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TMI Blog2008 (1) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the word "goods" for the purpose of section 8 in favour of bullion and specie. It is only for that purpose that bullion and specie are excluded from the purview of the word "goods" in section 8. Thus the result is that in fact there is absolutely no prohibition against a banking company to buy, sell or barter in bullion. Thus when the Bank buys, sells or trades in bullion, the result is inevitable that it is only engaging in a form of business, which is perfectly permissible under section 6 of the Act. There is no merit, therefore, in the said contention of the appellant and we reject it. W.P. dismissed. - - - - - Dated:- 8-1-2008 - DATTU H.L. C.J. AND JOSEPH K.M. , JJ. The judgment of the court was delivered by K.M. JOSEPH J. Since common questions arise in the original petition and writ appeal, they are clubbed together and disposed of by this judgment. Petitioner in O.P. No. 3234 of 2000 is a statutory banking corporation. It is constituted by the State Bank of India (Subsidiary Banks) Act, 1959. The said enactment is traced to entries 43 and 45 of List I of the Seventh Schedule to the Constitution of India. According to the petitioner, the Banking Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter was engaging the attention of the apex court. The apex court had by annexure A 2 order dismissed the petition noting that the appellant had not exhausted the statutory remedy. Annexure A 1 produced along with the appeal would show that the writ petition filed by the petitioner before the apex court came to be dismissed on the ground that an appeal lies before the Division Bench. We heard learned Senior Counsel appearing for the petitioner Sri. M. Pathrose Mathai and S. Easwaran appearing on behalf of the appellant in the appeal besides Sri. Vinod Chandran, Special Government Pleader for Taxes. Contentions: Sri. M. Pathrose Mathai, learned Senior Counsel contended that when a loan is given by a bank on the strength of the pledge of gold ornaments and then sold, it could not be said that there was sale of movable property as contemplated under the Sale of Goods Act, 1930. According to him, what is involved in pledge is only the transfer of special property. He would contend that Sale of Goods Act contemplates transfer of general property in goods, in order that there be a sale within the contemplation of the Act. In this connection he drew our attention to the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 6 of the Banking Regulation Act. He drew our attention to the definition of the word banking . It reads as follows: 5(b) 'banking' means the accepting for the purpose of lending or investment, of deposits, of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise; According to him, having regard to the definition of the word banking as contained in the Banking Regulation Act, the acceptance of gold items as part of a pledge would not fall within the concept of banking. It is pointed out that the definition of the word sale or purchase of goods in article 366(29A) of the Constitution does not include pledge or realisation of security of pledged goods against loan given by the bank as part of its banking business. It is submitted that when a sale takes place on default being committed by the borrower, who has pledged the gold items, it amounts only to the realisation of the security of the loan and it cannot be treated as sale of goods. The definition of the word sale' in the Act is contained in section 2(xxi). We extract below the definition without explanations appended to the same. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale within the meaning of Sale of Goods Act, 1930. As per the definition of sale under section 2(xxi), sale should be in the course of the business and pledge is specifically excluded, he contends. It is his contention that the sale of pledged gold or gold ornaments to realise the loan amount by the bank is not a sale in the course of banking. Sri. Vinod Chandran, learned Government Pleader for Tax contended that the matter is squarely concluded by the decision of the apex court in Federal Bank Ltd.'s case [2007] 6 VST 736; [2007] 8 RC 657; [2007] 3 KLT 106. He would further contend that there is absolutely no warrant in the contention of the petitioner and the appellant that the State is bereft of the legislative power to enact the impugned amendment. He would point out that the scheme of the distribution of legislative power as discernible from a perusal of the Lists to the Seventh Schedule would show that the legislative powers as contained in the lists are broadly of two types. On the one hand the Lists contain legislative entries conferring general power on the Legislatures in regard to various aspects. This is followed by an enumeration of powers conferred to impos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the course of banking business under the 1949 Act. In the circumstances, such transactions are taxable under section 2(viii)(g) read with section 5 of the 1963 Act. It is further held: We also find merit in the contention advanced on behalf of the department (respondents herein) that the very object of the Kerala Finance Act, 1998 was to introduce clause (g) in section 2(viii) in order to get over the judgments of the High Court which took the view that sale of pledged goods did not fall in the course of banking business. We have quoted clause (g). That clause makes it very clear that even if the sale of pledged ornaments takes place outside the banking business, the 1963 Act would cover even such transactions. Therefore, once such transactions fall under section 2(viii)(g) of the 1963 Act, banks become 'dealers' and they are liable to pay sales tax under the said 1963 Act. It is important also to notice the following statement of the law by the apex court: . . . It is true that the definition of the word 'sale' under section 2(xxi) of the 1963 Act does not include mortgage, hypothecation, charge or pledge, however, the important point to be no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is transferred by the pledger to the pledgee is only a special right in the property to cause the goods to be sold in the event of there being a default. It is true that a pledge does not involve a transfer of general property by the pledger to the pledgee. The definition of sale under the Act also excludes a pledge from the scope of the expression sale. But we are not concerned with a question as to whether the transaction of pledge itself is exigible to tax. On the one hand we are here concerned with a situation arising out of the sale by the pledgee acting under the terms of the pledge as also the provisions of section 176 of the Contract Act and section 8 of the Banking Regulation Act. Section 176 of the Contract Act reads as follows: Pawnee's right where pawnor makes default. If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale. If the proceeds of such sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty of goods is transferred. We