Pawn Brokers Assn. & Ors Vs. State of Karnataka & Ors  INSC 505 (29 October 1998)
K.Venkataswami K.Vankataswami, J.
common question that arises for consideration in all these appeals is whether a
Pawn-broker is a dealer and carries on 'business' within the meaning of the
State General Sales Tax Act read with the State Pawnbrokers Act and Rules when
he causes the sales of unredeemed articles/goods, occasioned by the default of
the Pawner through (statutory) Auctioneer.
above question has to be considered with reference to the provisions of the
Tamil Nadu General Sales Tax Act read with the Tamil Nadu Pawnbrokers Act and
Rules as well as the Karnataka Sales Tax Act read with the Karnataka
Pawnbrokers Act and Rules. We may point out that the relevant provisions of
both the Sales Tax Acts and the Pawnbrokers Act are substantially the same and
for the sake of convenience the provisions mentioned hereinafter are the
provisions of the Karnataka Acts.
going into the submissions advanced at the bar, certain basic background facts
need to be stated.
is a person who carries on the business of taking goods and chattels in pawn
for a loan. On payment of the money lent with interest and other admissible
incidental expenses the pawn-broker is liable to return the articles pledged. under
the Act and Rules framed thereunder, the pawn-broker has to take out a licence
to carry on the business of pawn-broker. In addition to that, he has to
maintain various account books, registers and records as prescribed under the
Rules. In the event of the pawner's failure to redeem the pledged articles
within the stipulated time and the grace period statutorily allowed, the
pawn-broker is at liberty to bring the articles pawned for sale at a public
auction conducted in accordance with the rules prescribed under the Act. Such
sale by public auction must be conducted only throng an approved auctioneer and
in the manner specified in the rules. The pawn-broker is given liberty to did
at such public auction.
relevant statutory provisions may now be noted.
the enactment of the Pawn-brokers Act by the States, the transactions of
pledge/pawn were governed by the provisions of the Indian Contract Act. Chapter
IX of the Contract Act deals with the bailments of Pledges. Section 172 defines
'pledge', 'pawner' and 'pawnee' as under :- "The bailment of goods as
security for payment of a debt or performance of a promise is called
"pledge". The bailor is in this case called the "pawner".
The bailee is called the "pawnee".
173 to 176 deal with the various rights of the Pawnee. Section 177 deals with
the defaulting pawner's right to redeem.
addition to the provisions in the Contract Act dealing with the pledge, it was
felt necessary by the States to bring in a separate legislation concerning the
business of Pawn-brokers in order to regulate and control that business of
Pawn-brokers. Accordingly, the Pawnbrokers Act came to be enacted. The
Pawnbrokers Act provides details of the manner in which the business of a
Pawn-broker should be carried on and how the rights and liabilities of the Pawner
and the Pawnee should be adjusted and settled.
Pawn-broker in the Karnataka Pawnbrokers Act (hereinafter called the 'Act') is
defined in Section 2(7) as follows:- "Pawn-broker" means a person who
carries on the business of taking goods and chattels in pawn for a loan;
Explanation - Every person who keeps a shop for
the purchase or sale of goods or chattels and who purchases goods or chattels
and pays or advances thereon any sum of money, with or under an agreement or
understanding expressed or implied that the goods or chattels may be afterwards
re-purchased on any terms, is a pawnbroker within the meaning of this
clause." Section 3 compels the Pawn-broker to obtain a licence. Section 7
directs the Pawn-broker to give a ticket to the Pawner on taking a pledge in
pawn. Section 11 an important section, deals with the redemption of pledge,
which reads as follows:-
Redemption of pledge –
Every pledge shall be redeemable within one year from the day of pawning
exclusive of that day; and there shall be added to that year of redemption
fifteen days of grace within which every pledge (if not redeemed within the
period of redemption) shall continue to be redeemable.
pledge pawned for a sum not exceeding ten rupees, if not redeemed within the
period of redemption and days of grace, shall at the end of the days of grace
become the pawnbroker's absolute property.
pledge pawned for a sum exceeding ten rupees shall further continue to be
redeemable until it is disposed of as provided in this Act, although the period
of redemption and days of grace have expired.
