Page 1 Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1798 OF 2005

Commercial Tax Officer & Ors. ... Appellant(s)

Versus

State Bank of India & Anr. ...Respondent(s)

J U D G M E N T

Dipak Misra, J.

The seminal question that emerges for consideration in

this appeal is whether the State Bank of India (SBI) and its

branches, which are registered dealers under the Bengal

Finance (Sales Tax) Act, 1941 (for brevity, ‘the Act’) would be

liable to levy of purchase tax under Section 5(6a) of the Act

for accepting the Exim Scrips (Export Import Licence) on

payment of premium of 20 per cent of the face value of the

scrips in compliance with the direction contained in the

letter of Reserve Bank of India (RBI) dated 18

th

March, 1992.

Page 2 2

The authorities of the revenue as well as the Taxation

Tribunal (for short, ‘the tribunal’) had held against the SBI

but the Division Bench of the High Court of Calcutta in a

writ petition has dislodged the said conclusion holding, inter

alia, that the purchase of Exim scrips by the Bank did not

attract the provisions of Section 4(6) (iii) of the Act and

resultantly quashed the orders of fora below and issued

consequential directions.

2.It is necessary to state the facts in detail to appreciate

the controversy at hand. The SBI is a body corporate

constituted under the State Bank of India Act, 1955 for the

extension of banking facilities in the country and for other

public purposes. The bank has to perform various functions

as per the directions issued from time to time by the RBI in

keeping with the economic and monetary policies of the

Central Government.

3.Policies are notified by the Government of India under

the Imports and Exports (Control) Act, 1947, as amended

from time to time, and the Imports (Control) Order, 1955, to

regulate imports into and exports out of the country and

contain different incentive schemes and subsidies to build

Page 3 3

up foreign exchange resources of the country. As the facts

would reveal before July 4, 1991 there was provision for

issuance of Replenishment Licences which were referred to

as "REP Licences". The objective behind the grant of such

licences was to provide the registered exporters the facility

of importing essential goods required for the manufacture of

the products to be exported. Such licences were made freely

transferable and such transfer did not require any

endorsement or permission from the licensing authority and

only a letter from the transferor the transferee became the

lawful holder of the licence and was entitled to either import

the goods for which the licence had been issued or sell the

licence to someone else.

4.The aforesaid policy remained in vogue till July 3,

1991, when it was substituted by a new policy with effect

from July 4, 1991 and the nomenclature of the REP Licence

was changed to "Exim Scrip" (Export Import Licence). The

provisions governing Exim scrips were more or less the

same as those governing REP licences with certain minor

variations which are really not pertinent for the purpose of

adjudication of the controversy.

Page 4 4

5.In March, 1992, the RBI took a policy decision to the

effect that the unutilised Exim scrips in the hands of the

holders who were willing to dispose of the same should be

mopped up through specified branches of the SBI. In

pursuance to such a decision, the RBI issued a circular,

being No. 12/92 on 27th March, 1992. The said circular is

as follows:-

"Reserve Bank of India had earlier notified that

arrangements were being made to purchase Exim

scrips at an appropriate premium from those

holders of Exim Scrips who wish to dispose of

them. The designated branches of State Bank of

India would be purchasing these Exim scrips

from March 23, 1992, up to the end of May 1992,

at a premium of 20 per cent of the face value. The

list of branches which would be purchasing these

Exim scrips would be notified by the State Bank

of India. The bona fide holder of the Exim scrips

should submit an application to the designated

branch of the State Bank of India, in the form

prescribed by the State Bank of India. The scrips

up to the face value of Rs. 5 lakhs will be

straightaway purchased by the designated

branch of State Bank of India and the premium

amount would be paid to the holder of the scrips.

Where the face value of the scrips exceeds Rs. 5

lakhs, the concerned branch would send it to the

office of the JCCI, which had issued the scrip, for

authentication and on receipt of the scrip duly

authenticated would pay the amount of

premium."

Page 5 5

6. The RBI, pursuant to the circular sent a letter on

March 18, 1992 to the Chairman, State Bank of India,

Bombay, authorising all designated branches of the said

Bank to purchase Exim scrips from holders, who intended

to dispose of the same at a premium of 20 per cent of the

face value of the Exim scrips, from March 23, 1992, subject

to certain terms and conditions. Thereafter, the General

Manager (Planning of the International Banking Department

of the State Bank of India) communicated to the Deputy

Manager, State Bank of India, Overseas Branch, Calcutta,

the respondent no.1 herein, on March 21, 1992, forwarding

the memorandum of procedure drawn up by the Central

Officer of the SBI for the purpose of purchasing the Exim

scrips as directed by the RBI. In due course, various

holders of Exim scrips sold and/or surrendered their Exim

scrips to the Bank and received a premium of 20 per cent of

the face value of the scrips in compliance with the direction

contained in the letter of the RBI dated March 18, 1992.

7.In the course of assessment proceedings under the Act

for the four quarters ending on March 31, 1993, the

Commercial Tax Officer, Park Street Charge informed the

Page 6 6

assessee that apart from payment of sales tax on the sale of

gold and silver, it would also be liable to pay “purchase tax”

in respect of purchase of Exim scrips from the holders

thereof at a premium of 20 per cent of the face value.

Before the assessing authority, it was contended by the SBI

that the Exim scrips had not actually been purchased but

the same had been surrendered by their holders pursuant

to the terms contained in the letter of the RBI dated March

18, 1992. It was also put forth that such surrender could

not be treated as purchase for the purpose of levying tax

under Section 4(6) of the Act. It was also averred that Exim

scrips were not "goods" within the meaning of Section 2(d) of

the Act and hence, no purchase tax could be levied under

Section 4(6) of the said Act on the surrender of the Exim

scrips by its holders. In addition to the above, a specific

objection was taken that the Bank had not entered into any

transaction on its own which could be regarded as purchase

to attract the provisions of Section 4(6) of the Act but had

merely acted as an agent of the RBI in terms of the order

contained in the above mentioned circular dated March 18,

1992.

