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PETITIONER:

KARNATAKA PAWN BROKERS ASSN. & ORS. ETC.

Vs.

RESPONDENT:

STATE OF KARNATAKA & ORS. ETC.

DATE OF JUDGMENT: 29/10/1998

BENCH:

S.P.Bharucha, K.Venkataswami

JUDGMENT:

K.Vankataswami, J.

The common question that arises for consideration in

all these appeals is whether a Pawn-broker is a dealer and

carries on 'business' within the meaning of the State

General Sales Tax Act read with the State Pawnbrokers Act

and Rules when he causes the sales of unredeemed

articles/goods, occasioned by the default of the Pawner

through (statutory) Auctioneer.

The above question has to be considered with

reference to the provisions of the Tamil Nadu General Sales

Tax Act read with the Tamil Nadu Pawnbrokers Act and Rules

as well as the Karnataka Sales Tax Act read with the

Karnataka Pawnbrokers Act and Rules. We may point out that

the relevant provisions of both the Sales Tax Acts and the

Pawnbrokers Act are substantially the same and for the sake

of convenience the provisions mentioned hereinafter are the

provisions of the Karnataka Acts.

Before going into the submissions advanced at the

bar, certain basic background facts need to be stated.

Pawn-broker is a person who carries on the business

of taking goods and chattels in pawn for a loan. On payment

of the money lent with interest and other admissible

incidental expenses the pawn-broker is liable to return the

articles pledged. under the Act and Rules framed

thereunder, the pawn-broker has to take out a licence to

carry on the business of pawn-broker. In addition to that,

he has to maintain various account books, registers and

records as prescribed under the Rules. In the event of the

pawner's failure to redeem the pledged articles within the

stipulated time and the grace period statutorily allowed,

the pawn-broker is at liberty to bring the articles pawned

for sale at a public auction conducted in accordance with

the rules prescribed under the Act. Such sale by public

auction must be conducted only throng an approved auctioneer

and in the manner specified in the rules. The pawn-broker

is given liberty to did at such public auction.

The relevant statutory provisions may now be noted.

Before the enactment of the Pawn-brokers Act by the

States, the transactions of pledge/pawn were governed by the

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provisions of the Indian Contract Act. Chapter IX of the

Contract Act deals with the bailments of Pledges. Section

172 defines 'pledge', 'pawner' and 'pawnee' as under :-

"The bailment of goods as security for payment of

a debt or performance of a promise is called

"pledge". The bailor is in this case called the

"pawner". The bailee is called the "pawnee".

Sections 173 to 176 deal with the various rights of

the Pawnee. Section 177 deals with the defaulting pawner's

right to redeem.

In addition to the provisions in the Contract Act

dealing with the pledge, it was felt necessary by the States

to bring in a separate legislation concerning the business

of Pawn-brokers in order to regulate and control that

business of Pawn-brokers. Accordingly, the Pawnbrokers Act

came to be enacted. The Pawnbrokers Act provides details of

the manner in which the business of a Pawn-broker should be

carried on and how the rights and liabilities of the Pawner

and the Pawnee should be adjusted and settled.

A Pawn-broker in the Karnataka Pawnbrokers Act

(hereinafter called the 'Act') is defined in Section 2(7) as

follows:-

"Pawn-broker" means a person who carries on the

business of taking goods and chattels in pawn for

a loan;

Explanation - Every person who keeps a shop for

the purchase or sale of goods or chattels and who

purchases goods or chattels and pays or advances

thereon any sum of money, with or under an

agreement or understanding expressed or implied

that the goods or chattels may be afterwards

re-purchased on any terms, is a pawnbroker within

the meaning of this clause."

Section 3 compels the Pawn-broker to obtain a

licence. Section 7 directs the Pawn-broker to give a ticket

to the Pawner on taking a pledge in pawn. Section 11 an

important section, deals with the redemption of pledge,

which reads as follows:-

"11. Redemption of pledge - (1) Every pledge

shall be redeemable within one year from the day

of pawning exclusive of that day; and there shall

be added to that year of redemption fifteen days

of grace within which every pledge (if not

redeemed within the period of redemption) shall

continue to be redeemable.

