KARNATAKA PAWN BROKERS ASSON. AND ORS. ETC. v. STATE OF KARNATAKA AND ORS.

It was contended by the respondents-States that the factum of sale in disposing of the pledged articles through public auction, could not be disputed; that the right to bring the articles for sale through public auction D in the event of default on the part of the pawner to redeem vests with the pawnbrok<-rs and the same was incidental to the business of 'pawnbroker'; and that the concept of'business' included the business of pawnbroker with the incidental right to sell the unredeemed goods and on these facts the auctioneer could not be treated as a seller for imposing tax on him. E Dismissing the appeals, this Court HELD : 1.1. Pawnbroker is a person who carries on the business of taking goods and chattels in pawn for a loan. On payment of the money lent with interest and other admissible incidental expenses, the pawnbroker is liable to return the articles pledged. Sections 172 and 173 to 177 of the F Contract Act, 1872, Sections 2(7), 3, 7, 11 and 12 of the Karnataka Pawnbrokers Act, 1961, Rule 20 of Karnataka Pawnbrokers Rules and Section 2(f-2), (k) and (t) of the Karnataka Sales Tax Act, 1957 show that the pawner can redeem the pledged article within the period stipulated or within the grace period provided or before the sale of the pawned article takes place through the auctioneer. However, once the article is brought G for sale and sold, the pawner would lose his right in the pawned article as the general property right in the said article passes on to the purchaser. 1465-F; 466-E-F; 470-G-H)

1.2. The pawnbroker has special property rights in the goods pledged, a right higher than the mere right of detention of goods but a right lesser H than general property right in the goods. The pawner at the time of the KARNATAKAPAWNBROKERSASSON. v. STATE 463 pledge not only transfers to the pawnee the special right in the pledge but A also passes on his right to transfer the general property right in the pledge in the event of the pledge remaining unredeemed resulting in the sale of the pledge by public auction through an approved auctioneer. Therefore, it is the pawnee who holds not only the absolute special property right in the pledge but also the conditional general property interest in the pledge, the B condition being that he can pass on that general property only in the event of the pledge being brought to sale by public auction in accordance with the Act and the Rules framed thereunder. [474-C-E] Bagal Kot Cement Co. v. State of Mysore, [1976] 1SCC336, relied on. Kandula Radhakrishna Rao v. Province of Madras, (1952) 3 STC, 121 (Mad) approved. c

1.3. In the sales of unredeemed goods through public auction by an approved auctioneer, the pawnee who has control or possession over the goods and who was given statutory authority to pass on the general property D in and title to the goods, is the seller and as such, satisfies the definition of "dealer" under the General Sales Tax Act of both the States. This conclusion is further strengthened by the definition.of"pawnbroker". The Explanation to the definition of"pawnbroker" contemplates that every person who keeps a shop for the purchase or sale of goods or chattels and who purchases goods E and chattels and pays or advances thereon any sum of money, with or under an agreement or understanding expressed or implied that the goods or chattels may be afterwards repurchased on any terms, is a "pawnbroker" within the meaning of the main clause. The activities ofa pawnbroker as in question, will satisfy the definition of "business" as well. The pawner has no role at all in the sale of the goods pledged except to redeem the same F before the sale is concluded. Therefore, he cannot be treated as a seller in the context of the transaction. [476-A-D) Bagal Kot Cement Co. v. State of Mysore, [1976] 1 SCC 336 and Member, Board of Revenue, West Bengal v. Controller of Stores, Eastern Railway, 74 G STC 5, relied on.

1.4. An auctioneer cannot be treated as a seller liable to pay sales tax on the turnover as the role of the auctioneer in the facts of the present cases is very limited and he is not under the control of the pawnbroker. Instead the auctioneer is under the control of the authorities concerned who granted H 464 SUPREME COURT REPORTS [1998] SUPP. 2 S.C.R. A him approval for being an auctioneer. Therefore, the appellants' contention that in the transactions in question, the auctioneer must be held liable for payment of tax, is rejected. (476-D-E; 478-E) Dy. Commissioner of Commercial Taxes v. Sri Dayanand Corporation, 21 STC 346 (Mad), approved. B l.S. The appellants' further contention that having liberty to bid and purchase at the sale of unredeemed goods, the pawnbroker could not be deemed as a "seller" as he could not sell the goods to himself, is misconceived as the pawnbroker in such circumstance plays a dual role-one as a C pawnbroker and the other as the individual selr. Therefore, the contention that the pawnbroker could not be treated as a seller of goods in the facts and circumstances of the present cases and, therefore, not a "dealer" under the Sales Tax Act, has to be rejected. (478-F-H; 479-A-B) L.S. Chandramouli v. State of Madras, 18 STC 325 (Mad), approved.

1.6. Moreover, it is now well settled that any activity incidental or ancillary to the main business will also come within the definition of "business" under the Sales Tax Act and, therefore, the contention that the sale of unredeemed goods, being incidental to the business of pawnbroker was not liable to sales tax, cannot be accepted. (479-B-C) D E