9911796707
TMI Blog1998 (2) TMI 546X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Reserve Bank of India in keeping with economic and monetary policies of the Central Government. Applicant No. 1 is a registered dealer under the 1941 Act and such registration was obtained at the advice of the taxing authorities without due examination of the question as to whether it could at all be a dealer under the statute. Imports into and exports outside the country are regulated by statutes and statutory instruments, i.e., the Imports and Exports (Control) Act, 1947 as amended from time to time, the Imports (Control) Order, 1955 and the policy notified thereunder from time to time. Such policy declared by the Government of India contained incentive schemes and subsidies to build up foreign exchange resources of the country. Under the import policy which was in force prior to July 4, 1991, there was provision for issuance of REP licences. With effect from July 4, 1991 the name of the licence was changed to exim scrip. The idea of REP licences/exim scrips was to encourage exports and for that purpose, such licences or scrips were issued equal to the prescribed percentage of the value of exports. Those were made freely transferable and were to be governed by the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llate order are challenged in this application on grounds, inter alia, that the REP licences or exim scrips are not goods within the meaning of the 1941 Act, applicant No. 1 is not a dealer within the meaning of the explanation 1 to the definition of dealer in section 2(c) of the 1941 Act, there is conflict between the 1941 Act and the Banking Companies Regulation Act, 1949 ( the Act of 1949 , for short) with regard to the concepts of goods , dealer and business and hence the Act of 1949 should prevail over contrary provisions in the 1941 Act which is a State Act. Further, notwithstanding that applicant No. 1 was registered as dealer allegedly without proper appreciation of the correct legal position, it cannot be considered to be a dealer under the 1941 Act in view of the decision of the Karnataka High Court in the case of Canara Bank v. Commercial Tax Officer [1997] 107 STC 488; ILR 1996 Kar 810. One of the other contentions of the applicants is that purchase made by a registered dealer outside the line of his business cannot attract the levy of purchase tax. As an example, in the instant case, due to the fact that applicant No. 1 is a dealer in gold, casual purchase o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odies are dealers under that definition. The first applicant got itself correctly registered under the 1941 Act as dealer. It was held by the Supreme Court of India in the case of Vikas Sales Corporation [1996] 102 STC 106, that exim scrips are goods and transfer of such scrips for consideration is a sale . Hence, purchases made by applicants in terms of the direction of Reserve Bank of India on payment of a premium of 20 per cent on the face value of the scrips are purchases for the purpose of section 4(6)(iii). The transactions were not mere surrenders, but were purchases. The premium paid was valuable consideration. In this connection reference is made to the definition of purchase price in section 2(ee) of the 1941 Act. Any event subsequent to purchase of the exim scrips does not, according to respondents, change the character of the transactions. In all respects, the transactions were purchases and taxable under section 4(6)(iii). The fact that the exim scrips were later returned or surrendered to the R.B.I. by the applicants did not change the character of the transactions being purchases in the hands of applicants vis-a-vis the holders thereof. Applicants themselves a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed. Rate of purchase tax is specified in section 5(6)(a). Hence, allegations of uncertainty or vagueness are misconceived and baseless. It is of no consequence if the purpose for which the goods are purchased is not expressly specified. Profit-motive is immaterial in the definition in section 2(1a). Purchases of exim scrips by the applicants are transactions ancillary to their trade or commerce. The applicant No. 1 is a registered dealer and it purchased exim scrips from unregistered persons or dealers and such purchases were ancillary or incidental to its business. Levy of purchase tax is not violative of article 14. There is no hostile discrimination in the levy of purchase tax under section 4(6)(iii). It is clearly within the plenary power of the State to levy tax on sales and purchases of goods under entry 54 of List II of the Seventh Schedule to the Constitution of India. The examples given in the application by the applicants is assailed by the respondents. Purchase of second hand motor car in those examples is said to be of no relevance because motor car is subjected to levy of a single point tax. There is no conflict, according to the respondents, between the Act of 