(2) A pledge pawned for a sum not exceeding ten

rupees, if not redeemed within the period of

redemption and days of grace, shall at the end of

the days of grace become the pawnbroker's

absolute property.

(3) A pledge pawned for a sum exceeding ten

rupees shall further continue to be redeemable

until it is disposed of as provided in this Act,

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although the period of redemption and days of

grace have expired.

Explanation -- Where the contract between the

parties provides a longer period for redemption

than one year, the provisions of sub-sections

(1), (2) and (3) shall be read and construed as

if references to such longer period had been

substituted for the references to the period of

one year therein."

Section 12 of the Act deals with the sale of pledge

and inspection of sale book, which reads as follwos:-

"Sale of pledge and inspection of sale book.

(1) A pledge pawned for a sum exceeding ten

rupees shall, when disposed of by the pawnbroker,

be disposed of by sale by auction and not

otherwise, and the sale shall be conducted in

accordance with such rules as may be prescribed.

(2) A pawnbroker may did for and purchase at a

sale by public auction conducted under

sub-section (1), a pledge pawned with him; and on

such purchase he shall become the absolute owner

of the pledge.

(3) At any time within three years after the

public auction, the holder of the pawn-ticket may

inspect the entry relaiting to the sale either in

the pawnbroker's book or in such catalogue of the

auction as may be prescribed.

(4) (a) Where on such inspection or otherwise

the pledge appears to have been sold for more

than the amount of the loan and the interest and

charges due at the time of the sale, the

pawnbroker shall pay to the holder of the

pawn-ticket on demand made within three years

after the sale, the surplus after deducting

therefrom the necessary costs and charges of the

sale.

(b) If on such demand it appears that the

sale of the pledge has resulted in a surplus but

that within twelve months before or after such

sale, the sale of another pledge or pledges of

the same person has resulted in a deficit, the

pawnbroker may set off the deficit against the

surplus and shall be liable to pay only the

bllance if any after such set off."

The next relevenant provision will be Rule 20 of the

Karnataka Pawnbrokers Rules, which reads as under :-

"20. Procedure in auction of pledges. -- The

procedure for sale by public auction of pledges

shall be as follows:-

(1) The sale shall be conducted by an auctioneer

approved by the Licencing Authority or from the

Inspector of Money Lenders and the Pawn-Brokers.

(2) The auctioneer shall

(i) causes all pledges to be exposed to public

view;

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(ii) get a catelogue of the pledges to be sold in

auction containing the following particulars printed:-

(a) the name, place of business and licence

number of the pawn-broker concerned;

(b) date of loan;

(c) number of the pledge in the pledge book;

(d) full and detailed description of the article

(weight to be noted in case of jewels);

(e) name and address of pawner; and

(f) date, hour and place of sale;

(iii) publish the printed catalogue by getting a

copy thereof posted at the place of business of the

pawn-broker and by distributing copies among intending

bidders;

(iv) send at least a week before the date fixed

for the sale:-

(a) two copies of the printed catalogue to the

police station having jurisdiction over the

premises where the auction is to be held, one

copy for being posted on the notice board of the

police station and another copy for record at the

police station:]

[(aa) two copies of the printed catalogue to the

Licensing Authority having jurisdiction over the

premises where the auction is to be held, one

copy for being pasted on the notice board of his

office and another copy for record;

(b) one copy of the printed catalogue to the

police station or each of the police stations

having jurisdiction over the place of the

business of the pawnbroker concerned for record

at such police station; and

(c) in any case, shall notify each of the police

stations having jurisdiction over the places of

business of the pawnbroker concerned and the

place or places of sale, and postponement of such

auction and all the subsequent dates of auction;]

(v) send a copy of the printed catalogue by registered

post to the pawner at least a week before the date fixed

for sale.

