Holding

Explanation IV is prospective and applies only to transactions on or after 1 August 1996; it does not cover the 1987 auction sale.

Summary

The Government of Andhra Pradesh issued a demand notice under Section 5 of the Andhra Pradesh General Sales Tax Act, 1957 for tax on the turnover of an auction sale of jewellery held on 19‑08‑1987 by Corporation Bank, invoking Explanation IV to Section 2(1)(e) inserted by Act No. 27 of 1996. The Bank challenged the notice, arguing that banks are not "dealers" under the Act and that the amendment could not be applied retrospectively to a transaction that occurred before its commencement. The High Court quashed the notice, holding that the tax did not apply to the Bank. On appeal, the Supreme Court examined whether Explanation IV, which expands the definition of "dealer" to include banks and other financial institutions, was intended to have retrospective effect. Relying on principles of statutory interpretation, the Court concluded that the Explanation contains a deeming provision meant to broaden the definition and was expressly made prospective, applying only to transactions on or after 1‑08‑1996. Consequently, the amendment could not be used to tax the 1987 auction sale. The appeal was disposed of without any order as to costs.

Issues considered

Whether Explanation IV to Section 2(1)(e) of the Andhra Pradesh General Sales Tax Act, 1957, inserted by Act No. 27 of 1996, applies retrospectively to a transaction that occurred on 19‑08‑1987.
Whether banks fall within the definition of "dealer" under the amended provision.

Legislation cited

Andhra Pradesh General Sales Tax Act, 1957s. 2(1)(e), s. 5
Reserve Bank of India Act, 1934s. Second Schedule
Sale of Goods Act, 1930

Subjects

sales taxstatutory interpretationretrospective legislationprospective effectdealer definitionbanking transactionsauction saledeeming provision

Judgment

A GOVERNMENT OF ANDHRA PRADESH AND ANR. ..-....I
v.
r
CORPORATION BANK

MARCH 29, 2007

B · [S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.]

Sales Tax: ,. '
.....
Andhra Pradesh General Sales Tax Act, 1957: S.2(J)(e), Explanation
c IV {inserted by Act 27of1996)-Explanation inserted by way ofAmendment- L

Retrospective or prospective effect-Held, Object ofExplanation JV containing
deeming provision is to expand the meaning of word 'dealer' and therefore
it cannot be read as a retrospective enactment so as to cover old transactions-
Interpretation of statutes.

D Interpretation of statutes:

Object of interpretation-Held, is to discover intention of legislature. ~

;,.._

Explanation inserted by way of amendment-Object of -Held, Court
to examine whetlier Explanation inserted by Amending Act was to clear the
E ambiguity or for expanding the meaning of particular word or to include
matters which otherwise may not fall within the main provision.

The respondent-Bank was aggrieved by the demand notice issued for
recovery of tax on turnover of auction sale of jewellery held on 19.8.1987
under s.5. r.w. Explanation IV ofs.2(1)(e) of Andhra Pradesh General Sales
...., i.
F Tax Act, 1957. They filed writ petition before the High Court challenging the r
legality of the notice, contending that the provisions of the 1957 Act are not
'(
applicable to banking transactions. High Court allowed the writ petition
quashing the impugned notices.

The question before this Court is whether Explanation N to s.2(1)(e) of
G the Amending Act No. 27of1996 applied retrospectively to the auction sale
held on 19.8.87.

Disposing of the appeal, the Court
y
HELD: 1. Explanation IV to S.2(1)(e) of Andhra Pradesh General Sales

H 530
-i
GOVERNMENT OF ANDHRA PRADESH v. CORPORATION BANK 531
Tax Act, 1957 would apply to transactions on and after 1.8.1996. A
[Para 18] [539-E]

2.1. According to Craies on Statute Law, Seventh Edition, a Declaratory
Act is an Act to remove doubts existing in the common law, or the meaning or
the effect of any statute. Such Acts are usually held to be retrospective. On
the other hand Consolidating Acts are Acts enacted to consolidate in one Act B
the provisions contained in a number of statutes, as for example the Customs
-{ and Excise Act, Income-tax Act, Companies Act etc. [Para 11) [537-A-B)

• ).
2.2. An explan_ation must be read ordinarily to clear up any ambiguity
in the main section and it cannot be construed to widen the ambit of the
section. However, if on a true reading of an Explanation it appears to the Court
in a given case that the effect of the Explanation is to widen the scope of the
c
main section then effect must be given to the legislative intent. In all such
cases the Court has to.·find out the true intention of the Legislature. Therefore,
there is no single yardstick to decide whether an Explanation is enacted to
clarify the ambiguii) or whether it is enacted to widen the scope of the main
section. [Para 12) [537-D-E] D
Bihta Co-operative Development and Cane Marketing Union Ltd and
-;
_,,
Anr. v. Bank of Bihar and Ors., AIR [1967] SC 389, relied on.

