Full Judgment Text
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CASE NO.:
Appeal (civil) 6459 of 2003
PETITIONER:
Federal Bank Ltd. & Ors
RESPONDENT:
State of Kerala & Ors
DATE OF JUDGMENT: 21/03/2007
BENCH:
S.H. KAPADIA & B. SUDERSHAN REDDY
JUDGMENT:
J U D G M E N T
WITH
Civil Appeal No.6460 of 2003
Badagara Co-Operative Rural Bank Ltd. \005Appellant
versus
State of Kerala & Ors. \005Respondents
KAPADIA, J.
A short question which arises in these two civil appeals is
: whether banks are "dealers" under Section 2(viii) read with
Explanation I of the Kerala General Sales Tax Act, 1963.
Since common question of law arises in both the civil
appeals, they are heard together and disposed of by this
common judgment. For the sake of convenience, we may refer
to the facts in C.A.No.6459 of 2003 filed by Federal Bank
Ltd. and Ors. V. State of Kerala and Ors.
By the Kerala Finance Act, 1998 a clause (g) was inserted
in Section 2(viii) by which the definition of the word "dealer"
was expanded to cover a bank or a financial institution which,
whether in the course of its business or not, sells any gold or
other valuables pledged with it to secure any loan, for the
realization of such loan amount. After the said amendment,
the Department called upon Federal Bank to furnish details of
the gold auction during the year 1998-1999 and 1999-2000.
This was vide notice dated 31.8.99 issued by the Sales Tax
Officer to the assessee. On 1.11.99 the Department called
upon the bank to furnish details of the turnover relating to the
gold auction sale on and after 1.4.98; the Department also
called upon the assessee to pay tax at 4% on the sale turnover
within 15 days. This was vide notice dated 1.11.99. Federal
Bank submitted its reply contending that a scheduled bank
cannot be compared with a pawn broker and, therefore, it was
not a dealer under the 1963 Act. The Federal Bank refused to
file its return on the ground that there was no sale of
ornaments pledged to the bank and that the position of the
bank remained unaltered even after introduction of clause (g)
in Section 2(viii) of the 1963 Act vide Kerala Finance Act 1998
dated 29.7.98.
Ultimately, Federal Bank Ltd. filed O.P.No.1169 of 2000
in the Kerala High Court challenging the validity of Section
2(viii)(g) of the 1963 Act as also the notices issued by the
Department pursuant to the Kerala Finance Act, 1998
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directing Federal Bank to file returns and pay tax on sale of
pledged articles.
By judgment and order dated 11.4.2002 the Single Judge
held that in view of Kerala Finance Act, 1998, by which clause
(g) stood incorporated under Section 2(viii) of the 1963 Act, the
transaction of sale, whether in the course of business or not,
would cover auction sale or ornaments pledged with the bank.
Therefore, banks, according to the learned Single Judge, came
within the definition of the word "dealer" and since the pledged
articles were goods and since the sale was for money
consideration, Section 5 of the 1963 was applicable and in the
circumstances the leaned Single Judge upheld the demand
notices leaving the question of legislative competence open to
challenge.
Aggrieved by the said decision of the learned Single
Judge, Federal Bank along with other banks carried the
matter in appeal. By the impugned judgment dated 3.4.03 it
was held that in view of the Kerala Finance Act, 1998 under
which the definition of the word "dealer" is expanded to cover
banks, the Department was right in seeking to cover the
transactions of auction sale of pledged gold articles. It was
further held that amended Section 2(viii)(g) was intra vires the
Constitution of India and that the said section did not infringe
Articles 14 and 19 of the Constitution. It was further held
that even assuming that the transaction of sale of pledged
articles is not a part of the main business activity still the said
transaction would come within the meaning of incidental or
ancillary to the business of banking and in the circumstances
there was no infirmity in the judgment of the learned Single
Judge. Accordingly, the Division Bench dismissed the writ
appeals filed by the appellants herein. Hence, this civil
appeal.