1949 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to question the necessity of registration as a dealer, but the attempt is clearly without any substance. In paragraph 5 of the affidavit-in-opposition, the respondents stated that the bank was liable to be compulsorily registered under section 7 of the 1941 Act, since it had incurred liability to pay tax under section 4. In the same paragraph, the respondents stated in sufficient detail how and why the bank had become a dealer and why it had to be registered, and also that the applicants did not deny or dispute the taxable quantum which was pre-condition of registration. The applicants dealt with the said paragraph 5 in their affidavit-in-reply (also in paragraph 5). A scrutiny of the said paragraphs in the rival pleadings will bear out that the applicants merely reiterated their stand in the main application and led no evidence to establish that registration was in fact unwarranted. The statute lays down that registration is compulsory in certain circumstances. Unless the applicants can establish absence of such circumstances by undeniable facts, by advancing mere arguments they cannot succeed in establishing that registration as a dealer was erroneously obtained in the year 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s any company which transacts banking business in India in terms of section 5(c). In other words, the applicant S.B.I. is a banking company under the Act of 1949. In Part II of the Act of 1949 we find the provisions relating to business of banking companies. Sub-section (2) of section 6 mandates that no banking company shall engage in any form of business other than those referred to in sub-section (1). Clauses (a), (b) and (n) of sub-section (1) of section 6 are relevant for the present purpose. Under section 6(1)(a), a banking company can validly engage in buying, selling, collecting, dealing in, receiving, etc., scrips or other instruments or securities. Exim scrips are scrips as well as instruments or securities. Under section 6(1)(b), it can validly act as agent for any Government or carry on agency business. The admitted case of the applicants is that they acted in relation to the impugned transactions as agent of the R.B.I., which is an instrumentality of the Government of India, to accept exim scrips on payment of a premium to the holders thereof. The activity is thus covered by section 6(1)(a) and (b). Under section 6(1)(n), such activity is certainly incidental or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the applicant-bank, the provisions of the Act of 1955 are to be harmoniously considered with those of the Act of 1949. Under section 32 of Act of 1955, the applicant-bank is to act as agent of the Reserve Bank of India (R.B.I.) in the matter of, inter alia, receiving and collecting securities of any Government in India and undertaking and transacting any other business which the R.B.I. may from time to time entrust to it. Under section 33, it can engage in business of banking under section 5(b) of the Act of 1949 and in any other form of business specified in section 6 of that Act. The undisputed fact is that the impugned transactions of purchase of exim scrips were gone into under the R.B.I s instructions. Hence from any point of view the impugned transactions were validly undertaken. Arguments to the contrary are unacceptable to us. 8.. Since the 1941 Act dealt with taxation on sale and purchase of goods, applicants took the point that exim scrips were not goods . The question has been conclusively settled in Vikas Sales Corporation v. Commissioner of Commercial Taxes [1996] 102 STC 106 (SC). Although the judgment was rendered in the context of the Sales Tax Acts of Tamil N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4(6)(iii) used the word purpose -, a purchase for any purpose other than those specified in clauses (i) and (ii) of section 4(6) would be enough to attract the clause. Resale can be one of the purposes, but not the sole one. In the present case, as per the R.B.I s letter dated March 18, 1992 (annexure A ) the purpose was to forward the scrips to the Joint Chief Controller of Imports and Exports, Government of India, after suitably cancelling them. According to the applicants counsel, such a purpose does not attract the mischief of section 4(6)(iii). We cannot agree with in this contention, because it is enough that there was a purpose (other than purely personal or domestic) behind the purchases. Use of the purchased scrips by way of cancellation and onward transmission to the Joint Chief Controller was clearly subsequent to completion of the transactions. Such use, in our opinion, cannot keep the transactions out of the mischief and purview of section 4(6)(iii). 