Case Summary
| Citation | Coffee Board, Karnataka v. Commissioner of Commercial Taxes AIR 1988 SC 1487 |
| Keywords | |
| Facts | This case is before the Supreme Court where the appellant, Coffee Board had filed an appeal against the decision of the High Court. The appellant had bring in question section 25(i) of the Coffee Act, 1942. This section provides for single channel for sale of coffee grown in the registered estates. Thus as per the act, there is an obligation on the coffee growers to deliver all its produce, except internal sale quota, to the coffee board. Similarly, the board is under compulsion to purchase the coffee. The board contends that according to provision of the Coffee Act, ‘mandatory delivery’ of coffee do not constitute a sale transaction between the board and the coffee growers and thus they are liable to any purchase tax. On the other side, the respondent herein-the Commissioner of Commercial Taxes had invoked section 6 of the Karnataka Sales Tax Act, 1957 and claimed that according to this provision the board is under a liability to pay tax. Therefore in this case scope and extent of the expression ‘sale’ and its applicability for determining the rights, responsibility and duties of the appellant is in dispute. |
| Issues | Whether compulsory delivery of coffee to the appellant as per Section 25(i) of Act of 1942 is ‘sale’ or ‘purchase’ agreement? Whether the Coffee Board only a ‘trustee’ or ‘agent’ of growers and thus not liable to pay tax? |
| Contentions | The appellant argued that they are acting as an ‘agent’ or ‘trustee’ of the coffee growers and thus responsible to pay tax. Also, that they were immune under art. 286 of the constitution because all the sales were in the nature of ‘export sales’. The respondent are of the opinion that ‘compulsory delivery’ of coffee according to section 25(i) of the Coffee Act is an act of sale and purchase only and thus it makes them liable to pay tax under relevant sales tax laws for any such transaction. |
| Law Points | It was held by the division bench of Karnataka HC that compulsory delivery of coffee by the board constitutes a component of consent. Since an element of ‘consent’ exists in the compulsory sales, though negligible and by way of either expressed or implied then that would be regarded as a sale or purchase transaction. And thus, there is an agreement of ‘sale’ or purchase’ between the board and the coffee growers according to Sales of Goods Act, 1930 (SOGA). Since there is element of ‘sale’ or ‘purchase’, the board is not free from tax liabilities under relevant tax laws. Thereafter it was held by the HC that any sales thereafter were not ‘in the course of export’ or local sales within the State of Karnataka but ‘for export’. Thus, the appellant cannot attract Article 286 of the Constitution for exemption of tax liability. The SC upheld the decision of the HC and held that the imposition of tax on the appellant was correct. While dismissing the appeal of the Coffee Board, the SC also held that Coffee Board does not act as a trustee or an agent of the coffee growers. |
| Judgement | It was held by the Division Bench of Karnataka that compulsory delivery of coffee by the board constitute a component of consent and thus there is an agreement of ‘sale’ or ‘purchase’ between the board and the coffee growers according to Sales of Goods Act. |
| Ratio Decidendi & Case Authority | Section 4 of Sale of Goods Act,1930: Sale and agreement to sell — (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another. (2) A contract of sale may be absolute or conditional. (3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. (4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. Article 286 of Constitution of India, 1950: Restrictions as to imposition of tax on the sale or purchase of goods — (1) No law of a State shall impose, or authorize the imposition of, a tax on the supply of goods or of services or both, where such supply takes place— (a) outside the State; or (b) in the course of the import of the goods or services or both into, or export of the goods or services or both out of, the territory of India. (2) Parliament may by law formulate principles for determining when a supply of goods or of services or both in any of the ways mentioned in clause (1). |
Full Case Details
SABYASACHI MUKHARJI, J. – These appeals by certificates are from the judgment and
order of the High Court of Karnataka dated August 16, 1985. By the impugned judgment and
order the writ petitions filed by the Coffee Board and others were dismissed. In order to
appreciate the questions involved in the decision, it may be noted that the appellant herein —
Coffee Board contended that the compulsory delivery of coffee under the Coffee Act, 1942
extinguishing all marketing rights of the growers was ‘compulsory acquisition’ and not sale or
purchase to attract levy of purchase tax: it was further contended that the appellant was only a
‘trustee’ or ‘agent’ of growers not exigible to purchase tax and that all export sales were ‘in the
course of export’ immune to tax under Article 286 of the Constitution.