2.3. Prior to the Amending Act No. 27of1996, there was no Explanation
covering banks, L.I.Cs. etc. Explanation IV was added by the first time by the
said Amending Act No. 27 of 1996. The definition of the word "dealer" thus E
stands expanded by the said Amending Act. Therefore, Explanation IV was
not to clear any doubt or ambiguity. It has been enacted in order to expand the
definition of the word "dealer" in s.2(l)(e) of the 1957 Act.
[Para 12) [537-F-G)

)>. 3.1. The object of interpretation is to discover the intention of the F
Legislature. The Court has to examine whether an Explanation inserted by
r the Amending Act was to clear the ambiguity or whether it provided for
expansion by introducing a deeming provision. The deeming provision
generally is intended to enlarge the meaning of the particular word or to
include matters which otherwise may not fall within the main provision.
G
[Para 13) [538-A-B)

Doypack Systems (Pvt.) ltd v. Union of India, [1988) 36 E.L.T. 201,
relied on .
._,,
3.2. Applying the above test, it is seen that in Explanation IV, there is
H
r--
532 SUPREME COURT REPORTS [2007) 4 S.C.R.

A an in-built deeming provision so as to include L.I.C.s, financial institutions,
companies and banks mentioned in the Second Schedule to the Reserve Bank
oflndia Act, 1934 within the definition of the word "dealer" in s.2(l)(e) of
the 1957 Act. Therefore, the object of Explanation IV containing such deeming !'
provision is to expand the meaning of the' word "dealer" and, therefore, it
cannot be read as a retrospective enactment so as to cover old transactions of
B the past. It is for that reason that even the Legislature while enacting Act No.
27of1996 has stated that the provisions thereof shall come into force with
effect from 1.8.96 which is one more circumstance to show that the Amending
Act was not to operate before 1.8.96. [Para 16) [539-B] __.. •
c AIR (1191))
Mis Keshavji Ravji and Co. etc., etc., v. Commissioner of Income-Tax,
SC 1806 and Mis Aphali Pharmaceuticals Ltd. v. State of
Maharashtra and Ors., AIR [1989) SC 2227, relied on.

4. Further, this case is concerned with an indirect tax, the incidence of
which falls on the borrower/pledgor. The auction sale is as far back as on
D 19.8.87. The transaction has concluded since then. The Bank (respondent) is
not expected to recover the tax from the pledgor in respect of old auction sales,
which took place much prior to 1.8.96. [Para 16) [539-C] t-
,.._
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 299 of2002.

E From the Final Judgment and Order dated 08.06.2001 of the High Court
of Judicature of Andhra Pradesh at Hyderabad in W.P. No. 10997 of 1990.

June G. Chaudhary, Sr. Adv., Manoj Saxena, Rajnish Kr. Singh and Rahul
Shukla, Advs. With him for the Appellants.
..
~

F T. L. V. Iyer, G. Prakash and S. N. Bhat, Advs. With him for the ....
Respondents.
'(
The Judgment of the Court was delivered by

KAPADIA, J. I. A short question which arises for determination in this
G civil appeal filed by the State (appellants) is: whether pledging of ornaments
with the Bank against a loan and sale of such goods if the loan is not
discharged, would be "business" within the meaning of Section 2( 1)(e) of the
Andhra Pradesh General Sales Tax, 1957 read with Explanation IV thereto. ..,
...,,...
2. On 3.4.89 the Commercial Tax Officer, Warangal, issued demand notice
H on respondent-Bank for payment of tax on turnover of auction sale of jewellery
GOVERNMENT OF ANDHRAPRADESH v. CORPORATION BANK [KAPADIA, J.j 533
held on 19.8.87 under Section 5 read with Explanation IV of Andhra Pradesh A
General Sales Tax Act, 1957 ("the 1957 Act", for short). In this connection
reliance was placed on Section 2(1 )(e) read with Explanation IV of the 1957
Act.

3. Aggrieved by the demand notice, the respondent-Bank filed writ
petition before the High Court challenging the legality of the notice. In the B
writ petition the respondent-Bank contended that the provisions of the 1957
Act are not applicable to banking transactions .
...
4. By judgment dated 8.6.01 the Division Bench allowed the writ petition
quashing the impugned notices holding that Banks are not amenable to sales C
tax on sale of gold pledged with the Banks as security for loan. Hence this
civil appeal by the State (appellants).

