S.H.Kapadia, J. - (1.) 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.
(2.) 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 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, 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.
(3.) 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. - In this Act, unless the context otherwise requires: (vi) "Business" includes - (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 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: (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 nonresident 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 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 cooperative 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 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 - 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.;