Supreme Court of India
COFFEE BOARD, KARNATAKA, BANGALOREversusCOMMISSIONER OF COMMERCIAL TAXES
- Citation
- 1988 INSC 163
- Decided
- 11 May 1988
- Disposal
- Disposed off
- Bench
- R S PATHAK
Holding
The compulsory delivery of coffee under the Coffee Act is a sale, not a compulsory acquisition, and is therefore subject to purchase tax under the Karnataka Sales Tax Act.
Summary
The Coffee Board challenged the levy of purchase tax on coffee it received from growers under the compulsory delivery provision of the Coffee Act, 1942, arguing that the transaction was a compulsory acquisition and not a sale. The Karnataka High Court held that an element of consensuality existed, making it a sale liable to tax, and dismissed the Board's writ petitions. On appeal, the Supreme Court examined the nature of the transaction under the Sale of Goods Act, the Karnataka Sales Tax Act, 1957, the Central Sales Tax Act, 1956, and the Coffee Act. Relying on the earlier decision in State of Karnataka v. Bhavani Tea Produce Co., the Court concluded that the compulsory delivery constituted a sale, not an acquisition, and therefore attracted purchase tax. The Court also rejected the Board’s claims of trustee status and of exemption under Article 286, affirming the tax authorities’ assessment. Consequently, the appeals were dismissed and the tax demands upheld.
Issues considered
- Whether compulsory delivery of coffee under section 25(1) of the Coffee Act, 1942 amounts to a sale or a compulsory acquisition.
- Whether the transaction is liable to purchase tax under the Karnataka Sales Tax Act, 1957.
- Whether the Coffee Board functions as a dealer, trustee or agent of the growers.
- Whether sales by the Coffee Board are ‘in the course of export’ for exemption under Article 286 of the Constitution.
- Whether Section 6 of the Karnataka Sales Tax Act applies to the transaction.
- Whether the scheme constitutes an exercise of eminent domain.
Legislation cited
- Central Sales Tax Act, 1956s. 2(g)
- Coffee Act, 1942s. 17, s. 25(1), s. 25(2), s. 26(2), s. 34, s. 47
- Constitution of Indias. Article 286, s. Article 366(29A)
- Karnataka Sales Tax Act, 1957s. 2(t), s. 5, s. 6
- Sale of Goods Act, 1930s. 4(1)
Subjects
sale taxpurchase taxCoffee Actcompulsory acquisitioneminent domainsale of goodsKarnataka Sales Tax ActCentral Sales Tax Actexport exemptionArticle 286
Judgment
COFFEE BOARD, KARNATAKA, BANGALORE
A
v.
COMMISSIONER OF COMMERCIAL TAXES
MAY 11, 1988
B [R.S. PATHAK, CJ, SABYASACHI MUKHARJI
AND S. NATARAJAN, JJ.)
Karnataka Sales Tax Act, 1957-Challenging purchase tax on
coffee levied under provisions of-Coffee Act 1942-Whether
compulsory delivery of coffee to Coffee Board from growers under
C section 25( 1)-0f-Is compulsory acquisition and not sale or purchase
to attract levy of purchase tax.