5. At the outset we may point out that in the civil appeal filed by the
State (appellants), the entire emphasis is placed on Explanation IV to Section
2(l)(e) ofthel957 Act which was inserted by Act No. 27 of 1996 by ~hich D
the definition of the word "dealer" was expanded to cover banks, L.l.Cs. and
financial institutions. Therefore, the question which we have to answer in this
civil appeal is: whether Explanation IV of the 1957 Act would operate
retrospectively, particularly, since in the present case the notice given to the
Bank pertains to the auction sale of ornaments held on 19.8.87.
E
6. Act. No. 27 of 1996 was an Amending Act. It received the assent of
the Governor on 15.10.96. It was published on 17.10.96 in the Andhra Pradesh
Gazette. It was preceded by an Ordinance. The said Amending Act operated
with effect from 1.8.96. It is so specifically stated in the said Act No. 27 of
1996.
F
7. For deciding the above controversy we quote hereinbelow the amended
Section 2(l)(e) read with Explanation IV of the 1957 Act:

"Section 2.-Definitions:- (1) In this Act, unless the context otherwise
requires:-
G
(e) "dealer" means any person who carries on the business of buying
selling, supplying or distributing goods or delivering goods on hire
purchase or on any system of payment by instalments, or carries on
or executes any works contract involving supply or use of material
directly or otherwise, whether for cash, or for deferred payment, or for
H
534 SUPREME COURT REPORTS (2007] 4 S.C.R.

A commission, remuneration or other valuable consideration, and includes-

(i) local authority, a company, a Hindu undivided family or any
society (including a co-operative society), club, firm or association
which carries on such business;
(ii) a society (including a co-operative society) , club firm or
B association which buys goods from or sells, supplied or distributes
goods to its members;
(fu) a casual traders, as hereinbefore defined;
(iii-a)any person, who may, in the course of business of running a
C restaurant or an eating house or a hotel (by whatever name
called), supply by way of or as part of any service or in any other
manner whatsoever, of goods, being food or any other article for
human consumption or any drink (whether or not intoxicating);
(iii-b) any person, who may transfer the right to the use of any goods
D for any purpose.. whatsoever (whether or not for a specified
period) in the course of business to any other person;
(iv) a commission agent, a broker, a de/ credere agent, an auctioneer
or any other mercantile agent, by whatever name called, who
carries on the business of buying, selling, supplying or
distributing goods on behalf of any principal or principals;
E
Explanation 1:-Every person who acts as an 'agent of a non-resident
dealer', that is, as an agent on behalf of a dealer residing outside the
state, and buys, sells, supplies or distributes goods in the State or
acts on behalf of such dealer as-
F (i) a mercantile agent as defined in the Indian Sale of Goods Act,
1930 (Central Act III of 1930); or
(ii) an agent for handling goods or documents of title relating to
goods, or
(fu) ari agent for the collection or the payment of the sale price of
G goods or as a guarantor for such collection or payment and every
local branch of a firm or company situated outside the State, shall
be deemed to be a dealer for the purpose of this Act;

Explanation II:- Where a grower of agricultural or horticultural produce
sells such produce grown by himself or grown on any land in which
H
~
GOVERNMENT OF ANDHRA PRADESH v. CORPORATION BANK [KAPADIA, J.) 535
>- he has an interest whether as owner, usufructuary mortgage, tenant A
or otherwise, in a form different from the one in which it was produced
after subjecting it to any physical, chemical or any process other than
mere cleaning, grading or sorting, he shall be deemed to be a dealer
for the purpose of this Act;

Explanation III:- The Central Government or the State Government B
which, whether or not in the course of business, buys, sells, supplied

..
)-
or distributes goods, directly or otherwise, for cash or for deferred
payment or for commission, remuneration or other valuable
consideration shall be deemed to be dealer for the purposes of this
Act;

Explanation IV:- For the purpose of this clause, each of the following
c
persons and bodies who sells or dispose of any goods including
unclaimed or confiscated or unserviceable goods or scrap, surplus,
old, obsolete, or discarded material or waster products whether by
auction or otherwise, directly or through an agent for cash, or for
deferred payment or for any other valuable consideration shall be
D
deemed to be a dealer to the extent of such disposals or sales
-I namely:-
.>.

