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TMI Blog2018 (7) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... questions of law raised against the Tribunal order affirming the assessments made are as follows: I Whether on the facts and in the circumstances of the case and in the light of its findings that (a) the Bank is not the owner of the vehicle at the time of sale and property in the vehicle was with the registered owner and (b) the Borrower executes irrevocable power of attorney to the Bank authorizing the bank to sell the vehicles and other documents necessary under the Motor Vehicles Act for transferring the vehicles and based on these documents the sold vehicles gets transferred from the registered owner to the purchaser - the Appellate Tribunal is right in holding that the petitioner Bank is liable to KVAT on the proceeds realized from the sale of hypothecated vehicles. II) Whether on the facts and in the circumstances of the case, the Petitioner is a dealer falling within the definition of dealer under Section 2(xv) with respect to the realization of proceeds from the sale of hypothecated vehicles. III) Whether on the facts and in the circumstances of the case there is any evidence or material on record to justify the findings of the Appellate Tribunal that the Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Bank being in exercise of a statutory right under Section 176 of the Contract Act; while in the instant transaction the sale is by the registered owner and the consideration is also adjusted towards the liability of the registered owner. The financier merely facilitates such sale and hence there can be no inclusion of consideration received on such sale in the turnover of the financier. 4. The learned Senior Counsel takes us through the judgment of the Hon'ble Supreme Court in Federal Bank Limited; to distinguish the transactions specifically through the following extract: "When a bank sells the pledged ornaments it is not acting as an agent of the borrower even under the 1949 Act. When the bank sells the goods pledged to them they do not act as the agents of the borrower. As pledgees, the banks, acting under section 176 of the Contract Act, 1872 have a right to sell the goods. That sale is not as agents but that sale is in exercise of the statutory power under the 1949 Act. No doubt the sale is on behalf of the pledgor, however, the sale is in exercise of the statutory power [Deputy Commissioner of Commercial Taxes. V. A.R.S Thirumeninatha Nadar Firm (1968) 21 STC 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative Bank Explanation II: Financing Institution means a financing institution other than a Bank. "Sale" with all its grammatical variations and cognate expressions means any transfer whether in pursuance of a contract or not of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or for other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge; "turnover" means the aggregate amount for which goods are either bought or sold, supplied or distributed by a dealer, either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or for other valuable consideration, provided that the proceeds of the sale by a person not being a Company or Firm registered under the Companies Act, 1956 (Central Act 1 of 1956) and Indian Partnership Act, 1932 (Central Act 9 of 1932) [or society including a co-operative society or association of individuals whether incorporated or not] of agricultural or horticultural produce grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the sale is by the registered owner to the purchaser. The dictionary definition of "pledge" and "hypothecation" is also placed to further advance the case. 10. We do not think that there could be any distinction found from the definition of "pledge" and "hypothecation" insofar as the liability to tax on sale of goods is concerned. We extract the definition of "pledge" and "hypothecation" as available in the Law Lexicon: Pledge: a pledge is defined to be a bailment of personal property as security for some debt or engagement. Hypothecation: Hypothecation is defined as "a right which a creditor has over a thing belonging to another, and which consists in the power to cause it to be sold in order to be paid his claim out of the proceeds" 11. The distinction drawn is insofar as the "pledge" itself being an implied power of sale on default; which power a "hypothecation" does not confer. Going by the definition we are unable to draw such a distinction since "hypothecation" also confers on the creditor the right to a thing belonging to another and encompass the power to cause it to be sold in order to be paid his claim out of the proceeds. The only distinction probably is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtificate of registration to that person who validly repossessed the vehicle. Just as in the case of a pledge here too the financier has a right over the hypothecated vehicle flowing from the terms of the agreement and recognised by statute, the provisions of which enable a transfer of the ownership and registration in favour of the financier. The financier however does not avail this measure of first transfer of ownership and registration in their name and a subsequent sale because often the registered owner from whom the vehicle is repossessed does not challenge the action of the financier or has voluntarily surrendered the vehicle, on default. The borrower also realises the futility of a challenge in view of the specific provisions under the Motor Vehicles Act. Either way the sale is one carried out by the financier on behalf of the registered owner and it comes within the ambit of sale of goods as defined in the KVAT Act. The financier falls under the definition of dealer and so is the consideration liable to be included as turnover of sale of goods. We do not find any reason to come to a different conclusion insofar as the transactions are concerned, either on the distinction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Government Pleader especially noticing the fact the amendment which brought in the sale of pledged ornaments within the definition of sale of goods was challenged before the High Court and a decision came only in the year 2003 dated 03.04.2003. The fact that the amendment was brought in and there was a challenge to it indicates that there was a debatable issue even with respect to the pledge of ornaments. In the present case, the transaction was hypothecation and the possession was with the registered owner who is the loanee. The assessee bonafide claimed a distinction insofar as pledge and hypothecation which however is negatived by this Court in the above judgment. That does not lead to a conclusion that there was any contumacious conduct on the part of the assessee. We rely on E.I.D. Parry (I) Ltd. v. Assistant Commissioner of Commercial Taxes [(2000) 2 SCC 321] & Sree Krishna Electricals v. State of Tamil Nadu and Another [(2009) 11 SCC 687] to hold that the penalty as levied by the Intelligence Officer in OTRev.102/2013 is not sustainable. We hence answer the question of law separately raised in the said O.T Revision against the Revenue and in favour of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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