At the outset, we may point out that before us the
constitutional validity of Section 2(viii)(g) of the 1963 Act was
not argued. Before us it was urged on behalf of banks
(appellants) that although by the Kerala Finance Act, 1998 the
definition of the word "dealer" under Section 2(viii) of the 1963
Act stood expanded so as to include banks, the said Act was
still not applicable to "sale" of pledged ornaments as the said
transaction did not take place in the course of banking
business in terms of Section 2 (xxi). It was submitted that the
word "sale" is defined in the said section to mean every
transfer of the property in goods by one person to another in
the course of trade or business for cash, deferred payment or
other valuable consideration excluding mortgage,
hypothecation charge or pledge. According to the banks
(appellants) since the auction sale of pledged ornaments did
not fall within the definition of the word "sale" in Section
2(xxi), such transaction are not exigible to tax under the said
Act, even after the insertion of clause (g) to Section 2(viii). On
behalf of the banks it was further submitted that even under
1949 Act the word "banking" has been defined under Section
5(b) to mean accepting, for the purpose of lending or
investment, of deposits of money from the public, repayable on
demand or otherwise. According to the banks (appellants)
auction sale of pledged ornaments does not come under the
definition of the word "banking" under Section 5(b) of the 1949
Act and, therefore, it cannot be said that the banks were in the
business of selling pledged ornaments. On behalf of banks it
was further submitted that under Section 6 of the 1949 Act, in
addition to the business of banking, a banking company may
engage in one of the following forms of business, namely,
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borrowing, raising of loans, lending with or without security,
drawing of bills, accepting bills, discounting, buying, selling,
collecting and dealing in bills of exchange. According to the
banks (appellants) the "banking business" consists of
accepting deposits from the public. However, under Section 6
a bank is permitted to engage in the other form of business
apart from acceptance of deposits. According to the banks
(appellants) Section 6 enables a banking company if it so
desires to engage in other form of business stipulated in
Section 6(1)(a) of the 1949 Act. It was further contended that
under Section 8 of the said 1949 Act, banks are prohibited
expressly from trading in goods except to the extent of buying
or selling of goods in realization of security given to it by the
borrower. Under the Explanation to Section 8 of the 1949
"goods" are defined to mean every kind of movable property
other than actionable claims, stocks, shares, money etc. It is
submitted that in view of Section 8 banks cannot sell goods in
the course of business and in view of the said prohibition it
cannot be said that banks are in the business of selling
pledged ornaments. Therefore, according to the banks
(appellants) auction sale of pledged ornaments by banks for
realization of security will not fall in the course of banking
business and, therefore, such transactions will not come
within the definition of the word "sale" as defined in Section
2(xxi) of the 1963 Act.
We do not find any merit in the above contention. As
stated above, we are not concerned in the present civil appeals
with the question of legislative competence of the State
Legislature to insert clause (g) in Section 2(viii) of the 1963
Act. In the present case, we are concerned only with the
limited question argued before us, namely, whether auction
sale of pledged goods by scheduled banks is a "transaction"
which takes place in the course of banking business in terms
of the 1949 Act. In the present case, we are concerned with
the situation which arose after enactment of the Kerala
Finance Act, 1998. By that amendment the definition of the
word "dealer" in Section 2(viii) was expressly amended to mean
any person who carries on business of buying, selling,
supplying or distributing goods for cash or deferred payment
or for any other valuable consideration. It is important to note
that prior to Kerala Finance Act, 1998 there was litigation.
The result of that litigation was that the High Court had taken
the view in the earlier rounds that sale of pledged ornaments
did not fall "in the course of banking business" and in order to
get over the judgments, the Kerala Legislature introduced
clause (g) to Section 2(viii) by making it clear that even if the
sale of pledged ornaments took place, not in the course of
business, still such a transaction would make the person
(banks/financial institutions) a "dealer" under Section 2(viii) of
the 1963 Act. Therefore, in deciding the matter we have to
keep in mind the object behind the Kerala Finance Act, 1998.
In order to answer the controversy in hand we quote
hereinbelow the relevant sections of the 1963 Act:
"Section 2. Definitions. \026 In this Act, unless the
context otherwise requires:
(vi) "Business" includes \026
(a) 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
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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
(b) any transaction in connection with, or
incidental or ancillary to such trade,
commerce, manufacture, adventure or
concern.
