2015 (12) TMI 1040 - HC - VAT and Sales Tax

Sale of hypothecated vehicles - disposal of repossessed cars by the bank - whether bank is a dealer - defaulting customers - Held that - the Petitioner Bank is indeed a dealer within the meaning of Section 2 (e) read with Section 2 (c) of DST Act. The sale by the Bank of cars hypothecated to it or offered as security against loans advanced towards financing the purchase of the car is a sale within the meaning of S. 2 (m) of the DST Act. Even if the borrower is the owner in possession of the car, the sale is made by the Bank on the strength of the letter of authorisation executed in its favour by the borrower. With effect from 29th March 1996 the motor vehicle has been subsequently identified as the type of goods which qualify for a single point sale read with Section 5 which would be exempted from any further tax. It is accordingly submitted that even if the Petitioner-bank was held to be a dealer, the sale of motor vehicles by it which has already suffered first point sales tax cannot be subjected to any further sales tax. - In any event, as of date it appears that no demand as such has been raised against the Bank for any period prior to 29th March 1996. Therefore, a question that has not been raised in this appeal is not required to be considered by the Court. Sale of the repossessed cars by the Appellant Bank is incidental or ancillary or in connection with the Appellant s business - Appeal disposed of.

Summary

Issues Involved:
1. Reasonable and adequate opportunity in ex parte order.
2. Directory nature of the six-month period under Section 49 of DST Act.
3. Disposal of repossessed cars as a sale by the Bank.
4. Bank as a dealer under DST Act.
5. Banking activity as business under DST Act.
6. Sale of repossessed cars incidental to the Bank's business.

Issue-wise Detailed Analysis:

1. Reasonable and Adequate Opportunity in Ex Parte Order:

The petitioner did not press this issue, as the Bank had already been heard by both the Tribunal and the CST on the same matter.

2. Directory Nature of the Six-Month Period under Section 49 of DST Act:

This issue was also not pressed by the petitioner for similar reasons as the first issue.

3. Disposal of Repossessed Cars as a Sale by the Bank:

The main question was whether the disposal of repossessed cars by the Bank constitutes a sale. The Court referred to various precedents, distinguishing cases where sales by entities like Port Trusts and pharmaceutical companies were not considered business activities. The Court found that the Bank's sale of repossessed cars is distinct because it involves selling vehicles hypothecated to it under an authorization from the borrower, making it a sale within the meaning of Section 2(m) of the DST Act.

4. Bank as a Dealer under DST Act:

The Court held that the Bank is a dealer under Section 2(e) read with Section 2(c) of the DST Act. The definition of 'dealer' includes any person who carries on the business of selling goods, and the Bank's activity of selling repossessed cars fits within this definition. The inclusive part of the definition also covers mercantile agents and auctioneers, further supporting the Bank's classification as a dealer.

5. Banking Activity as Business under DST Act:

The Court affirmed that the Bank's activity of selling repossessed cars constitutes business under Section 2(c)(i) of the DST Act. The definition of 'business' includes any transaction incidental or ancillary to trade or commerce. Since selling repossessed cars is a permissible activity for recovering outstanding loans, it forms part of the Bank's business activities.

6. Sale of Repossessed Cars Incidental to the Bank's Business:

The Court concluded that the sale of repossessed cars by the Bank is incidental or ancillary to its main banking business. The Bank's activity of selling hypothecated vehicles to recover dues is a legitimate business activity under the DST Act.

Conclusion:

Questions (iii) to (vi) were answered in favor of the Tribunal's findings. The disposal of repossessed cars by the Bank constitutes a sale, the Bank is a dealer under the DST Act, the banking activity amounts to business, and the sale of repossessed cars is incidental or ancillary to the Bank's business. The reference was disposed of accordingly.