(a) the Port Trust;

(b) Municipal Corporation and Municipal Councils, and other local
authorities; E
(c) Railway administration as defined under the Indian Railways Act,
1890;

(d) Shipping, transport and construction companies;

(e) Air transport companies and air-lines;
~-
F
... (t) Transporters, holding permits for transport vehicles granted under
the Motor-Vehicles Act, 1988 which are used or adopted to be
used for hire;

(g) The Andhra Pradesh State Road Transport Corporation;

(h) Customs Department of the Government of India Administering
G
the Customs Act, 1962;

(i) Insurance and financial corporations or companies and Banks
'r included in the Second Schedule to the Reserve Bank of India

- (emphasis supplied) H
536 SUPREME COURT REPORTS [2007] 4 S.C.R.

A Act, 1934;
G) Advertising agencies;
(k) Any other Corporation, company body or authority owned or set
up by or .subject to "administrative control of the Central
Government or any State Government."
B
8. The 1957 Act has been enacted to consolidate and amend the law
relating to levy of general tax on the sale/purchase of goods in the State of
Andhra Pradesh. Under Section 2(1)(e) the word "dealer" was defined to mean
any person who carried on the business of buying, selling or distributing
C goods, directly or otherwise, whether for cash or for deferred payment or for
commission, remuneration or other valuable consideration. The original
definition of the word "dealer'' referred to any person who carried on business
of selling goods for cash or deferred payment or other valuable consideration.
That definition led to litigation when demand notices were issued to Banks
calling upon the said Banks to pay tax on sale of pledged jewellery/ornaments
D for default on the part of the borrower/pledgor. The Banks contended that
they were not in the business of pawn-broking. They contended that the
ornaments/gold pledged with them were sold pursuant to the instructions
given by the pledgor. They contended that they were not the owners of the
said gold/ornaments. They contended that sale of the pledged gold/ornaments
did not fall "in the course of their business" under Section 2(1)(e) of the 1957
E Act. These contentions were accepted by the High Court. Consequently, the
State Legislature enacted Act. No. 27 of 1996 by which Explanation IV was
inserted in the 1957 Act. That Explanation, inter alia, has sought to cover
L.l.Cs., fmancial corporations, companies and banks falling in Second Schedule
to the Reserve Bank ofindia Act, 1934. The constitutional validity of the said
F Amending Act. No. 27 of 1996 has not been challenged in the present
proceeding by the Bank (respondent).

9. As stated above, in the civil appeal filed by the State (appellants) the
only contention raised is that with the enactment of the Amending Act No.27
of 1996 banks have been included in the defmition of the word "dealer".
G Therefore, we are only required to consider whether the said Amending Act.
No.27 of 1996 applied retrospectively to the auction sale held on 19.8.87.

10. The nature of Explanation ·has been the matter of a statutory
interpretation in number of judgments of this Court.

H 11. According to Craies on Statute Law, Seventh Edition, at page 58, a
GOVERNMENT OF ANDHRA PRADESH v. CORPORATION BANK [KAPADIA, J.] 537

>- Declaratory Act is an Act to remove doubts existing in the common law, or A
the meaning or the effect of any statute. Such Acts are usually held to be
retrospective. On the other hand Consolidating Acts are Acts enacted to
consolidate in one Act the provisions contained in a number of statutes, as
for example the Customs and Excise Act, Income-tax Act, Companies Act. etc.

12. In construing a statutory provision, the first and foremost rule of B
construction is the literary construction. If the provision is unambiguous and
if from that provision, the legislative intent is clear, we need not call into aid
•~ the other rules of construction. The other rules of construction are invoked
when the legislative intent is not clear. In Bihta Co-operative Development
and Cane Marketing Union Ltd. and Anr. v. Bank of Bihar and Ors., AIR
(1967) SC 389, this Court was called upon to consider Explanation to Section
c
48(1) ofBihar and Orissa Co-operative Societies Act, 1935. This Court observed
that the Court should not go only by the label. The Court observed that an
Explanation must be read ordinarily to clear up any ambiguity in the main
section and it cannot be construed to widen the ambit of the section. However,
if on a true reading of an Explanation it appears to the Court in a given case D
that the effect of the Explanation is to widen the scope of the main section
-I
~
then effect must be given to the legislative intent. It was held that in all such
cases the Court has to find out the true intention of the Legislature. Therefore,
there is no single yardstick to decide whether an Explanation is enacted to
clarify the ambiguity or whether it is enacted to widen the scope of the main
section. On the facts it was held that before 1948 Amendment to the Bihar
E
and Orissa Co-operative Societies Act, 1935, there was an Explanation on the
Statute Book and the subsequent Explanation was only to clarify the earlier
Explanation and, therefore, the Court held that the purpose of the subsequent
Explanation was not to enlarge the scope of Section 48(1 )(e) in the Bihar and
• Orissa Co-operative Societies Act, 193 5. In the present case prior to the
Amending Act. No.27 of 1996, there was no Explanation covering banks,
F
'1
LI.Cs. etc. As stated above, Explanation IV was added by the first time by
the said Amending Act No.27 of 1996. The definition of the word "dealer"
thus stands expanded by the said Amending Act No.27 of 1996. In our view,
therefore, Explanation IV was not to clear any doubt or ambiguity. It has been
enacted in order to expand the definition of the word "dealer" in Section
G
2(\)(e) of the 1957 Act.