are therefore not impressed by the argument that there is no sale for the reason that there is no contract between the parties. The further question to be considered would be whether the State has legislative competence to enact the amendment, which is called in question. By the amendment, a bank effecting sale in exercise of the rights as a pledgee is brought within the scope of the word dealer . It is true that banking per se is a subject assigned to the Central Legislature. Thus, it is apparently in exercise of the said power that various enactments, including the Banking Regulation Act, 1949 have come to be enacted by the Central Legislature. Banking Regulation Act is intended to regulate various aspects relating to banking. Apparently, the reason must have been that the founding fathers thought that as a matter like banking is intimately intertwined with the financial life of the nation, it is a matter which should engage the attention of the Central Legislature thus paving for uniformity in regard to the law relating to banking throughout the length and breadth of the country. But the question which arises is whether the entry should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madras) Ltd. [1958] 9 STC 353; AIR 1958 SC 560 that the court took the view that there must be a contract of sale between the parties. It is noticed that it is common ground that the Province of Madras intimated its requirement of sugar to the Controller and the Controller called upon the manufacturing unit to supply the whole or part of the requirement to the Province. It is also held that in calling upon the manufacturing unit to supply sugar, the Controller did not act as agent of the State to purchase goods and he acted in exercise of its statutory authority. It is also held that there is manifestly no offer to purchase sugar by the province and no acceptance of any offer by the manufacturer. In Joint Commercial Tax Officer, Madras v. Young Men's Indian Association, Madras [1970] 26 STC 241 (SC); AIR 1970 SC 1212 the question which arose before the apex court was whether the clubs supplying food, snacks, beverages and other articles to their members or their guests could be regarded as dealers within the meaning of the Act. The articles necessary for the supply were purchased by the clubs out of club funds, which consisted of the members' subscription. No profit was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1987. The Act envisaged a tax at 10 per cent ad valorem on chargeable expenditure incurred in the class of hotels wherein room-charges for any unit of residential accommodation was Rs. 400 per day per individual. It was contended on behalf of the petitioners that it is essentially a tax on luxuries, which was a legislative subject falling within the State's legislative competence as enumerated in entry 62 which provided for taxes on luxuries among other taxes. It was contended that having regard to the impost in question, it was not really expenditure tax at all as it did not accord with the economists' notion as to such a tax, and it was also contended that in pith and substance it was a tax on luxury. The court found that the same transaction may involve two or more taxable events in different aspects. The court took note of the aspect doctrine and found that the distinct aspect, namely, the expenditure aspect of the transaction falling within the union power must be distinguished and the legislative competence to impose tax sustained. In that case the Supreme Court held as follows (at pages 119, 120 and 123 of STC): . . . Wherever legislative powers are distribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to accord with the plenitude of the concept of 'income' in all its width and comprehensiveness should be avoided. The cardinal rule of interpretation is that the entries in the legislative lists are not to be read in a narrow or restricted sense and that each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it. The widest possible construction, according to the ordinary meaning of the words in the entry, must be put upon them. Reference to legislative practice may be admissible in reconciling two conflicting provisions in rival legislative lists. In construing the words in a constitutional document conferring legislative power, the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude. Article 366 of the Constitution was amended by inserting a definition of tax on the sale or purchase of goods vide article 366(29A). Clause (a) of article 366(29A) reads as follows: (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, viz., works contracts [clause (b)], hire-purchase contracts [clause (c)], catering contracts [clause (f)] by legal fiction to be divisible contracts where the sale element could be isolated and be subjected to sales tax. Gannon Dunkerley [1958] 9 STC 353 (SC) survived the 46th Constitutional Amendment in two respects. First with regard to the definition of 'sale' for the purposes of the Constitution in general and for the purposes of entry 54 of List II in particular except to the extent that the clauses in article 366(29A) operate. By introducing separate categories of 'deemed sales', the meaning of the word 'goods' was not altered. Thus the definitions of the composite elements of a sale such as intention of the parties, goods, delivery, etc., would continue to be defined according to known legal connotations. This does not mean that the content of the concepts remain static. Courts must move with the times(1)ut the 46th Amendment does not give a licence for example to assume that a transaction is a sale and then to look around for what could be the goods. The word 'goods' has not been altered by the 46th Amendment. That ingredient of a sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... latures are entirely distinct and separate. The Cable Television Networks (Regulation) Act, 1995 of the Union Legislature does not denude the State Legislature for levying entertainment tax on entertainment. Thus it is clear that the State Legislature was indeed possessed of legislative power to enact the impugned amendment. Gold ornaments are undoubtedly goods. Bullion are also goods. We have also found that when a bank, as pledgee sells gold ornaments or bullion, there is a sale. Thus there is a sale of goods. In our view, the fact that the sale of goods is by a bank would not rob the State Legislature of the legitimate power it possesses under the Constitution to levy tax on sale of goods. Merely by posing the question as to who effected sale of goods, when such a question is unwarranted by the specific terms of the entries in Lists I to III in the Seventh Schedule, the invocation of entry 97 is totally misplaced as entry 97 would be applicable only if no other specific entry is found to premise the legislation upon. When there is a specific entry empowering the State to enact law relating to sale of goods, we would think that entry 97 of List I is totally inapplicable. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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