Page 7 7

8.The assessing officer did not accept the said stand of

the Bank and levied purchase tax under Section 5(6a) of the

Act, amounting to sum of Rs. 1,00,04,000/- on the total

taxable specified price of Rs. 25,00,00,000/-. In the order

of assessment, the assessing authority held that the scheme

contained in the circular of the RBI dated March 18, 1992,

provided for sale of Exim scrips by the holder and purchase

by designated bankers and consequently such sale or

purchase by the bankers could not by any stretch of

imagination be treated as an act of surrender. It was also

held that the purchase of the Exim scrips by the bankers

from the holders thereof were as much sales as purchase by

private importers who availed of the same for import of

goods.

9.The aforesaid order of assessment was assailed in an

appeal before the Assistant Commissioner, Commercial

Taxes, Calcutta (South) Circle, who vide order dated

September 19, 1996, rejected the appeal and confirmed the

order of assessment. The Bank Manager of the concerned

Branch and the Chairman of SBI approached the West

Bengal Taxation Tribunal (for short, ‘the tribunal’). During

Page 8 8

the hearing of the appeal it was contended on behalf of the

SBI that in order to attract the mischief of Section 4(6)(iii) of

the Act, a dealer must be liable to pay tax under Section

4(1), 4(2), 4(4) or 8(3) of the aforesaid Act and since the said

Bank was not a dealer under the provisions of the aforesaid

Act, it did not have any liability to pay tax under Section

4(6) of the said Act. It was also submitted that the

transactions involving recovery of Exim scrips from their

holders could not be treated to be "purchases" for the

purpose of Section 4(6) of the above Act, but amounted to

"surrender" by the holders which had been wrongly equated

with "purchase" at the Branch level. A further stand was

taken that for Section 4(6) to apply, the purchase must have

been made with the intention of re-selling the Exim scrips

and that the same would be apparent from proper reading of

Clauses (i) and (iii) of Section 4(6) of the above Act. It was

argued that if such a construction was not adopted, Clause

(iii) of Section 4(6) would be unconstitutional and violative of

Article 14 of the Constitution.

10.The tribunal by its order dated 11

th

February, 1998

rejected all the contentions made on behalf of the appellants

Page 9 9

and dismissed the appeal preferred by them. As has been

stated earlier, the SBI had not levied purchase tax. When

the matter travelled to the tribunal, the question arose

whether the Bank by payment at a premium of twenty per

cent on the face value or unutilised face value thereof was

exigible to purchase tax under Section 4(6)(iii) read with

Section 5(6) of the Act. The tribunal narrated the facts and

noted the stand and the stance of the assessee and the

Revenue and came to hold that the Bank had acted in

relation to the impugned transactions as agent of RBI,

which is an instrumentality of the Government of India, to

accept Exim scrips on payment of a premium to the holders

thereof and the activity is thus covered by Section 6(1)(a)

and (b); that under Section 6(1)(n) such activity was

certainly “incidental” or “conclusive” to the promotion or

advancement of the business of the Company, because

admittedly the assessee received commission for these

transactions; that the stand that the Bank was not a dealer

in view of the Banking Regulation Act, 1949 was

unacceptable, for when Section 8 of the Act is correctly

construed, it would be clear that purchase of Exim scrips

Page 10 10

was not prohibited by it; that the Exim scrips were goods as

has been conclusively settled in Vikas Sales Corporation

and another v. Commissioner of Commercial Taxes and

another

1

; that the submission to the effect that the

purchase is made not for resale and hence, the bank would

not be liable for tax does not commend acceptation, for

legislature does not contemplate or lay down that Section

4(6)(iii) would apply to purchase for the purpose of only

resale but has left the expression unspecified and

unqualified; that there is no rationale to restrict it to resale

and limit the expression; that Section 4(6)(iii) uses the word

“purpose”, a purchase for any purpose other than those

specified in clauses (i) and (ii) of Section 4(6) would be

enough to attract the clause and in the case at hand, RBI’s

letter dated March 18, 1992 the purpose was to forward the

“scrips” to the Joint Chief Controller of Imports and

Exports, Government of India, after suitably cancelling

them; that use of the purchased scrips by way of

cancellation and onward transmission to the Joint Chief

Controller was clearly subsequent to completion of the

1

(1996) 4 SCC 433

Page 11 11

transactions and such use cannot keep the transactions

out of the mischief and purview of Section 4(6)(iii); that the

transactions were really “surrenders” and not “purchases” is

untenable because surrender is also envisaged by operation

of law and hence, the concept of “surrender” is inapplicable

in the instant case; and that there was enough indication of

“sale” and “purchase” and transfer of property in the scrips

as is evident from documents that the holder of script was

“encashing” them by completely foregoing his “entitlements”

under it. After so holding, the tribunal dealt with the

concept of business as has been defined under Section 2(1)

of the Act, referred to various decisions including

Commissioner of Sales Tax v. Billion Plastics Pvt. Ltd.

2

,

State of Tamil Nadu v. Burma Shell Co. Ltd.

3

, District

Controller of Stores v. A.C. Taxation Officer

4

and State

of Tamil Nadu v. Binny Ltd., Madras

5

, Board of Revenue

v. A.M. Ansari

6

and State of Gujarat v. Raipur

Manufacturing Co. Ltd.

7

and after deliberating on them,

2

[1995] 98 STC 184

3

31 S.T.C. 426 (S.C.)

4

37 S.T.C. 423 (S.C.)

5

49 S.T.C. 17 (S.C.)

6

38 S.T.C. 577 (S.C.)

7

AIR 1967 SC 1066

Page 12 12

posed the question whether mere lack of the element of

regularity or frequency, when the other elements are

present would it be sufficient to keep take the transactions

out of the compass of “business” and opined that where an

intention to carry on business was clearly established, mere

lack of the element of regularity or frequency would not

convert business transactions into non-business

transactions and would not make a “dealer” a “non dealer”.