Explanation -- Where the contract between the
parties provides a longer period for redemption than one year, the provisions
of sub-sections (1), (2) and (3) shall be read and construed as if references
to such longer period had been substituted for the references to the period of
one year therein." Section 12 of the Act deals with the sale of pledge and
inspection of sale book, which reads as follwos:- "Sale of pledge and inspection of sale book.
pledge pawned for a sum exceeding ten rupees shall, when disposed of by the
pawnbroker, be disposed of by sale by auction and not otherwise, and the sale
shall be conducted in accordance with such rules as may be prescribed.
pawnbroker may did for and purchase at a sale by public auction conducted under
sub-section (1), a pledge pawned with him; and on such purchase he shall become
the absolute owner of the pledge.
any time within three years after the public auction, the holder of the
pawn-ticket may inspect the entry relaiting to the sale either in the
pawnbroker's book or in such catalogue of the auction as may be prescribed.
(a) Where on such inspection or otherwise the pledge appears to have been sold
for more than the amount of the loan and the interest and charges due at the
time of the sale, the pawnbroker shall pay to the holder of the pawn-ticket on
demand made within three years after the sale, the surplus after deducting therefrom
the necessary costs and charges of the sale.
on such demand it appears that the sale of the pledge has resulted in a surplus
but that within twelve months before or after such sale, the sale of another
pledge or pledges of the same person has resulted in a deficit, the pawnbroker
may set off the deficit against the surplus and shall be liable to pay only the
bllance if any after such set off." The next relevenant provision will be
Rule 20 of the Karnataka Pawnbrokers Rules, which reads as under :- "20. Procedure
in auction of pledges. -- The procedure for sale by public auction of pledges
shall be as follows:- (1) The sale shall be conducted by an auctioneer approved
by the Licencing Authority or from the Inspector of Money Lenders and the
Pawn-Brokers. (2) The auctioneer shall (i)causes all pledges to be exposed to
a catelogue of the pledges to be sold in auction containing the following
particulars printed:- (a) the name, place of business and licence number of the
of the pledge in the pledge book;
and detailed description of the article (weight to be noted in case of jewels);
and address of pawner; and (f) date, hour and place of sale;
the printed catalogue by getting a copy thereof posted at the place of business
of the pawn-broker and by distributing copies among intending bidders;
at least a week before the date fixed for the sale:- (a) two copies of the
printed catalogue to the police station having jurisdiction over the premises
where the auction is to be held, one copy for being posted on the notice board
of the police station and another copy for record at the police station:] [(aa)
two copies of the printed catalogue to the Licensing Authority having
jurisdiction over the premises where the auction is to be held, one copy for
being pasted on the notice board of his office and another copy for record;
copy of the printed catalogue to the police station or each of the police
stations having jurisdiction over the place of the business of the pawnbroker
concerned for record at such police station; and (c) in any case, shall notify
each of the police stations having jurisdiction over the places of business of
the pawnbroker concerned and the place or places of sale, and postponement of
such auction and all the subsequent dates of auction;] (v)send a copy of the
printed catalogue by registered post to the pawner at least a week before the
date fixed for sale.
The pledges of each pawnbroker in the catalog shall be separate from the
pledges of any other pawnbroker notifying the sale in a news paper approved by
the Licensing Authority or the Inspectors of Money Lenders and the Pawnbrokers
furnishing the following details also:
panwbroker's name and place of business; and (b) the months in which the
pledges were pawned.
the pawnbroker himself bids at the sale, the auctioneer shall not take the
bidding in any from other than that in which he takes, the bidding of other
persons at the same scale, and the auctioneer on knocking down any article to a
pawnbroker shall forthwith declare audibly the name of the pawnbroker as
auctioneer shall, within fourteen days, after the sale deliver to the
pawnbroker an authenticated copy of the catalogue, or of so much thereof as
relates to the pledges of that pawnbroker indicating also the charges for the
sale of each article.
pawnbroker shall preserve every such catalogue for at least three years after
the auction." Section 2(f-2) of the Karnataka Sales. Tax Act, 1957 defines
'business' as follows;
includes - "(i) 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 (ii) any transaction in
connection with or incidental or ancillary to such trade commerce, manufacture,
adventure or concern." Section 2(k) defines 'dealer'. The relevant portion
is as follows:
"Dealer" means any person who carries on the business of buying
selling supplying or distributing goods directly or otherwise, whether for cash
or for deferred payment, or for commission, remuneration or other valuable
consideration, and includes - ............." The definition of 'sale' is found
in Section 2(t).