(viii) "dealer" means any person who carries on the
business of buying, selling, supplying or
distributing goods, executing works contract,
transferring the right to use any goods or supplying
by way of or as part of any service, any goods
directly or otherwise, whether for cash or for
deferred payment, or for commission remuneration
or other valuable consideration and includes:-
(a) xxx xxx xxx
(b) a casual trader;
(c) a commission agent, a broker or a
delcredere agent or an autioneer or any
other mercantile agent, by whatever name
called, who carried on the business of
buying, selling, supplying or distributing
goods [executing works contract,
transferring right to use any goods or
supplying by way of or as part of any
service, any goods] on behalf of any
principal;
(d) a non-resident dealer or an agent of a non-
resident dealer, or a local branch of a firm
or company of [association of body of
persons whether incorporated or not]
situated outside the State;
(e) a person who, whether in the course of
business or not, sells;
(i) goods produced by him by
manufacture, agriculture,
horticulture or otherwise; or
(ii) trees which grow spontaneously and
which are agreed to be severed
before sale or under the contract of
sale;
(f) a person who whether in the course of
business or not: -
(1) transfers any goods, including
controlled goods whether in
pursuance of a contract or not,
for cash or deferred payment
or other valuable
consideration;
(2) transfers property in goods
(whether as goods or in some
other form) involved in the
execution of a works contract;
(3) delivers any goods on hire-
purchase or any system of
payment by instalments;
(4) transfers the right to use any
goods for any purpose (whether
or not for a specified period) for
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cash, deferred payment or
other valuable consideration;
(5) supplies, by way of or as part
of any service or in any other
manner whatsoever, goods,
being food or any other articles
for human consumption or any
drink (whether or not
intoxicating), where such
supply or service is for cash,
deferred payment or other
valuable consideration);
Explanation.-(1) A society (including a co-
operative society, club or firm or an
association or body of persons, whether
incorporated or not) which whether or not in
the course of business, buys, sells, supplies or
distributes goods from or to its members for
cash or for deferred payment, or for
commission, remuneration or other valuable
consideration, shall be deemed to be a dealer
for the purposes of this Act;
Explanation.-(2) The Central Government or a
State Government, which, whether or not in
the course of business, buy, sell, supply or
distribute goods, directly or otherwise, for cash
or for deferred payment, or for commission,
remuneration or other valuable consideration,
shall be deemed to be a dealer for the purposes
of this Act.
(g) a bank or a financing institution which,
whether in the course of its business or not,
sells any gold or other valuable article
pledged with it to secure any loan, for the
realization of such loan amount;
Explanation I.-Bank for the purposes of this
clause includes a Nationalised Bank or a
Scheduled Bank or a Co-operative Bank;
Explanation II.- Financing Institution means
a financing institution other than a bank.
(xii) "goods" means all kind of movable
property (other than newspapers, actionable
claims, electricity, stocks and shares and
securities) and includes live stock, all
materials, commodities and articles (including
those to be used in the construction, fitting
out, improvement or repair of immovable
property or used in the fitting out,
improvement or repair of movable property)
and every kind of property (whether as goods
or in some other form) involved in the
execution of a works contract, and all growing
crops, grass or things attached to, or forming
part of the land which are agreed to be severed
before sale or under the contract of sale.
(xxi) "sale" with all its grammatical variations
and cognate expressions means every transfer
(whether in pursuance of a contract or not) of
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the property in goods by one person to another
in the course of trade or business for cash or
for deferred payment or other valuable
consideration, but does not include a
mortgage, hypothecation charge or pledge.
(xxv) "taxable turnover" means the turnover
on which a dealer shall be liable to pay tax as
determined after making such deductions from
his total turnover of purchase or sale in the
course of inter-state trade or commerce or in
the course of export of the goods out of the
territory of India or in the course of import of
the goods into territory of India;
(xxvi) "total turnover" means the aggregate
turnover in all goods of a dealer at all places of
business in the State, whether or not the
whole or any portion of such turnover is liable
to tax including the turnover of purchase or
sale in the course of inter-state trade or
commerce or in the course of export of the
goods out of the territory of India or in the
course of import of the goods into the territory
of India.
Section 5 \026 Levy of tax on sale of goods.-
(1) Every dealer (other than a casual trader or
agent of a non-resident dealer or the Central
Government, or Government of Kerala or the
Government of any other State or of any Union
Territory, or any local authority) whose total
turnover for a year is not less than two lakh
rupees and every casual trader or agent of a
non-resident dealer, the Central Government,
the Government of Kerala, the Government of
any other State or of any Union Territory or
any local authority, whatever be its total
turnover for the year, shall pay tax on his
taxable turnover for that year in respect of
goods included in the Schedule at the rate
mentioned against such goods."
