KARNATAKA PAWN BROKERS ASSON. AND ORS. ETC. v. STATE OF KARNATAKA AND ORS.
Citation: [1998] SUPP. 2 S.C.R. 461; 1998 INSC 406
Court: Supreme Court of India
Bench: S.P. BHARUCHA , K. VENKATASWAMI
Judgment date:
Case summary
1998 INSC 406. Supreme Court of India judgment dated 1998-10-29. KARNATAKA PAWN BROKERS ASSON. AND ORS. ETC. v. STATE OF KARNATAKA AND ORS. Read the...
Judgment text
462 SUPREME COURT REPORTS (1998] SUPP. 2 S. C. R. KARNATAKA PAWN BROKERS ASSON. AND ORS. ETC. v. STATE OF KARNATAKA AND ORS. OCTOBER 29, 1998 [S. P. BHARUCHA AND K. VENKATASWAMI, JJ.
] Sales Tax: Karnataka Sales Tax Act, 1957, Sections 2(1-2), (k) & (t)-Tamil Nadu General Sales Tax Act, 1959, Sections 2(d), (g) & (n)-'Dealer' and 'business'- Meaning and scope of-Pawnbrokers causing sale of articles/goods through statutory auctioneer on default of pawner to redeem the pledged articles- Held, such activities satisfy the definition of "dealer" as well as the definition of "business"-Hence, pawnbrokers are required to pay sales tax on such sale-Further held, that in such cases neither the pawner nor the statutory auctioneer is a dealer liable to pay sales tax-Sale-Pawnbroker-Debt Laws- Karnataka Pawnbrokers Act, 1961, Sections 2(7), 3, 7, l l & 12-Karnataka Pawnbrokers Rules, 1966, Rule 20-Tamil Nadu Pawnbrokers Act, 1939, Sections 2(6), 3, 7, l l and 12-Tamil Nadu Pawnbrokers Rules, 1943, Rule 12-Contract Act, 1872, Sections 172 and 173 to 177.
Words and Phrases: Word ''pawnbroker"-Meaning of-In the context of Karnataka Pawnbrokers Act, 1961, Section 2(7) and Tamil Nadu Pawnbrokers Act, 1939, Section 2(6). Words "dealer. " and "business''-Meaning of-In the context of General Sales Tax Acts of Karnataka ancl Tamil Nadu. The question involved in the instant appeals was whether pawnbroker, causing sales of unredeemed articles/goods who carried on "business" within the meaning oftheT. N. General Sales Tax Act, 1959 read with T. N. Pawnbrokers Act, 1943 as Rules thereunder as well as the Karnataka Sales Tax Act, 1957 read with the Karnataka Pawnbrokers Act, 1961 and Rules thereunder. Provisions of the Pawnbroker Acts of both the States were substantially the same.
It was contended by the appellants that pawnbrokers lent money on the pledge of articles and that they were not engaged in the business of buying and/or selling of goods; the pledge of the articles created a relation of bailor and bailee and as such they had no right to sell the property contrary to the contract or other statutory provisions regulating their relationship; in a sale occasioned by the default of the pawner in redeeming the article, the auctioneer and not the pawnbroker should be treated to be the seller and liable to pay sales tax; as the pawnbroker himself was entitled to bid at the sale under the Rules at most the sale could be deemed to be merely incidental to the main business to the pawnbroker not attracting sales tax; and that the statutory method of disposal of the pawned articles through an auctioneer did not amount to transferring the general property rights in the goods by the pawnbroker to the purchaser.
It was contended by the respondents-States that the factum of sale in disposing of the pledged articles through public auction, could not be disputed; that the right to bring the articles for sale through public auction in the event of default on the part of the pawner to redeem vests with the pawnbrok r distributing goods. Before these requirements can apply to a dealer, for the purpose of levy of sales tax the transaction must amount to a sale as defmed in Section 2(n) of the Act. That defmition makes it necessary that there should be a transfer of property in the goods by one person to another in the course of business for cash or deferred payment or other valuable consideration.
In the present case, there is a clear finding that the auctioneer merely served the purpose of bringing the bidders and the pawnbrokers into contact with each other and also arranged for the holding of a sale in an open and fair manner, giving the widest publicity to the sales so that the pledgers might get the most advantageous price at the open sale of their pledged articles. But it is the pawnbroker who ultimately delivers possession of the goods to the bidder. On this fmding of fact by the Tribunal it has to be concluded that the respondent discharged only the duty of a crier or a broker who brought the parties together, but he was not a dealer who transferred the property in the goods to the highest bidder. " We are in agreement with the above observations and the conclusions reached thereon. This answers, in the negative, the contention advanced on behalf of the appellants that if at all in the transactions in question, the Auctioneer must be held liable for payment of tax.