To arrive at the said conclusion, the tribunal referred to the

definition of “dealer” under Section 2(c) of the Act and

definition of “business” and other provisions and in that

context, referred to State of Andhra Pradesh v. H. Abdul

Bakhi and Bros.

8

and Hindustan Steel Ltd v. State of

Orissa

9

and came to hold that profit motive is not

imperative, because as per law “business” connects some

activity actually in the nature of trade or commerce or

manufacture which is done not for sport or pleasure or for

charity. Thus, there is little difference between the primary

or main part of the definition of “business” and its inclusive

part which basically means, as in the present context, any

8

AIR 1965 SC 531

9

AIR 1970 SC 253

Page 13 13

trade or commerce or similar activity and any transaction in

connection with, or ancillary or incidental to, such trade or

commerce. Process of exchange can be completed by the

exchange of goods and services for money. The tribunal has

observed that in the instant case the purchase of exim

scrips was by way of exchange of the scrips, which are

financial instruments, for money. Thereafter, the tribunal

referred to the meaning of the terms trade and commerce

and stated in Black’s Law Dictionary and certain other

dictionaries including Aiyer’s Judicial Dictionary and

eventually came to hold as follows:-

“Thus, purchase of exim scrips for money,

comprising a large volume (at least Rs. 25 crores)

is in every sense a “business” within the meaning

of Section 2(1a). That being so, having carried on

such a “business” the applicant bank became a

“dealer” under section 2(c), even apart from the

fact that it was already a registered dealer for sale

of gold. Since sale of gold has no connection with

purchase of exim scrips, the latter transactions

cannot be said to be either in connection with or

ancillary or incidental to sale of gold. In our view,

the purchase of exim scrips was a separate

“business” of the applicant bank. A point was

argued on behalf of the bank that it had to

undertake this activity under instructions from

the Reserve Bank of India. The fact that it was

so, indicates that it was carried on as a business

and with the intention to carry it on as a

business”.

Page 14 14

11.Thereafter, it opined that the SBI is not an ordinary

businessman, but it is a body created by an Act. Analysing

the statutory scheme and the obligation, it proceeded to

state thus:

“We have to keep this distinction in mind when

we consider whether purchase of exim scrips was

done by the bank as a business with the

intention to do a business. It is undisputed that

not only the bank paid money for purchasing

exim scrips but also it made some gain by

receiving commission out of the transactions.

Even without any commission the activity clearly

constitutes a “business”. Another question is :

when the activity was carried on under the

instructions of the Reserve Bank of India, can it

be said to be a “business”? In the facts of the

case, the apparently compulsory nature of

purchase of exim scrips was not such as to take

it out of the ambit of “business”. The bank could

not compel any holder of exim scrips to sell the

same to it. It was wholly voluntary on the part of

a holder to sell scrips to the bank. As soon as a

holder exercises his opinion to sell and gives a

scrip to the bank, the bank purchases it on

payment of money. As already said, the

compulsory nature of performance of the duty of

purchase of exim scrips emanates from Act of

1955 which created the bank. Unlike any other

dealer, the applicant bank could not think of

acting beyond the provisions of Act of 1955. That

being so, in the special circumstances of the

case, the element of compulsion involved in the

instruction of the Reserve Bank of India is

irrelevant. Apart from that aspect, we may refer

to the case of Coffee Board v. Commissioner of

Page 15 15

Commercial Taxes (1988) 70 S.T.C. 162 (S.C.) in

which it was held that there was a sale, where

the growers of coffee delivered coffee to the Board,

though the growers did not actually sell it. It was

a sale by operation of law. The imposition of sales

tax on such sale of coffee was upheld. From the

above points of view we hold that the purchase of

exim scrips by the applicant bank were rightly

brought to purchase tax under 1941 Act.”

12. The said order was challenged before the High Court of

Calcutta in a writ petition wherein it was contended that the

Bank was not a "dealer" within the meaning of Section 2(c)