- The power conferred on the Board under Section 25(2) of the Coffee Act, to which we will
make reference later, to reject coffee offered for delivery or even the right of a buyer analogous to
Section 37 of the Sale of Goods Act showed that there was an element of consensuality in the
compulsory sales regulated by the Act. The amount paid by the Board to the grower under the Act
was the value or price of coffee in conformity with the detailed accounting done thereto under the
Act. It was further held by the High Court that the amount paid to the grower was neither
compensation nor dividend. The payment of price to the grower was an important element to
determine the consensuality test to find out whether there was sale under Section 4(1) of the Sale
of Goods Act. The Act also ensures periodical payments of price to the growers. The Rules
provide for advancing loans to growers. Therefore, according to the Division Bench of the
Karnataka High Court without any shadow of doubt these elements indicated that in the
compulsory sale of coffee, there was an element of consensuality. When once the Board was held
to be a ‘dealer’ it also followed from the same that there was sale by the grower, purchase by the
Board and then a sale by the Board. The purchases and the exports if any made by the Board
thereafter on any principle would not be ‘local sales’ within the State of Karnataka. Explanation
3(2)(ii) to Section 2(1) of the Karnataka Sales Tax Act had hardly any relevance to hold that the
later export sales were ‘local sales’ to avoid liability under Section 6 of the Karnataka Sales Tax
Act. The direct export sales made by the appellant for the period in challenge were not ‘in the
course of export’ and they did not qualify for exemption from purchase tax under Section 6 of the
Karnataka Sales Tax Act. The levy of sales tax on coffee, it was held by the High Court fell,
under entry 43 of the Second Schedule of the Act and it was governed by Section 5(3)(a) of the
Act and not by Section 5(1) of the Act. It was further held that under Section 5 of the Central
Sales Tax Act, 1956 purchases and exports made by the Coffee Board are ‘for export’ and not ‘in
the course of export’ and thus did not qualify for exemption under Article 286 of the Constitution
of India. It was observed by the High Court that the Board did not purchase or take delivery of
any specific coffee or goods of any grower and exported the same under prior contracts of sale.
The Board did not purchase any specific coffee of any specific grower for purposes of direct
exports at all. The purchases made and exports made would be ‘for export’ only and not ‘in the
course of export’ to earn exemption under Article 286 of the Constitution of India. It was further
held that Sections 11 and 12 of the Act which regulate the levy and payment of customs and
excise duties when closely examined really established according to the High Court that what was
grown by the growers and delivered to the Board was not at all compulsory acquisition but was
sale. If it was compulsory acquisition and there was payment of compensation, then these
provisions would not have found their places in the Coffee Act at all, according to the High
Court. Levy of customs and excise duties on compensation was something unheard of, an
incongruity and an anachronism in compulsory acquisition, according to the High Court.
- The question involved in these appeals and the writ petitions is the exigibility of tax on
sale if there be any, by the growers of the coffee to the Board. Basically, it must depend upon
what is sale in the general context as also in the context of the relevant provisions of the Act
namely, the Karnataka Sales Tax Act, 1957, as amended from time to time, (‘the Karnataka Act’)
and the Central Sales Tax Act, 1956, (‘the Central Act’). We must, however, examine these in the
context of general law, namely, the Sale of Goods Act, 1930 and the concept of sale in general. - The essential object of the contract of sale is the exchange of property for a money price.
There must be a transfer of property, or an agreement to transfer it, from one party, the seller, to
the other, the buyer, in consideration of a money payment or a promise thereof by the buyer. Lord
Denning, M.R., in C.E.B. Draper & Sons Ltd. v. Edward Turner & Sons Ltd. [(1964) 3 All ER
148], observed as follows:
‘‘I know that often times a contract for sale is spoken of as a sale. But the word ‘sale’
properly connotes the transfer of the absolute or general property in a thing for a price in
money [see Benjamin on Sale, 2nd edn. (1873), p. 1, quoted in Kirkness v. John Hudson
& Co., 1955 AC 696, 708, 719]. In this Act of 1926 I think that ‘sale’ is used in its
proper sense to denote the transfer of property in the goods. The sale takes place at the
time when the property passes from the seller to the buyer and it takes place at the place
where the goods are at that time.’’
Lord Denning was speaking for the English Act of 1926 for the Sale of Goods Act. - In the Sale of Goods Act, 1930, (‘Sale of Goods Act’) contract of sale of goods is defined
under Section 4(1) as a contract whereby the seller transfers or agrees to transfer the property in
goods to the buyer for a price. It also stipulates by sub-section (4) of Section 4 that an agreement
to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the
property in the goods is to be transferred. - Benjamin’s Sale of Goods (2nd Edn.) states that leaving aside the battle of forms, sale is
a transfer of property in the goods by one, the seller, to the other, the buyer. - Under the Karnataka Sales Tax Act, sale is defined under Section 2(t) as:
“‘Sale’ with all its grammatical variations and cognate expressions means every transfer
of the property in goods by one person to another in the course of trade or business for
cash or for deferred payment or other valuable consideration, but does not include a
mortgage, hypothecation, charge or pledge.’’
- The Central Act defines “sale” as under in Section 2(g):
“ ‘Sale’, with its grammatical variations and cognate expressions, means any transfer of
property in goods by one person to another for cash or for deferred payment or for any
other valuable consideration, and includes a transfer of goods on the hire-purchase or
other system of payment by instalments, but does not include a mortgage or
hypothecation of or a charge or pledge on goods.’’ - Coffee Board is a ‘dealer’ duly registered as such under the Sales Tax Acts of all the
States in which it holds auctions/maintains depots/runs coffee houses. The Board is also
registered as a ‘dealer’ under the Central Sales Tax Act. The Board collects and remits sales tax
on all the coffee sold by it for domestic consumption to the State in which the sale takes place.
