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 18th March, 1992. 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
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.
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."
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 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.
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 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 11th February, 1998 rejected all the
contentions made on behalf of the appellants 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
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 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,
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 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”.
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
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
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 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).
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.
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
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.
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.
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 23rd 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
29th 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.
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 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, 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:-
““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).”
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, Karnataka
and Kerala and if it does, it is exigible to sales tax, otherwise not. In
the said case, the High Court had taken 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 nature of share
and securities which have been expressly excluded from the definition of
goods in the relevant enactments. Analysing various facets, the three-Judge
Bench referred 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 person. 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 licensing authority, i.e., it will be governed by the
ordinary law. Accordingly, clearance of the goods covered by a REP Licence
issued under this policy will be allowed by the Customs authorities on
production by the transferee of only the document of transfer of the
licence concerned in his name. Whenever a REP Licence is transferred the
transferor should give a formal letter to the transferee, giving full
particulars regarding number, date and address of the transferee, and
complete description of the items of import for which the licence 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 import goods which he cannot do
otherwise”.
And again:-
“Another contention raised in the written submissions 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 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, 12th 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, 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 dealers 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 participate is created for the first time; if
it is considered 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 contention has caused me anxiety from the jurisprudential
point of view.
42. I agree with respect that “grant” is an agreement 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 transfer 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 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. 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 imposition of sales tax has been
uniformly defined in the various sales tax laws as meaning all kinds of
movable property. The word “property” may denote 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 distinction which must be kept in mind when considering 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 synonym for ownership and lesser rights in goods.”
Hence, when used in the definition of “goods” in the different sales tax
statutes, the word “property” means the subject-matter of ownership. The
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,
actionable claims from the definition for the purposes 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 ownership. Consequently, an actionable claim is movable
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 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 decision
in Vikas Sales (supra) was referred to only because it approved the
reasoning in H. Anraj (supra) and not because the referring court disagreed
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 referring 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 purposes 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 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 unable 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 decision in Vikas (supra). It is
noted above that the Constitution Bench in Sunrise (supra) firmly and
expressly declined to go into the question 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 actionable 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 intrinsic value of REP licence
that brought it within the definition of goods.”
32. After so stating, the Court specifically referred to the 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 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
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
-----------------------
[1] (1996) 4 SCC 433
[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
[8] AIR 1965 SC 531
[9] AIR 1970 SC 253
[10] (1976) 3 SCC 512
[11] [1994] 94 STC 139
[12] [1991] 86 STC 175
[13] (1986) 1 SCC 414
[14] (2006) 5 SCC 603
[15] (2008) 8 SCC 681
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 18th March, 1992. 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
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.
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."
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 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.
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 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 11th February, 1998 rejected all the
contentions made on behalf of the appellants 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
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 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,
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 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”.
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
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
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 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).
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.
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
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.
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.
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 23rd 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
29th 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.
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 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, 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:-
““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).”
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, Karnataka
and Kerala and if it does, it is exigible to sales tax, otherwise not. In
the said case, the High Court had taken 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 nature of share
and securities which have been expressly excluded from the definition of
goods in the relevant enactments. Analysing various facets, the three-Judge
Bench referred 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 person. 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 licensing authority, i.e., it will be governed by the
ordinary law. Accordingly, clearance of the goods covered by a REP Licence
issued under this policy will be allowed by the Customs authorities on
production by the transferee of only the document of transfer of the
licence concerned in his name. Whenever a REP Licence is transferred the
transferor should give a formal letter to the transferee, giving full
particulars regarding number, date and address of the transferee, and
complete description of the items of import for which the licence 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 import goods which he cannot do
otherwise”.
And again:-
“Another contention raised in the written submissions 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 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, 12th 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, 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 dealers 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 participate is created for the first time; if
it is considered 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 contention has caused me anxiety from the jurisprudential
point of view.
42. I agree with respect that “grant” is an agreement 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 transfer 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 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. 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 imposition of sales tax has been
uniformly defined in the various sales tax laws as meaning all kinds of
movable property. The word “property” may denote 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 distinction which must be kept in mind when considering 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 synonym for ownership and lesser rights in goods.”
Hence, when used in the definition of “goods” in the different sales tax
statutes, the word “property” means the subject-matter of ownership. The
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,
actionable claims from the definition for the purposes 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 ownership. Consequently, an actionable claim is movable
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 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 decision
in Vikas Sales (supra) was referred to only because it approved the
reasoning in H. Anraj (supra) and not because the referring court disagreed
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 referring 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 purposes 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 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 unable 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 decision in Vikas (supra). It is
noted above that the Constitution Bench in Sunrise (supra) firmly and
expressly declined to go into the question 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 actionable 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 intrinsic value of REP licence
that brought it within the definition of goods.”
32. After so stating, the Court specifically referred to the 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 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
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
-----------------------
[1] (1996) 4 SCC 433
[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
[8] AIR 1965 SC 531
[9] AIR 1970 SC 253
[10] (1976) 3 SCC 512
[11] [1994] 94 STC 139
[12] [1991] 86 STC 175
[13] (1986) 1 SCC 414
[14] (2006) 5 SCC 603
[15] (2008) 8 SCC 681