The appellant Coffee Board filed writ petitions in the High Court
praying for a declaration that the mandatory delivery of the Coffee
under section 25(i) of the Coffee Act, 1942, was not sale and that section
D 2(t) of the Karnataka Sales Tax Act, 1957 required to be struck down if
the same encompassed compulsory acquisition also, and challenging the
show-cause notice, proposing to re-open the tax assessment and the
pre-assessment notice proposing to assess the Board to purchase tax on
the Coffee transferred from Karnataka to outside the State. The Coffee
Board has also filed in the High Court writ petitions, challenging the
E assessments and the demands for the purchase tax. The appellant
Coffee Board had contended that the compulsory delivery of Coffee
under the Coffee Act, 1942 extinguishing all the marketing rights of the
growers was 'compulsory acquisition' and not sale or purchase to
attract levy of purchase-tax and that the appellant was only a 'trustee'
or agent of the growers not exigible to purchase tax and that all the
F export sales were in the course of export immune to tax under Article
286 of the Constitution. It was held by the High Court that an element
of consensuality subsisted even in compulsory sales governed by law
and once there was an element of consensuality even though minimal,
that would be sale or purchase for purposes of Sale of Goods Act and
the same would he exigible to sales or purchase tax under the relevant
G Sales Tax law of the country. On an analysis of all the provisions of the
Coffee Act in general and sections 17 and 25 in particular, the High
Court held that on the true principles of compulsory acquisition or
eminent domain, it was difficult to hold that on compulsory delivery by
growers to the Board, there would be compulsory acquisition of coffee
by the Coffee Board. The High Court dismissed all the writ petitions by
H a common judgment. The Coffee Board fil~d appeals in this Court by
348
COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES 349
certificate against the decision of the High Court. The writ petitions
A
filed in this Court were for the determination of the rights, obligations
and liability between the petitioners and the Coffee Board in respect of
the sales tax due and payable on the transactions between the parties. \
Dismissing the appeals and the Writ Petitions Nos. 358 and 37 of
1986 and disposing of the Writ Petitions Nos. 36 and 39 of 1986, the B
Court,
HELD: The question involved in these appeals and "the writ peti•
lions was the exigibility of tax on sale, if any, by the growers of the
coffee to the Coffee Board. Basically, it must depend upon what is ·sale
in the general context as also in the context of the relevant provisions of
lhe Karnataka Sales Tax Act 1957 as amended from time to time, and C
the Central Sales Tax Act, 1956. These, however, must be examined in
the context of general law, namely, the Sale of Goods Act," 1930 and the
concept of sale in general: [358F-G I
Coffee Board is a 'dealer' registered as such under the Central D
Sales Tax Act and the Sales Tax Acts of all the States in which it holds
auctions/maintains depots runs coffee houses. It collects and remits
sales tax on all the coffee sold by it to the State in which the sale takes
. place. It transfers coffee from one State to another. [3608, El
This Court (Bench of Five Judges) in the case of State of Kera/av. E
Bhavani Tea Produce Co., 11966] 2 S.C.R. 92, which arose under the
Madras Plantations Agricultural Income Tax Act, held that when gro-
wers delivered coffee to the Board, all their rights therein were exting-
uished and the Coffee vested in the Board. The Court, however did not
hold that there was a taxable 'sale' by the grower to the Board in the
year in question. The Court in this case was bound by the clear ratio of F
that decision and it could not by-pass the same. That decision concludes
all the issues in this case. Several questions were canvassed in these
appeals in view of the decision of the High Court, and all the questions
were answered by this Court in the Bhavani Tea Produce Co.'s case
(supra) against the appellant. [360F-G; 364B]
G
All the four essential elements of sale (1) parties competent of
contract, (2) mutual consent, though minimal, by growing coffee under
the conditions imposed by the Coffee Act, 1942 (The Act), (3) transfer
t' of property in the goods and (4) payment of price though deferred were
present in the transaction in question. As regards the provision under
section 26(2) empowering the Coffee Board to purchase additiOnal H
350 SUPREME COURT REPORTS [1988] Supp. 1 S.C.R.
coffee not delivered for inclusion in the surplus pool, it is only a
A
supplementary provision enabling the Coffee Board to have a second
avenue of purchase, the first avenue being the right to purchase coffee
under a 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. The Act directs the entire
B 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 of coffee
c through compulsory delivery an arduous task and an uneconomical
provision. [367E-H; 368A-B]
In the nature of transactions contemplated under the Act, mutual
assent either express or implied is not totally absent in this case in the
D transactions under the Act. Coffee growers have a volition or option,
though minimal or nominal to enter into the coffee growing trade. If
any one decides to grow coffee, he must transact in terms of the regula-
tion 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 upto
the standard. Value to be paid as contemplated by the Act is the price of
E the coffee. There is no time fixed for delivery of coffee either to the
Board or the curer. These indicate consensuality not totally absent in
the transaction. [368C-E]
The scheme contemplated under the Act was not an exercise of
eminent domain power. The Act was to regulate the development of
F coffee industry in the country. The object was not to acquire coffee
grown and vest the same in the Coffee Board. The Board is only an
instrument to implement the Act. The High Court had rightly observed
that the Board has been chosen as the instrumentality for the administ-
rati()n of the Act. It cannot be said in the Act, there is any compulsory
acquisition. In essence, the scheme envisages sale and not compulsory
G acquisition. The terms 'sale' and 'purchase' have been used in some of
the provisions and that is indicative that no compulsory acquisition was
intended.