Coffee is sold through auctions held in the States of Karnataka, Tamil Nadu and Andhra Pradesh,
and also through the Board’s own depots located in nine States. Sale is also effected by way of
allotments to cooperative societies. The Board directly exports coffee and also sells coffee to
registered exporters through separate export auctions. It may be mentioned that over 50 per cent
of the coffee is produced in Karnataka and most of the Robusta variety of coffee is produced in
Kerala. All the coffee produced in these States cannot be sold within the State where the coffee is
produced. Coffee meant for export has also to be stored at convenient places. The Board,
therefore, transfers coffee from one State to another. Sales tax is not payable or paid on the
transfer of such coffee. In order to appreciate the actual controversy and the point at issue in the
instant case, it is vital to appreciate the real nature of the transaction. - In 1966 this Court in the case of State of Kerala v. Bhavani Tea Produce Co. [AIR 1966
SC 677], which arose under the Madras Plantations Agricultural Income Tax Act, 1955, held that
when growers delivered coffee under Section 25 of the Act to the Board all their rights therein
were extinguished and the coffee vested exclusively in the Board. This Court observed that when
growers delivered coffee to the Board, though the grower “does not actually sell” the coffee to the
Board, there was a ‘sale’ by operation of law. This was in connection with Section 25 of the Act.
The court, however, did not hold that there was a taxable ‘sale’ by the grower to the Board in the
year in question. The sale, according to this Court in that case took place in earlier years in which
the Agricultural Income Tax Act did not operate. All the States in which coffee is grown and all
the persons concerned with the coffee industry, it is asserted on behalf of the Additional Solicitor
General, understood this decision as laying down that the ‘sale by operation of law’ mentioned
therein only meant the ‘compulsory acquisition’ of the coffee by the Coffee Board. - We are, however, bound by the clear ratio of this decision. The Court considered this
question: “was there a sale to the Coffee Board?” at page 99 of the Report and after discussing
clearly said the answer must be in the affirmative. It was rightly argued, in our opinion, by Dr
Chitale on behalf of the respondents that the question whether there was sale or not or whether
the Coffee Board was a trustee or an agent could not have been determined by this Court, as it
was done in this case unless the question was specifically raised and determined. We cannot also
by-pass this decision by the argument of the learned Additional Solicitor General that Section 10
of the Act had not been considered or how it was understood by some. This decision in our
opinion concludes all the issues in the instant appeal.
- In 1970 purchase tax was introduced. The Karnataka Sales Tax Act was amended by
Karnataka Act 9 of 1970 and Section 6 was substituted. The new Section 6 provided for the levy
of purchase tax on every dealer who in the course of his business purchased any taxable goods in
circumstances in which no tax under Section 5 was leviable and, inter alia, despatched these to a
place outside the State, at the same rate at which tax would have been leviable on the sale price of
such goods under Section 5 of the Karnataka Act. The delivery of coffee by the coffee growers to
the Coffee Board not being treated a purchase by the Board, the State did not demand any tax
from the Board in respect of such deliveries. Demands were raised for the first time in 1983.
Assessments for the years up to 1975 were completed without any demand for purchase tax being
raised. - This Court on or about April 15, 1980 in the case of Consolidated Coffee Ltd. v. Coffee
Board, Bangalore [AIR 1980 SC 1468], held that sale of coffee at export auctions were sales
which preceded the actual export and thus exempt from sales tax under Section 5(3) of the
Central Sales Tax Act. The court also directed the State Governments to refund the amounts
collected as sales tax on such sales and set a time limit for effecting such refunds. The Karnataka
Government, as a consequence, became liable to refund to the Coffee Board about Rs 7 crores
which amount in turn was to be refunded by the Board to the exporters. In 1981 the
Commissioner of Sales Tax, Karnataka informed the Board by a letter that the mandatory
delivery of coffee to the Board by the grower would be regarded as ‘sale’ and that the Board
should pay purchase tax as the coffee growers, being agriculturists are not ‘dealers’. It is the case
of the Coffee Board that no such claim had been made at any time in the past in any of the States
in India. The Commissioner issued a show cause notice proposing to reopen the assessment for
the year 1974-75. In June 1982 pre-assessment notice was sent by the authorities proposing to
assess the Board to purchase tax for the assessment year 1975-76 and a sum of Rs 3.5 crores was
demanded as purchase tax on the coffee transferred from Karnataka to outside the State either as
stock transfers or as exports directly to buyers abroad. - In August 1982 the Coffee Board along with two coffee growers filed writ petitions
being Writ Petition Nos. 15536 to 15540 of 1982 in the High Court of Karnataka praying for a
declaration that the mandatory delivery of coffee under Section 25(1) of the Act was not sale and
that Section 2(t) of the Karnataka Sales Tax Act required to be struck down if the same
encompassed compulsory acquisition also. The show cause notice and the pre-assessment notice
were also challenged and prayers were made for quashing the same. The High Court granted
interim stay. In the meantime on or about February 3, 1983 Constitution (Forty-Sixth
Amendment) Act, 1983 came into force and the definition of “Tax on sale or purchase of goods”
was added by insertion of clause (29-A) in Article 366. This definition is prospective in
operation. Subsequent to February 3, 1983, the Karnataka Sales Tax Act was amended by Act 10
of 1983, Act 23 of 1983 and Act 8 of 1984. The definition of ‘sale’ in Section 2(t), however, was
not amended. That definition was amended with effect from August 1, 1985 by the Karnataka Act
27 of 1985. After hearing the State Government, the High Court made absolute the stay of further
