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Commercial Tax Officer & Ors. v. State Bank of India & Anr.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 1798 of 2005)Decided 8 Nov 2016
Civil Appeal No. 1798 of 2005
Justice Dipak Misra · Justice Shiva Kirti Singh

Background

Under a Reserve Bank of India policy, the State Bank of India's designated branches "mopped up" unutilised Exim Scrips (Export-Import Licences) from holders who wished to dispose of them, paying a 20% premium on face value, as directed by an RBI letter dated 18 March 1992. The Commercial Tax Officer in West Bengal treated this as a "purchase" of goods by SBI and levied purchase tax of over Rs. 1 crore under the Bengal Finance (Sales Tax) Act, 1941. The tax authorities and the Taxation Tribunal upheld the levy, but the Calcutta High Court's Division Bench quashed it, holding that SBI's acquisition of the scrips did not amount to a taxable "purchase."

Decision Breakdown

The Supreme Court held that while Exim Scrips/replenishment licences are generally "goods" when freely transferred between private holders for consideration (as settled in earlier precedent such as Vikas Sales Corporation and clarified by the Constitution Bench in Sunrise Associates), the position is different when such instruments are surrendered back to the issuing/sovereign authority for cancellation and extinction. Here, SBI acquired the scrips purely as an agent of the RBI to nullify and remove them from circulation, not to acquire marketable goods for its own benefit or trade, once cancelled, the scrips become worthless scraps of paper with no ownership ever truly transferring to SBI. Since the essential element of a taxable "purchase" (acquisition of goods as a marketable commodity) was absent, the Court agreed with the High Court that no purchase tax could be levied, and found it unnecessary to decide the subsidiary question of whether the activity constituted "business" under the Act. The appeal by the tax authorities was accordingly dismissed with no order as to costs.

Lesson Learnt

A sales/purchase tax can only be levied where there is a genuine transfer of ownership in a marketable commodity; when an instrument is being surrendered for cancellation (extinguishing its value) rather than being bought and sold as a tradeable item, the transaction is not a "purchase" of goods, even if money changes hands.

Official source (sci.gov.in)View Judgment (PDF)

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