ensuring any surplus is returned to the owner. This argument was based on their position as pawnees, not sellers.

In a similar case before the Supreme Court, the Karnataka Pawn Brokers' Association challenged the sales tax levy by the State of Karnataka. The Supreme Court, in its judgment, clarified that in the sale of unredeemed goods through public auction by an approved auctioneer like a pawnee, who has control and possession over the goods, the pawnee is considered the seller under the General Sales Tax Act. The Court emphasized that the definition of "pawnbroker" and the activities involved in such transactions fall under the scope of "business," making the sale of unredeemed goods subject to sales tax. The Court further highlighted that the pawner's role is limited to redeeming the goods before the sale, not as a seller in the transaction.

Given the Supreme Court's ruling on the applicability of sales tax to pawnbrokers and similar transactions, the High Court dismissed the original petition challenging the sales tax levy on auctioned goods by private small financiers. The Court found that the Supreme Court's judgment directly applied to the case at hand, rejecting the petitioners' contentions. The order on the related application was also dismissed, with no costs awarded. Ultimately, the petition was dismissed based on the legal principles established by the Supreme Court regarding the taxation of sales involving pawnbrokers and similar entities.