proceedings pursuant to the show cause notice of the Commissioner proposing to reopen the
assessment for the year 1974-75. The court modified the stay order regarding the pre-assessment
notice and permitted the completion of assessment reserving liberty to the Coffee Board to move
the High Court after the assessment was completed. On May 31, 1983 assessment order was
made for the year 1975-76. On or about June 17, 1983 demand for Rs3.5 crores as arrears of tax
for the assessment year 1975-76 was issued to the Coffee Board. On July 2, 1983, the High Court
stayed the assessment demand for purchase tax for the assessment year 1975-76. On or about
June 18, 1983 the assessment order was issued for the year 1976-77. The Board was assessed on a
taxable turnover of Rs 92.99 crores and Rs 10.18 crores was assessed as tax. Of this sum, Rs 8.06
crores is the demand on account of purchase tax. Thereafter notice demanding payment of Rs
8.06 crores as arrears of tax for the assessment year 1976-77 was issued. The Coffee Board filed a
writ petition in August 1983 being Writ Petition No. 13981 of 1983 challenging the assessment
and the demand for the purchase tax for the assessment year 1976-77. Rule was issued and the
assessment as also demand for purchase tax was stayed. In the meantime, notice of demand for Rs
8.08 crores as arrears of tax for the assessment year 1977-78 was issued. In September 1983 Writ
Petition No. 17071 of 1983 was filed by the Coffee Board for the assessment year 1977-78. Rule
was issued. Assessment and demand for purchase tax was stayed. Similarly, Writ Petition No.
17072 of 1983 was filed by the Coffee Board regarding assessment year 1978-79. Rule was
issued. Assessment and demand for purchase tax was stayed. In the meantime in October 1983,
there was another Writ Petition No. 19285 of 1983 filed challenging the demand for the purchase
tax for the year 1979-80. Rule was issued. Assessment and demand was stayed. Writ Petition No.
19118 of 1983 was filed challenging the demand of purchase tax for the year 1980-81. Rule was
issued. Assessment and demand for purchase tax was stayed.
- All these writ petitions in January 1984 were referred to the Division Bench for hearing
and disposal. It may be mentioned here that in or about May 1984 the Coffee Board started for
the first time to collect contingency deposits to cover purchase tax liability, if any, for the period
February 3, 1983 onwards subsequent to the Forty-Sixth Amendment to a limited extent. This
was by a circular. It is stated that the Board withheld about Rs 6.8 crores from the pool payment
to growers for the season 1982-83 for meeting in part the liability, if any, for the purchase tax for
the period subsequent to February 3, 1983. The court however, in 1985 directed the appellantCoffee Board to remit to the State Government Rs 6.8 crores. The High Court also directed the
Board to remit to the State Government Rs 1.5 crores collected by the Board as contingency
deposits between May and December 1984. The State Government undertook to return these
monies with interest, in the event of the writ petitions being allowed. By the judgment delivered
on August 16, 1985, the High Court dismissed the writ petitions by a common judgment and
various sums of money for the various years became payable as purchase tax. The said judgment
is reported in Indian Law Reports, Karnataka, Vol. 36 at page 1365. These appeals challenge the
said decision.
- In view of the decision of the High Court several questions were canvassed in these
appeals. The questions were: (i) Was there transfer of coffee to the Board from the coffee growers
or acquisition? (ii) Was there any element of sale involved? (iii) Was the Coffee Board trustee or
agent for the coffee growers for sale to the export market, and (iv) if it is sale, is it in the course of
export of the goods to the territory outside India? The first and the basic question that requires to
be considered in these appeals is whether the acquisition of coffee by the Board is compulsory
acquisition or is it purchase or sale? As mentioned all the questions were answered by this Court
in Bhavani Tea Produce Co. case against the appellant. We were, however, invited to compare
the transaction in question with transactions in Peanut Board v. Rockhampton Harbour Board
[(1932-33) 48 CLR 266]. Was there any mutuality? In this connection it is necessary to analyse
and compare the decision of this Court in Vishnu Agencies (Pvt.) Ltd. v. CTO and to what extent
the principles enunciated in the said decision affect the position. In order to address ourselves to
the problem posed before this Court, we must bear in mind the history and the provisions of the
Coffee Market Expansion Act, 1942, under which the Board was constituted, which we have
already noted. - The control of marketing of farm produce for the economic benefit of the producers and
to bring about collective marketing of the produce is a recognised feature of governments of
several countries, particularly. United States of America, Britain and Australia. The object was to
prevent unhealthy competition between the producers, to secure the best price for the produce in
the local market, to conserve for local consumption as much produce as was needed and to make
available the surplus for export outside the States and also to foreign markets. The method usually
adopted to achieve the object is to establish a marketing board with power to control the price, to
obtain possession of the produce and to pool it with a view to collective marketing. The
legislation in this behalf is compendiously described as “pooling legislation” and is based on the
fundamental idea that the collectivist economy is superior to individualistic economy. There are
therefore, different marketing boards for different kinds of produce, such as sugar, dairy produce,
wheat, lime fruit, apples, pears and so on. The Indian Coffee Market Expansion Act was
modelled somewhat on the lines which obtained in other countries and was intended to control
the development of the coffee industry and to regulate the export and sale of coffee. If, however,
the transaction amounts to sale or purchase under the relevant Act then that is the end of the
matter. - All parties drew our attention to the decision in the case of Vishnu Agencies Pvt. Ltd.
