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TMI Blog2021 (12) TMI 476X X X X Extracts X X X X X X X X Extracts X X X X ..... been filed by the petitioner, raising the following substantial questions of law:- (1) Whether, on the facts and in the circumstances of the case, the Hon'ble Appellate Tribunal was right in law in stating that the Petitioner/Appellant would fall within the ambit of ''dealer'' as per section 2(15) of the TNVAT Act, 2006? (2) Whether, on the facts and in the circumstances of the case, the Hon'ble Appellate Tribunal was right in law in stating that sale of repossessed vehicle on behalf of the defaulter by the Petitioner/Appellant would be liable to pay taxes under VAT Act on the sale of the Hypothecated Motor Vehicles? (3) Whether, on the facts and in the circumstances of the case, the Hon'ble Appellate Tribunal was right in law in stating that the Petitioner/Appellant is a dealer even though the contractual agreements specifically states the Petitioner/Appellant as not the owner of the Vehicle? (4) Whether, on the facts and in the circumstances of the case, the Hon'ble Appellate Tribunal was right in law in stating that Resale of Plant and Machinery, Furniture and Fittings and Fixed Asset by the Petitioner/Appellant which is used for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s filed before this Court questioning the correctness of the order of the Sales Tax Appellate Tribunal, which held that the Bank is liable to pay sales tax. The assessment under the TNVAT Act was revised by the Assessing Officer on the ground that the bank had not reported the sale of repossessed vehicle from defaulting customers in their return and not paid taxes thereon. As in the case on hand, the appeals filed before the first appellate authority as well as the Tribunal were dismissed. The question, which was framed for consideration by the Division Bench was whether the bank, which holds the hypothecation of vehicles in their favour would be a 'dealer' within the definition under Section 2(15) of the TNVAT Act, merely because, the bank seized and repossessed the hypothecated vehicle and brings it to sale. In the said case, the Tribunal took note of the expression 'business', 'dealer' and 'sale' respectively under Sections 2 (10), 2(15) and 2(33) of the TNVAT Act. The Tribunal also took note of Sections 6 and 8 of Banking Regulations Act, 1949 and came to the conclusion on the basis of the decision of the Hon'ble Supreme Court in Federal Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted out that though the Hon'ble Supreme Court was concerned with the exercise of a statutory right of sale and the exercise of the contractual right to bring the hypothecated property to sale could not be excluded on that account Explanation III to Section 2(15) covers even the sale of unclaimed goods and if sale of unclaimed goods can be included within the purview of Explanation III, the distinction sought to be drawn between the statutory right of sale and a contractual right of sale, cannot stand. 27.The first contention raised by Mr.N.Sriprakash, learned counsel for the petitioner is that HDFC case cannot be applied to the case on hand on the ground that the assessee is a NBFC and not a person or body falling within Explanation III of Section 2(15). It is true that the assessee in the HDFC was a bank, falling within clause (ix) under Explanation III to Section 2(15) of the TNVAT Act. However, the nature of transaction done by the HDFC and that of the assessee are identical. Both HDFC and the assessee enter into agreements with the borrower and the agreement empowers the lender to repossess the vehicle in the event of default by the borrower without the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn to the decision of the Hon'ble Supreme Court in Federal Bank and the distinction was not accepted and the Court pointed out that the exercise of statutory right of sale and exercise of contractual right to bring hypothecated property to sale, both, could not be excluded and would be covered in Explanation III as the explanation is widely couched. 29.While on this issue, we wish to refer to an identical situation, which was considered in Cholamandalam Investment Finance Co., Ltd., Coimbatore v. The Chief Secretary to Govt. and others [2014-4-L.W. 240] and while considering an identical type of transaction as done by the assessee, it was pointed out that in an agreement of hire purchase, the purchaser remains merely a trustee/bailee on behalf of the financier/financial institution. To this effect, reliance was placed on the decision of the Hon'ble Supreme Court in the case of Anup Sharmah vs. Bhola Nath Sharma Ors. [(2013) 1 SCC 400] . In the said case ( Cholamandalam ), the NBFC sought for a direction to quash a Government Order and to return the vehicle. The NBFC, who had financed the vehicle, had a valid hypothecation. However, the vehicle was confiscated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished by contending that it was case of pledge not a hypothecation and in the case of a bank, power under the Banking Regulations Act, 1949 is invoked. We do not accept the said submissions for the reason that nature of the activity done by the Bank and the NBFC like the assessee are identical. It may be true that the banks are covered by the Banking Regulations Act, 1949. Nevertheless, the test to be applied is as to whether assessee is liable to payment of sales tax and is to be done by examining the nature of transaction and not by taking note of the statute under which their business is regulated. If this exercise is done, the nature of transactions being identical, hardly makes a difference as to whether the assessee is a NBFC or a Bank. 33.The contention that the assessee takes the role of agent of the borrower, when he brings the property for sale cannot be fully right because on facts it has been found that the accessee was entitled to act independently without the express consent by the borrower to effect sale of the hypothecated vehicle. This aspect was noted in HDFC . Therefore, we respectfully agree with the observations/findings in HDFC that the sales are in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in the hypothecation. In our considered view, we need not go into this aspect to examine the correctness of the impugned order passed by the Tribunal. We have taken note of all the decisions, which have interprepted identical agreements and are of the firm view that the assessee is liable for payment of sales tax. 38.The decision Syed Abdul Khader v. Rami Reddi Ors. (SC) [(1972) 2 SCC 601] was pressed into service to explain as to who is the agent. We have examined the facts of the assessee and also the scheme of the Act and held that considering the nature of contract entered into between the assessee and borrower, the assessee will continue to be liable for sales tax even if its claim of agent is accepted. The agent is also liable to pay tax as held by us supra. 39.The decision in the case of Seth Loon Sethiya v. Ivan E. John and Others [AIR 1969 SC 73] would have no application to the case for the reason that the question which arose for consideration there was whether the power of attorney is a power coupled with interest; if it is so, whether the same is revocable? No dispute of that nature arises in the instant case and the transaction between the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accountability to the borrower and the guarantor and the assessee will not be liable for loss or damage or diminution in value of asset/ security on account of exercise or non exercise of rights by the assessee and the borrower/guarantor will not be entitled to raise any claim against the assessee on the ground that a large sum of amount might have been received or dispute their liability for the remaining dues under this agreement. Clause 11(c)(iii) empowers the assessee to initiate legal proceedings against the borrower and entitled to appoint third parties to carryout its functions rights and powers. Clause 13 of the agreement deals with Covenants and representations of the borrowers and the guarantors. Clause 13(b) empowers the assessee to sell, assign or transfer the assessee's right and obligations under the agreement to any person. There are many such clauses in the agreement, which clearly elucidate that theory as propounded by the assessee that the sale is effected by them as an agent of the borrower has to necessarily fall. For all the above reasons, no ground is made for interference of the order of the Tribunal. 43.Accordingly, the Tax Cases (Revision) are dism ..... X X X X Extracts X X X X X X X X Extracts X X X X
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