of the Act in respect of the Exim scrips since it does not

and/or did not carry on the business of sale or purchase of

such Exim scrips; that in the case at hand it was only a

solitary case and that too for a brief period from March 23,

1992 to May 31, 1992 but neither before nor after the said

period had any such transaction been entered into which

could justify the finding of the tribunal that the

assessee-Bank had an intention to carry on business in

purchase of Exim scrips and that mere lack of regularity or

frequency would not convert a business into non-business

and would not make a dealer a non-dealer; that there was

no material on record to arrive at the conclusion that it was

Page 16 16

clearly established that the writ petitioner No. 1, i.e., the

SBI, had the intention to carry on business in purchase of

Exim scrips; that even if the Bank was to be treated as a

dealer, the provisions of Section 4(6)(iii) would have to be

related to the business being carried on by the Bank

inasmuch as the said provisions would otherwise suffer

from vagueness and would expose it to attack on the ground

of constitutional validity; that keeping in view the scheme of

the Act and the intent and purpose of relevant provision,

purchase tax could be levied on a dealer only if he carried

on business of buying or selling the goods in question; that

whatever may be the nature of the transaction, the Bank

had only acted as an agent of the RBI in the transaction

relating to Exim scrips and would not, therefore, come

within the definition of the expression "dealer" as defined in

Section 2(c) of the 1941 Act; that the transaction involving

the acquisition of Exim scrips by the Bank could not be said

to be a case of purchase but a case of surrender; that the

Exim scrip was in substance a licence or a grant from the

Sovereign and there could not be any sale of such Exim

scrips to the Sovereign and accordingly, when the holder of

Page 17 17

the Exim scrips gives up his right in favour of the granter it

is an act of surrender and nothing else; that SBI had merely

acted as an agent of the Sovereign, namely, the department

of the Central Government which had issued the Exim

scrips, that is, the Joint Chief Controller of Import and

Export and under the instruction of the RBI and once the

said Exim scrips were surrendered by the holders, the same

were required to be cancelled and forwarded to the office of

the Joint Chief Controller of Import and Exports who had

originally issued the same and in effect the grant under the

Exim scrips would, upon cancellation by the Bank, cease to

exist, which state of affairs is consistent with the concept of

surrender and it was not intended that upon acquisition of

the Exim scrips from their holders, the same would be

utilised by the Bank for the purpose of either selling the

same or using the same for the purpose for which they had

been intended. Be it noted learned counsel for the Bank

placed reliance on the decisions in Raipur Manufacturing

Co. Ltd. (supra), Board of Revenue v. A.M. Ansari

10

and

Billion Plastics Pvt. Ltd. (supra).

10

(1976) 3 SCC 512

Page 18 18

13.Learned counsel for the Commercial Tax Officer,

resisting the submissions of the learned counsel for the

Bank contended that the controversy raised by the bank

having set at rest by the three-Judge Bench in Vikas Sales

Corporation (supra), wherein the Supreme Court had given

stamp of approval to the decision in P.S. Apparels v.

Deputy Commercial Tax Officer, Madras

11

. It was urged

by the revenue that REP Licence are goods and the

premium or price received therefrom by transfer thereof was

liable to sales tax within the ambit and sweep of Section 4(6)

(iii) of the Act and, therefore, the finding recorded by the

tribunal that the transaction involving the purchase of Exim

scrips by the assessee bank amounted to sale could not be

found fault with. It was also canvassed that the intention of

the legislature was clear and in view of the authority

rendered in Vikas Sales Corporation (supra), P.S.

Apparels (supra) and the decision in Bharat Fritz Werner

Ltd. v. Commissioner of Commercial Taxes

12

nothing

really remain to be adjudicated.

11

[1994] 94 STC 139

12

[1991] 86 STC 175

Page 19 19

14.The High Court analysed the principles in all the

authorities cited before it and came to hold that this Court

has opined that REP licences/Exim scrips were

merchandise and/or goods in the commercial world and

were freely bought and sold in the market and hence, no

argument could be urged that they do not constitute goods

for the purposes of commercial transactions. The High

Court referred to the circular dated March 18, 1992, issued

by the RBI regarding purchase of Exim scrips by the

designated branches of the SBI and opined that the said

Exim scrips were handed over to the Bank solely for the

purpose of cancellation and not be used as goods for the

purpose of commercial transactions. According to the High

Court, they were reduced to mere paper having no

commercial value. The Division Bench distinguished the

judgments rendered by this Court as well as by the High

Courts of Madras and Karnataka. It further proceeded to

opine that the purchases by the SBI were not effected in the

usual course of business of the Bank, for it was a one-time

affair and there was no continuity or regularity involved in

such transactions so as to bring the same within the

Page 20 20

concept of business. The High Court took note of the fact

that the Bank was mainly confined to purchase and sale of

gold and silver. On behalf of the revenue, it was contended

that the bank was a registered dealer under the Act, but the

said submission did not weigh with the High Court because

as the impugned order would show, it has been persuaded

by the decision rendered by the Bombay High Court in

Billion Plastics Pvt. Ltd. (supra). Thereafter, the High

Court came to the following conclusion:-

“56. ….we are not inclined to accept the arguments

advanced on behalf of the Revenue that purchasing

of Exim scrips on the direction of the Reserve Bank

of India for the purpose of destroying its very

commercial nature, amounted to business being

carried on by the writ petitioner-Bank in such Exim

scrips. There was no question of selling the Exim

scrips once they had been purchased by the Bank.

The entire transaction appears to be in the nature of

a mopping up operation for removing the Exim

scrips from the market.

57. Having regard to the view taken by us that

the purchase of Exim scrips by the writ

petitioner-Bank did not attract the provisions of

Section 4(6)(iii) of the 1941 Act, we do not think it

necessary to go into the other submission of Mr.

Ghosh that the aforesaid provisions were either

vague or uncertain and thus unconstitutional. We

are not, therefore, inclined to dilate further on such

point.

Page 21 21

58. In view of what we have indicated

hereinabove, we are unable to sustain the judgment

and order of the learned Tribunal and we,

accordingly, set aside the same and we also quash

the order of assessment dated June 30, 1995

passed by the Commercial Tax Officer, Park Street

Charge, as also the order dated September 19,

1996, passed by the Assistant Commissioner,

Commercial Taxes, Calcutta (South) Circle, in

Appeal case No. A495/1995-96 under Section 20(1)

of the Bengal Finance (Sales Tax) Act, 1941”.

The aforesaid conclusion entailed allowing the writ

petition preferred before the High Court and resultantly the

assessee was discharged from the undertaking given for the

purpose of continuation of the interim order initially passed.

15.We have heard Mr. Soumitra G. Chaudhuri, learned

counsel for the appellants and Mr. Pradip Kumar Ghosh,

learned senior counsel with Mr. Chiraranjan Addey, learned

counsel appearing for the respondents.

16.To appreciate the controversy, it is pertinent to extract

the communication dated March 18, 1992 sent by the RBI,

Exchange Control Department to the Chairman, State Bank

of India, Bombay. The said letter is as follows:-

“Dear Sir,

Purchase of Exim Scrips by designate branches of

SBI.

Page 22 22

This is with reference to our discussion with Shri.