(3) The pledges of each pawnbroker in the catalog shall be

separate from the pledges of any other pawnbroker notifying

the sale in a news paper approved by the Licensing Authority

or the Inspectors of Money Lenders and the Pawnbrokers

furnishing the following details also:

(a) the panwbroker's name and place of

business; and

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(b) the months in which the pledges were

pawned.

(4) Where the pawnbroker himself bids at the

sale, the auctioneer shall not take the bidding in

any from other than that in which he takes, the

bidding of other persons at the same scale, and

the auctioneer on knocking down any article to a

pawnbroker shall forthwith declare audibly the

name of the pawnbroker as purchaser.

(5) The auctioneer shall, within fourteen

days, after the sale deliver to the pawnbroker an

authenticated copy of the catalogue, or of so much

thereof as relates to the pledges of that

pawnbroker indicating also the charges for the

sale of each article.

(6) The pawnbroker shall preserve every such

catalogue for at least three years after the

auction."

Section 2(f-2) of the Karnataka Sales. Tax Act, 1957

defines 'business' as follows;

"Business" includes -

"(i) any trade, commerce or manufacture or any

adventure or concern in the nature of trade,

commerce or manufacture, whether or not such

trade, commerce, manufacture adventure or concern

is carried on with a motive to make gain or profit

and whether or not any profit accrues from such

trade, commerce, manufacture, adventure or

concern; and

(ii) any transaction in connection with or

incidental or ancillary to such trade commerce,

manufacture, adventure or concern."

Section 2(k) defines 'dealer'. The relevant portion

is as follows:

"2(k) "Dealer" means any person who carries on

the business of buying selling supplying or

distributing goods directly or otherwise, whether

for cash or for deferred payment, or for

commission, remuneration or other valuable

consideration, and includes - ............."

The definition of 'sale' is found in Section 2(t).

The relevant portion is as follows:-

"2(t) "Sale" With all its grammatical variation

and cognate expressions means every transfer of

the property in goods [other than by way of a

mortgage, hypothecation, charge or pledge] by one

person to another in the course of trade or

business for cash or for deferred payment or

other valuable consideration, [and includes,

......... "

A careful reading of the above extracted provisions

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will show that the Pawner can redeem the pledged article

within the period stipulated or within the grace period

provided or before the sale of pawned article takes place

through auctioneer. However, once the article is brought of

sale and sold, the Pawner would lose his right in the pawned

article as the general property right in the said article

passes on to the purchaser.

On the basis of the general facts broadly stated as

above, the contentions of the learned counsel were advanced.

S/Shri K. Parasaran and D.A.Dave, learned senior

counsel, advanced leading arguments on behalf of the

appellants. The contentions raised by the counsel are as

follows :-

The Pawn-brokers as money lenders lend money on the

pledge of articles. It is incorrect to state that they are

engaged in the business of buyingand/or selling of goods. On

the pledge of the articles, a relationship of bailor and

bailee comes into existence and as such the bailee has no

right to sell the property contrary to the contract or other

statutory provisions regulating their relationship. If at

all there is a sale occasioned by the default of the Pawner

in redeeming the article, the auctioneer must be treated as

the seller and the liability to pay the sales tax will be

only on the auctioneer. As the Pawn-broker himself is given

a right to did at the sale under the rules, he cannot be

treated as the seller. Consequently, the Pawn-broker cannot

be considered as a dealer effecting a sale. According to the

learned senior counsel, on a harmonious reading of the

relevant provisions of the Sales Tax Act and the Pawnbrokers

Act, the only conclusion possible is that the Pawn-broker is

not a dealer effecting a sale of property and, therefore, he

is not liable for sales tax on such sales. At the most, it

is contended that the sale of pledged articles, in the

circumstances, must be deemed to be incidental to the main

business of pawn-broker not attracting the provisions of the

State General Sales Tax Act. It is also contended that the

fact that Pawnbrokers Act and the Rules framed therein

enabled the Pawn-brokers to dispose of the pawned articles

by way of sale through an auctioneer; it does not in any way

amount to transferring the general property right in goods

by the Pawn-broker resulting in passing on of the property

to the purchaser, it would be contrary to the concept of

sale as contained in the Sale of Goods Act as the law does

not recognise such a transaction as a sale.

