Federal Bank Ltd. & Ors vs State Of Kerala & Ors

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.

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.

each less calls unpaid of (iii) above, held by

(c) State Government ______________ ______________

2. BALANCES WITH OTHER BANKS:

(iv)

(c) Long-term loans Of which secured against:

credits and over drafts Of which secured against:

8. BILLS RECEIVABLE BEING BILLS FOR COLLECTION As per contra _____________

9. BRANCH ADJUSTMENT _____________

10. PREMISES LESS DEPRECIATION _____________

11. FURNITURE AND FIXTURES LESS DEPRECIATION _____________

12. OTHER ASSETS (to be specified)

13. NON-BANKING ASSETS ACQUIRED IN SATISFACTION OF CLAIMS (standing mode of valuation) _____________

14. PROFIT AND LOSS

6. BILL FOR COLLECTION BEING BILLS RECEIVABLE As per contra ____________

7. BRANCH ADJUSTMENTS ____________

8. OVERDUE INTEREST RESERVE ____________

9. INTEREST PAYABLE ____________

10. OTHER LIABILITIES

(i) Bills payable

(ii) Unclaimed dividends

(iii) Suspense

(iv) Sundries

(i) Outstanding liabilities for guarantees issued

(ii) Others ___________ Total ___________ ____________ Total ____________ FORM B Form of Profit and Loss Account Profit and Loss Account for the year ended EXPENDITURE INCOME Rs. P. Rs. P. Rs. P. Rs. P.

2. Salaries and allowances and provident fund

3. Directors and local committee members' fees and allowances

4. Rent, taxes, insurance, lighting, etc.

5. Law charges

6. Postage, telegrams and telephonic charges

7. Auditor's fees

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

12. Balance of profit ___________ Total ___________

1. Interest and discount

2. Commission, exchange and brokerage

3. Subsidies and donations

4. Income from non-banking Assets and profit from sale of or dealing with such assets

5. Other receipts

Accordingly, the above civil appeals have no merit and they are dismissed with no order as to costs.