The Ievy of duties of excise and customs under sections 11 and 12
of the Coffee Act are inconsistent with the concept of compulsory ac-
H quisition. Section 13(4) of the Coffee Act clearly fixes the liability for
COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES 351.
payment of duty of excise on the registered owner of the estate produc- A
ing 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 B
export. The levy and collection of this duty are not unrelated to the
delivery of coffee by the growers to the Board of the payments made by
the Board to the growers. The. duty of excise as also the duty of
customs are duties levied by Parliament. It is not a levy imposed by the
Board. The revenue realised from levy of these duties forms part of the
Consolidated Fund of India, which may be utilised for the purpose of C
the Coffee Act only if the Parliament by law so provides. The true
principle or basis in Vishnu Agencies (Pvt.) Ltd. v. Commercial Tax
Officer and others, etc., [1978] 2 S.C.R. 433, applies to this case. Offer
and acceptance need not always be in an elementary form, nor does the
law of contract or sale of goods require that consent to a contract must
be express. Offer and acceptance can be spelt out from the conduct of D
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 obligation
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 E
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 con-
cerned authority. [375C-H; 376A-Bl
F
A contract, express or implied, 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, express or implied, there cannot be
any sale in law; however, in this case, as the scheme of the Act is, there
was contract contemplated between the growers and the Coffee Board.
In law, there cannot be a sale whether or not compulsory in the absence G
of a contract express or implied. [376B-C]
The imposition of tax in the.manner done by the Sales Tax Autho-
rities upheld by the High Court was correct and the High Court was
right. The appeals failed. [3780 l
H
352 SUPREME COURT REPORTS 11988] Supp. I S.C.R.
Civil Writ Petition No. 358 of 1986 was dismissed. Re. Writ Peli-
A
lion No. 36 of 1986, the Court could not go into the contentions in this
petition. The rights and obligations of the parties inter se between the
petitioners and the Coffee Board might be agitated in appropriate pro-
ceedings. Writ Petition 37 of 1986 was dismissed without prejudice to
the rights of the petitioners to agitate the question of liability of the
B petitioner vis-a-vis the Coffee Board in respect of the Sales Tax due and ··1!'
payable on the transactions between the parties in ap1>ropriate proceed-
ings. In Civil Writ Petition No. 39 of 1986, the Court passed no order;
this was without prejudice to the right of the parties taking appropriate
proceedings it necessary for the determination of the liabilities inter se
between the petitioners and the Coffee Board for the amount of the
C Sales Tax payable. [378E-G]
Indian Coffee Board v. State of Madras, 5 S.T.C. 292; C.E.B.
Draper & Sons Ltd. v. Edward Turner & Son Ltd., [1965] l Q.B. 424;
State of Kera/a v. Bhavani Tea Produce Co., [1966] 2 S.C.R. 92;
Consolidated Coffee Ltd. & Anr. etc. v. Coffee Board, Bangalore, etc.
D etc., [1980] 3 SCR 625; Peanuts Board v. The Rockhampton Harbour
Board, 48 Commonwealth Law Reports 266; Vishnu Agencies (Pvt.)
Ltd. etc. v. Commercial Tax Officer and Others etc., [1978] 2 S.C.R.
433; Indian Steel and Wire Products Ltd., Andhra Sugar Ltd.
and Karam Chand Thapar, 11968] 1 S.C.R. 479; State of Madras v.
Gan/ion Dunkerley & Co. Ltd., [1959] S.C.R. 379; New India Sugar
E. Mills v. Commissioner of Sales Tax, Bihar, [1963] Suppl. 2 S.C.R. 459;
Charanjit Lal Choudhury v. The Union 'flf India & Ors., [1950] 1
S.C.R. 869; State of Karnataka and another etc. v. Ranganatha Reddy
and Anr. etc., [1978] l S.C.R. 641; Milk Board (New South Wales) v.
Metropolitan Cream Pty. Ltd., 62 C.L.R. 116 and State of Tamil Nadu
v. N. K. Kamaleshwara, [1976] 1 S.C.R. 38, referred to,
F
CIVIL APPELLATE/ORIGINAL JURISDICTION: Civil
Appeal Nos. 4522-4529 of 1985 etc. etc.
From tile Judgment and Order dated 16.8. 1985 of the Karnataka
High Court in W.P. Nos. 15536-4-0/1982 and W.P. Nos. 13981, 17071,
G 17072, 19il8 and 19285/1983.
G. Ramaswami, Additional Solicitor General, R.J. Babu, R.F.
Nariman, Ranjan Karanjawala, Mrs. M. Karanjawala and Ejaz
Maqb6ol for the Appellant in C.A. Nos. 4522-29/1985. ."