We also quote hereinbelow the relevant provisions of the
1949 Act:
"Section 5. Interpretation.- In this Act,
unless there is anything repugnant in the
subject or context,-
(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
withdrawable by cheque, draft, order or
otherwise.
Section 6. Forms of business in which
banking companies may engaged.-(1) In
addition to the business of banking, a banking
company may engage in any one or more of the
following forms of business, namely:-
(a) the borrowing, raising, or taking up of
money; the lending or advancing of money
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either upon or without security; the drawing,
making, accepting, discounting, buying,
selling, collecting and dealing in bills of
exchange, hoondees, promissory notes,
coupons, drafts, bills of lading, railway
receipts, warrants, debentures, certificates,
scrips and other instruments, and securities
whether transferable or negotiable or not; the
granting and issuing of letters of credit,
traveller’s cheques and circular notes; the
buying, selling and dealing in bullion and
specie; the buying and selling of foreign
exchange including foreign bank notes; the
acquiring, holding, issuing on commission,
underwriting and dealing in stock, funds,
shares, debentures, debenture stock, bonds,
obligations, securities and investments of all
kinds; the purchase and selling of bonds,
scrips or other forms of securities on behalf of
constituents or others, the negotiating of loans
and advances; the receiving of all kinds of
bonds, scrips or valuables on deposit or for
safe custody or otherwise; the providing of safe
deposit vaults; the collecting and transmitting
of money and securities;
(b) acting as agents for any
Government or local authority or any other
person or persons; the carrying on of agency
business of any description including the
clearing and forwarding of goods, giving of
receipts and discharges and otherwise acting
as an attorney on behalf of customers, but
excluding the business of a (managing agent or
secretary and treasurer) of a company;
(c) contracting for public and private loans and
negotiating and issuing the same;
(d) the effecting, insuring, guaranteeing,
underwriting, participating in managing and
carrying out of any issue, public or private, of
State, municipal or other loans or of shares,
stock, debentures, or debenture stock of any
company, corporation or association and the
lending of money for the purpose of any such
issue;
(e) carrying on and transacting every kind of
guarantee and indemnity business;
(f) managing, selling and realizing any property
which may come into the possession of the
company in satisfaction or part satisfaction of
any of its claims;
(g)acquiring and holding and generally dealing
with any property or any right, title or interest
in any such property which may form the
security or part of the security for any loans or
advances or which may be connected with any
such security;
(h) undertaking and executing trusts;
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(i) undertaking the administration of estates as
executor, trustee or otherwise;
(j) establishing and supporting or aiding in the
establishment and support of associations,
institutions, funds, trusts and conveniences
calculated to benefit employees or ex-
employees of the company or the dependents
or connections of such persons; granting
pensions and allowances and making
payments towards insurance; subscribing to or
guaranteeing moneys for charitable or
benevolent objects or for any exhibition or for
any public, general or useful object;
(k) the acquisition, construction, maintenance
and alteration of any building or works
necessary or convenient for the purposes of
the company;
(l) selling, improving, managing, developing,
exchanging, leasing, mortgaging, disposing of
or turning into account or otherwise dealing
with all or any part of the property and rights
of the company;
(m) acquiring and undertaking the whole or
any part of the business of any person or
company, when such business is of a nature
enumerated or described in this sub-section;
(n) doing all such other things as are
incidental or conducive to the promotion or
advancement of the business of the company;
(o) any other form of business which the
Central Government may, by notification in the
Official Gazette, specify as a form of business
in which it is lawful for a banking company to
engage.
(2) No banking company shall engage in any
form of business other than those referred to
in sub-section (1).
Section 8. Prohibition of trading.-
Notwithstanding anything contained in section
6 or in any contract, no banking company
shall directly or indirectly deal in the buying or
selling or bartering of goods, except in
connection with the realization of security
given to or held by it, or engage in any trade,
or buy, sell or barter goods for others
otherwise than in connection with bills of
exchange received for collection or negotiation
or with such of its business as is referred to in
clause (i) of sub-section (1) of Section 6.
Explanation.- For the purposes of this section,
"goods" means every kind of movable property,
other than actionable claims, stocks, shares,
money bullion and specie, and all instruments
referred to in clause (a) of sub-section (1) of
section 6.
