The Deputy Commissioner of Commercial Taxes vs Sri Dayanand Corporation

Ramakrishnan, J.—This revision case is filed by the Deputy Commissioner of Commercial Taxes, Madras Division, against the order of the

Sales Tax Appellate Tribunal in T.A. No. 1004 of 1962. The facts, which have led to the filing of this revision case, are stated clearly in the order

of the Appellate Tribunal and we will extract them briefly for the purpose of this revision case.

The respondent is Dayanand Corporation and its proprietor is Vijaya-raghavalu Chetty doing the business of selling in public auction

unredeemed articles pledged with pawnbrokers. The respondent claimed that the articles which were unredeemed pledges with pawnbrokers were

sold by him during the year of assessment only as an auctioneer but not as a dealer within the scope of the Madras General Sales Tax Act, 1959,

and that therefore the sales should be exempt from assessment at his hands. The authorities of the Commercial Tax Department including the

Appellate Assistant Commissioner, held that the respondent functioned in such sales as a dealer with possession of the goods, and confirmed his

assessment to sales tax on such sales. He appealed to the Sales Tax Appellate Tribunal.

Before the Tribunal the respondent contended that he only auctioned the jewels pledged with the pawnbrokers, that they were produced on the

auction dates by the pawnbrokers, that during such sales the pawnbrokers used to be present, that only with their consent did the respondent

complete the bids and not on his own responsibility, that the bidders used to pay the price to the respondent and he used to issue receipts; at the

same time there was a clear understanding as one of the conditions of the sale, that the delivery of the articles sold, would be effected only by the

pawnbrokers to the highest bidder.

The Tribunal accepted these contentions in substance as true. For its conclusion it relied on, among other things, Clause 5 in the conditions of

the auction sale which was to the following effect:

The highest bidder declared as the purchaser shall at Once pay the whole sale amount or at least 25 per cent. thereof, subject to the approval of

the auctioneer. In the latter case the balance shall be paid within 3 days from the date of auction and the lot or lots should be taken delivery from

the pawnbroker. In default, he shall forfeit the advance paid, and the lot or lots will be resold at his risk without notice.

It also relied upon the bill of sale issued to the purchasers where it was clearly mentioned that cash was paid to the auctioneers and that the lots

of jewellery were taken delivery of from the pawnbrokers. The Tribunal was therefore of the opinion, in the above circumstances, that the

respondent was not a dealer with dominion over the possession of the sold goods who transferred the property in such goods to the highest

bidder, and that therefore the respondent could not be assessed to sales tax on such sales. The Tribunal allowed the appeal of the assessee and set

aside the assessment. The department has filed this revision case against the order.

Learned counsel appearing for the petitioner (department) referred us to the rules framed by the State Government under the Madras

Pawnbrokers Act, 1943, and in particular Rule 15 which outlines the procedure in auction of pledges. Rule 15 is as follows :

Procedure in auction of pledges.-The following procedure shall be observed with reference to the sale by public auction of pledges:-

(1) ...

(2) The auctioneer shall cause all pledges to be exposed to public view...

Learned counsel for the department mentioned that the auctioneer effected the sales of unredeemed articles with pawnbrokers, in compliance

with the rules thus framed. Rule 15(2) provides that the auctioneer shall cause all pledges to be exposed to public view. The other provisions of the

above rule were also referred to by the learned Government Pleader. They lay down the several requirements to which the auctioneer has to

conform, like printing and publishing a catalogue of the pledges to be sold in auction. They also enjoin that an auctioneer shall publish the sale in a

newspaper by advertisement which gives the pawnbroker''s name and place of business, the months in which the pledges were pawned and the

date, hour and place of sale.

We have carefully gone through the formalities which the above rules have laid down for the procedure at the auction of pledged goods by the

auctioneer. But nowhere has it been stated that the auctioneer should take over possession of the goods from the pawnbroker and sell them. Even

the specific provision in Rule 15(2) extracted above, only directs the auctioneer to cause all pledges to be exposed to public view. He could

perform this obligation by directing the pawnbroker to be present at the time of the sale with the articles proposed to be sold and keep them ready

for inspection. But this obligation will not make it necessary for the pawnbroker to part with possession of the goods in favour of the auctioneer.