H Shanti Bllilshari, Kapil Sibal, Soli J. Sotabjee, G.B. Pai, V.A.
COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJI, J.] 353
Bobde, K.P. Kumar, R. Vasudevan, K.T. Anantharaman, Harish N.
A
Salve, H.K. Dutt, Ms. Mridula Ray, 0.C. Mathur, Ms. Meera Mathur
and Ms. Lekha Mathur for the Petitioners in W.P. Nos. 36, 37, 39 and
358of1986.
T.S. Krishnamurthi Iyer, S. Padmanabhan, Soli J. Sorabjee,
R.P. Srivastava, P. Parmeshwaran, R. Mohan, Harish N. Salve, Ms. 8
M. Ray and H.K. Dutt for the Intervener in C.A. Nos. 4522-29 of
1985.
Dr. Y.S. Chitale, M.Veerappa, Ashok Kumar Sharma and Atul
Chitale for the Respondents.
The Judgment of !he Court was delivered by c
SABYASACHI MUKHARJI, J. These appeals by certificates
are from the judgment and order of the High Court of Kamataka
dated 16th of August, 1985. By the impugned judgment and order the
writ petitions filed by the Coffee Board and others were dismissed. In D
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
alf 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 E
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.
It was held by the Division Bench of the Kamataka High Court
that an element of consensuality subsists even in compulsory sales
governed by law and once there is an element of consensuality, how- F
ever minimal that may be, whether express or implied, then that would
be sale or purchase for purposes of Sale of Goods Act and the same
would be exigible to sales or purchase tax as the case may be under the
relevant Sales Tax Law of the country.
The power conferred on ·the Board under section 25(2) of the G
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 tlte Sale of Goods Act showed that there was an element of con-
sensuality 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 H
354 SUPREME COURT REPORTS ['1988) Supp. 1 S.C.R.
the Act. It was further held by the High Court that the amount paid to
A the grower was neither compensation nor dividend. The payment of
price to the grower was an important element to determine the con-
sensuality 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 grow-
B ers. Therefore, according to the Division Bench of the Kamataka 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
c the State of Kamataka. 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'
D and they did not qualify for exemption from purchase tax under sec-
tion 6 of the Karnataka Sales Tax Act. The levy of sales tax on coffee,
it was held by the High Court fell, under Entry No. 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
E 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
F purposes of direct exports at all. The purchases made and exportes
made would be 'for export' only and not in '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 gro~n by
G 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 un-
heard, an incongruity and an anachronism in compulsory acquisition,
H according to the High Court.
,
COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJI,J.] 355
On an analysis of all the provisions of the Act in general and
A
sections 17 and 25 in particular it was held by the High Court that on
the true principles of compulsory acquisition or eminent domain, it
was difficult to hold that on compulsory delivery by growers to the
Board, there would be compulsory acquisition of coffee by the Board.
In order to determine the questions at issue, that is to say the B
nature of the transaction one has to in a case of this nature t6iescope
into the history and project it into the dimensions of the present levy.
In November 1935 the Indian Coffee Cess Act, 1935 (Act 14 of 1935)
came into operation, for levying cess on coffee produced in and
exported out of India, for promoting the consumption in India and
elsewhere of coffee produced in India and also for promoting agri-
cultural and technological research in the interests of the coffee in- c
dustry in India. The purpose seems to have been to develop the coffee
industry, popularise the same and win a market in the international
field. On 14th of September, 1940 Coffee Market Expansion Ordi-
nance (No. XIII of 1940) was promulgated by the Central Government
and the Pool Marketing Scheme for coffee introduced in India for the D
first time. An 'internal sale quota' was to be allotted to each coffee
estate upto which the owner could sell his coffee in the Indian Market.
Coffee in excess of the hiternal sale quota allotted and grown on the
estates which were henceforth to be registered, were required to be
compulsorily delivered to the surpius pool of the Coffee Market
Expansion Board set up under the Ordinance. Ute Pool Marketing E
Scheme was inspired by the pool marketing schemes for agricultural
produce under Australian statutes. On or about 2nd March, 1942 the
Coffee Market Expansion Act, 1942 (the title of the Act was later
changed .to Coffee Act in 1955) (hereinafter referred to as "the Act")
