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TMI Blog1998 (10) TMI 456X X X X Extracts X X X X X X X X Extracts X X X X ..... JJ. Civil Appeal No. 7321-7327 of 1995, 9297, 9298 of 1995, Civil Appeal No. 9482 of 1995, Civil Appeal No. 1800 of 1996, Civil Appeal No. 6894, Civil Appeal No. 6895 of 1996, Civil Appeal No. 7683 of 1996, Civil Appeal No. 11293 of 1995, W.A. Nos. 1710, W.A. Nos. 1711, W.A. Nos. 1784, W.A. Nos. 1785, W.A. Nos. 1786, W.A. Nos. 1787, W.A. Nos. 1788 of 1992, W.P. Nos. 19595, W.P. Nos. 1735 of 1994, W.P. Nos. 10617 of 1993, W.P. Nos. 1502 of 1993, W.P. Nos. 1490 of 1994, W.P. Nos. 11931 of 1993, W.P. Nos. 14472 of 1993 T.L. Viswanatha Iyer, Senior Advocate (M. Veerappa, Advocate, with him), for the respondents in C.A. Nos. 7321 to 7327 of 1995. V. Krishnamurthy, Advocate, for the respondents in C.A. Nos. 9482 of 1995, 1800 of 1996, 6894 and 6895 of 1996, 7683 of 1996 and 11293 of 1995. K.K. Mani, Advocate, for the appellants in C.A. Nos. 9297 and 9298 of 1995. Dushyant Dave, Senior Advocate (S.R. Setia, Advocate, with him), for the appellants in C.A. Nos. 7321 to 7327 of 1995. S. Srinivasan, Advocate, for the appellants in C.A. No. 11293 of 1995. M.A. Chinnaswamy, Advocate, for the appellants in C.A. No. 7683 of 1996. K. Parasaran, Senior A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Pawn Brokers Act by the States, the transactions of pledge/pawn were governed by the provisions of the Indian Contract Act. Chapter IX of the Contract Act deals with the bailments of pledges. Section 172 defines pledge , pawner and pawnee as under: The bailment of goods as security for payment of a debt or performance of a promise is called pledge . The bailor is in this case called the pawner . The bailee is called the pawnee . Sections 173 to 176 deal with the various rights of the pawnee. Section 177 deals with the defaulting pawner s right to redeem. In addition to the provisions in the Contract Act dealing with the pledge, it was felt necessary by the States to bring in a separate legislation concerning the business of pawnbrokers in order to regulate and control that business of pawnbrokers. Accordingly, the Pawn Brokers Act came to be enacted. The Pawn Brokers Act provides details of the manner in which the business of a pawnbroker should be carried on and how the rights and liabilities of the pawner and the pawnee should be adjusted and settled.] A pawnbroker in the Karnataka Pawn Brokers Act (hereinafter called the Act ) is defined in section 2(7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he public auction, the holder of the pawn-ticket may inspect the entry relating to the sale either in the pawnbroker s book or in such catalogue of the auction as may be prescribed. (4)(a) Where on such inspection or otherwise the pledge appears to have been sold for more than the amount of the loan and the interest and charges due at the time of the sale, the pawnbroker shall pay to the holder of the pawn-ticket, on demand made within three years after the sale, the surplus after deducting therefrom the necessary costs and charges of the sale. (b) If on such demand it appears that the sale of the pledge has resulted in a surplus but that within twelve months before or after such sale, the sale of another pledge or pledges of the same person has resulted in a deficit, the pawnbroker may set-off the deficit against the surplus and shall be liable to pay only the balance, if any, after such set-off. The next relevant provision will be rule 20 of the Karnataka Pawn Brokers Rules, which reads as under: 20. Procedure in auction of pledges.- The procedure for sale by public auction of pledges shall be as follows: (1) The sale shall be conducted by an auctioneer approved by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, the bidding of other persons at the same scale, and the auctioneer on knocking down any article to a pawnbroker shall forthwith declare audibly the name of the pawnbroker as purchaser. (5) The auctioneer shall, within fourteen days, after the sale, deliver to the pawnbroker an authenticated copy of the catalogue, or of so much thereof as relates to the pledges of that pawnbroker indicating also the charges for the sale of each article. (6) The pawnbroker shall preserve every such catalogue for at least three years after the auction. Section 2(1)(f-2) of the Karnataka Sales Tax Act, 1957, defines business as follows: business includes,- (i) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern; and (ii) any transaction in connection with, or incidental or ancillary to such trade, commerce, manufacture, adventure or concern. Section 2(1)(k) defines dealer . The relevant portion is as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly conclusion possible is that the pawnbroker is not a dealer effecting a sale of property and, therefore, he is not liable for sales tax on such sales. At the most, it is contended that the sale of pledged articles, in the circumstances, must be deemed to be incidental to the main business of pawnbroker not attracting the provisions of the State General Sales Tax Act. It is also contended that the fact that Pawn Brokers Act and the Rules framed therein enabled the pawnbrokers to dispose of the pawned articles by way of sale through an auctioneer; it does not in any way amount to transferring the general property right in goods by the pawn Broker to the purchaser. Next it was contended that if it were to be held that the sale of pawned articles conducted at the instance of the pawnbroker resulting in passing on of the property to the purchaser, it would be contrary to the concept of sale as contained in the Sale of Goods Act as the law does not recognise such a transaction as a sale. 7.. Mr. T.L. Viswanatha Iyer, learned Senior Counsel appearing on behalf of the State of Karnataka, and Mr. V. Krishnamurthy, learned counsel appearing on behalf of the State of Tamil Nadu, answerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act. After referring to a judgment of this Court in Lallan Prasad v. Rahmat Ali [1967] 2 SCR 233, the learned Judges held that a pawn- broker has an implied authority to sell and such activity of sale which is incidental/ ancillary to the business of pawnbroker falls within the definition of business under the Karnataka Sales Tax Act. The learned Judges rejected the contention of the assessees that, if at all, for the sale of pawned articles the auctioneer is liable for sales tax and not the pawnbroker. The reason for rejecting the above contention was that the auctioneer was not the agent of the pawnbroker but appointed as auctioneer under the relevant rule. According to the learned Judges, the pawnbroker has authority under the statute to bring the pawned articles for sale and the pawner loses all his rights in the article sold through the auctioneer at the instance of the pawnbroker. 11.. The learned Judges of the Division Bench of the Madras High Court also took the view as that of the Karnataka High Court and gave additional reasons as well. After referring to a Full Bench judgment of the Madras High Court in Kandula Radhakrishna Rao v. Province of Madras [1952] 3 STC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court (Madras Pawn Brokers Association v. State of Tamil Nadu [1995] 98 STC 457) have written elaborately on the subject citing numerous authorities of this Court and of the High Courts to support their conclusions. We are, with respect, in agreement with the conclusions and the reasonings given for such conclusions in the judgments under appeal. We do not, therefore, propose to give elaborate reasonings, except to point out the principal reasonings to sustain the conclusions reached in judgments under appeal. 14.. It cannot be and it is not disputed that the pawnbroker has special property rights in the goods pledged, a right higher than a mere right of detention of goods but a right lesser than general property right in the goods. To put it differently, the pawner at the time of pledge not only transfers to the pawnee the special right in the pledge but also passes on his right to transfer the general property right in the pledge in the event of the pledge remained unredeemed resulting in the sale of the pledge by public auction through an approved auctioneer. The position being what is stated above the natural consequence will be that it is the pawnee who holds not only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... belong to the person selling or buying. There can be a sale or purchase on behalf of another. 17.. We have already pointed out that this view of the Full Bench of the Madras High Court had the approval of this Court in Bagal Kot Cement Co. [1976] 37 STC 73; [1976] 1 SCC 336. 