relevant portion is as follows:- "2(t) "Sale" With all its grammatical variation and cognate
expressions means every transfer of the property in goods [other than by way of
a mortgage, hypothecation, charge or pledge] by one person to another in the
course of trade or business for cash or for deferred payment or other valuable
consideration, [and includes, ......... " A careful reading of the above
extracted provisions will show that the Pawner can redeem the pledged article
within the period stipulated or within the grace period provided or before the
sale of pawned article takes place through auctioneer. However, once the
article is brought of sale and sold, the Pawner would lose his right in the
pawned article as the general property right in the said article passes on to
basis of the general facts broadly stated as above, the contentions of the
learned counsel were advanced.
K. Parasaran and D.A.Dave, learned senior counsel, advanced leading arguments
on behalf of the appellants. The contentions raised by the counsel are as follows
:- The Pawn-brokers as money lenders lend money on the pledge of articles. It
is incorrect to state that they are engaged in the business of buyingand/or
selling of goods. On the pledge of the articles, a relationship of bailor and bailee
comes into existence and as such the bailee has no right to sell the property
contrary to the contract or other statutory provisions regulating their
relationship. If at all there is a sale occasioned by the default of the Pawner
in redeeming the article, the auctioneer must be treated as the seller and the
liability to pay the sales tax will be only on the auctioneer. As the
Pawn-broker himself is given a right to did at the sale under the rules, he
cannot be treated as the seller. Consequently, the Pawn-broker cannot be
considered as a dealer effecting a sale. According to the learned senior
counsel, on a harmonious reading of the relevant provisions of the Sales Tax
Act and the Pawnbrokers Act, the only conclusion possible is that the
Pawn-broker is not a dealer effecting a sale of property and, therefore, he is
not liable for sales tax on such sales. At the most, it is contended that the
sale of pledged articles, in the circumstances, must be deemed to be incidental
to the main business of pawn-broker not attracting the provisions of the State
General Sales Tax Act. It is also contended that the fact that Pawnbrokers Act
and the Rules framed therein enabled the Pawn-brokers to dispose of the pawned
articles by way of sale through an auctioneer; it does not in any way amount to
transferring the general property right in goods by the Pawn-broker resulting
in passing on of the property to the purchaser, it would be contrary to the
concept of sale as contained in the Sale of Goods Act as the law does not recognise
such a transaction as a sale.
Iyer, learned senior counsel appearing on behalf of the State of Karnataka, and
Mr. V.Krishnamurthi, learned counsel appearing on behalf of the State of Tamil Nadu,
answering the contentions of learned counsel for the appellants, submitted that
factually there is a sale in disposing of the pledged articles through public
auction, cannot be disputed. 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 'Pawn-broker' and the same is incidental to the business of
pawn-broker and the same is incidental to the business of pawn broker. The
concept of business includes the business of pawnbroker with incidental right
to sell the unredeemed goods. On the facts of the case, the auctioneer cannot
be treated as the seller for imposing tax on him. The appellants have admitted
that the sale of unredeemed articles is incidental to the business of
pawnbroker. If that be so the liability to pay sale tax on such sales cannot be
avoided in view of the definitions of business, dealer and sale in the Sales
Tax Acts. The learned counsel submitted that the reasonings given by the High
Courts are well-founded and the conclusions thereon do not call for
interference in these appeals.
case law cited by the learned counsel on both the sides will be referred to at
the appropriate place.
the contentions now raised by the learned counsel for the appellants were
raised before the High Courts of Karnataka and Madras, but without success. Both the High Courts rejected similar
contentions and found that the Pawnbrokers are liable to pay sales tax on the
sales of articles through public auction on account of default committed by the
learned judges of the Division Bench of the Karnataka High Court after
referring to a judgment of this 1210]. held that the Pawnbroker has a special
property right in the pledge and that special property right is to be
distinguished from the more right of detention which the holder of a lien
possesses. The Division Bench also held that the sale of unredeemed goods takes
place at the instance of the Pawnbroker and such sale held through the approved
auctioneer results in passing on the general property right in the goods to the
purchaser. According to the learned Judges the Pawnbroker squarely falls in the
main definition of dealer under the Karnataka General Sales Tax Act. To come to
the above conclusion the learned Judges invoked the aid of definition of
pawnbroker in Section 2(7) of the Pawn Brokers Act. After referring to a
judgment of this Court in Lallan Prasad vs. Rahmat Ali & Anr. [(1967) 2 SCR
233], the learned Judges held that a Pawn-broker has an implied authority to
sell and such activity of sale which is incidental/ancillary to the business of
Pawn-broker falls within the definition of business under the karnataka Sales
Tax Act. The learned Judges rejected the contention of the assesses that, if at
all for the sale of pawned articles the auctioneer is liable for sales tax and
not the Pawn-broker.