was enacted and the ordinance repealed. The Act was to remain in
operation for the duration of the second world war and a period of one F
year thereafter. The Act, inter alia, added a new sub-section (6) to
section 25 of the Act, specifically providing for extinguishment of all
the rights of the owners of the registered coffee estates in the coffee
delivered by them to the surplus pool of the Coffee Board (hereinafter
referred to as 'the Board') set up under the Act, except the right to
receive payments referred to in section 34 of the Act. Under section 34 G
of the Act the Coffee Board was required to pay to the registered
owners who had delivered coffee for inclusion in the surplus pool such
payments out of the Pool Fund (comprising of the monies realised from
the sale of coffee pooled with the Board) as the Board may think
proper, the amount so paid being dependent upon the quantity and the
kind of the coffee delivered to the Board. H
356 SUPREME COURT REPORTS [19881 Supp. 1 S.C.R.
A On or about 26th March, 1943 the Act was amended, inter alia,
to enable the Carree Board with the previous approval of the Central
Government not to allow any internal sale quota to the growers. Since
1943 in each year the Board with the previous sanction of the Central
Government has decided that no internal sale quota should be allowed.
Sections 38A and 38B were added making failure to deliver coffee to
B the Board an offence to be penalised by fine and confiscation of the
quantities not delivered. Power was also conferred on the Coffee
Board to seize coffee required to be but not delivered to the Board.
Ever since 1943, internal sale quotas have not been allowed and all the
coffee grown on estates in the areas to which Section 25(1) of the Act
was applicable was required to be compulsorily pooled. The surplus
C pool referred to in the Act was now in fact the pool of practically all
coffee produced in India, it is not necessary to refer to the actual
quantities available in the internal pool in different years though a
table to that effect was placed before us by the learned Additional
Solicitor General, Sree G. Ramaswamy. On the 11th of March, 1947
the Coffee Market Expansion (Amendment) Act IV of 1947 was enac-
D ted. The life of the Act was extended without any time limit and, inter
alia, changes were made in the constitution of the Board providing for
representation of labour. On 1st August, 1955 the Coffee Market
Expansion (Amendment) Act, 1954 was brought into force. The
object of the Coffee Act was modified from 'the continuation of the
provisions made uni:ler the Coffee Market Expansion Ordinance, 1940
E for assistance to the coffee industry by regulating the sale of coffee in
India and by other means' to "Development under the control of the
union of the coffee industry". It was highlighted before us in the
i
course of the submission that the pool system of marketing is a unique
' feature of the coffee industry in India. The principal features, accord-
ing to the learned Additional Solicitor General, of this system are: (a)
F Compulsory registration of all lands planted with coffee (section 14 of
the Coffee Act).,(b) Mandatory delivery of all coffee grown in the
registered estates except the quantities permitted by the Board to be
retained for domestic consumption and for seed purposes, (see section
25(1) of the Coffee Act). Estates situated in remote areas specified in
the notification issued by the Central Government under the proviso
G to section 25(1) of the Coffee Act are exempt from this provision.
( c) Seizure by the Board of coffee wrongly withheld from the pool.
Prosecution for failure to deliver and confiscation of quantity not
delivered. ( d) Delivery to be effected at such times and at such places
as designated by the Board (section 25(2)); the extinguishment on
delivery of all rights of the growers in respect of the coffee delivered to
H the Board excepting the right to receive payment under section 34 of
COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJI, J.] 357
the Act. (section 25(6)). (e) Sale of coffee in the pool by the Board in A
the domestic market and for export through auctions and other
channels in regulated quantities and at convenient intervals. (section
26(1)). (f) Payment to growers in such amounts and at such times as
decided by the Board (section 34). The payment to be made on the
basis of the value as determined by the price differential scale (section
24( 4)), and in proportion to the value of such coffee tci the total reali- B
sations in the pool (section 34(2)). (g) Sale or contracts to sell coffee
by growers in the years in which internal sale quota was not allotted
were prohibited by section 17 of the Act. All contracts for the sale of
coffees at variance with the provisions of the Act were declared as void
by section 47 of the Act.
Learned Additional Solicitor General sought to urge before us C
that the framers of the Act made a conscious distinction between· (i)
mandatory delivery of coffee to the Coffee Board under section 25(1)
and (ii) purchase of coffee by the Coffee Board from the growers
exempted from mandatory delivery and from out of the internal sale
quota during the years when such quotas were allotted under section D
26(2) and (iii) sale of coffee by the growers in the Indian Market
whenever internal sale quotas were allotted under sections 17 and 22.
