LexKARNATAKA PAWN BROKERS ASSON. AND ORS. ETC. versus STATE OF KARNATAKA AND ORS.
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KARNATAKA PAWN BROKERS ASSON. AND ORS. ETC. A v. STATE OF KARNATAKA AND ORS. OCTOBER 29, 1998 [S.P. BHARUCHA AND K. VENKATASWAMI, JJ.] B Sales Tax: Karnataka Sales Tax Act, 1957, Sections 2(1-2), (k) & (t)-Tamil Nadu General Sales Tax Act, 1959, Sections 2(d), (g) & (n)-'Dealer' and 'business'- C Meaning and scope of-Pawnbrokers causing sale of articles/goods through statutory auctioneer on default of pawner to redeem the pledged articles- Held, such activities satisfy the definition of "dealer" as well as the definition of "business"-Hence, pawnbrokers are required to pay sales tax on such sale-Further held, that in such cases neither the pawner nor the statutory D auctioneer is a dealer liable to pay sales tax-Sale-Pawnbroker-Debt Laws- Karnataka Pawnbrokers Act, 1961, Sections 2(7), 3, 7, l l & 12-Karnataka Pawnbrokers Rules, 1966, Rule 20-Tamil Nadu Pawnbrokers Act, 1939, Sections 2(6), 3, 7, l l and 12-Tamil Nadu Pawnbrokers Rules, 1943, Rule 12-Contract Act, 1872, Sections 172 and 173 to 177. Words and Phrases: Word ''pawnbroker"-Meaning of-In the context of Karnataka Pawnbrokers Act, 1961, Section 2(7) and Tamil Nadu Pawnbrokers Act, 1939, Section 2(6). Words "dealer." and "business''-Meaning of-In the context of General Sales Tax Acts of Karnataka ancl Tamil Nadu. E F The question involved in the instant appeals was whether a pawnbroker, causing sales of unredeemed articles/goods who carried on G "business" within the meaning oftheT. N. General Sales Tax Act, 1959 read with T. N. Pawnbrokers Act, 1943 as Rules thereunder as well as the Karnataka Sales Tax Act, 1957 read with the Karnataka Pawnbrokers Act, 1961 and Rules thereunder. Provisions of the Pawnbroker Acts of both the States were substantially the same. 461 H 462 SUPREME COURT REPORTS (1998] SUPP. 2 S.C.R. A It was contended by the appellants that pawnbrokers lent money on the pledge of articles and that they were not engaged in the business of buying and/or selling of goods; the pledge of the articles created a relation of bailor and bailee and as such they had no right to sell the property contrary to the contract or other statutory provisions regulating their B relationship; in a sale occasioned by the default of the pawner in redeeming the article, the auctioneer and not the pawnbroker should be treated to be the seller and liable to pay sales tax; as the pawnbroker himself was entitled to bid at the sale under the Rules at most the sale could be deemed to be merely incidental to the main business to the pawnbroker not attracting sales tax; and that the statutory method of disposal of the pawned articles C through an auctioneer did not amount to transferring the general property rights in the goods by the pawnbroker to the purchaser. 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
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