reason for rejecting the above contention was that the auctioneer was not the
agent of the Pawnbroker but appointed as auctioneer under the relevant rule.
According to the learned Judges, the Pawnbroker has authority under the statute
to bring the pawned articles for sale and the pawner loses all his rights in
the article sold through the auctioneer at the instance of the Pawn-broker.
learned Judges of the Division Bench of the Madras High Court also took the
view as that of the Karnataka High Court and gave additional reasons as well.
referring to a full Bench judgment of the Madras High Court in Kandula Radhakrishna
Rao & ors. vs. The Province of Madras [3 STC 121], the learned judges held
that the pawner, who pledges the article with the licensed Pawn-broker, not
only parts with the possession of the pledged article in favour of the
Pawn-broker, but by virtue of such pledge parts with the rights he held to sell
the pledged article in case of default of payment and discharge of loan or
redemption of the article pledged within the time stipulated therefor by the
contract or by the provisions of the Act and the rules made thereunder. The
learned Judges further held that the sale of the pawned article can be safely
and legitimately be said to be occasioned or brought about by the action of the
Pawn-broker only and consequently, he alone has to be treated in law as the
person responsible and also as the person who has sold the pledged articles.
The intervention of an approved auctioneer is only to prevent abuse by the
Pawn-broker of his right to auction the un-receemed pledged articles to the
detriment of the pawner and to prevent exploitation of his innocence or
indigent circumstances. The position of the auctioneer was that of a more crier
or broker, who brings about sale. Therefore, the auctioneer can be bo stretch
of imagination be characterised as a seller inasmuch as be cannot be said to
have any personal or propriety interest either in the pledged articles plays on
role whatever in the actual sale of the articles, through it is his default in
redemption of the pledged articles that results in the auction sale of the
pledged articles. It was learned Judges that the Pawn-broker, whose action and
decision brings about the sale and who alone having possession hands over the
pledged articles to the successful bidder subsequently, is to be considered as
a seller under the Sales Tax law. The learned Judges held that the Pawn-broker
satisfies the definition of 'dealer' as well as business under the Tamil Nadu
General Sales Tax Act. which are substantially the same as that of the
corresponding definitions in the Karnataka Sales Tax Act.
by the above conclusions the present appeals by special leave are filed.
learned Judges of the Division Bench of the Karnataka High Court as well as the
learned Judges of the Division Bench of the Madras High Court have written
elaborately on the subject citing numerous authorities of this Corut and of the
High Courts to support their conclusions. We are, with respect in agreement eith
the conclusions and the reasonings given for such conclusions in the judgments
under appeal. We do not therefore, propose to give elaborate reasonings, except
to point out the principal reasonings to sustain the conclusions reached in judgements
cannot be and it is not disputed that the Pawn-broker has special property
rights in the goods pledge, a right higher than a mere right of detention of
goods but a right lesser than general property right in the goods. To put it
differently, the pawner at the time of pledge not only transfers to the pawnee
the special right in the pledge but also passes on his right to transfer the
general property right in the pledge in the event of the pledge remained
unredeemed resulting in the sale of the pledge by public auction through an
approved auctioneer. The position being what is stated above the natural
consequence will be that it is the pawnee who holds not only the absolute
special property right in the pledge but also conditional general property
interest in the pledge, the condition being that he can pass on that general
property only in the event of the pledge brought to sale by public auction in
accordance with the Act and the Rules framed thereunder.
this connection, we can usefully quote a passage from Kandula Radhakrishna Rao
(supra), which has been approved by this Court in Bagal Kot Cement Co. vs.
State of Mysore [(1976) 1 SCC 336].