B.S. Pandya, General Manager (Domestic &

Operations) on the captioned subject. It has been

agreed that designated branches of the State Bank

of India would commence purchasing ‘Exim Scrips’,

from holders who wish to dispose of them, at a

premium of 20 percent on the face value of the scrip

& (unutilized face value) from 23

rd

March 1992,

subject to the following terms and conditions:

a) The holder of the scrips would be required to

submit an application to the designated branch in

the form prescribed by the State Bank of India.

b) State Bank of India would, incorporate, in

consultation with their legal department, a suitable

indemnity clause in the application form to be

submitted by the holder of the scrip.

c) As the scrip is transferred by a letter, State Bank

of India would verify the letter in favour of the

holder presenting the scrip and would then make

payment on the basis of usual banking procedures

adopted for identification of the person to whom

payment is made.

d) The payment would be rounded off to the nearest

rupee and would be made only by means of a

Crossed Banker’s Cheque.

The term ‘Exim Scrip’ would also cover post paid

REP licenses issued up to 29

th

February 1999 of

export proceeds.

e) State Bank of India, Bombay Main Branch, would

arrange to get daily details of scrips paid by their

various designated branches and then seek

reimbursement, on a consolidated basis, daily from

Reserve Bank of India, Bombay on the basis of a

certificate indicating the total amount paid by them.

Page 23 23

f) Designated Branches of SBI would maintain the

particulars of scrips paid including the application

forms for such period as may be considered

necessary. Bombay main branch would maintain

the particulars of payments made by their various

designated offices on the strength of which

reimbursement was claimed by them from RBI,

Bombay.

g) The paid scrips would be suitably cancelled and

forwarded to the concerned office of J.C.C.I. & E.

which had issued the scrips. In the case of scrips of

face value up to Rs.5 lakhs, the concerned office of

J.C.C.I. & E. should also be asked to conduct a

check about genuineness of the scrips cancelled by

SBI and report objections, if any, in regard to

payments to the concerned designated office of SBI.

h) If in the case of any scrip of the face value up to

Rs. 5 lakhs (which is paid without prior check by

the office of J.C.C.I. & E.), it later turns out that the

scrip was not genuine or not validly issued etc., the

matter would have to be pursued by the office of the

J.C.C.I. & E. SBI will, however, render whatever

assistance is necessary to tract the party to whom

payment has been made.

i) SBI would be acting on behalf of the Reserve Bank

of India and would be paid commission at the rate

at which commission is payable to them for

conducting Government business. They would also

be paid out-of-pocket expenses including expenses

incurred on advertisements notifying designated

branches.

2. As desired by you, we have also advised the Chief

Controller of Imports & Exports to instruct all his

regional offices to render necessary assistance to

designated branches of SBI for a smooth

implementation of the scheme. He has also been

Page 24 24

advised to instruct his regional offices in particular

that they should promptly (say, within 48 hours)

furnish authentication of scrips of face value above

Rs. 5 lakhs sent to them and their findings of the

check done of scrips up to the face value of Rs. 5

lakhs paid without any prior authentication. He

has also been requested to advise J.C.C.I. & E.,

Bombay, to assist you with a check list containing

important features of the Exim Scrip to check their

genuineness.”

[Emphasis added]

17.The aforesaid, as is manifest, authorises the SBI to

purchase the Exim scrips as an agent of RBI and after

payment of the premium at 20% of the value to the holder,

the scrip was to be cancelled. Certain formalities were

stipulated to be complied by the holder as well as by SBI.

18.Section 2(1a) of the Act defines “business” as follows:-

“business” includes –

(i) any trade, commerce or manufacture or

execution of work contract or any adventure or

concern in the nature of trade, commerce or

manufacture or execution of works contract,

whether or not such trade, commerce,

manufacture, execution of works contract,

adventure or concern is carried on with the

motive to make profit and whether or not any

profit accrues from such trade, commerce,

manufacture, execution of works contract,

adventure or concern; and

(ii) any transaction in connection with, or

ancillary or incidental to, such trade, commerce,

manufacture, execution of works contract,

Page 25 25

adventure or concern;”

19.The term “dealer” has been defined under Section 2(iv)

(c), which reads thus:-

“”dealer” means any person who carries on the

business of selling goods in West Bengal or of

purchasing goods in West Bengal in specified

circumstances or any person making a sale under

Section 6D and includes –

the Central or a State Government, a local

authority, a statutory body, a trust or other body

corporate which, or a liquidator or receiver

appointed by a Court in respect of a person defined

as a dealer under this clause who, whether or not

in the course of business sells, supplies or

distributes directly or otherwise, for cash or for

deferred payment or for commission, remuneration

or other valuable consideration.

Explanation 1. – A co-operative society or a club or

any association which sells goods to its members

is a dealer.

Explanation 2. – A factor, a broker, a commission

agent, a del credere agent, an auctioneer, an agent

for handling or transporting of goods or handling

of document of title to goods or any other

mercantile agent, by whatever name called, and

whether of the same description as hereinbefore

mentioned or not, who carries on the business of

selling goods and who has, in the customary

course of business, authority to sell goods

belonging to principals is a dealer;”

20.Section 2(d) of the Act defines “goods” as follows:-

Page 26 26

““goods” includes all kinds of movable property

other than actionable claims, stocks, shares or

securities”

21.Section 4 of the Act deals with incidence of taxation.

Sub-Section (6) of Section 4 of the Act is as follows:-

“(6) Every dealer, who has become liable to pay

tax under sub-section (1) or sub-section (2) or

sub-section (4) of this section or sub-section (3) of

section 8 and is registered under this Act, shall,

in addition to the tax referred to therein, be also

liable to pay tax under this Act on all his

purchases from –

(i) a dealer who is not registered under this Act, of

goods other than [gold, rice (Oryza sativa L.) and

wheat (Triticcum Vulgare, T. compactum, T.

sphaerococcum, T. durum, T. aestivum L., T.

dicoccum)], intended for direct use in the

manufacture in West Bengal of goods for sale,

and of containers and other materials for the

packing of goods so purchased or manufactured;

(ii) a registered dealer, to whom a declaration

referred to in the proviso to clause (bb) of

sub-section (1) of section 5 has been or will be

furnished by him in respect of sales referred to in

sub-clause (i) or sub-clause (ii) of the said clause,

of goods purchased against such declaration, and

used by him directly in the manufacture in West

Bengal, of goods or in the packing of such goods,

when such manufactured goods are transferred

by him to a place outside West Bengal or

disposed of by him, otherwise than by way of sale

in West Bengal.

