IN THE HIGH COURT OF KERALA AT ERNAKULAM
OP No. 4191 of 1999(Y)
1. SYNDICATE BANK
... Petitioner
Vs
1. STATE OF KERALA
... Respondent
For Petitioner :SRI.R.S.KALKURA
For Respondent : No Appearance
The Hon'ble the Chief Justice MR.H.L.DATTU
The Hon'ble MR. Justice K.T.SANKARAN
Dated :14/08/2007
O R D E R
H.L.DATTU, C.J. & K.T.SANKARAN, J.
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O.P.No.4191 of 1999
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Dated, this the 14th day of August, 2007
JUDGMENT
H.L.Dattu, C.J.
A nationalised bank is before us in this original petition, inter alia,
seeking the following reliefs:
“a) Issue a writ of certiorari or any other appropriate writ,
direction or order in the nature of a writ declaring the said sub-
clause (g) of clause (viii) of section 2 of the Sales Tax Act,
introduced by the Finance Bill 1998 as ultravires and
unconstitutional and quash the same;
b) Issue a writ of certiorari or any other appropriate writ
order or direction quashing Exhibit P3 notice as
unconstitutional, illegal and arbitrary;
c) Issue a writ of mandamus or any other appropriate
writ, direction or order in the nature of a writ, forbearing the
respondents from proceeding with any action against the
Petitioner bank pursuant to the amendment of the KGST Act of
the word “Dealer” and levy any sales-tax on the sums received
by them on public auction of pledged gold ornaments by the
various branches of the petitioner bank;
d) Pass such any further or other order or orders as this
Hon’ble Court may deem fit and necessary in the
circumstances of the case and thus render justice.”
(2) A similar issue came up for consideration before the apex Court in
the case of Federal Bank Ltd. and others v. State of Kerala and others [(2007)
4 SCC 188]. In the said decision the Supreme Court has held thus:
“As pledgees, the banks, acting under Section 176 of the
Contract Act, 1872, have a right to sell the goods. That sale is
not as agents but is in exercise of the statutory power under the
1949 Act. Although the sale is on behalf of the pledgor, the
same is in exercise of statutory power.
Moreover, in view of the contents of Forms A and B of
Schedule III prescribed by Section 29 of the 1949 Act for
maintaining balance sheet and profit and loss account
respectively, the sale of pledged assets takes place in theO.P.No.4191/1999 2
course of banking business. Therefore, the banks, in selling the
goods pledged to them, did not act as agents of the
borrowers/pledgors and their sale is in exercise of statutory
power under the 1949 Act. Although under Section 8 of the
1949 Act banks are prohibited from trading in goods, Section 8
read along with Schedule III to the 1949 Act makes it clear that
dealing in non-banking assets is a banking business and falls
within the exception made in Section 8. When a pledged article
is sold in an auction, the bank recovers not only its dues but also
recovers interests and its other charges. This realisation falls
within the parameters of Schedule III to the 1949 Act.
Therefore, sale of pledged ornaments falls within the course of
banking business under the 1949 Act. In the circumstances,
such transactions are taxable under Section 2(viii)(g) read with
Section 5 of the 1963 Act.”
(3) Following the dicta of the apex Court, this original petition requires
to be rejected and it is accordingly rejected.
(4) Consequently, C.M.P.No.7191 of 1999 is also dismissed.
Ordered accordingly.
(H.L.DATTU)
CHIEF JUSTICE
(K.T.SANKARAN)
JUDGE
vns