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Section 29. Accounts and balance-sheet.-
(1) At the expiration of each calendar year (or
at the expiration of a period of twelve months
ending with such date as the Central
Government may, by notification in the Official
Gazette, specify in this behalf,) every banking
company incorporated (in India), in respect of
all business transacted by it, and every
banking company incorporated (outside India),
in respect of all business transacted through
its branches (in India), shall prepare with
reference to (that year or period, as the case
may be,) a balance-sheet and profit and loss
account as on the last working day of (that
year or the period, as the case may be) in the
Forms set out in the Third Schedule or as near
thereto as circumstances admit:
Provided that with a view to facilitating
the transition from one period, of accounting
to another period of accounting under this
sub-section, the Central Government may, by
order published in the Official Gazette, make
such provisions as it considers necessary or
expedient for the preparation of, or for other
matters relating to, the balance-sheet or profit
and loss account in respect of the concerned
year or period, as the case may be.
(2) The balance-sheet and profit and loss
account shall be signed,-
(a) in the case of a banking company
incorporated (in India), by the manager or
the principal officer of the company and
where there are more than three directors
of the company, by at least three of those
directors, or where there are not more than
three directors, by all the directors, and
(b) in the case of a banking company
incorporated (outside India) by the
manager or agent of the principal office of
the company (in India).
(3) Notwithstanding that the balance-sheet of
banking company is under sub-section (1)
required to be prepared in a form other than
the form (set out in Part I of Schedule VI to the
Companies Act, 1956 (1 of 1956), the
requirements of that relating to the balance-
sheet and profit and loss account of a
company shall, insofar as they are not
inconsistent with this Act, apply to the
balance-sheet or profit and loss account, as
the case may be, of a banking company.
(3-A) Notwithstanding anything to the contrary
contained in sub-section (3) of Section 210 of
the Companies Act, 1956 (1 of 1956), the
period to which the profit and loss account
relates shall, in the case of a banking
company, be the period ending with the last
working day of the year immediately preceding
the year in which the annual general meeting
is held.
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Explanation.-In sub-section (3-A), "year" means
the year or, as the case may be, the period
referred to in sub-section (1).
(4) The Central Government, after giving not
less than three months’ notice of its intention
so to do by a notification in the Official
Gazette, may from time to time by a like
notification amend the Form set out in the
Third Schedule.
"THE THIRD SCHEDULE
(see section 29)
FORM A
Form of Balance-sheet
C CAPITAL AND LIABILITIES
PROPERTY AND ASSETS
Rs. P. Rs. P.
Rs. P. Rs. P.
1. CAPITAL:
(i) Authorised Capital
..... shares of Rs. ....each
..... shares of Rs. .... each
................................
_______________
(ii) Subscribed Capital
..... shares of Rs. .... each
..... shares of Rs. .... each
_______________
(iii) Amount called up
On.....shares of Rs..... each
less class unpaid
On..... shares of Rs.....
each less calls unpaid
of (iii) above, held by
(a) Individuals
(b) Co-operative institutions
(c) State Government
______________
______________
1. CASH:
In hand and with Reserve Bank
31[National Bank] State Bank of
India, State Co-operative Bank
and Central Co-operative Bank
2. BALANCES WITH OTHER BANKS:
(i) Current deposits
(ii) Savings bank deposits
(iii) Fixed deposits
3. MONEY AT CALL AND
SHORT NOTICE:
4. Investments:
(i) In Central and State Government
Securities (at book value)
Face value Rs.
Market value Rs.