(iii) any person, whether a dealer or not, who is

not registered under this Act, of goods other than

gold, rice and wheat intended for a purpose,

other than those specified in clause (i).”

Page 27 27

22.Section 6C stipulates the liability to payment of

purchase tax and rate thereof.

23.We have referred to the aforesaid statutory provisions

as the learned counsel for the revenue would stress upon

the tenor of the said provisions and submit that respondent

Bank is a dealer and once it has purchased something,

which is goods, it is liable to pay the purchase tax. In

essence, the learned counsel for the State would defend the

order passed by the tribunal in entirety and would contend

that the High Court has wholly flawed in appreciation of the

factual score and the provisions applicable to the

transaction.

24.In Vikas Sales Corporation (supra), the question

arose whether the transfer of an Import Licence called REP

Licence/Exim Scrip by the holder thereof to another person

constitutes a sale of goods within the meaning of and for the

purposes of the Sales Tax enactments of Tamil Nadu, Kar-

nataka and Kerala and if it does, it is exigible to sales tax,

otherwise not. In the said case, the High Court had taken

Page 28 28

the view that REP Licences/Exim Scrips constitute goods

and, therefore, on their transfer, sales tax is leviable and the

judgment of the High Court was founded on the decision of

this Court in H. Anraj v. Government of Tamil Nadu

13

. It

was contended before this Court that the license/scrips are

not goods and hence, they are not property. It was further

urged that they represent merely a permission to import

goods which permission can be revoked at any time by the

licensing authority and, therefore, they are really in the na-

ture of share and securities which have been expressly ex-

cluded from the definition of goods in the relevant enact-

ments. Analysing various facets, the three-Judge Bench re-

ferred to Para 199 of “Import and Export Policy 1990-93”

which deals with Transferability of REP Licences. It reads

as follows:-

“199. (1) The REP Licence will be issued in the

name of the registered exporter only and will not

be subject to ‘Actual User Conditions’. A licence-

holder may transfer the licence to another per-

son. The licence-holder or such transferee may

import the goods permitted therein.

(2) The transfer of a REP Licence will not require

any endorsement or permission from the licens-

ing authority, i.e., it will be governed by the ordi-

13

(1986) 1 SCC 414

Page 29 29

nary law. Accordingly, clearance of the goods cov-

ered by a REP Licence issued under this policy

will be allowed by the Customs authorities on

production by the transferee of only the docu-

ment of transfer of the licence concerned in his

name. Whenever a REP Licence is transferred the

transferor should give a formal letter to the trans-

feree, giving full particulars regarding number,

date and address of the transferee, and complete

description of the items of import for which the li-

cence is transferred.”

25.The Court also observed that the relevant features of

Exim Scrips are identical to REP Licences. Thereafter, the

Court proceeded to state:-

“They are bought and sold as such. The original

licensee or the purchaser is not bound to import

the goods permissible thereunder. He can simply

sell it to another and that another to yet another

person. In other words, these licences/Exim

Scrips have an inherent value of their own and

are traded as such. They are treated and dealt

with in the commercial world as merchandise, as

goods. A REP Licence/Exim Scrip is neither a

chose-in-action nor an actionable claim. It is also

not in the nature of a title deed. It has a value of

its own. It is by itself a property — and it is for

this reason that it is freely bought and sold in the

market. For all purposes and intents, it is goods.

Unrelated to the goods which can be imported on

its basis, it commands a value and is traded as

such. This is because, it enables its holder to im-

port goods which he cannot do otherwise”.

And again:-

Page 30 30

“Another contention raised in the written submis-

sions of Shri K.V. Mohan is that even if the said

licences/scrips are treated as goods, the tax must

be levied at the first point of sale, viz., upon the

authority issuing the licence. We cannot agree.

The grant of licence by the licensing authority to

the registered exporter is not a sale. The sale is

when the registered exporter or the purchaser

sells it to another person for consideration”.

26.The High Court has distinguished the aforesaid

authority by stating that this Court did not have the

occasion to consider the effect of purchase of Exim scrips

made by SBI, for it was not a part of business regularly

carried on by it but was a transaction which was to be

undertaken on the direction of the RBI. Exim scrips were

no longer available as “goods” for the purpose of commercial

transaction and were to be reduced to mere papers having

no commercial value whatsoever and such a scenario

changed the entire perspective. The High Court has laid

emphasis on immediate cancellation of Exim scrips and

after cancellation to be sent to the original granting

authority.

27.The controversy involved in the case at hand, in our

considered opinion, has to be analysed regard being had to

Page 31 31

the existing factual score. The observations made in Vikas

Sales Corporation (supra), as the aforequoted passages

would show, the initial grant of license by the Government

to the registered exporters was not a sale. The said finding

is significant and it has potency. It is also seen that the

said authority extensively relies on the earlier judgment in

H. Anraj (supra) that dealt with the question whether

lottery tickets are “goods” and accordingly whether sale

thereof would invite sales tax. H. Anraj (supra) draws

distinction between lottery tickets and steamship tickets,

railway tickets, cinema tickets, etc. Salmond’s

Jurisprudence, 12

th

Edition at pages 338-339 under the

heading “The Classes of Agreements” was quoted to draw

distinction between three classes, namely, agreements

which create rights, agreements which transfer or assign

rights, and lastly agreements which extinguish them.