10.. The contention persistently made on behalf of the applicant-bank was that the transactions were really surrenders , not purchases . On behalf of the respondents, however, Mr. Saha insisted that those were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In fact, R.B.I. or S.B.I. had no interest in the scrips. S.B.I. was mopping up the scrips from the holders on payment of valuable consideration. Prior to that, it had no interest at all. Nor did the R.B.I. have any interest. So, the concept of surrender is irrelevant. Mr. Ghosh contended that the Government of India had issued the scrips and the ultimate receiver of the scrips was the Government of India after S.B.I. acquired the same. This argument implies a contention that the issuing authority of the scrips was the owner. But, in reality, while issuing the scrips as an incentive to exporters, the Government of India kept no ownership reserved for itself. It made the exporters full owners thereof, for which they were free to sell and transfer the scrips for consideration. Thus, the Government of India did not retain any ownership, and hence the concept of surrender is impossible of application in the present case. A critical analysis of the impugned transaction, therefore, leaves no room for doubt that they were in all respects purchases within the meaning of section 4(6)(iii) of the 1941 Act (taxability being a different question) and could not be mere surrenders . The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Acts of 1949 and 1955 and the other under the 1941 Act, may sometimes converge and bear the same meaning, but may also sometimes bear different meanings. In other words, some of the businesses of the bank may not amount to businesses as defined in the 1941 Act. As an illustration, we may point out that the main business of a bank is to render financial services to its customers by accepting deposits of money and by disbursing money under their instructions. The definition of business in section 2(1a) of 1941 Act is as follows: business includes- (i) any trade, commerce or manufacture or execution of works contract or any adventure or concern in the nature of trade, commerce or manufacture or execution of works contract, whether or not such trade, commerce, manufacture, execution of works contract, adventure or concern is carried on with the motive to make profit and whether or not any profit accrues from such trade, commerce, manufacture, execution of works contract, adventure or concern; and (ii) any transaction in connection with, or ancillary or incidental to, such trade, commerce, manufacture, execution of works contract, adventure or concern. Mr. K. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Member, Board of Revenue, West Bengal v. Controller of Stores, Eastern Railway [1989] 74 STC 5 (SC), State of Tamil Nadu v. Burmah Shell Oil Storage and Distributing Co. of India Ltd. [1973] 31 STC 426 (SC), District Controller of Stores, Northern Railway, Jodhpur v. Assistant Commercial Taxation Officer [1976] 37 STC 423 (SC) and State of Tamil Nadu v. Binny Ltd. [1982] 49 STC 17 (SC). According to him, A.M. Ansari s case [1976] 38 STC 577 (SC), is not applicable to the present case. 12.. Since the above point greatly depends on A.M. Ansari s case [1976] 38 STC 577 (SC), that judgment needs a thorough consideration. In that case, the Forest Department of Andhra Pradesh sold in auction in 1967, after giving sale notice with terms and conditions, various items of forest produce, viz., timber, fuel, bamboos, etc. The respondent was the highest bidder and hence was called upon to pay, inter alia, sales tax on the bid amount in terms of a clause in the sale notice. The demand for sales tax on the bid amount was challenged on the ground that, as the Government did not carry on any business of sale, the demand was illegal. The High Court of the Andhra Pradesh upheld the contentions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxes [1958] 9 STC 60 (Assam), Orient Paper Mills Ltd. v. State of Madhya Pradesh [1971] 28 STC 532 (MP) and a number of other decisions including that of Ramakrishna Deo s case [1955] 6 STC 674 (Orissa) and held that the Government of Andhra Pradesh by holding auction of forest produce was not carrying on business in the sale of that class of goods. It is worthy of note that all the above cases related to agricultural products or forest produce. 13.. In A.M. Ansari s case [1976] 38 STC 577 (SC), the case of Raipur Manufacturing Co. Ltd. [1967] 19 STC 1 (SC) was followed. So, it is necessary to refer to that case where volume, frequency, continuity and regularity were considered to be ingredients constituting a business of sale. In that case, Raipur Manufacturing Co. Ltd. [1967] 19 STC 1 (SC), which was carrying on the business of manufacturing and selling cotton textiles, also sold during the accounting year 1953-54, 25 different items of discarded or unserviceable goods and waste products of the factory, such as, old containers, kolsi (cinders), waste caustic liquor and coal. The sales tax authorities brought the turnover from sales of those commodities to tax under the Bomb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... selling