LORD KRISHNA BANK LIMITED Vs. ASSISTANT COMMISSIONER ASSESSMENT I SALES TAX OFFICE SPECIAL CIRCLE TRICHUR

JUDGEMENT

(1.) THESE writ appeals have been filed against the common judgment in O. P. Nos. 9508 of 1994, 1339 of 1993, 963 of 1993 and 962 of 1993. While the appellant in W. A. No. 633 of 1997 is Lord Krishna Bank Limited, the appellant in W. A. No. 634 of 1997 is the Federal Bank Limited. The South Indian Bank and the Catholic Syrian Bank are the appellants in the other crises. All these banks are scheduled banks and are banking companies as defined in the Banking Regulation Act, 1949. The cause of action which gave rise to the filing of the original petitions is the notice issued by the Sales Tax Officer, requesting the banks to intimate the turnover with regard to the sale of gold ornaments by the banks. As part of the banking activities, the appellants grant different kinds of loans. Some loans are granted on the security or pledge of gold ornaments. If the pledgers did not repay the amount as promised, the banks sell the pledged goods and appropriate the amount obtained by the sale towards the debt due to them. If the amount obtained by sale exceeds the amount due, the balance amount is returned to the pledgers, while if the amount obtained is less than the amount due to it, the bank is entitled to realise the balance amount from the respective debtors. According to the Assistant Commissioner (Assmt.), Sales Tax, Special Circle, Trissur, if the sale of the jewellery or gold ornaments is in exercise of the right which the banks obtained as a result of the pledge, the banks are liable to pay tax under section 5 of the Kerala General Sales Tax Act (hereinafter referred to as "the Act" ). It is that notice which is challenged in the original petitions.

(2.) THE contention of the banks is that they are not engaged in the business of selling or buying goods. According to them, under the Banking Regulation Act, they are engaged in banking business. Granting of loans is incidental to the business of banking. THE loans are given on the basis of the security. THE amounts are realised by the sale of the security. It cannot be said that the banks are dealers under the Act. Hence, they are not liable to be assessed under the Act.

(3.) SO far as pledge is concerned, the right to sale is contained in section 176 of the Indian Contract Act, 1872. It is as follows : " If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale. If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor. " Pollock & Mulla on Indian Contract Act and Specific Relief Acts, Tenth Edition at page 812 states as follows : " A contract of pledge carries with it the implication that the security may be made available to satisfy the obligation, and enables the pledgee in possession (though he has not the general property in the thing pledged, but a special property only to sell on default in payment and after notice to the pledgor) although the pledgor may redeem at any moment up to sale. Once the pawnee, after reasonable notice to the pawnor of his intention to sell the goods pawned, sells them under section 176 of the Contract Act, the pawnor's right of redelivery is extinguished, but his right to redeem continues up to the sale. . . . . . . . . . . " At page 813, the learned author says as follows : " The power conferred on the pledgee under this section to sell the property without reference to the court does not take away his right to sue the pawnor on the debt or bring a suit for the sale of the property pledged to him. " Thus, from a review of the above principles, one can come to the conclusion that the pawnee is not the owner of the property. But he exercises his right to sell the debtor's property for realisation of the debts. He is only a bailee. He is not selling the goods either as an owner or as an agent or any other capacity representing the owner. He is exercising the power because of the right given under the Indian Contract Act.