Agreements which create rights were divided into two

sub-classes, namely, contracts and grants. A contract is an

agreement, which creates an obligation or right in personam

between the parties, whereas a grant creates a right of

another description such as leases, assignments, patents,

Page 32 32

etc. An agreement, which transfers a right, may be termed

generically as an assignment. However, when a transaction

extinguishes a right, it is called a release, discharge or

surrender. The distinction between creation of a right by a

grant and subsequent transfer or assignment was also

highlighted in H. Anraj (supra) and noted by Sabyasachi

Mukherjee, J. (as His Lordship then was) in his concurrent

judgment with the following observations:-

“41. It was urged before us on behalf of the deal-

ers that by the issue of lottery tickets, the right to

participate in the draw is created for the first

time in the buyers. In other words, it was urged

that by the sale of lottery ticket, the right to par-

ticipate is created for the first time; if it is consid-

ered to be a “grant” and as such a sale of goods,

it was contended that such right was not existing

before the sale of the lottery ticket. This con-

tention has caused me anxiety from the jurispru-

dential point of view.

42. I agree with respect that “grant” is an agree-

ment of some sort which creates rights in the

grantee and an agreement which transfers rights

may be termed as assignment. But the question,

is, before the grant, was such a right, namely the

right to participate in the draw, existing in the

grantor? The point made is that there is no trans-

fer of property involved in the issue of a lottery

ticket and it is only after the issue of the lottery

ticket that the grantee gets a right to participate.

In other words, it was sought to be urged that in

a lottery, the promoter sponsoring it does not

have any right to participate nor to claim a prize

Page 33 33

in a draw and these come into existence for the

first time by the purchase of lottery ticket when

he purchases the ticket and therefore it cannot

be said that any transfer of right is involved, but

only creation of new right by the grantor in

favour of the grantee.”

The observations made in the aforesaid paragraphs

that there is no transfer of property involved in a grant, for

the rights come into existence after purchase.

28.The decision in the case of H. Anraj (supra) was

overruled by the Constitution Bench in Sunrise Associates

v. Govt. of NCT of Delhi and others

14

on several grounds

including that there was no distinction between the chance

to win and the right to participate in the draw. Such a

sub-division was not correct. There was no value in mere

right to participate in the draw. Therefore, lottery tickets

were not “goods” but were actionable claims. These were

merely token of chances purchased and even otherwise the

right to participate in the draw was not a moveable property

and, therefore, there cannot be any transfer of beneficial

interest in a moveable property. The reason being, the right

to participate in a lottery draw was an actionable claim.

14

(2006) 5 SCC 603

Page 34 34

More significant for our purpose would be the observations

of the Constitution Bench relating to the word “goods” for

imposition of sales tax which, it was observed in the

context, would carry its ordinary meaning of the subject

matter of ownership and not denote the nature of interest of

goods. The word “goods” was used to describe the thing

itself. The relevant passages of the Constitution Bench in

Sunrise Associates (supra) on the said aspect read as

under:-

“35. The word “goods” for the purposes of imposi-

tion of sales tax has been uniformly defined in

the various sales tax laws as meaning all kinds of

movable property. The word “property” may de -

note the nature of the interest in goods and when

used in this sense means title or ownership in a

thing. The word may also be used to describe the

thing itself. The two concepts are distinct, a dis-

tinction which must be kept in mind when con -

sidering the use of the word in connection with

the sale of goods. In the Dictionary of Commercial

Law by A.H. Hudson (1983 Edn.) the difference is

clearly brought out. The definition reads thus:

“ ‘Property’.—In commercial law this may

carry its ordinary meaning of the subject-

matter of ownership. But elsewhere, as in

the sale of goods it may be used as a syn-

onym for ownership and lesser rights in

goods.”

Hence, when used in the definition of “goods” in

the different sales tax statutes, the word “prop-

erty” means the subject-matter of ownership. The

Page 35 35

same word in the context of a “sale” means the

transfer of the ownership in goods.

36. We have noted earlier that all the statutory

definitions of the word “goods” in the State sales

tax laws have uniformly excluded, inter alia, ac-

tionable claims from the definition for the pur-

poses of the Act. Were actionable claims, etc., not

otherwise includible in the definition of “goods”

there was no need for excluding them. In other

words, actionable claims are “goods” but not for

the purposes of the Sales Tax Acts and but for

this statutory exclusion, an actionable claim

would be “goods” or the subject-matter of owner-

ship. Consequently, an actionable claim is mov-

able property and “goods” in the wider sense of

the term but a sale of an actionable claim would

not be subject to the sales tax laws.”

And, again:-

“51. We are therefore of the view that the decision

in H. Anraj (supra) incorrectly held that a sale of a

lottery ticket involved a sale of goods. There was

no sale of goods within the meaning of Sales Tax

Acts of the different States but at the highest a

transfer of an actionable claim. The decision to

the extent that it held otherwise is accordingly

overruled though prospectively with effect from

the date of this judgment.”

29.We may note with profit that Sunrise Associates

(supra) did not specifically deal with the question of

replenishment licences, for the reference made to the

Constitution Bench was limited to whether lottery tickets

Page 36 36

were “goods”. The Constitution Bench had specifically

observed that they were not called upon to decide the

question whether the replenishment licences were “goods.”

We may usefully refer to the relevant passage:-

“29. .. We have not been called upon to answer

the question whether REP licences (or the DEPB

which has replaced the REP licences) are “goods”.

Although we have heard counsel at length on

this, having regard to the limited nature of the

reference, we do not decide the issue. The deci-

sion in Vikas Sales (supra) was referred to only

because it approved the reasoning in H. Anraj

(supra) and not because the referring court dis-

agreed with the conclusion in Vikas Sales (supra)

that REP licences were goods for the purposes of

levy of sales tax. Indeed REP licences were not

the subject-matter of the appeal before the refer-

ring court and could not have formed part of the

reference. The only question we are called upon

to answer is whether the decision in H. Anraj

(supra) that lottery tickets are goods for the pur-

poses of Article 366(29-A)(a) of the Constitution

and the State sales tax laws, was correct.”