Madras High Court in Kandula Radhakrishna Rao's case (supra), (a Full Bench
Judgment) speaking through Rajamannar, C.J., an eminent Judge, had an occasion
to consider the position of a broker and a commission agent under the Madras
General Sales Tax Act, 1939 and the rules made thereunder. The question that
was considered in the said judgment was as to whether a commission agent is a
dealer or not under the Taxing Enactment. The learned Chief Justice observed as
follows :- "As no written conveyance, still less a registered deed, is
necessary for the sale of goods, unlike in the case of sale of immovable
property, the contract of sale is preformed when the goods are actually
delivered. It is because that there can be a sale by a person who has no title
to the goods that Section 27 enunciates the rule that the buyer acquires no
better title to the goods than the seller had. In the case of a commission
agent, the accepted mercantile practice is that he has control over or possession
of the goods and he has the authority from the owner of the goods to pass the
property in and title to the goods. If this is so, undoubtedly when a
commission agent sells goods belonging to his principal with his authority and
consent and without disclosing to the buyer the name of the owner, there is
certainly a transfer of property in the goods from the commission agent to the
buyer. A business which consists in such transactions can properly be described
as a business of selling goods. A similar position would arise even in the case
of a commission agent buying for an undisclosed principal. A Commission agent
doing this kind of business would, in my opinion fall within the definition of
dealer in the Sales Tax Act. Neither the definition of dealer nor of sale
contemplates as a necessary condition, that the goods sold should belong to the
person selling or buying. There can be a sale or purchase on behalf of
another." We have already pointed out that this view of the Full Bench of
the Madras Hihg Court had the approval of this Court in Bagal Kot Cement Co.
member, Board of Revenue, West Bengal vs.
Controller of Stores, Eastern Railway, Calcutta [74 STC 5].
Court had an occasion to consider whether the Sourt Eastern Railway as a
carrier of goods when sells the unclaimed goods was carrying on an activity
incidental or ancillary to its business as carrier of goods and therefore, was
a 'dealer' for the purpose of the Bengal Finance (Sales Tax) Act, 1941 and
liable to pay sales tax on the sale of unclaimed goods. While answering the
question in the affirmative the learned judges held as follows :- "In
these appeals the question is whether the assessee - railway in each case is a
"dealer" for the purpose of assessment under the Bengal Finance (Sales
Tax) Act, 1941. In the case of the assessee, South Eastern Railway, what were
sold were unclaimed goods. The railway gas a carrier of the goods and if at the
stage of delivery goods remained unclaimed for a period the railway was
entitled to dispose them of.
can be no doubt that the activity of so disposing of the goods was adjunctive
to the principal activity of the carriage of goods by the railway. It is an
activity which may be regarded as necessarily incidental or ancillary to its
business as carrier of the goods. It seems to us that the assessee, South
Eastern railway, was a "dealer" for the purposes of the Bengal
Finance (Sales Tax) Act. 1941." Applying the above principle to facts of
these cases, we are clearly of the opinion that in the sales of unredeemed
goods through public auction by an approved auctioneer the pawnee, who has
control or possession over the goods and who was given statutory authority to
pass the general property in and title to the goods, is the seller and as such,
satisfies the definition of 'dealer' under the General Sales Tax Act of both
the States. This conclusion is further strengthened by the definition of
'Pawn-broker' (supra). The explanation to the definition of 'Pawn-broker'
contemplates that every person who keeps the shop for the purchase or sale of
goods or chattels and who purchases goods or chattels and pays or advances
thereon any sum of money, with or under an agreement or understanding expressed
or milled that the goods or chattels may be afterwards re-purchased on any
terms, is a Pawnbroker within the meaning of main clause. The activities of
pawnbroker as detailed above will satisfy the definition of business as well.
We have also noticed that the pawner has no role at all in the sale of goods
pledged except to redeem the same before the sale is concluded. Therefore, he
cannot be treated as seller in the context of the transaction.
the Auctionner cannot be treated as a seller liable to pay sales tax on the
turnover as the role of the auctioneer in the facts of these cases is very
limited and he is not under the control of the pawnbroker. Instead the
auctioneer is under the control of authorities concerned who granted approval
for being an auctioneer. In thsi connection we can usefully city a Division
Bench judgment of the Madras High Court in The Deputy Commissioner of
Commercial Taxes, Madras Division, Madras -7 vs. Sri Dayanand Corporation,
Madras-1 [21 STC 346]. The issue for decision in that case was whether the
auctioneer can be considered an a dealer for the purpose of levy of sales tax.
