Federal Bank Ltd. And Ors. vs State Of Kerala And Ors. [Alongwith ...

2. 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 Page 1529 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. 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.

3. 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 leaned Single Judge upheld the demand notices leaving the question of legislative competence open to challenge.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.

THE THIRD SCHEDULE (see Section 29) FORM A Form of Balance-sheet CAPITAL AND LIABILITIES   PROPERTY AND ASSETS   Rs. P. Rs. P. Rs. P. Rs. P.

(a) Individuals   Market value Rs.

7. INTEREST RECEIVABLE -

(A) Government and other   Of which overdue   approved securities   Considered bad and doubtful   (B) Other tangible Securities @   of recovery

(c) Long-term loans       Of which secured

8. BILLS RECEIVABLE   against:

9. BRANCH ADJUSTMENT

_____________   credits and over drafts       Of which secured against:

10. PREMISES LESS DEPRECIATION   Government and other   _____________   approved securities       Other tangible securities @

(b) Medium term- loans

11. FURNITURE AND FIXTURES LESS   Of which secured against:

(c) Long-term loans:

14. PROFIT AND LOSS   Of which secured against:

EXPENDITURE   INCOME     Rs. P. Rs. P.   Rs. P. Rs. P.

1. Interest on deposits,

1. Interest and discount   borrowings, etc.

2. Salaries and allowances

2. Commission, exchange and brokerage and provident fund

3. Directors and local

3. Subsidies and donations   committee members'       fees and allowances

4. Income from non-banking

4. Rent, taxes, insurance,   Assets and profit from sale   lighting , etc.

5. Law charges   of or dealing with such assets

6. Postage, telegrams and       telephonic

5. Other receipts   charges

7. Auditor's fees

6. Loss (if any)

8. Depreciation on and       repairs in property

9. Stationery, printing       and advertisement, etc.

10. Loss from sale of or       dealing with non-banking       assets

11. Other expenditure

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9. In the circumstances, there is no infirmity in the impugned judgments of the Division Bench of the Kerala High Court. Accordingly, the above civil appeals have no merit and they are dismissed with no order as to costs.