With a little reflection, one also realises that a careful pawnbroker would like to keep the goods in his own custody until they are sold, and

would not like to hand over possession to the auctioneer without any security for their safe custody. The provisions in the Pawnbrokers Act and, in

particular, the obligation that auction sales of unredeemed goods shall be effected according to certain prescribed rules through approved

auctioneers are intended to safeguard the pledgers of goods from the effect of nominal or bogus sales of their goods by pawnbrokers in the event

of non-redemption, which will otherwise have the effect of preventing poor persons, who resort to the pawnbrokers for loans, from getting a

proper value of the pledged goods when they remain unredeemed. The intervention of the auctioneer is therefore intended for safeguarding the

interest of the pledgers of goods, but at the same time, the rules are careful to see that the interest of pawnbrokers are not also affected and they

do not require them to part with the possession of the goods to the auctioneer before the sale. In fact the rules are silent about the mode of delivery

of the goods. They have meticulously provided for the manner in which the sales are to be published and conducted. The auctioneer will be

carrying out the obligations under the rules, even without taking possession of the pledged goods and delivering them to the highest bidder on the

fall of the hammer. The pawnbroker can still be a person who retains the possession of the goods, and he can deliver them to the successful bidder

at the auction by the auctioneer. It is from this point of view that we are impressed by the circumstances mentioned by the Tribunal in its order,

including Clause 5 of the conditions of the auction sale which allows the bidder to take delivery of the goods from the pawnbroker, and the bill of

sale which makes mention of the fact that the buyer will take delivery of the goods from the pawnbroker on payment of the price to the auctioneer.

It is no doubt a fact that Section 2(g) of the Madras General Sales Tax Act, 1959, which defines ""dealer"" includes an auctioneer. The

auctioneer"" is however included therein only as an instance of other types of dealers who are also referred to in the definition. But the main part of

the definition at the beginning of Section 2(g) refers to a person who carries on the business of buying, selling, supplying or distributing goods.

Before these requirements can apply to a dealer, for the purpose of levy of sales tax the transaction must amount to a sale as defined in Section

2(n) of the Act. That definition makes it necessary that there should be a transfer of property in the goods by one person to another in the course

of business for cash or deferred payment or other valuable consideration. In the present case, there is a clear finding that the auctioneer merely

served the purpose of bringing the bidders and the pawnbrokers into contact with each other and also arranged for the holding of a sale in an open

and fair manner, giving the widest publicity to the sales so that the pledgers might get the most advantageous price at the open sale of their pledged

articles.

But it is the pawnbroker who ultimately delivers possession of the goods to the bidder. On this finding of fact by the Tribunal, it has to be

concluded that the respondent discharged only the duty of a crier or a broker who brought the parties together, but he was not a dealer who

transferred the property in the goods to the highest bidder.

Our attention has been drawn to an earlier decision of this Court in Zackria Sons Private Limited v. State of Madras [1965] 16 S.T.C. 136

where the facts showed that the auctioneer there discharged only a similar function. In that decision it was observed that the question whether an

auctioneer was a dealer within the meaning of Section 2(g) of the Madras General Sales Tax Act, 1959, had to be determined not solely by

reference to the fact that he described himself as an auctioneer but it had to be considered in the light of the particular contract between him and

the purchaser and the surrounding circumstances. One can visualise a case where an auctioneer, besides functioning as a crier or a broker, also

obtains dominion over the property sold and is authorised to hand over possession of the property to the successful bidder. In such circumstances

he could be considered to be a dealer for the purpose of Section 2(g) of the Act. But on the facts of this case, the auctioneer had no such

dominion over the property, and had no authority to transfer it to the buyer.

In the above circumstances, we are of the opinion that the Tribunal is right in its view that the transactions in question do not attract the levy of

sales tax. The case is dismissed with costs. Advocate''s fee Rs. 100.