30.Thus, the Constitution Bench did not overrule the

decision of the Court in Vikas Sales Corporation (supra)

holding replenishment licences were goods. The

Constitution Bench, however, held that the reliance placed

in Vikas Sales Corporation (supra) on the observations in

H. Anraj (supra), which was agreed to and stood overruled,

was to this extent bad in law. To clarify, Vikas Sales

Page 37 37

Corporation (supra) specifically dealt with the transfer of

replenishment licences after they had been issued. However,

in Vikas Sales Corporation (supra) it was opined that the

grant of a licence by the licensing authority to a registered

exporter was not a sale. Sale will take place only when the

registered owner further sells it to another person for

consideration. The relevant paragraph of the judgment has

been earlier reproduced.

31.A three-Judge Bench of the Court in Yasha Overseas

v. Commissioner of Sales Tax and others

15

had examined

the question whether the sale or transfer of replenishment

licences and duty entitlement passbooks would attract sale

tax. Reliance placed on Sunrise Associates (supra) to

contend that the decision in Vikas Sales Corporation

(supra) impliedly overruled. The three-Judge Bench did not

accept the contention by stating thus:-

“40. Thus, on a detailed examination, we are un-

able to see how the decision in Sunrise (supra)

can be said to alter the position in regard to the

sale of REP licences as held by the earlier deci-

sion in Vikas (supra). It is noted above that the

Constitution Bench in Sunrise (supra) firmly and

expressly declined to go into the question

15

(2008) 8 SCC 681

Page 38 38

whether REP licences (or DEPB which replaced

REP licences) were “goods”. It is indeed true that

the Constitution Bench in Sunrise (supra) did not

approve the decision in Vikas (supra) insofar as

it gave their free marketability as an additional

reason to hold that REP licences were not action-

able claim but “goods” properly so called. The

Constitution Bench held that the assumption

that actionable claims were not transferable for

value was quite unfounded and the conclusion

drawn on that basis was quite wrong. In paras 39

and 40 of the decision, Sunrise (supra) decision

gave illustrations of a number of actionable

claims which are transferable.

41. But to our mind that does not in any way

change the position insofar as REP licences are

concerned. While examining the three-Judge

Bench decision in Vikas (supra) earlier in this

judgment it is seen that the Court first came to

hold that REP licence/Exim scrip fell within the

definition of goods quite independently. The

Court found and held that REP licences had their

own value; they were freely bought and sold in

the market for their intrinsic value and for that

reason alone those were goods. (See para 29 of

the decision in Vikas (supra) that is reproduced

above.) It was only after coming to the conclusion

that the Court proceeded to examine the matter

in light of the observations made in Anraj (supra)

relating to lottery tickets and that too because

the Karnataka and the Madras High Courts had

heavily relied upon Anraj (supra) decision for

holding that the sale of REP licences was exigible

to sales tax. On a careful reading of the decision

in Vikas (supra) it is apparent that it was the in-

trinsic value of REP licence that brought it within

the definition of goods.”

32.After so stating, the Court specifically referred to the

Page 39 39

term “goods” as interpreted in Sunrise Associates (supra)

to mean the title and ownership of a thing and not the

nature of interest in the goods. The question of

free-marketability, it was held, was not primarily relevant as

per the decision in Sunrise Associates (supra), albeit could

be relied upon as an additional reason, for replenishment

licences fall within the definition of “goods” quite

independently. These licences could have their own

intrinsic value and could be freely brought and sold at their

market value. There was also a ready market for the sale

and purchase of replenishment licences.

33.Thus analysed, the replenishment licences or Exim

scrips would, therefore, be “goods”, and when they are

transferred or assigned by the holder/owner to a third

person for consideration, they would attract sale tax.

However, the position would be different when

replenishment licences or Exim scrips are returned to the

grantor or the sovereign authority for cancellation or

extinction. In this process, as and when the goods are

presented, the replenishment licence or Exim scrip is

cancelled and ceases to be a marketable instrument. It

Page 40 40

becomes a scrap of paper without any innate market value.

The SBI, when it took the said instruments as an agent of

the RBI did not hold or purchase any goods. It was merely

acting as per the directions of the RBI, as its agent and as a

participant in the process of cancellation, to ensure that the

replenishment licences or Exim scrips were no longer

transferred. The intent and purpose was not to purchase

goods in the form of replenishment licences or Exim scrips,

but to nullify them. The said purpose and objective is the

admitted position. The object was to mop up and remove

the replenishment licences or Exim scrips from the market.

34.Be it noted that the initial issue or grant of scrips is

not treated as transfer of title or ownership in the goods.

Therefore, as a natural corollary, it must follow when the

RBI acquires and seeks the return of replenishment licences

or Exim scrips with the intention to cancel and destroy

them, the replenishment licences or Exim scrips would not

be treated as marketable commodity purchased by the

grantor. Further, the SBI is an agent of the RBI, the

principal. The Exim scrips or replenishment licences were

not “goods” which were purchased by them. The intent and

Page 41 41

purpose was not to purchase the replenishment licences

because the scheme was to extinguish the right granted by

issue of replenishment licences. The “ownership” in the

goods was never transferred or assigned to the SBI.

35.In view of the preceding analysis, the other issues and

questions, including the question whether the aforesaid

exercise of procuring and cancelling replenishment licences

or Exim scrips is “business” within the meaning of the Act,

need not be decided. The facts of the case at hand has its

distinctive features and, therefore, we unhesitatingly concur

with the view of the High Court that the SBI was not liable

to levy of purchase tax under the Act.

36.Consequently, the appeal, being devoid of merit,

stands dismissed. There shall be no order as to costs.

.............................J.

[Dipak Misra]

.............................J.

New Delhi; [Shiva Kirti Singh]

November 8, 2016