[AIR 1978 SC 449]. There the court was concerned with the Cement Control Order and the
transactions taking place under the provisions of that control order. The Cement Control Order
was promulgated under the West Bengal Cement Control Act, 1948 which prohibited storage for
sale and sale by a seller and purchase by a consumer of cement except in accordance with the
conditions specified in licence issued by a designated officer. It also provided that no person
should sell cement at a higher price than the notified price and no person to whom a written order
had been issued shall refuse to sell cement “at a price not exceeding the notified price”. Any
contravention of the order became punishable with imprisonment or fine or both. Under the A. P.
Procurement (Levy and Restriction on Sale) Order, 1967, (CA Nos. 2488 to 2497 of 1972) every
miller carrying on rice milling operation was required to sell to the agent or an officer duly
authorised by the government, minimum quantities of rice fixed by the government at the notified
price, and no miller or other person who gets his paddy milled in any rice mill can move or
otherwise dispose of the rice recovered by milling at such rice mill except in accordance with the
directions of the Collector. Breach of these provisions became punishable. It was held dismissing
the appeals that sale of cement in the former case by the allottees to the permit-holders and the
transactions between the growers and procuring agents as well as those between the rice millers
on the one hand and the wholesalers or retailers on the other, in the latter case, were sales exigible
to sales tax in the respective States. It was observed by Beg, C.J. that the transactions in those
cases were sales and were exigible to tax on the ratio of Indian Steel and Wire Products Ltd.
[AIR 1968 SC 478], Andhra Sugars Ltd. [AIR 1968 SC 599] and Karam Chand Thapar [AIR
1969 SC 343]. In cases like New India Sugar Mills [AIR 1963 SC 1207], the substance of the
concept of a sale itself disappeared because the transaction was nothing more than the execution
of an order. The Chief Justice emphasised that deprivation of property for a compensation called
price did not amount to a sale when all that was done was to carry out an order so that the
transaction was substantially a compulsory acquisition. On the other hand, a merely regulatory
law, even if it circumscribed the area of free choice, did not take away the basic character or core
of sale from the transaction. Such a law which governs a class obliges a seller to deal only with
parties holding licences who may buy particular or allotted quantities of goods at specified prices,
but an essential element of choice was still left to, the parties between whom agreements took
place. The agreement, despite considerable compulsive elements regulating or restricting the area
of his choice, might still retain the basic character of a transaction of sale. In the former type of
cases, the binding character of the transaction arose from the order directed to particular parties
asking them to deliver specified goods and not from a general order or law applicable to a class.
In the latter type of cases, the legal tie which binds the parties to perform their obligations
remains contractual. The regulatory law merely adds other obligations, such as the one to enter
into such a tie between the parties. Although the regulatory law might specify the terms, such as
price, the regulation is subsidiary to the essential character of the transaction which is consensual
and contractual.
The parties to the contract must agree upon the same thing in the same sense. Agreement on
mutuality of consideration, ordinarily arising from an offer and acceptance, imports to it
enforceability in courts of law. Mere regulation or restriction of the field of choice does not take
away the contractual or essentially consensual binding core or character of the transaction.
Analysing the Act, it was observed that according to the definition of “sale” in the two Acts the
transactions between the appellants in that case and the allottees or nominees, as the case may be,
were patently sales because in one case the property in the cement and in the other property in the
paddy and rice was transferred for cash consideration by the appellants. When the essential goods
are in short supply, various types of orders are issued under the Essential Commodities Act, 1955
with a view to making the goods available to the consumer at a fair price. Such orders sometimes
provide that a person in need of an essential commodity like cement, cotton, coal or iron and steel
must apply to the prescribed authority for a permit for obtaining the commodity. Those wanting
to engage in the business of supplying the commodity are also required to possess a dealer’s
licence. The permit-holder can obtain the supply of goods, to the extent of the quantity specified
in the permit and from the named dealer only and at a controlled price. The dealer who is asked to
supply the stated quantity to the particular permit-holder has no option but to supply the stated
quantity of goods at the controlled price. Then the decisions in State of Madras v. Gannon
Dunkerley & Co. Ltd. [AIR 1958 SC 560] and New India Sugar Mills v. CST, were discussed
and the correctness of the view taken in the former case was doubted and the majority opinion in
the latter case was overruled.