It was highlighted that the Board has no capital of its own and it did
not have any Reserve Fund. The estates ori which coffee is grown are
not owned by the Board. The Board is required to maintain two sepa-
rate funds one General Fund and the other Pool Fund. Our attention E
was drawn to tbe fact that the Pool Fund consists of amounts realised
from the sale of coffee marketed by the Board. The accounts of the
Pool Fund are required to be maintained separately for each coffee
season. The coffee season is from July to June of the following year.
The sales realisations, less the costs of storing, curing and marketing
_, the coffee, are to lle utilised for making payments to growers who had F
l delivered coffee in th&! season, in proportion to the value of the coffee
delivered by them. The value is determined with reference to the kind,
quality and quantity of coffee delivered by the growers. There are vari-
ous other features which have to be borne in mind on the maintenance
of the separate funds. It may be highlighted, however, that the
General Fund consisted principally of the amounts paid to the Board G
by the Central Government from out of appropriations made. by the
, Parliament annually. This fund was to be utilised for meeting the.·costs
' of administration, research, measures for the welfare of plantation
labour, promotion of coffee consumption and developmental assist-
ance to coffee estates. After the Coffee Act was enacted the produc-
tion of coffee and the quantities exported and the value of the exports H
have increased greatly.
358 SUPREME COURT REPORTS [19881 Supp. 1 S.C.R.
It may be mentioned that the production of coffee was less than
A
15,000 tonnes in 1940. The production in the year 1984-85 was about
1,93,000 tonnes. Over 50% of the coffee grown in the country is grown
in the State of Karnataka. There are 1, 12, 153 coffee estates in the
country of which 1,04,958 estates are less than 10 acres in size and
3,62,689 persons were employed on the estates in 1982-83. Over
B 59,000 tonnes of coffee of the value of about Rs.209 crores was ex-
ported in the year 1984-85.
The Madras High Court in the case of Indian Coffee Board v.
State of Madras, 5 S. T.C. 292 held that the Coffee Board was a 'dealer'
under the Madras General Sales Tax Act, 1939 and inter alia, held that
there was no contract, express or implied, between the coffee grower
c and the Board and that the object and scheme of the Act were analog-
ous to the statutes in Australia, providing for compulsory acquisition
of pool marketing of agricultural produce. So far as the Madras High
Court held that the Indian Coffee Board was a dealer we accept the
same. The observation that there was no contract was made in the
D context of agency contract between the Coffee Board and the grower.
In or about 1957 Karnataka Sales Tax Act, 1957 was enacted and
the Mysore Sales Tax Act, 1948 repealed. 'Sale' is defined in section
2(t) and 'dealer' in section 2(k) of the said Act. Growers of agricultural
produce are not 'dealers' by reason of the Exception to section 2(k) of
E the said Act. This position was not disputed before us. Section 5 of the
Act provides for levy of sales tax. Coffee is mentioned at item 43 in
Schedule II to the Karnataka Sales Tax Act. Sales tax on coffee is a
single point tax payable on the first sale in the State. The basic rate of
tax is 10% in Karnataka. The rate in Tamil Nadu, Andhra Pradesh and
Kerala is 6%.
F
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
G time to time, (hereinafter called the Karnataka Act) and the Central
Central Sales Tax Act, 1956, (hereinafter called 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
H transfer it, from one party, the seller, to the other, the buyer, in
COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJl,J.[ 359
consideration of a money payment or a promise thereof by the buyer. A
Lord Denning, M.R., in C.E.B. Draper & Sons Ltd. v . .Edward
Turner & Son Ltd., [1965] 1 Q.B. 424, at page 432, observed as
follows:
B
"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 ed. (1873) p. 1 quoted
in Kirkness v. John Hudson & Co., [1955] A.C. 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 C
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.
D
In the Sale of Goods Ac.t, 1930, (hereinafter called the 'Sale of
Goods Act') Contract of sale of goods is defined under sectiion 4(1) as
a contract whereby the seller transfers or agrees to transfer the pro-
perty 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 E
elapses or the conditions are fulfilled subject to which the property in
the goods is to be transferred.
Benjamin's Sale of Goods (2nd Edition) 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.
F
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 G
• by one person to another in the course of trade or business
for case or for deferred payment or other valuable consi-
deration, but does not include a mortgage, hypothecation,
charge or pledge."
The Central Act defines "sale" as under in section 2(g):
H
360 SUPREME COURT REPORTS I 1988] Supp. 1 S.C.R.
"Sale" with its grammatical variations and cognate expres-
A
sions, means any transfer of property in goods by one
person to another for case 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 hypotheca-
B tion 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
c sale takes place. Coffee is sold through auctions held in the States of
Kamataka, 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
D export auctions. It may be mentioned that over fifty per cent of the
coffee is produced in Kamataka 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
E 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 insta!}t
case, it is vital to appreciate the real nature of the transaction.
