1997 (12) TMI 618 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Liability of banks to pay sales tax on the sale of pledged gold ornaments.
2. Definition and scope of "business" under the Kerala General Sales Tax Act.
3. Applicability of Section 8 of the Banking Regulation Act, 1949 regarding the prohibition of trading by banks.
4. The legal status of banks as "dealers" under the Kerala General Sales Tax Act.

Issue-wise Detailed Analysis:

1. Liability of Banks to Pay Sales Tax on the Sale of Pledged Gold Ornaments:

The primary issue was whether banks are liable to pay sales tax on the sale of pledged gold ornaments under the Kerala General Sales Tax Act. The banks argued that they are not engaged in the business of selling goods but are involved in banking activities, which include granting loans secured by pledges. The sale of pledged goods is a means to realize the debt and not a business activity. The court concluded that banks are not liable to pay sales tax on such sales as they do not engage in the business of selling goods but are merely exercising their right to sell the pledged goods to recover the loans.

2. Definition and Scope of "Business" under the Kerala General Sales Tax Act:

The court examined the definitions of "business," "casual dealer," and "dealer" under the Kerala General Sales Tax Act. "Business" includes any trade, commerce, or manufacture, whether or not for profit, and any transaction incidental to such activities. However, the court emphasized that the sale of pledged goods by banks is not a business activity but a means to recover loans. Therefore, it does not fall under the definition of "business" as contemplated by the Act.

3. Applicability of Section 8 of the Banking Regulation Act, 1949 Regarding the Prohibition of Trading by Banks:

The court analyzed Section 8 of the Banking Regulation Act, which prohibits banks from trading in goods except for the realization of security. The sale of pledged goods by banks is explicitly permitted under this section for realizing security. The court held that this exception allows banks to sell pledged goods without being considered as engaging in trading or business activities.

4. The Legal Status of Banks as "Dealers" under the Kerala General Sales Tax Act:

The court reviewed the definition of "dealer" under the Act, which includes any person engaged in the business of buying, selling, or distributing goods. The court determined that banks do not fit this definition as their primary activity is banking, not trading in goods. The sale of pledged goods is incidental to their banking activities and does not transform them into dealers. Consequently, banks are not liable to be assessed as dealers under the Act.

Conclusion:

The court set aside the judgment of the single judge and allowed the writ appeals, restraining the respondents from levying any tax under the Kerala General Sales Tax Act on the banks concerning the disposal of pledged gold ornaments. The court emphasized that the sale of pledged goods by banks is a means to realize debts and does not constitute a business activity or trading in goods.