2015 (10) TMI 854 - HC - VAT and Sales Tax

Levy of sales tax on banks - Dealer or not - whether a bank, which holds hypothecation of vehicles in their favour, would be a dealer within the definition of the expression under Section 2(15) of the Act, merely because the bank seizes and repossesses the hypothecated vehicle and brings it to sale through public auction - Held that - Explanation III under Section 2(15) includes even the disposal of goods that are unclaimed. In respect of unclaimed goods, the seller does not claim ownership. But, he exercises a right to dispose of the goods. If Explanation III covers the sale of even unclaimed goods, the contention that the seller must be in a position to pass on title, may not stand. - What is made mandatory by certain statutes like the Motor Vehicles Act, 1988, the Registration Act, 1902, etc., are only the registration of certain types of documents. The sale by itself is complete once the transaction is over. For the public to recognize or the courts to recognize such sales, registration is made mandatory in these sales. Explanation III covers all types of cases. Therefore, the said contention cannot be accepted. On the distinction sought to be drawn to the decision of the Supreme Court in Federal Bank, it should be pointed out that though the Supreme Court was concerned in that case with the exercise of a statutory right of sale, we do not think that the exercise of a contractual right to bring a hypothecated property to sale, could be excluded on that account. Explanation III covers even the sale of unclaimed goods. If sale of unclaimed goods can be included within the purview of Explanation III, the distinction sought to be drawn between a statutory right of sale and a contractual right of sale, cannot stand. Hence, we are of the considered view that the question of law has to be answered against the assessee. - Decided against assessee.

Summary

Issues:
1. Revision filed by HDFC Bank challenging Sales Tax Appellate Tribunal's order holding the bank liable for sales tax.
2. Whether a bank holding hypothecation of vehicles is considered a dealer under Section 2(15) of the Tamil Nadu Value Added Tax Act, 2006.

Analysis:
1. The HDFC Bank was assessed for tax under the Tamil Nadu Value Added Tax Act for selling repossessed vehicles not reported in returns. Appeals were dismissed, leading to revisions under Section 60(1) challenging the Tribunal's order.
2. The main issue is whether a bank holding hypothecation of vehicles qualifies as a dealer under Section 2(15) of the Act. The Tribunal considered definitions of 'business', 'dealer', and 'sale', concluding that banks fall under the definition of 'dealer'.
3. The bank argued it does not confiscate vehicles but facilitates sales as an agent of the owner. It distinguished between pledge and hypothecation, citing a Calcutta High Court decision.
4. The Court noted that banks have agreements allowing them to repossess and sell vehicles without owner involvement. It highlighted the Supreme Court's stance on arbitrary vehicle seizures by banks.
5. Explanation III under Section 2(15) deems banks as dealers when disposing of goods like unclaimed or obsolete items, irrespective of ownership transfer.
6. The Court rejected the bank's argument that registration under the Motor Vehicles Act implies agency status, emphasizing that Explanation III covers all sale scenarios.
7. The distinction between statutory and contractual sale rights was dismissed, affirming that the bank's actions fall under Explanation III's dealer definition.
8. Consequently, the revisions were dismissed, affirming the bank's liability for sales tax.