IMPORTANT POINT
Once transaction of sale of pledged ornaments falls under Section 2(viii) (g) of the Kerala General Sales Tax Act, 1963, banks become ‘dealers’, therefore, liable to pay sales tax under the said 1963 Act.

JUDGMENT

Kapadia, J.—A short question which arises in these two civil appeals is : whether banks are “dealers” under Section 2(viii) read with Explanation I of the Kerala General Sales Tax Act, 1963.

2. Since common question of law arises in both the civil appeals, they are heard together and disposed of by this common judgment. For the sake of convenience, we may refer to the facts in C.A. No. 6459 of 2003 filed by Federal Bank Ltd. and Ors. v. State of Kerala and Ors.

3. By the Kerala Finance Act, 1998 a clause (g) was inserted in Section 2(viii) by which the definition of the word “dealer” was expanded to cover a bank or a financial institution which, whether in the course of its business or not, sells any gold or other valuables pledged with it to secure any loan, for the realization of such loan amount. After the said amendment, the Department called upon Federal Bank to furnish details of the gold auction during the year 1998-1999 and 1999-2000. This was vide notice dated 31.8.99 issued by the Sales Tax Officer to the assessee. On 1.11.99 the Department called upon the bank to furnish details of the turnover relating to the gold auction sale on and after 1.4.98; the Department also called upon the assessee to pay tax at 4% on the sale turnover within 15 days. This was vide notice dated 1.11.99. Federal Bank submitted its reply contending that a scheduled bank cannot be compared with a pawn broker and, therefore, it was not a dealer under the 1963 Act. The Federal Bank refused to file its return on the ground that there was no sale of ornaments pledged to the bank and that the position of the bank remained unaltered even after introduction of clause (g) in Section 2(viii) of the 1963 Act vide Kerala Finance Act 1998 dated 29.7.98.

4. Ultimately, Federal Bank Ltd. filed O.P. No. 1169 of 2000 in the Kerala High Court challenging the validity of Section 2(viii)(g) of the 1963 Act as also the notices issued by the Department pursuant to the Kerala Finance Act, 1998 directing Federal Bank to file returns and pay tax on sale of pledged articles.

5. By judgment and order dated 11.4.2002 the Single Judge held that in view of Kerala Finance Act, 1998, by which clause (g) stood incorporated under Section 2(viii) of the 1963 Act, the transaction of sale, whether in the course of business or not, would cover auction sale or ornaments pledged with the bank. Therefore, banks, according to the learned Single Judge, came within the definition of the word “dealer” and since the pledged articles were goods and since the sale was for money consideration, Section 5 of the 1963 was applicable and in the circumstances the learned Single Judge upheld the demand notices leaving the question of legislative competence open to challenge.

6. Aggrieved by the said decision of the learned Single Judge, Federal Bank along with other banks carried the matter in appeal. By the impugned judgment dated 3.4.03 it was held that in view of the Kerala Finance Act, 1998 under which the definition of the word “dealer” is expanded to cover banks, the Department was right in seeking to cover the transactions of auction sale of pledged gold articles. It was further held that amended Section 2(viii) (g) was intra vires the Constitution of India and that the said section did not infringe Articles 14 and 19 of the Constitution. It was further held that even assuming that the transaction of sale of pledged articles is not a part of the main business activity still the said transaction would come within the meaning of incidental or ancillary to the business of banking and in the circumstances there was no infirmity in the judgment of the learned Single Judge. Accordingly, the Division Bench dismissed the writ appeals filed by the appellants herein. Hence, this civil appeal.

7. At the outset, we may point out that before us the constitutional validity of Section 2(viii)(g) of the 1963 Act was not argued. Before us it was urged on behalf of banks (appellants) that although by th