Mr. T.L.Vishwanatha Iyer, learned senior counsel

appearing on behalf of the State of Karnataka, and Mr.

V.Krishnamurthi, learned counsel appearing on behalf of the

State of Tamil Nadu, answering the contentions of learned

counsel for the appellants, submitted that factually there

is a sale in disposing of the pledged articles through

public auction, cannot be disputed. The right to bring the

articles for sale through public auction in the event of

default on the part of the pawner to redeem, vests with the

'Pawn-broker' and the same is incidental to the business of

pawn-broker and the same is incidental to the business of

pawn broker. The concept of business includes the business

of pawnbroker with incidental right to sell the unredeemed

goods. On the facts of the case, the auctioneer cannot be

treated as the seller for imposing tax on him. The

appellants have admitted that the sale of unredeemed

articles is incidental to the business of pawnbroker. If

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that be so the liability to pay sale tax on such sales

cannot be avoided in view of the definitions of business,

dealer and sale in the Sales Tax Acts. The learned counsel

submitted that the reasonings given by the High Courts are

well-founded and the conclusions thereon do not call for

interference in these appeals.

The case law cited by the learned counsel on both

the sides will be referred to at the appropriate place.

All the contentions now raised by the learned

counsel for the appellants were raised before the High

Courts of Karnataka and Madras, but without success. Both

the High Courts rejected similar contentions and found that

the Pawnbrokers are liable to pay sales tax on the sales of

articles through public auction on account of default

committed by the Pawner.

The learned judges of the Division Bench of the

Karnataka High Court after referring to a judgment of this

Court in Bank of Bihar Vs. State of Bihar [AIR 1971 SC

1210]. held that the Pawnbroker has a special property

right in the pledge and that special property right is to be

distinguished from the more right of detention which the

holder of a lien possesses. The Division Bench also held

that the sale of unredeemed goods takes place at the

instance of the Pawnbroker and such sale held through the

approved auctioneer results in passing on the general

property right in the goods to the purchaser. According to

the learned Judges the Pawnbroker squarely falls in the main

definition of dealer under the Karnataka General Sales Tax

Act. To come to the above conclusion the learned Judges

invoked the aid of definition of pawnbroker in Section 2(7)

of the Pawn Brokers Act. After referring to a judgment of

this Court in Lallan Prasad vs. Rahmat Ali & Anr. [(1967)

2 SCR 233], the learned Judges held that a Pawn-broker has

an implied authority to sell and such activity of sale which

is incidental/ancillary to the business of Pawn-broker falls

within the definition of business under the karnataka Sales

Tax Act. The learned Judges rejected the contention of the

assesses that, if at all for the sale of pawned articles the

auctioneer is liable for sales tax and not the Pawn-broker.

The reason for rejecting the above contention was that the

auctioneer was not the agent of the Pawnbroker but appointed

as auctioneer under the relevant rule. According to the

learned Judges, the Pawnbroker has authority under the

statute to bring the pawned articles for sale and the pawner

loses all his rights in the article sold through the

auctioneer at the instance of the Pawn-broker.

The learned Judges of the Division Bench of the

Madras High Court also took the view as that of the

Karnataka High Court and gave additional reasons as well.

After referring to a full Bench judgment of the Madras High

Court in Kandula Radhakrishna Rao & ors. vs. The Province

of Madras [3 STC 121], the learned judges held that the

pawner, who pledges the article with the licensed

Pawn-broker, not only parts with the possession of the

pledged article in favour of the Pawn-broker, but by virtue

of such pledge parts with the rights he held to sell the

pledged article in case of default of payment and discharge

of loan or redemption of the article pledged within the time

stipulated therefor by the contract or by the provisions of

the Act and the rules made thereunder. The learned Judges

further held that the sale of the pawned article can be

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safely and legitimately be said to be occasioned or brought