- It was submitted by the learned Additional Solicitor General that these cases, namely,
Bhavani Tea Estate and Vishnu Agencies’ would have no application within the set up of the
Coffee Act because the provisions of the statute expressly provide that there could be no sale or
contract of sale, yet the High Court had for purposes of sales tax assumed (notwithstanding the
statutory prohibition) that the transaction contemplated by the statute in the present case, the
mandatory delivery, would be a sale. It was submitted that where a statute prohibited a registered
owner from selling or contracting to sell coffee from any registered estate, there could be no
implication of any purchase on the part of the Coffee Board of the coffee delivered pursuant to
the mandatory provisions of Section 25(1) of the Act. It was urged that Section 17 of the Coffee
Act read with Sections 25 and 47 enacts what since 1944 is a total prohibition against the sale of
coffee by growers and corresponding purchase of coffee from growers. In view of Section 17 read
with Section 25, purchase by the Coffee Board of coffee delivered under Section 25(1) was also
impliedly prohibited. It is in view of this express prohibition of sale and corresponding implied
prohibition of purchase that the Act provided the only method of disposal of coffee, viz., by the
delivery of all coffee to the Coffee Board with no rights attached on such delivery, save and
except the statutory right under Section 34. It was also argued that the legislature has made a
conscious difference between acquisition of coffee by compulsory delivery by the growers under
Section 25(1) of the Act and purchase of coffee by the Board under Section 26(2) and, as such,
compulsory delivery of coffee under Section 25(1) cannot constitute a sale transaction as known
to law between the growers and the Coffee Board. We are, however, unable to accept the
submissions of the learned Additional Solicitor General. All the four essential elements of sale –
(1) parties competent to contract, (2) mutual consent – though minimal, by growing coffee under
the conditions imposed by the Act, (3) transfer of property in the goods and (4) payment of price
though deferred, – are present in the transaction in question. As regards the provisions under
Section 26(2) empowering the Coffee Board to purchase additional coffee not delivered for
inclusion in the surplus pool, it is only a supplementary provision enabling the Coffee Board to
have a second avenue of purchase, the first avenue being the right to purchase coffee under the
compulsory delivery system formulated under Section 25(1) of the Act. The scheme of the Act is
to provide for a single channel for sale of coffee grown in the registered estates. Hence, the Act
directs the entire coffee produced except the quantity allotted for internal sale quota, if any, to be
sold to the Coffee Board through the modality of compulsory delivery and imposes a
corresponding obligation on the Coffee Board to compulsorily purchase the coffee delivered to
the pool, except:
(1) where the coffee delivered is found to be unfit for human consumption: and
(2) where the coffee estate is situated in a far off and remote place or the coffee grown
in an estate is so negligible as to make the sale or coffee through compulsory delivery
an arduous task and an uneconomical provision.
- Since all persons including the Coffee Board are prohibited from purchasing/selling
coffee in law, there could be no sale or purchase to attract the imposition of sales/purchase tax it
was urged. Even if there was compulsion there would be a sale as was the position in Vishnu
Agencies”. This Court therein approved the minority opinion of Hidayatullah, J. in New India
Sugar Mills v. CST. In the nature of the transactions contemplated under the Act mutual assent
either express or implied is not totally absent in this case in the transactions under the Act. Coffee
growers have a volition or option, though minimal or nominal to enter into the coffee growing
trade. Coffee growing was not compulsory. If anyone decides to grow coffee or continue to grow
coffee, he must transact in terms of the regulation imposed for the benefit of the coffee growing
industry. Section 25 of the Act provides the Board with the right to reject coffee if it is not up to
the standard. Value to be paid as contemplated by the Act is the price of the coffee. Fixation of
price is regulation but is a matter of dealing between the parties. There is no time fixed for
delivery of coffee either to the Board or the curer. These indicate consensuality which is not
totally absent in the transaction. - It was urged that regard having been to the sovereign nature of the power exercised by the
Coffee Board and the scheme of the Coffee Act, the ratio of Vishnu Agencies will not apply to
the acquisition of coffee under Section 25(1) by the Coffee Act. It is in this connection
appropriate to refer to the question of compulsory acquisition and this naturally leads to the
problem of exercising eminent domain by the State. It is trite knowledge that eminent domain is
an essential attribute of sovereignty of every state and authorities are universal in support of the
definition of eminent domain as the power of the sovereign to take property for public use
without the owner’s consent upon making just compensation. Nichols on Eminent Domain (1950
edn.) a classic authority on the subject, defines ‘eminent domain’ as ‘the power of the sovereign
to take property for public use without the owner’s consent’; see para 1.11 page 2 of Vol. 1 which
elaborates the same in these words:
‘‘This definition expresses the meaning of the power in its irreducible terms: (a)
Power to take, (b) Without the owner’s consent, (c) For the public use.
All else that may be found in the numerous definitions which have received judicial
recognition is merely by way of limitation or qualification of the power. As a matter of pure logic
it might be argued that inclusion of the term ‘for the public use’ is also by way of limitation. In
this connection, however, it should be pointed out that from the very beginning of the exercise of
the power the concept of the ‘public use’ has been so inextricably related to a proper exercise of
the power that such element must be considered as essential in any statement of its meaning. The
‘public use’ element is set forth in some definitions as the ‘general welfare’, the ‘welfare of the
public’, the ‘public good’, the ‘public benefit’ or ‘public utility or necessity’.
