Decided on July 24,1992



- (1.)In these two cases the first petitioner is the Karnataka Pawn Brokers' Association and the second petitioner is a firm engaged in pawn broker's business. They are calling in question the validity of a clarification issued by the Commissioner of Commercial Taxes. The clarification is to the following effect :" (I) Pawn broker is a dealer under the provisions of the Karnataka Sales Tax Act, 1957; and (ii) Pawn broker is liable to pay tax on the sale of unredeemed goods effected through auction if his annual turnover in such goods is not less than the minimum prescribed under section 5 (5) of the Karnataka Sales Tax Act, 1957. "
(2.)It is contended on behalf of the petitioners that the State of Karnataka has enacted the Karnataka Pawn Brokers Act, 1961 (hereinafter referred to as "the Act") which provides for the regulation and control of the business of pawn brokers in the State of Karnataka; that in regard to unredeemed pledged articles the pawn broker has an option either to sue for the recovery of money in respect of which the goods were pledged or to sell the same as provided in section 176 of the Indian Contract Act, 1872. However, section 12 of the Act controls the sale of pledged articles. The relevant provision thereof reads as follows :"12. Sale of pledge and inspection of sale book.- (1) A pledge pawned for a sum exceeding ten rupees shall, when disposed of by the pawn broker, be disposed of by sale by auction and not otherwise, and the sale shall be conducted in accordance with such rules as they as may be prescribed. "rule 20 of the Rules framed under the Act provides for procedure in auction of pledged goods. It is contended therefore that the sale of pledged articles is made by the pawn brokers not as owners of the goods, nor as agents of the pawner but under the authority of the statute and therefore when the property in the same do not vest in them there cannot be a sale for the purpose of the Karnataka Sales Tax Act so as to attract tax in their hands. A pawn broker becomes owner of the goods only in the circumstances mentioned in section 12 (2) of the Act and in no other circumstances. The position of a pawn broker in regard to the pledged goods is in the nature of a bailee and not as an owner or agent. Consequently, it is submitted that neither section 11 of the Karnataka Sales Tax Act is attracted nor any other provision under which any tax could be levied upon pawn brokers in relation to sales effected by them of the unredeemed pledged articles.
(3.)The learned counsel appearing for the petitioners referred me to various provisions of the Act, the Contract Act and the Karnataka Sales Tax Act to impress upon me the force of his submissions made on behalf on them. However, in my view, no detailed reference of the same is required.

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