18.. In Member, Board of Revenue, West Bengal v. Controller of Stores, Eastern Railway [1989] 74 STC 5, this Court had an occasion to consider whether the South Eastern Railway as a carrier of goods when it sells the unclaimed goods was carrying on an activity incidental or ancillary to its business as carrier of goods and, therefore, was a dealer for the purpose of the Bengal Finance (Sales Tax) Act, 1941 and liable to pay sales tax on the sale of unclaimed goods. While answering the question in the affirmative, the learned Judges held as follows: In these appeals the question is whether the assessee-railway in each case is a dealer for the purpose of assessment under the Bengal Finance (Sales Tax) Act, 1941. In the case of the assessee, South Eastern Railway, what were sold were unclaimed goods. The railway was a carrier of the goods and if at the stage of delivery goods remained unclaimed for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that case was also an approved auctioneer under the provisions of the Tamil Nadu Pawn Brokers Act. While holding that the auctioneer was not a dealer liable to pay tax, the learned Judges observed as follows: We have carefully gone through the formalities which the above rules have laid down for the procedure at the auction of pledged goods by the auctioneer. But nowhere has it been stated that the auctioneer should take over possession of the goods from the pawnbroker and sell them. Even the specific provision in rule 15(2) extracted above, only directs the auctioneer to cause all pledges to be exposed to public view. He could perform this obligation by directing the pawnbroker to be present at the time of the sale with the articles proposed to be sold and keep them ready for inspection. But this obligation will not make it necessary for the pawnbroker to part with possession of the goods in favour of the auctioneer. With a little reflection, one also realises that a careful pawnbroker would like to keep the goods in his own custody until they are sold, and would not like to hand over possession to the auctioneer without any security for their safe custody. The provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary that there should be a transfer of property in the goods by one person to another in the course of business for cash or deferred payment or other valuable consideration. In the present case, there is a clear finding that the auctioneer merely served the purpose of bringing the bidders and the pawnbrokers into contact with each other and also arranged for the holding of a sale in an open and fair manner, giving the widest publicity to the sales so that the pledgers might get the most advantageous price at the open sale of their pledged articles. But it is the pawnbroker who ultimately delivers possession of the goods to the bidder. On this finding of fact by the Tribunal, it has to be concluded that the respondent discharged only the duty of a crier or a broker who brought the parties together, but he was not a dealer who transferred the property in the goods to the highest bidder. We are in agreement with the above observations and the conclusions reached thereon. This answers, in the negative, the contention advanced on behalf of the appellants that if at all in the transactions in question, the auctioneer must be held liable for payment of tax. 20.. Now coming to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated by both the parties as loan and entrustment of goods for sale to others to discharge the loan. It was held that that transaction cannot be treated as a sale at the hands of the person, who advanced the money for the purpose of levy of sales tax. The nature and character of the transaction in the case on hand are totally different. Therefore, the case cited has no application to the facts of this case. 24.. Likewise, the decisions cited by Mr. Dave, learned Senior Counsel for the appellants, namely, Deputy Commissioner of Commercial Taxes, Madurai v. A.R.S. Thirumeninatha Nadar Firm [1968] 21 STC 184 (Mad.), Lallan Prasad v. Rahmat Ali [1967] 2 SCR 233, Balkrishan Gupta v. Swadeshi Polytex Ltd. [1985] 2 SCC 167 and Chowringhee Sales Bureau P. Ltd. v. Commissioner of Income-tax, West Bengal [1973] 31 STC 254 (SC); [1973] 1 SCC 46, are all under different circumstances and with reference to the facts of those cases which have no direct bearing to the issues raised in these cases. 25.. In Deputy Commissioner of Commercial Taxes, Madurai [1968] 21 STC 184, the Division Bench of the Madras High Court, on the facts of the case, held that the bank in selling the goods pawned to it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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