about by the action of the Pawn-broker only and

consequently, he alone has to be treated in law as the

person responsible and also as the person who has sold the

pledged articles. The intervention of an approved

auctioneer is only to prevent abuse by the Pawn-broker of

his right to auction the un-receemed pledged articles to the

detriment of the pawner and to prevent exploitation of his

innocence or indigent circumstances. The position of the

auctioneer was that of a more crier or broker, who brings

about sale. Therefore, the auctioneer can be bo stretch of

imagination be characterised as a seller inasmuch as be

cannot be said to have any personal or propriety interest

either in the pledged articles plays on role whatever in the

actual sale of the articles, through it is his default in

redemption of the pledged articles that results in the

auction sale of the pledged articles. It was learned Judges

that the Pawn-broker, whose action and decision brings about

the sale and who alone having possession hands over the

pledged articles to the successful bidder subsequently, is

to be considered as a seller under the Sales Tax law. The

learned Judges held that the Pawn-broker satisfies the

definition of 'dealer' as well as business under the Tamil

Nadu General Sales Tax Act. which are substantially the

same as that of the corresponding definitions in the

Karnataka Sales Tax Act.

Aggrieved by the above conclusions the present

appeals by special leave are filed.

The learned Judges of the Division Bench of the

Karnataka High Court as well as the learned Judges of the

Division Bench of the Madras High Court have written

elaborately on the subject citing numerous authorities of

this Corut and of the High Courts to support their

conclusions. We are, with respect in agreement eith the

conclusions and the reasonings given for such conclusions in

the judgments under appeal. We do not therefore, propose to

give elaborate reasonings, except to point out the principal

reasonings to sustain the conclusions reached in judgements

under appeal.

It cannot be and it is not disputed that the

Pawn-broker has special property rights in the goods pledge,

a right higher than a mere right of detention of goods but a

right lesser than general property right in the goods. To

put it differently, the pawner at the time of pledge not

only transfers to the pawnee the special right in the pledge

but also passes on his right to transfer the general

property right in the pledge in the event of the pledge

remained unredeemed resulting in the sale of the pledge by

public auction through an approved auctioneer. The position

being what is stated above the natural consequence will be

that it is the pawnee who holds not only the absolute

special property right in the pledge but also conditional

general property interest in the pledge, the condition being

that he can pass on that general property only in the event

of the pledge brought to sale by public auction in

accordance with the Act and the Rules framed thereunder.

In this connection, we can usefully quote a passage

from Kandula Radhakrishna Rao (supra), which has been

approved by this Court in Bagal Kot Cement Co. vs. State

of Mysore [(1976) 1 SCC 336].

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The Madras High Court in Kandula Radhakrishna Rao's

case (supra), (a Full Bench Judgment) speaking through

Rajamannar, C.J., an eminent Judge, had an occasion to

consider the position of a broker and a commission agent

under the Madras General Sales Tax Act, 1939 and the rules

made thereunder. The question that was considered in the

said judgment was as to whether a commission agent is a

dealer or not under the Taxing Enactment. The learned Chief

Justice observed as follows :-

"As no written conveyance, still less a

registered deed, is necessary for the sale of

goods, unlike in the case of sale of immovable

property, the contract of sale is preformed when

the goods are actually delivered. It is because

that there can be a sale by a person who has no

title to the goods that Section 27 enunciates the

rule that the buyer acquires no better title to

the goods than the seller had. In the case of a

commission agent, the accepted mercantile

practice is that he has control over or

possession of the goods and he has the authority

from the owner of the goods to pass the property

in and title to the goods. If this is so,

undoubtedly when a commission agent sells goods

belonging to his principal with his authority and

consent and without disclosing to the buyer the

name of the owner, there is certainly a transfer

of property in the goods from the commission

agent to the buyer. A business which consists in

such transactions can properly be described as a

business of selling goods. A similar position

would arise even in the case of a commission

agent buying for an undisclosed principal. A

Commission agent doing this kind of business

would, in my opinion fall within the definition

of dealer in the Sales Tax Act. Neither the

definition of dealer nor of sale contemplates as

a necessary condition, that the goods sold should

belong to the person selling or buying. There

can be a sale or purchase on behalf of another."