In 1966 this Court in the case of State of Kera/av. Bhavani Tea
Produce Co., ]1966] 2 S.C.R. 92, (an unanimous decision of a Bench
F of five learned judges) which arose under the Madras Plantations
Agricultural In'come 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,
G 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
H industry, it is asserted on behalf of the Additional Solicjtor General,
COFFEE BOARD'· COMMR. OFCOMMERCIAL TAXES [MUKHARJI,J.[ 361
understood this decision as laying down that the 'sale by operation of
A
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?" ai page 99 of the Paper Book and after discussing clearly said B
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
C
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 Kamataka·Sales Tax
Act was amended by Karnataka Act 9 of 1970 and section 6 was sub- D
stituted. 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 Kamataka Act. The delivery of E
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 upto 1975 were completed
without any demand for purchase tax being raised.
F
This Court on or about 15th of April, 1980 in the case of
Consolidated Coffee Ltd. and Anr. etc. v. Coffee Board, Bangalore etc.
etc., [1980) 3 S.C.R. 625 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 G
as sales tax on such sales and set a time limit for effecting such refunds.
The Kamataka Government, as a consequence, became liable to re
fund to the Coffee Board about Rs. 7 crores which amount in tum was
to be refunded by the Board to the exporters. In 1981 the Commis
sioner of Sales Tax, Kamataka informed the Board by a letter that the
mandatory delivery of coffee to the Board by the grower would be H
362 SUPREME COURT REPORTS [19881 Supp. 1 S.C.R.
A 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 re-open the assessment for the year 1974-75.
In June 1982 pre-assessment notice was sent by the authorities propos-
B ing 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 Kamataka to outside the State either as stock 1.
transfers or as exports directly to buyers abroad.
In August 1982 Coffee Board along with two coffee growers filed
C writ petitions being writ petition Nos. 15536 to 1554-0 of 1982 in the
High Court of Kamataka praying for a declaration that the mandatory
delivery of coffee under section 25(i) of the Act was not sale and that
section 2(t) of the Kamataka Sales Tax Act required to be struck down
if the same encompassed compulsory acquisition also. The show cause
notice and the preassessment notice were also challenged and prayers
D were made for quashing the same. The High Court granted interim
stay. In the meantime on or about 3rd of February, 1983 Constitution
( 46th Amendment) Act, 1983 came into force and the definition of
"Tax on sale or purchase of goods" was added by insertion of clause
29A in Article 366. This definition is prospective in operation. Subse-
quent to 3rd of February, 1983, the Kamataka Sales Tax Act was
E amended by Act 10 of-1983, Act 23/1983 and Act 8/1984. The defini-
tion of 'sale' in section 2(t), however, was not amended. That defi-
nition was amended with effect from !st of August, 1985 by the
Kamataka 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 re-open the
(
F 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 31st of May, 1983
assessment order was made for the year 1975-76. On or about 17th of
June, 1983 demand for Rs.3.5 crores as arrears of tax for the assess-
G ment year 1975-76 was issued to the Coffee. Board. On 2nd July, 1983,
the High Court stayed the assessment demand for purchase tax for the
assessment year 1975-76. On or about 18th of June, 1983 the assess-
ment order was is~ued 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 pur-
H chase tax. Thereafter notice demanding payment of Rs.8.06 crores a
COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJI,J.I 363
arrears of tax for the assessment year 1976-77 was issued. The Coffee
A
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 B
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. c
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 pur-
chase tax was stayed.
D
All these writ petitions in January, 1984 were referred to the
Divisio.n Bench for hearing and disposal. It may be mentioned here
that in or abotft May, 1984 the Coffee Board started for the first time
to collect contingency deposits to cover purchase tax liability, if any,
for the period 3.2.83 onwards subsequent to the 46th Amendment to a
limited extent. This was by a circular. It is stated that the Board E
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 3.2.1983. The Court however, in 1985
directed the appellant-Coffee 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 F
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 16th August,
1985, the High Court dismissed the writ petitions by a common judg-
ment and various sums of money for the various years became payable
as purchase tax. The said judgment is reported in Indian Law Reports, G
Kamataka, 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 (1) Was there transfer
of coffee to the Board from the coffee growers or acquisition? (ii) Was H
364 SUPREME COURT REPORTS [1988] Supp. 1 S.C.R.
there any element of sale involved? (iii) Was the Coffee Board trustee
A
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 men-
B tioned all the questions were answered by this Court in Bhavani Tea
Produce Co's case (supra) against the appellant. We were, however,
invited to compare the transaction in question with transactions in
Peanuts Board v. The Rockhampton Harbour Board, 48 Common-
wealth Law Reports 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. etc. v. Commercial Tax Officer and others
c etc., [1978) 2 S.C.R. 433 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.