goods it is not sufficient that the assessee was carrying on business in some commodity and he disposes of for a price articles discarded, surplus or unserviceable....... But the question is of intention to carry on business of selling any particular class of goods. Undoubtedly from the frequency, volume, continuity and regularity of transactions carried on with a profit-motive, an inference that it was intended to carry on business in the commodity may arise....... An attempt to realise price by sale of surplus unserviceable or discarded goods does not necessarily lead to an inference that business is intended to be carried on in those goods, and the fact that unserviceable goods are sold and not stored so that badly needed space is available for the business of the assessee also does not lead to the inference that business is intended to be carried on in selling those goods. In the said case of Raipur Manufacturing Co. Ltd. [1967] 19 STC 1 (SC), there were frequent sales of large volume of old discarded machinery, stores, scrap and miscellaneous goods, such as, coal and by-products and subsidiary products like kolsi and waste caustic liquor. Still, the court held as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e weeks, it is difficult to say that the transactions were stray or occasional in nature, or that the element of continuity was lacking. Since the contention was that during the said period of nine weeks only the transactions took place, it may perhaps be said that the element of frequency or regularity is lacking. Then, a question may arise, whether mere lack of the element of regularity or frequency, where other elements are present, would be sufficient to take the transactions out of the concept of business . In our opinion, where an intention to carry on business is clearly established, as we shall presently see, mere lack of the element of regularity or frequency will not convert business transactions into non-business transactions, and would not make a dealer a nondealer . We have already quoted from section 2(1a) of the 1941 Act the definition of business . Without the Explanations (1) and (2), the definition of dealer in section 2(c) is the following: dealer means any person who carries on the business of selling goods in West Bengal or of purchasing goods in West Bengal in specified circumstances or any person making a sale under section 6D and includesthe Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ually in the nature of trade or commerce or manufacture which is done not for sport or pleasure or for charity. Thus, there is little difference between the primary or main part of the definition of business and its inclusive part which basically means, in the present context, any trade or commerce or similar activity and any transaction in connection with, or ancillary or incidental to, such trade or commerce. According to Dictionary of Finance (Ibid), commerce is a general term which stresses the trade or exchange aspect of a business, organisation, firm, or country, as opposed to the manufacturing or industrial aspect, and it is sometimes used instead of business or trade . It includes those services meant to aid in the implementation of trade, such as, banking, insurance and transportation . The same dictionary defines trade as a process in which exchange of goods and services takes place. In modern times, the process of exchange is done by the exchange of goods and services for money, but the term includes also barter, foreign exchange trade, exchange of financial instruments by others, etc., both in domestic and foreign trade . (It may be noted that in the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it had some intention other than that or those laid down in the statute. We have to keep this distinction in mind when we consider whether purchase of exim scrips was done by the bank as a business with the intention to do a business. It is undisputed that not only the bank paid money for purchasing exim scrips but also it made some gain by receiving commission out of the transactions. Even without any commission the activity clearly constitutes a business . Another question is: when the activity was carried on under the instructions of the Reserve Bank of India, can it be said to be a business ? In the facts of the case, the apparently compulsory nature of purchase of exim scrips was not such as to take it out of the ambit of business . The bank could not compel any holder of exim scrips to sell the same to it. It was wholly voluntary on the part of a holder to sell scrips to the bank. As soon as a holder exercises his option to sell and gives a scrip to the bank, the bank purchases it on payment of money. As already said, the compulsory nature of performance of the duty of purchase of exim scrips emanates from the Act of 1955 which created the bank. Unlike any other dealer, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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