We have already pointed out that this view of the

Full Bench of the Madras Hihg Court had the approval of this

Court in Bagal Kot Cement Co. (supra).

In member, Board of Revenue, West Bengal vs.

Controller of Stores, Eastern Railway, Calcutta [74 STC 5].

this Court had an occasion to consider whether the Sourt

Eastern Railway as a carrier of goods when sells the

unclaimed goods was carrying on an activity incidental or

ancillary to its business as carrier of goods and therefore,

was a 'dealer' for the purpose of the Bengal Finance (Sales

Tax) Act, 1941 and liable to pay sales tax on the sale of

unclaimed goods. While answering the question in the

affirmative the learned judges held as follows :-

"In these appeals the question is whether the

assessee - railway in each case is a "dealer" for

the purpose of assessment under the Bengal

Finance (Sales Tax) Act, 1941. In the case of

the assessee, South Eastern Railway, what were

sold were unclaimed goods. The railway gas a

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carrier of the goods and if at the stage of

delivery goods remained unclaimed for a period

the railway was entitled to dispose them of.

There can be no doubt that the activity of so

disposing of the goods was adjunctive to the

principal activity of the carriage of goods by

the railway. It is an activity which may be

regarded as necessarily incidental or ancillary

to its business as carrier of the goods. It

seems to us that the assessee, South Eastern

railway, was a "dealer" for the purposes of the

Bengal Finance (Sales Tax) Act. 1941."

Applying the above principle to facts of these cases,

we are clearly of the opinion that in the sales of unredeemed

goods through public auction by an approved auctioneer the

pawnee, who has control or possession over the goods and who

was given statutory authority to pass the general property in

and title to the goods, is the seller and as such, satisfies

the definition of 'dealer' under the General Sales Tax Act of

both the States. This conclusion is further strengthened by

the definition of 'Pawn-broker' (supra). The explanation to

the definition of 'Pawn-broker' contemplates that every

person who keeps the shop for the purchase or sale of goods

or chattels and who purchases goods or chattels and pays or

advances thereon any sum of money, with or under an agreement

or understanding expressed or milled that the goods or

chattels may be afterwards re-purchased on any terms, is a

Pawnbroker within the meaning of main clause. The activities

of pawnbroker as detailed above will satisfy the definition

of business as well. We have also noticed that the pawner

has no role at all in the sale of goods pledged except to

redeem the same before the sale is concluded. Therefore, he

cannot be treated as seller in the context of the

transaction.

Likewise, the Auctionner cannot be treated as a

seller liable to pay sales tax on the turnover as the role of

the auctioneer in the facts of these cases is very limited

and he is not under the control of the pawnbroker. Instead

the auctioneer is under the control of authorities concerned

who granted approval for being an auctioneer. In thsi

connection we can usefully city a Division Bench judgment of

the Madras High Court in The Deputy Commissioner of

Commercial Taxes, Madras Division, Madras -7 vs. Sri Dayanand

Corporation, Madras-1 [21 STC 346]. The issue for decision in

that case was whether the auctioneer can be considered an a

dealer for the purpose of levy of sales tax. The auctioneer

in that case was also an approved Auctioneer under the

provisions of the Tamil Nadu Pawnbrokers Act. While holding

that the auctioneer was not a dealer liable to pay tax the

learned judges observed as follows :-

"We have carefully gone through the formalities

which the above rules have laid down for the

procedure at the auction of pledged goods by the

auctioneer. But nowhere has it been stated that

the auctioneer should take over possession of the

goods from the pawnbroker and sell them. Even the

specific provision in rule 15(2) extracted above,

only directs the auctioneer to cause all pledges

to be exposed to public view. He could perform

this obligation by directing the pawnbroker to be

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present at the time of the sale with the articles

proposed to be sold and keep them ready for

inspection. But this obligation will not make it

necessary for the pawnbroker to part with

possession of the goods in favour of the

auctioneer.