It must be admitted, despite the logical accuracy of the foregoing definition and despite the
fact that the payment of compensation is not an essential element of the meaning of eminent
domain, that it is an essential element of the valid exercise of such power. Courts have defined
eminent domain so as to include this universal limitation as an essential constituent of its
meaning. It is much too late in the historical development of this principle to find fault with such
judicial utterances. The relationship between the individual’s right to compensation and the
sovereign’s power to condemn is discussed in Thayer’s Cases on Constitutional Law. ‘But while
obligation (to make compensation) is thus well established and clear let it be particularly noticed
upon what ground it stands, viz. upon the natural rights of the individual. On the other hand, the
right of the State to take springs from a different source, viz. a necessity of government. These
two, therefore, have not the same origin; they do not come, for instance, from any implied
contract between the State and the individual, that the former shall have the property, if it will
make compensation; the right is no mere right of pre-emption, and it has no condition of
compensation annexed to it, either precedent or subsequent. But, there is a right to take, and
attach to it as an incident, an obligation to make compensation; this latter, morally speaking,
follows the other, indeed like a shadow, but it is yet distinct from it, and flows from another
source.
- It is concluded thus:
Accordingly, it is now generally considered that the power of eminent domain is not
a property right, or an exercise by the state of an ultimate ownership in the soil, but that it
is based upon the sovereignty of the state. As the sovereign power of the State is broad
enough to cover the enactment of any law affecting persons or property within its
jurisdiction which is not prohibited by some clause of the Constitution of the United
States, and as the taking of property within the jurisdiction of a state for the public use
upon payment of compensation is not prohibited by the Constitution of the United States,
it necessarily follows that it is within the sovereign power of a state, and it needs no
additional justification.
- Cooley in his treatise on the Constitutional Limitations Chapter XV expressed the same
view at page 524 of the book in these words:
‘‘More accurately, it is the rightful authority which must rest in every sovereignty to
control and regulate those rights of a public nature which pertain to its citizens in
common and to appropriate and control individual property for the public benefit, as the
public safety, convenience or necessity may demand.’’ - This Court in the State of Karnataka v. Ranganatha Ready [AIR 1978 SC 215], held that
the power of acquisition could be exercised both in respect of immovable and movable properties. - While conceding the power of acquisition of coffee in exercise of eminent domain, the
scheme contemplated under the Act was not an exercise of eminent domain power. The Act was
to regulate the development of coffee industry in the country. The object was not to acquire
coffee grown and vest the same in the Board. The Board is only an instrument to implement the
Act. - We accept the submission of the learned Additional Solicitor General that it is not
necessary that every member of the public should benefit from property that is compulsorily
acquired. But in essence the scheme envisaged is sale – and not compulsory acquisition. - It has also to be borne in mind that the terms ‘sale’ and ‘purchase’ have been used in
some of the provisions and that is indicative that no compulsory acquisition was intended. - Section 34 of the Act reads as follows:
‘‘34.(1) The Board shall at such times as it thinks fit make to registered owners who
have delivered coffee for inclusion in the surplus pool such payments out of the pool
fund as it may think proper.
(2) The sum of all payments made under sub-section (1) to any one registered owner
shall bear to the sum of the payments made to all registered owners the same proportion
as the value of the coffee delivered by him out of the year’s crop to the surplus pool
bears to the value of all coffee delivered to the surplus pool out of that year’s crop. - The High Court has referred to the provisions of Section 34(2) of the Act and observed
that the said provisions ensure periodical payments of price to the growers. The rules provide for
advancing loans to the growers. Without a shadow of doubt these elements indicate, according to
the High Court, that in the compulsory sale of coffee, there was an element of consensuality. We
are in agreement that there is consensuality in the scheme of the section. The High Court has
referred to Section 25(2) of the Coffee Act and observed that the power conferred by Section
25(2) of the Coffee Act must be read subject to the very requirement of that and all other
provisions of the Act. When a grower sells coffee that has become totally unfit for human
consumption for one or the other valid reason, such a grower cannot compel the Board to
purchase such coffee on the ground that it was coffee and thus endanger public safety and also
pay its value or price. In the very nature of things, these things cannot be foreseen or enumerated
exhaustively. The High Court was of the view that if a grower delivered coffee to the Board, the
Coffee Act extinguished his title and absolutely vested the same in the Board, however,
preserving his right for payment of its value or its price in accordance with the provisions of that
Act. According to the High Court the amount paid by the Board to the grower under the Act is the
value or price of coffee in conformity with the detailed accounting done thereto under the Coffee
Act. The High Court was right. The High Court went on to observe that the amount paid to the
grower was neither compensation nor dividend. The payment of price to the grower is an
important element to determine the consensuality in the sale and the sale itself is under Section
4(1) of the Sale of Goods Act. Therefore, the High Court was of the view that neither Section
25(2) read with Section 17 nor the provisions for payment of compensation indicate that coffee
becomes the property of the Coffee Board not by consent but by the operation of law.