The auctioneer in that case was also an approved Auctioneer under the
provisions of the Tamil Nadu Pawnbrokers Act. While holding that the auctioneer
was not a dealer liable to pay tax the learned judges observed as follows :-
"We have carefully gone through the formalities which the above rules have
laid down for the procedure at the auction of pledged goods by the auctioneer.
But nowhere has it been stated that the auctioneer should take over possession
of the goods from the pawnbroker and sell them. Even the specific provision in
rule 15(2) extracted above, only directs the auctioneer to cause all pledges to
be exposed to public view. He could perform this obligation by directing the
pawnbroker to be present at the time of the sale with the articles proposed to
be sold and keep them ready for inspection. But this obligation will not make
it necessary for the pawnbroker to part with possession of the goods in favour
of the auctioneer.
little reflection, one also realises that a careful pawnbroker would like to
keep the goods in his own custody until they are sold and would not like to
hand over possession to the auctioneer without any security for their safe
custody. The provisions in the pawnbrokers Act and in particular, the
obligation that auction sales of unredeemed goods shall be effected according
to certain prescribed rules through according to certain prescribed rules
through approved auctioneers are intended to safeguard the pledgers of goods
form the effect of nominal or bogus sales of their goods by pawnbrokers in the
event of non-redemption, Which will otherwise have the effect of preventing
poor persons, who respect to the pawnbrokers for loans, from getting a proper
value of the pledged goods when they remain unredeemed. The intervention of the
auctioneer is therefore, intended for safeguarding the interest of the pledgers
of goods but at the same time, the rules are careful to see that the interest
of pawnbrokers are not also affected and they do not require them to part with
the possession of the goods to the auctioneer before the sale. In fact the
rules are silent about the mode of delivery of the goods. They have
meticulously provided for the manner in which the sales are to be published and
conducted. The auctioneer will be carrying out the obligations under the rules,
even without taking possession of the pledged goods and delivering them to the
highest bidder on the fall of the hammer. The pawnbroker can still be a person
who retains the possession of the goods, and he can deliver them to the
successful bidder at the auction by the auctioneer. It is from this point of
view that we are impressed by the circumstances mentioned by the Tribunal in
its order including clause 5 of the conditions of the auction sale which allows
the bidder to take delivery of the goods from the pawnbroker, and the bill of
sale which makes mention of the fact that the buyer will take delivery of the
goods from the pawnbroker on payment of the price to the auctioneer.
no doubt a fact that section 2(g) of the Madras General Sales Tax Act, 1959,
which defines "dealer"includes an auctioneer. The
"auctioneer" is however included therein only as an instance of other
types of dealers who are also referred to in the definition. But the main part
of the definition at the beginning of section 2(g) refers to a person who
carries on the business of buying selling, supplying or distributing goods.
these requirements can apply to a dealer, for the purpose of levy of sales tax
the transaction must amount to a sale as defined in section 2(n) of the Act.
That definition 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 brining 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 prices at the
open sale of their pledged articles.
is the pawnbroker who ultimately delivers possession of the goods to the
bidder. On this finding 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 he
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.
coming to the contention that inasmuch as the pawn-broker is given liberty to
bid and purchase at the sale of unfedeemed goods he cannot be deemed as a
seller as one cannot sell the goods to himself. This contention is mis-conceived
as the Pawnbroker 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 & Co. vs 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.
learned judges overruling a similar contention held that the concerned agent of
a non-resident principal - and the other as proprietor of his own business, two
different indentations 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.
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.
now consider the decisions cited on behalf of the learned counsel for the
Parasaran, learned senior counsel for the appellants, cited a Single Bench
judgment of the Madras High Court in Provincial Government of Madras vs. Mudukuru
Munirathnam Chetti & Anr. [4 STC 296]. This judgment apart from the fact
that it was rendered under the Madras General Sales Tax Act, 1939, 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
the decisions cited by Mr. Dave, learned senior counsel for the appellants,
namely. The Deputy A.R.S. Thirumeninatha Nadar. Firm Tuticorin [21 STC 233], Lallan
Prasad vs. Rahmat Ali & Anr. [(1973) 1 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.
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 agent of the assessee
and the sales were on behalf of the pledger.
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.
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.
Gupta & 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
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.
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.
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.
light of the discussions made above and for the reasons given 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.