With a little reflection, one also realises that

a careful pawnbroker would like to keep the goods

in his own custody until they are sold and would

not like to hand over possession to the

auctioneer without any security for their safe

custody. The provisions in the pawnbrokers Act

and in particular, the obligation that auction

sales of unredeemed goods shall be effected

according to certain prescribed rules through

according to certain prescribed rules through

approved auctioneers are intended to safeguard

the pledgers of goods form the effect of nominal

or bogus sales of their goods by pawnbrokers in

the event of non-redemption, Which will otherwise

have the effect of preventing poor persons, who

respect to the pawnbrokers for loans, from

getting a proper value of the pledged goods when

they remain unredeemed. The intervention of the

auctioneer is therefore, intended for

safeguarding the interest of the pledgers of

goods but at the same time, the rules are careful

to see that the interest of pawnbrokers are not

also affected and they do not require them to

part with the possession of the goods to the

auctioneer before the sale. In fact the rules

are silent about the mode of delivery of the

goods. They have meticulously provided for the

manner in which the sales are to be published and

conducted. The auctioneer will be carrying out

the obligations under the rules, even without

taking possession of the pledged goods and

delivering them to the highest bidder on the fall

of the hammer. The pawnbroker can still be a

person who retains the possession of the goods,

and he can deliver them to the successful bidder

at the auction by the auctioneer. It is from

this point of view that we are impressed by the

circumstances mentioned by the Tribunal in its

order including clause 5 of the conditions of the

auction sale which allows the bidder to take

delivery of the goods from the pawnbroker, and

the bill of sale which makes mention of the fact

that the buyer will take delivery of the goods

from the pawnbroker on payment of the price to

the auctioneer.

It is no doubt a fact that section 2(g) of

the Madras General Sales Tax Act, 1959, which

defines "dealer"includes an auctioneer. The

"auctioneer" is however included therein only as

an instance of other types of dealers who are also

referred to in the definition. But the main part

of the definition at the beginning of section 2(g)

refers to a person who carries on the business of

buying selling, supplying or distributing goods.

Before these requirements can apply to a dealer,

for the purpose of levy of sales tax the

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transaction must amount to a sale as defined in

section 2(n) of the Act. That definition makes it

necessary that there should be a transfer of

property in the goods by one person to another in

the course of business for cash or deferred

payment or other valuable consideration. In the

present case, there is a clear finding that the

auctioneer merely served the purpose of brining

the bidders and the pawnbrokers into contact with

each other and also arranged for the holding of a

sale in an open and fair manner, giving the widest

publicity to the sales so that the pledgers might

get the most advantageous prices at the open sale

of their pledged articles.

But it is the pawnbroker who ultimately

delivers possession of the goods to the bidder. On

this finding of fact by the Tribunal it has to be

concluded that the respondent discharged only the

duty of a crier or a broker who brought he parties

together, but he was not a dealer who transferred

the property in the goods to the highest bidder."

We are in agreement with the above observations and

the conclusions reached thereon. This answers in the

negative, the contention advanced on behalf of the appellants

that if at all in the transactions in question, the

Auctioneer must be held liable for payment of tax.

Now coming to the contention that inasmuch as the

pawn-broker is given liberty to bid and purchase at the sale

of unfedeemed goods he cannot be deemed as a seller as one

cannot sell the goods to himself. This contention is

mis-conceived as the Pawnbroker in such circumstance plays a

dual role one as a pawnbroker and the other as individual

self. As a matter of fact, a similar question arose before

the Madras High Court in L.S. Chandramouli & Co. vs The

State of Madras [18 STC 325]. In that case, the question for

consideration was whether a local agent of a non-resident

principal, who carried on business of his own also transfers

the goods of non-resident principal to his own business can

be considered as a transaction of sale chargeable to tax.

The learned judges overruling a similar contention held that

the concerned agent of a non-resident principal - and the

other as proprietor of his own business, two different

indentations altogether, while transferring the goods of the

non-resident principal to himself, he not only acted as agent

of his non-resident principal but also as a purchaser and

there is nothing in law which militates against the said

conclusions and consequent tax liability on such person. We

have no hesitation to reject the contention of the learned

counsel for the appellants that the Pawn-broker cannot be

treated as a seller of goods in the facts and circumstances

of these case and, therefore, not a 'dealer' under the Sales

Tax Act.