(ii) Other Trustee securities
(iii) Shares in co-operative institutions
other than in item (5) below
(iv) other investments
(to be specified)
2. RESERVE FUND AND OTHER RESERVES
(i) Statutory Reserve
(ii) Agricultural (Credit stabilization fund)
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(iii) Building Fund
(iv) Dividend Equalization Fund
(v) Special Bad Debts Reserve
(vi) Bad and Doubtful Debts Reserve
(vii) Investment and Depreciation Reserve
(viii) Other Funds and Reserves
(to be specified)
5. INVESTMENT OUT OF THE
PRINCIPAL SUBSIDIARY STATE
PARTNERSHIP FUNDS
In shares of:
(i) Central Co-operative Banks
(ii) Primary agricultural credit societies
(iii) Other societies
6. ADVANCES\006:
(i) Short-term loans, cash credits,
overdrafts and bills discounted
Of which secured against:
(a) Government and other
3. PRINCIPAL/SUBSIDIARY
STATE PARTNERSHIP FUND ACCOUNT:
For share capital of:
(i) Central co-operative banks
(ii) Primary agricultural credit societies
(iii) other societies
____________
approved securities
(b) Other tangible securities @
Of the advances, amount due from
Individuals Of the advances, amount overdue
Considered bad and doubtful
of recovery
(ii) Medium-term loans
Of which secured against:
4. DEPOSITS AND OTHER ACCOUNTS:
(i) Fixed deposits*
(a) Individuals
(b) Central co-operative banks
(c) Other societies
(ii) Savings Bank Deposits
(a) Individuals
(b) Central co-operative banks
(c) Other societies
(iii) Current deposits
(a) individuals
(b) Central co-operative bank
(c) Other societies
(iv) Money at call and short notice
____________
(a) Government and other
approved securities
(b) Other tangible securities @
Of the advances, amount
due from individuals
Of the advances, amount overdue
considered bad and doubtful
of recovery
(ii) Long-term loans
Of which secured against
(a) Government and other
approved securities
(b) Other tangible securities @
5. BORROWINGS:
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(i) From the Reserve Bank of
India 32[the National Bank]
State/Central co-operative Bank:
(a) Short-term loans, cash, credits and overdrafts
(A) Government and other approved securities
(B) Other tangible securities @
(b) Medium term loans
Of which secured against
(A) Government and other
approved securities
(B) Other tangible Securities @
Of the advances, amount
due from individuals
Of the advances, amount
over due
Considered bad and doubtful
of recovery
____________
7. INTEREST RECEIVABLE
Of which overdue
Considered bad and doubtful
of recovery
(A)
(B)
(ii)
(A)
(B)
(A)
(B)
(A)
(B)
(iii)
(A)
(B)
(A)
(B)
(A)
(B)
(iv)
(c) Long-term loans
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Of which secured
against:
Government and other
approved securities
Other tangible securities @
From the State Bank
of India
(a) Short-term loans, cash-
credits and over drafts
Of which secured against:
Government and other
approved securities
Other tangible securities @
(b) Medium term- loans
Of which secured against:
Government and other
approved securities:
Other tangible securities @
(c) Long-term loans:
Of which secured against:
Government and other
approved securities
Other tangible securities @
From the State Government
(a) Short-term loans
Of which secured against:
Government and other
approved securities
Other tangible securities @
(d) Medium term loans
Of which secured against:
Government and other approved
securities
Other tangible securities @
(c) Long-term loans
Of which secured against:
Government and other
approved securities
Other tangible securities @
Loans from other sources
(source and security to
be specified rule)
8. BILLS RECEIVABLE
BEING BILLS FOR
COLLECTION
As per contra
_____________
9. BRANCH ADJUSTMENT
_____________
10. PREMISES LESS DEPRECIATION
_____________
11. FURNITURE AND FIXTURES LESS
DEPRECIATION
_____________
12. OTHER ASSETS
(to be specified)
13. NON-BANKING ASSETS
ACQUIRED IN SATISFACTION
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OF CLAIMS
(standing mode of
valuation)
_____________
14. PROFIT AND LOSS
6. BILL FOR COLLECTION BEING BILLS
RECEIVABLE
As per contra
____________
7. BRANCH ADJUSTMENTS
____________
8. OVERDUE INTEREST RESERVE
____________
9. INTEREST PAYABLE
____________
10. OTHER LIABILITIES
(i) Bills payable
(ii) Unclaimed dividends
(iii) Suspense
(iv) Sundries
11. PROFIT AND LOSS
Profit as per last
balance-sheet
Less appropriations
Add profit for the year brought from
the Profit and Loss Account
____________
Total
____________
___________
Total
___________
CONTINGENT LIABILITIES
(i) Outstanding liabilities for
guarantees issued
(ii) Others
___________
Total
___________
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____________
Total
____________
FORM B
Form of Profit and Loss Account
Profit and Loss Account for the year ended\027
EXPENDITURE
INCOME
Rs. P. Rs. P.
Rs. P. Rs. P.
1. Interest on deposits,
borrowings,etc.
2. Salaries and allowances
and provident fund
3. Directors and local
committee members’
fees and allowances
4. Rent, taxes, insurance,
lighting, etc.
5. Law charges
6. Postage, telegrams and
telephonic
charges
7. Auditor’s fees
8. Depreciation on and
repairs in property
9. Stationery, printing
and advertisement,etc.
