HYDERABAD: Armed with a recent Supreme Court ruling which held that resale of pledged goods was liable for tax, the Vigilance and Enforcement Department has begun gathering information from all banks and financial institutions on such transactions since 2005.
According to official sources, the department had sought details on sale of non-banking assets, particularly of seized vehicles and jewellery, apparently on default of repayment by the loanee.
The sources said the apex court in the ‘Federal Bank Ltd vs. State of Kerala’ case had held in March 2007 that when a pledged article was sold in auction, such a transaction was taxable under the provisions of the Sales Tax.
They said that under the VAT regime, someone involved in buying and selling was obliged to register as a dealer. Though certain institutions are non-dealers by their nature of functioning and resort to buying and selling occasionally, they become dealers to the extent of such transactions, which are liable for tax.
The tax attracted by resale of pledged vehicles was 12.5 per cent and that of jewellery one per cent.
Input tax credit
On the question of offsetting the tax liability through input tax credit available to the dealers, the sources said that such a facility could be availed of only if the dealer had paid the tax at the time of purchase. They pointed out that in most cases, the banks or financial institutions only financed the first sale and therefore could be treated as dealer for the second-hand sale.