It is now well settled that any activity incidental

or ancillary to the main business will also come within the

definition of 'business' under the Sales Tax Act and

therefore, the contention that the sale of unredeemed goods,

being incidental to the business of Pawn-broker was not

liable to sales tax, cannot be accepted.

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Let us now consider the decisions cited on behalf of

the learned counsel for the appellants.

Mr. K. Parasaran, learned senior counsel for the

appellants, cited a Single Bench judgment of the Madras High

Court in Provincial Government of Madras vs. Mudukuru

Munirathnam Chetti & Anr. [4 STC 296]. This judgment apart

from the fact that it was rendered under the Madras General

Sales Tax Act, 1939, is not directly on the point and the

context in which the judgment was rendered, was entirely

different. That judgment considered a transaction treated by

both the parties as loan and entrustment of goods for sale to

others to discharge the loan. It was held that transaction

cannot be treated as a sale at the hands of the person who

advanced the money for the purpose of levy of sales tax. The

nature and character of the transaction in the case on hand

are totally different. Therefore, the case cited has no

application to the facts of this case.

Likewise, the decisions cited by Mr. Dave, learned

senior counsel for the appellants, namely. The Deputy

Commissioner of Commercial Taxes, madurai Division Madurai Vs

A.R.S. Thirumeninatha Nadar. Firm Tuticorin [21 STC 233],

Lallan Prasad vs. Rahmat Ali & Anr. [(1973) 1 SCC 46] are

all under different circumstances and with reference to the

facts of those cases which have no direct bearing to the

issues raised in these cases.

In The Deputy Commissioner of Commercial Taxes,

Madurai Division Madurai (supra), the Division Bench of the

Madras High Court, on the facts of the case, held that the

bank in selling the goods pawned to it did not act as agent

of the assessee and the sales were on behalf of the pledger.

The learned Judges further held that the pawn or pledge by

itself did not make the pawnee or pledgee the owner of the

goods on the peculiar facts of that case.

In Lallan Prasad's case (supra), this Court

considered a question whether the appellant in that case was

entitled to a decree in view of his denial of the pledge and

his failure to offer to redeliver the goods. In answering

that question, this Court, after referring to Section 176 of

the Indian Contract Act, held that so long, however, as the

sale does not take place the pawner is entitled to redeem the

goods on payment of the debt. Therefore, the right to sue on

the debt assumes that he is in a position to redeliver the

goods on payment of the debt, and if by denying the pledge or

otherwise, he has put himself in a position whereby he is not

able to redeliver the goods, he cannot obtain a decree.

In Balkrishna Gupta & Ors. (supra), again a judgment

of this Court had considered a question that arose under the

Companies Act, 1956 and the effect and consequence of

appointment of a Receiver in respect of certain shares of a

company.

In M/s Chowringhee Sales Bureau (P) Ltd. (supra).

this Court, on the peculiar facts of that case, found that

there was a close and direct connection between an auctioneer

and the transaction of auction sale in that case. On the

basis of the peculiar facts, this Court also found that the

auctioneer had collected sales tax on the auction sale of the

goods but had not passed on the same to the Revenue. In such

circumstances, this Court held that the auctioneer was liable

to pay sales tax under the West Bengal Act.

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None of the cases cited by the learned counsel for

the appellants has any bearing to the facts of the cases on

hand. On the other hand, the decisions cited in the

judgments under appeal and cited in this judgment in support

of the conclusions are directly on point.

We have already stated that we are in agreement with

the conclusions reached by the learned judges in the

judgments under appeal and we have dealt with only the

principal reasons sufficient for approving the judgments

under appeal.

In the light of the discussions made above and for

the reasons given above we are of the view that the judgment

under appeal lay down the correct law and do not call for

any interference. Accordingly the appeals fail and are

dismissed. However, there will be no order as to costs.