13. In the case of Doypack Systems (Pvt.) Ltd. v. Union of India, ( 1988)
~
36 E.L.T. 201, this Court has held that the internal aids of construction and
definitions, exceptions, explanations, fictions, deeming provisions, headings, H
538 SUPREME COURT REPORTS [2007] 4 S.C.R.

A marginal notes, preamble, provisos, punctuations, saving clauses, non-obstante
clauses etc. It was observed that the object of interpretation is to discover
the intention of the Legislature. It was further observed that the Court has
to examine whether an Explanation inserted by the Amending Act was to clear
the ambiguity or whether it provided for expansion by introducing a deeming
B provision. The Court further held that deeming provision generally is intended
to enlarge the meaning of the particular word or to include matters which
otherwise may not fall within the main provision [See: para '641. Applying
the above test to the present case, we find from the Explanation IV, quoted
above, that in that Explanation there is an in-built deeming provision so as
to include LI.Cs, financial institutions, companies and banks mentioned in the
C Second Schedule to the Reserve Bank oflndia Act, 1934 within the definition
of the word "dea!er" in Section 2(l)(e) of the 1957 Act. Therefore, the object
· of the Explanation IV containing such deeming provisions is to expand the
meaning of the word "dealer" and, therefore, it cannot be read as a retrospective
enactment so as to cover old transactions of the past. It is for that 1eason
that even the Legislature while enacting Act No.27 of 1996 has stated that 1

D the provisions thereof shall come into force with effect from 1.8.96 which is
one more circumstance to show that the Amending Act was not to operate
before 1.8.96.

14. In the case of Mis. Keshavji Ravji and Co. etc., etc., v. Commissioner
E ofIncome-tax, AIR ( 1991) SC 1806, this Court observed in paia '14' that there
is no general theory as to the effect and intention of an Explanation, though
generally the purpose of Explanation is to clarify the doubts: However, this
Court further held that an Explanation can also supply something to the
content of the provision and in such a case the Court has to consider its
effect, whether it is retrospective or prospective.
F
15. In the case of Mis. Aphali Pharmaceuticals Ltd. v. State of
Maharashtra and Ors., AIR ( 1989) SC 2227, this Court found that in the earlier
Explanation in the Medicinal and Toilet Preparations (Excise Duties) Act, 1955
certain changes were made by way of another Explanation brought in by the
Finance Act, 1962 with retrospective effect. The Court upheld the contention
G advanced on behalf of the State that the new Explanation was retrospective.
While doing so the Court observed that the impugned Explanation has not
altered the existing classification in the Schedule so as to impose a new
liability and, therefore, the impugned Explanation was clarificatory and
retrospective.
H
GOVERNMENT OF ANDHRA PRADESH v. CORPORATION BANK [KAPADIA, J.] 539

16. Applying the above test to the present case, we find that by A
Explanation IV to Section 2(l)(e) of the 1957 Act, banks, financial institutions
etc. are sought to be covered by an in-built expression "deeming provision"
' in the said Explanation. By the said deeming fiction the meaning of the
"dealer" is sought to be expanded so as to include banks, financial institutions,
LI.Cs. etc. By the said explanation a liability is sought to be created for the B
first time on banks, financial institutions, L.l.Cs. etc. Further, we are concerned
with an indirect tax, the incidence of which falls on the borrower/pledgor. The
auction sale in the present case is as far back as on 19.8.87. The transaction
has concluded since then. The Bank (respondent) is not expected to recover
the tax from the pledgor in respect of old auction sales which took place much
prior to 1.8.96. C
17. For the above reasons, we are not required to examine the larger
question as to whether the transaction took place in the course of the
business of the Bank. Though, this question has been examined in the
impugned judgment by the High Court we are not required to examine those
questions, particularly, when the law has been amended prospectively and D
also because the civil appeal filed by the State (appellants) is entirely based
on the insertion of Explanation IV vide amending Act No.27 of 1996.

18. Before concluding we may clarify that Explanation IV would apply
to transactions on and after 1.8.1996.
E
19. Subject to above, the civil appeal filed by the State (appellants)
stands disposed of with no order as to costs.

D.G. Appeal disposed of.