1997 (2) TMI 529 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the activities of advancing money on the security of gold jewellery and realizing advances by selling the gold jewellery constitute a "sale".
2. Whether the petitioners are "dealers" under the Kerala General Sales Tax Act, 1963.
3. Whether the petitioners' activities fall under the definition of "business" or "casual trader".
4. The applicability of Section 8 of the Banking Regulation Act, 1949, in prohibiting the buying and selling of gold jewellery by banks.
5. The interpretation of Section 176 of the Indian Contract Act regarding the rights of a pawnee.
6. The constitutional validity of Section 2(viii)(f)(1) of the Sales Tax Act.

Issue-wise Detailed Analysis:

1. Whether the activities of advancing money on the security of gold jewellery and realizing advances by selling the gold jewellery constitute a "sale":
The petitioners argued that selling gold jewellery to realize the advances does not constitute a "sale" under the Sales Tax Act since it specifically excludes mortgage, hypothecation charge, or pledge. However, the court held that the sale of jewellery or gold is the taxable event and not the pledge. The right to sell under Section 176 of the Indian Contract Act is a transfer of special property rights, not general property, but this does not exclude it from being a "sale" under the Sales Tax Act.

2. Whether the petitioners are "dealers" under the Kerala General Sales Tax Act, 1963:
The court examined the definition of "dealer" under Section 2(viii) of the Sales Tax Act, which includes any person carrying on the business of buying, selling, supplying, or distributing goods. The court concluded that the banks, by selling gold jewellery to realize advances, fall within this definition. The court also referenced various judgments, including Syndicate Bank v. Commercial Tax Officer and United Insurance Co. Ltd. v. Commissioner of Commercial Taxes, supporting the view that such activities make the banks "dealers".

3. Whether the petitioners' activities fall under the definition of "business" or "casual trader":
The court noted that "business" under the Sales Tax Act includes any trade, commerce, or manufacture, whether or not it is carried on with a motive to make a profit. The court found that the banks' activities of selling gold jewellery to realize advances are incidental or ancillary to their business of lending money. Even if not the principal business, these activities qualify as "business" and, therefore, the banks could also be considered "casual traders".

4. The applicability of Section 8 of the Banking Regulation Act, 1949, in prohibiting the buying and selling of gold jewellery by banks:
The petitioners contended that Section 8 of the Regulation Act prohibits banks from trading in gold. However, the court clarified that Section 8 allows banks to sell gold jewellery in connection with the realization of security given. The court emphasized that while Section 8 prohibits trading in gold, it permits the realization of advances from the gold given as security, thus not barring the banks from selling the pledged gold jewellery.

5. The interpretation of Section 176 of the Indian Contract Act regarding the rights of a pawnee:
The petitioners argued that their right to sell the pledged gold jewellery under Section 176 of the Contract Act is a statutory right and not a business activity. The court, however, held that the sale by the banker is not as an agent but by virtue of the contractual right recognized under Section 176. The court referenced judgments like Narandas Karsondas v. S.A. Kamtam and Luxmi Narayan Arjundas v. State Bank of India, which supported the view that the pawnee's right to sell is a special property right.

6. The constitutional validity of Section 2(viii)(f)(1) of the Sales Tax Act:
The court upheld the constitutional validity of Section 2(viii)(f)(1) of the Sales Tax Act, which defines "dealer". The court concluded that the petitioners, being banks, fall under this definition and are liable to pay tax under Section 5 of the Act.

Conclusion:
The court dismissed the petitions, holding that the petitioners, as scheduled banks, are "dealers" under the Sales Tax Act and their activities of selling gold jewellery to realize advances constitute a "sale". The court also upheld the constitutional validity of the relevant provisions of the Sales Tax Act.