Important Point
A pawn-broker is a ‘dealer’ and carries on ‘business’ within meaning of Karnataka Tamil Nadu/General Sales Tax Act read with Karnataka Pawnbrokers Act when he causes the sales of unredeemed articles, occasioned by the default of the pawner through Statutory Auctioner.

Headnote:Karnataka Sales Tax Act, 1957-Sections 2(f-2), 2(k) and 2(t) read with Karnataka Pawnbrokers Act-Business - Dealer - Sales-Tamil Nadu General Sales Tax Act read with Tamil Nadu Pawnbrokers Act - Business - Dealer-Sales-When a Pawn-broker causes sales of unredeemed articles/goods occasioned by default of pawner through Statutory Auctioner, he is a ‘dealer’ and carries on ‘business’ within meaning of Act and liable to sales tax accordingly.
       Held : It cannot be and it is not disputed that the Pawn-broker has special property rights in the goods pledged, 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 about 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. (Para 25)
       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 implied that the goods or chattels may be afterwards re-purchased on any terms, is a ‘Pawn-broker’ within the meaning of main clause. The activities of pawn-broker 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 the 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. Likewise, the Auctioneer 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 Pawn-broker. Instead, the auctioneer is under the control of authorities concerned who granted approval for being an Auctioneer. (Paras 30 & 31)
       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 Pawn-broker and the other as individual self. 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. (Para 33)
       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. (Para 34)

Judgment

K. Venkataswami, J.-The 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 read with the State Pawn-brokers Act and Rules when he causes the sales of unredeemed articles/goods, occasioned by the default of the Pawner through (statutory) Auctioneer.

2. The 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.

3. Before going into the submissions advanced at the bar, certain basic background facts need to be stated.

4. ‘Pawn-broker’ 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 through an approved auctioneer and in the manner specified in the rules. The pawn-broker is given liberty to bid at such public auction.

5. The relevant statutory provisions may now be noted.

6. Before the enactment of the Pawnbrokers 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”.”

7. Sections 173 to 176 deal with the various rights of the Pawnee. Section 177 deals with the defaulting pawner’s right to redeem.

8. In 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.

9. A 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.”

10. 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:-

“11. Redemption of pledge.-(1) Every

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1998 Supreme(SC) 1096

Important PointA pawn-broker is a ‘dealer’ and carries on ‘business’ within meaning of Karnataka Tamil Nadu/General Sales Tax Act read with Karnataka Pawnbrokers Act when he causes the sales of unredeemed articles, occasioned by the default of the pawner through Statutory Auctioner.

Cases Referred (5)

Important Point
A pawn-broker is a ‘dealer’ and carries on ‘business’ within meaning of Karnataka Tamil Nadu/General Sales Tax Act read with Karnataka Pawnbrokers Act when he causes the sales of unredeemed articles, occasioned by the default of the pawner through Statutory Auctioner.