10. Loss from sale of or
dealing with non-banking
assets
11. Other expenditure
12. Balance of profit
___________
Total
___________
1. Interest and discount
2. Commission, exchange and brokerage
3. Subsidies and donations
4. Income from non-banking
Assets and profit from sale
of or dealing with such assets
5. Other receipts
6. Loss (if any)
_
___________
Total
____________
General Instructions\027The corresponding figures (to the nearest rupee,
if so desired for the year immediately preceding the year to which the
profit and loss account relates should be shown in separate columns."
In order to answer the contentions raised on behalf of the
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banks (appellants) it is important to note that we are
concerned with the 1963 Act. The said Act is enacted to
consolidate and amend the law relating to the levy of tax on
sale or purchase of goods in State of Kerala. In our opinion,
the word "sale" in Section 2(xxi) of the 1963 is very important.
The word "sale" is defined to mean transfer of the property in
goods in the course of trade or business for cash, deferred
payment or for any other valuable consideration. This
definition is different from the definition of the word "sale"
under the Sale of Goods Act, 1930. When the pledged article
is put to auction it is no doubt for satisfaction of claims. It
also results in an income from non-banking assets. The first
question which, therefore, arises is : whether sale of pledged
ornaments for consideration falls in the course of trade or
business of the bank. It is no doubt true that banks have to
act on instructions of the borrower. In the present case, we
are not concerned with the provisions of Section 176 of the
Contract Act, 1872. We are concerned with the definition of
the word "sale" under the 1963 Act. 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
[See: The Deputy Commissioner of Commercial Taxes v.
A.R.S. Thirumeninatha Nadar Firm \026 (1968) 21 STC 184
(Mad)]. To the same effect is the judgment of the Punjab and
Haryana High Court in the case of High Channel Video v.
Enclave Electronics and others \026 (1999) 116 STC 131 (P. &
H.)] Further on reading the provisions of the 1949 Act, one
finds that every bank is required to maintain its balance-sheet
in Form ’A" of the Third Schedule, quoted above. The
prescribed form indicates that non-banking assets acquired by
the banks even in satisfaction of claims, are required to
declare their holdings. The prescribed form of balance-sheet
indicates that banks are required to show on the asset side
non-banking assets acquired by them in satisfaction of claims.
Similarly, in Form ’B’ of the Third Schedule under Profit and
Loss Account, banks are required to show income from non-
banking assets and profit from sale of such assets. In our
view, therefore, sale of pledged assets takes place in the course
of banking business. Therefore, as stated above, the banks, in
selling the goods pledged to them, did not act as agents of the
borrowers/pledgors and that their sale was in exercise of
statutory power under the 1949 Act. Further, in our view it is
no doubt true that under Section 8 of the 1949 Act banks are
prohibited from trading in goods. However, if one reads
Section 8 along with Third Schedule to the 1949 Act it is clear
that dealing in non-banking assets is a banking business and
the exception made in Section 8 which allows banks to realize
security and which allows banks to engage in trade in order to
realize security, falls within the banking business whenever
undertaken. When a pledged article is sold in an auction, the
bank recovers not only its dues but also recovers interests and
its other charges. This realization falls within the parameters
of the Third Schedule to the 1949 Act. In the circumstances,
we are of the view that sale of pledged ornaments falls within
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. We also find
merit in the contention advanced on behalf of the Department
(respondents herein) that the very object of the Kerala Finance
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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 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 noted is that the definition of the word
"sale" under the 1963 Act is not the same as under Section 4
of the Sale of Goods Act, 1930. The definition of the word
"sale" in Section 2(xxi) in the 1949 is very similar to Section
2(g) of the Central Sales Tax Act, 1956 which is held to be
having a very wide meaning as compared to the definition of
the word "sale" in Section 4 of the Sale of Goods Act, 1930
[See: State of Maharashtra v. Embee Corporation, Bombay
- 1997 (7) SCC 190]. Further, when charge or pledge is
enforced that enforcement is by way of sale of the pledged or
hypothecated goods; that sale is for consideration and,
therefore, it falls within the ambit of Section 2(xxi) of the 1963
Act.
In the circumstances, there is no infirmity in the
impugned judgments of the Division Bench of the Kerala High
Court.
Accordingly, the above civil appeals have no merit and
they are dismissed with no order as to costs.