Now coming to the contention that inasmuch as the pawn-broker is given liberty to bid and purchase at the sale of unredeemed goods, he cannot be deemed as a seller as one cannot sell the goods to himself. This contention is mis-conceived as the Pawn-broker in such circumstance plays a dual role-one as a pawnbroker and the other as individual self. As a matter of fact, a similar question arose before the Madras High Court in L. S. Chandramouli and Co. v. The State of Madras, 18 STC 325. In that case, the question for consideration was whether a local agent of a non-resident principal, who carried on business of his. own also transfers the goods of non-resident principal to his own business can be considered as a transaction of sale chargeable to tax.
The learned judges overruling a similar contention held that the concerned agent held two different capacities - one as an agent of a non-resident principal - and the other as proprietor of his own business, two different identities KARNATAKAPAWNBROKERSASSON. v. STATE [K. VENKATASWAMI,J. ) 479 altogether, while transferring the goods of the non-resident principal to himself, he not only acted as agent of his non-resident principal but also as a purchaser and there is nothing in law which militates against the said conclusions and consequent tax liability on such person. We have no hesitation to reject the contention of the learned counsel for the appellants that the Pawn-broker cannot be treated as a seller of goods in the facts and circumstances of these case and, therefore, not a 'dealer' under the Sales Tax Act.
It is now well settled that any activity incidental or ancillary to the main business will also come within the definition of 'business' under the Sales Tax Act and, therefore, the contention that the sale of unredeemed goods, being incidental to the business of Pawn-broker was not liable to sales tax, cannot be accepted. Let us now consider the decisions cited on behalf of the learned counsel for the appellants. Mr. K. Parasaran, learned senior counsel for the appellants, cited a Single Bench judgment of the Madras High Court in Provincial Government of Madras v. Mudukuru Munirathnam Chetti and Anr. , [4 STC 296]. This judgment apart from the fact that it was rendered under the Madras General Sales Tax Act, I 939, is not directly on the point and the context in which the · judgment was rendered, was entirely different. That judgment considered a transaction treated by both the parties as loan and entrustment of goods for sale to others to discharge the loan.
It was held that transaction cannot be treated as a sale at the hands of the person, who advanced the money for the purpose of levy of sales tax. The nature and character of the transaction in the case on hand are totally different. Therefore, the case cited has no application to the facts of this case. Likewise, the decisions cited by Mr. Dave, learned senior counsel for the appellants, namely, The Deputy Commissioner of Commercial Taxes, Madurai Division, Madurai v. A. R. S. Thirumeninatha Nadar Firm, Tuticorin, [21 STC 184], Lal/an Prasad v. Rahmat Ali and Anr. , [1967] 2 SCR 233; Balkrishan Gupta and Ors. v. Swadeshi Polytex Ltd and Anr. , (1985] 2 SCC 167 and Mis Chowringhee Sales Bureau (P) Ltd. v. C. lT. West Bengal, [ 1973] I SCC 46, are all under different circumstances and with reference to the facts of those cases which have no direct bearing to the issues raised in these cases.
In The Deputy Commissioner of Commercial Taxes, Madurai Division Madurai (supra), the Division Bench of the Madras High Court, on the facts of the case, held that the bank in selling the goods pawned to it did not act as agenc of the assessee and the sales were on behalf of the pledger. The learned Judges further held that the pawn or pledge by itself did not make the pawnee or pledgee the owner of the goods on the peculiar facts of that case. In La/Ian Prasad's case (supra), this Court considered a question whether the appellant in that case was entitled to a decree in view of his denial of the pledge and his failure to offer to redeliver the goods. In answering that question, this Court, after referring to Section 176 of the Indian Contract Act, held that so long, however, as the sale does not take place, the pawner is entitled to redeem the goods on payment of the debt.
Therefore, the right to sue on the debt assumes that he is in a position to redeliver the goods on payment of the debt, and if by denying the pledge or otherwise, he has put himself in a position whereby he is not able to redeliver the goods, he cannot obtain a decree. In Balkrishna Gupta and Ors. (supra), again a judgment of this Court had considered a question that arose under the Companies Act, 1956 and the effect and consequence of appointment of a Receiver in respect of certain shares of a company. In Mis Chowringhee Sales Bureau {P. ) Ltd. (supra), this Court, on the peculiar facts of that case, found that there was a close and direct connection between an auctioneer and the transaction of auction sale in that case. On the basis of the peculiar facts, this Court also found that the auctioneer had collected sales tax on the auction sale of the goods but had not passed on the same to the Revenue.
In such circumstances, this Court held that the auctioneer was liable to pay sales tax under the West Bengal Act. None of the cases cited by the learned counsel for the appellants has any bearing to the facts of the cases on hand. On the other hand, the decisions cited in the judgments under appeal and cited in this judgment in support of the conclusions are directly on point. We have already stated that we are in agreement with the conclusions reached by the learned judges in the judgments under appeal and we have dealt with only the principal reasons sufficient for approving the judgments under appeal. KARNATAKA PAWN BROKERSASSON. v. STATE [K. VENKATASWAMI,J. ] 481 In the light of the discussions made above and for the reasons given A above, we are of the view that the judgment under appeal lay down the correct law and do not call for any interference. Accordingly, the appeals fail and are dismissed. However, there will be no order as to costs. R. K. S. Appeals dismissed.
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