The main legal point established in the judgment is that the sale of pledged goods by scheduled banks for the purpose of realizing debts due to them is not connected with the business in goods and does not make the banks liable to pay sales tax under the Kerala General Sales Tax Act.

U. P. SINGH, C.J. –

These writ appeals have been filed against the common judgment in O.P. Nos. 9508 of 1994, 1339 of 1993, 963 of 1993 and 962 of 1993. While the appellant in W.A. No. 633 of 1997 is Lord Krishna Bank Limited, the appellant in W.A. No. 634 of 1997 is the Federal Bank Limited. The South Indian Bank and the Catholic Syrian Bank are the appellants in the other crises. 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 pledgers 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 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 section 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 definitions 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 section 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, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise."

Section 6(1) of the Banking Regulation Act deals with the forms of business in which the banking companies may engage while section 6(2) says that no banking company shall engage in any form of business other than those referred to in sub-section (1). Section 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, co