The business of the Banking Company is not trading in goods, and the sale of secured goods for the purpose of realisation of debts due to the scheduled bank is not concerned with the business in goods.

Headnote:
Banking Regulation Act - Liability of Banks to pay tax under the Kerala General Sales Tax Act - Relevant provisions discussed: S.5(b), S.6(1), S.6(2), S.8 of the Banking Regulation Act; S.176 of the Indian Contract Act; S.2(vi)(a) & (b), S.2(vii), S.2(viii) of the Kerala General Sales Tax Act
Fact of the Case:

Banks, engaged in banking business, granted loans on the security of gold ornaments. The Sales tax Officer issued a notice requesting the Banks to intimate the turnover with regard to the sale of gold ornaments by the Banks. The Banks contended that they are not engaged in the business of selling or buying goods and hence not liable to be assessed under the Act. The Single Judge dismissed the Original Petitions, leading to the filing of Writ Appeals.
Finding of the Court:

The Banks, engaged in banking business, are not liable to pay tax under the Kerala General Sales Tax Act for the disposal of gold ornaments pledged to them by the borrowers.
Issues: Whether the Banks are liable to pay tax under the Kerala General Sales Tax Act for the disposal of gold ornaments pledged to them by the borrowers.
Ratio Decidendi: The business of the Banking Company is not trading in goods but mainly involves accepting deposits and granting loans with security. The sale of goods for the purpose of realisation of debts due to the scheduled bank is not concerned with the business in goods. The Banks are prohibited from trading in goods, and the sale of secured goods is not incidental or the main business of the bank.
Final Decision: The judgment of the learned single judge is set aside, and the Writ Appeals are allowed. Respondents are restrained from levying any tax under the Kerala General Sales Tax Act or taking any proceeding against the appellants-banks with respect to the disposal of gold ornaments pledged to the Banks by the borrowers.

Judgment :-

U.P. Singh, C.J.

These Writ Appeals have been filed against the common judgment in O.P. Nos. 9508/94,1339/93,963/93 and 926/93 (1997 KLJ (Tax Cases) 164). While the appellant in W.A. 633/97 is Lord Krishna Bank Ltd., the appellant in W.A. No. 634/97 is the Federal Bank Ltd.- The South Indian Bank and the Catholic Syrian Bank are the appellants in the other cases. 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 pledges 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 or 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 S.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. A counter affidavit has been filed by the respondents in which they have justified the action taken by the Assistant Commissioner of Sales Tax. According to the Government, in so far as the sale is effect of the pledged goods, the turnover of such sales should be assessed under the Act. Further it is submitted that as per the definition of 'business' and 'casual dealer' in the Act, it is not necessary that the business should be done for profit. The provisions of the Act apply if the sale is incidental to the main business of the Bank. The learned Single Judge, who heard the Original Petitions, dismissed the same. Hence, these Writ Appeals have been filed and they are disposed of by this judgment.

4. Before we deal with the rival contentions of the parties, let us look at the relevant provisions of the Banking Regulation Act, 1949. 'Banking' has been defined under S.5(b) of the Banking Regulation Act as follows:

"Banking" means the accepting, for the purpose of lending or investment of deposits of money from the public, repayment on demand or otherwise, and withdraw able by cheque, draft, order or otherwise." 5.6(1) of the Banking Regulation Act deals with the forms of business in which the Banking Companies may engage while S.6(2) says that no banking company shall engage in any form of business other than those referred to in sub-s.(1). S.6(1) of the Banking Regulation Act is as follows:

"6. Forms of business in which banking companies may engage - (1) In addition to the business of banking, a banking company may engage in any one or more of the following forms of business, namely:

(a) the borrowing, raising, or taking up of money; the lending or advancing of money either upon or without security the drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hundreds, promissory

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Judicial Analysis