2001 (6) TMI 805 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the petitioner-bank is a dealer under the Andhra Pradesh General Sales Tax Act, 1957.
2. Whether the sale of pledged gold ornaments by the bank constitutes carrying on business for the purpose of sales tax.

Detailed Analysis:

Issue 1: Whether the petitioner-bank is a dealer under the Andhra Pradesh General Sales Tax Act, 1957.

The petitioner-bank, a nationalized entity under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, was demanded by the Commercial Tax Officers of Warangal and Guntur to pay sales tax on amounts realized from selling pledged gold ornaments. The petitioner challenged this, arguing that the bank is not a dealer as defined under Section 2(e) of the Andhra Pradesh General Sales Tax Act, 1957. According to Section 2(e), a "dealer" includes any person who carries on the business of buying, selling, supplying, or distributing goods. Explanation IV specifically includes banks in the definition of a dealer when they sell or dispose of any goods, including pledged or hypothecated valuables.

Issue 2: Whether the sale of pledged gold ornaments by the bank constitutes carrying on business for the purpose of sales tax.

The court examined whether the bank's sale of pledged gold ornaments falls under the definition of "business" as per Section 2(bbb) of the Andhra Pradesh General Sales Tax Act, 1957. "Business" includes any trade, commerce, or manufacture, and any transaction incidental or ancillary to such activities, regardless of profit motive.

The petitioner argued that the bank's primary function is banking, as defined under Section 5(b) of the Banking Regulation Act, 1949, and not trading in goods. Section 6(1)(f) of the Banking Regulation Act allows banks to manage, sell, and realize any property in satisfaction of claims, while Section 8 prohibits banks from trading in goods except for realizing security.

The court referred to the Supreme Court's judgment in State of Tamil Nadu v. Board of Trustees of the Port of Madras [1999] 114 STC 520, which clarified that entities not constituted for carrying on business cannot be deemed dealers for sales tax purposes. The Supreme Court emphasized that "carrying on business" requires regularity and continuity of transactions with a profit motive, even if statutorily excluded.

Applying these principles, the court concluded that the bank's sale of pledged gold ornaments is incidental to its primary banking activities and not a business activity under the Sales Tax Act. The sale is a means to realize loans, not a commercial transaction for profit.

Conclusion:

The court held that:
1. The bank is a dealer under Section 2(e) of the Andhra Pradesh General Sales Tax Act, 1957.
2. However, the sale of pledged gold ornaments by the bank does not constitute carrying on business for the purpose of sales tax, as it is incidental to the bank's primary function of banking.

The writ petition was allowed, and the impugned notices were quashed, exempting the bank from sales tax on the sale of pledged gold ornaments.