- The levy of duties of excise and customs under Sections 11 and 12 of the Coffee Act are
inconsistent with the concept of compulsory acquisition. Section 13(4) of the Coffee Act clearly
fixes the liability for payment of duty of excise on the registered owner of the estate producing
coffee. The Board is required to deduct the amount of duty payable by such owner from the
payment to the grower under Section 34 of the Act. The duty payable by the grower is a first
charge on such Pool payment becoming due to the grower from the Board. Section 11 of the Act
provides for levy of duty of customs on coffee exported out of India. This duty is payable to the
customs authorities at the time of actual export. The levy and collection of this duty is not
unrelated to the delivery of the coffee by the growers to the Board or the pool payments made by
the Board to the growers. The duty of excise as also the duty of customs are duties levied by
Parliament in exercise of its powers of taxation. It is not a levy imposed by the Board. It is a fact
that the revenue realised from the levy of these duties form part of the Consolidated Fund of India
and can be utilised for any purpose. It may be utilised for the purpose of the Coffee Act only if
Parliament by appropriation made by law in this regard so provides. The true principle or basis in
Vishnu Agencies case applies to this case. Offer and acceptance need not always be in an
elementary form, nor does the law or contract or of sale of goods require that consent to a
contract must be express. Offer and acceptance can be spelt out from the conduct of the parties
which cover not only their acts but omissions as well. The limitations imposed by the Control
Order on the normal right of the dealers and consumers to supply and obtain goods, the
obligations imposed on the parties and the penalties prescribed by the order do not militate
against the position that eventually, the parties must be deemed to have completed the transaction
under an agreement by which one party binds itself to supply the stated quantity of goods to the
other at a price not higher than the notified price and the other party consents to accept the goods
on the terms and conditions mentioned in the permit or the order of allotment issued in its favour
by the concerned authority. - A contract whether express or implied between the parties for the transfer of the property
in the goods for a price paid or promised is an essential requirement for a ‘sale’. In the absence of
a contract whether express or implied, it is true, there cannot be any sale in the eyes of law.
However, as we see the position and the scheme of the Act, in the instant case, there was contract
as contemplated between the growers and the Coffee Board. This Court applied in Vishnu
Agencies case the consensual test laid down in the earlier decision of this Court in the State of
Madras v. Gannon Dunkerley in this regard. In law there cannot be a sale whether or not
compulsory, in the absence of a contract express or implied. The position of the Coffee Board so
far as sale is concerned is explained by the Madras High Court very lucidly in Indian Coffee
Board, Batlagundu v. State of Madras, where the High Court expressed the view that the Indian
Coffee Board which derived its existence from the Coffee Market Expansion Act is a dealer
within the meaning of Section 2 (b) of the Madras General Sales Tax Act, 1939, and is therefore,
liable to sales tax on its turnover. The High Court held that the Board was not a constituted
representative of the producer and it did not hold the goods on behalf of the producer. After the
goods enter the pool after delivery, they become the absolute property of the Board and the
producer, a registered owner, has no right or claim to the goods except to a share in the sale
proceeds after the goods are sold in accordance with the provisions of the Act.
- It was said by the learned Additional Solicitor General that the cultivation of coffee in
India was over a century old and numerous plantations existed long prior to the enactment of the
Coffee Act. There was no act of volition on the part of the growers in taking to coffee cultivation
and subjecting themselves to the provisions of the Act by taking up such cultivation. The
cultivation of coffee can be carried on only in certain types of soil and in high elevations. The
land suited for coffee cultivation cannot be used for growing other crops on a similar scale.
Coffee is a perennial crop. The growers have no choice in growing coffee one year and then
changing to a different crop in the following year. Coffee plants have a life ranging from 30 to 70
years, the average life of the plant being 40 years. Coffee estates require constant attention and
expenses have to be incurred for manuring, cultural operations, application of pesticides, etc. at
regular intervals. Removal of old and diseased plants and replanting them with superior diseaseresistant varieties is also necessary and is done each year. The coffee grower has thus no choice at
all in continuing to be a coffee cultivator, it was argued. The cultivation of coffee is not in any
way comparable to the cultivation of sugarcane, the cultivation of which can be discontinued at
will. Such practical difficulties, however, do not in essence make any difference. - The coffee growers being agriculturists are not dealers and therefore are not liable to pay
any sales tax or purchase tax, it was submitted. The demand for purchase tax is in effect a demand
on the growers who were exempt from such levy, as the monies required for paying the tax if the
same is lawful has necessarily to come out of the monies otherwise payable to the growers. The
object of the pool marketing system is not to deprive the growers of a fair compensation for their
produce by making them suffer a tax which they would not otherwise be required to suffer. An
analysis of the different provisions of the Coffee Act makes it clear that there was no sale to
attract exigibility to duty, it was submitted. We are unable to accept these submissions. Section 6
of the Karnataka Sales Tax Act, 1957 meets the situation created by such circumstances. This was
examined by this Court in State of Tamil Nadu v. M.K. Kandaswami [AIR 1975 SC 1871],
which examined Section 7-A of Tamil Nadu General Sales Tax Act, 1959 – which was in pari
materia with Section 6 of the Karnataka Sales Tax Act. In that view of the matter Section 6 of the
Karnataka Act would be attracted.
- The alternative submission of the appellant was that the Coffee Board was a trustee or
agent of the growers’. We are unable to accent this submission either. There is no trust created in
the scheme of the Act in the Coffee Board: it is a statutory obligation imposed on the Coffee
Board and does not make it a trustee in any event. It is also not possible to accept the submission
that the Central Sales Tax Act will not be applicable to any sale by the Coffee Board because it
was an export sale by the Coffee Board. - In the aforesaid view of the matter, we are of the opinion that the imposition of tax in the
manner done by the sales tax authorities which has been upheld by the High Court is correct and
the High Court was right. The appeals fail and are dismissed.
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