D
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,
E to secure the best price for the produce in the local market, to con-
serve 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
F 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
G 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
H Vishnu Agencies Pvt. Ltd. (supra). There the Court was concerned
COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES IMUKHARJI,J.J 365
with the Cement Control Order and the transactions taking place
A
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 the licence issued by a designated officer. It also provided that no
person should sell cement at a higher price than the notified price and B
no person to whom a written order had been issued shall refuse to sell
cement "at a price not exceeding the notified price". Any contraven-
tion of the order became punishable with imprisonment or fine or
both. Under the A.P. Procurement (Levy and Restriction on Sale)
Order, 1967, (Civil Appeals 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
c
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 D
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 transaction in those cases were sales and were exigible to E
tax on the ratio of Indian Steel and Wire Products Ltd., Andhra Sugar
Ltd., and Karam Chand Thapar, [1968] 1 SCR 479. In cases like New
India Sugar Mills, the substance of the concept of a sale itself dis-
appeared 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 F
was done was to carry out an order so that the transaction was substan-
tially a compulsory acquisition. On the other hand, a merely regula-
tory 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 G
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 trans-
action arose from the order directed to particular parties asking them H
366 SUPREME COURT REPORTS [1988] Supp. 1 S.C.R.
A to deliver specified goods and not from a general order or law appli-
cable to a class. In the latter type of cases, the legal tie which binds the
parties to perform the;r obligations remains contractual. The regula-
tory law merely adds other obligations, such as the one to enter into
such a tie between the parties. Although the regulatory law might
B specify the terms, such as price, the regulation is subsidiary to the
essential character of the transaction which is consensual and contrac-
tual. The parties to the contract must agree upon the same thing in the
same sense. Agreement on mutuality of consideration, ordinarily aris-
ing 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 bioding core or
C 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
0 transferred for cash consideration by the appellants. When the essen-
tial goods arc 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 pro-
vide that a person in need of an essential commodity like cement,
cotton, coal or iron and steel must apply to the prescribed authority for
E 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
F
decisions in State of Madras v. Gannon Dunkerley & Co. Ltd., [1959]
S.C.R. 379 and New India Sugar Mills v. Commissioner of Sales Tax,
Bihar, [1963] Suppl. 2 S.C.R. 459 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.
G
It was submitted by the learned Additional Solicitor General that
these cases, namely, Bhavani Tea Estate (supra) and Vishnu Agencies
(supra) would have no application within the set up of the Coffee Act
because the provisions of the statute expressly provided that there
could be no sale or contract of sale, yet the High Court had for
H purposes of Sales Tax assumed (notwithstanding the statutory prohibi-
COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJI, J.[ 367
tion) that the transaction contemplated by the statute in the present A
case, the mandatory delivery, would be a sale. It was submitted that
where a statute prohibited a registered owner from selling or contract-
ing to sell coffee from any registered estate, there could be no implica-
tion 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 B
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 pro- c
vided 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 acquisi-
tion of coffee by compulsory delivery by the growers under Section D
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, E
(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 trans-
action 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 F
provision enabling the Coffee Board to have a second avenue of pur-
chase, 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 G
quota, if any, to be sold to the Coffee Board through the mod~lity of
compulsory delivery arid 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 H
368 SUPREME COURT REPORTS !1988] Supp. 1 S.C.R.
A
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 of coffee through compulsory delivery an arduous task
B 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 (supra). This Court therein approved the minority opinion of
C Hidayatullah, J. in New India Sugar Mills v. Commissioner of Sales
Tax (supra). 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
O trade. Coffee growing was not compulsory. If any one 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 upto 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
. E matter of dealing between the parties. There is no time fixed for deliv
ery of coffee either to the Board or the curer. These indicate consensu
ality 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
F Act, the ratio of Vishnu Agencies (supra) will not apply to the acquisi
tion of coffee under section 25(1) by the Coffee Act. It is in this
connection appropriate to refer to the question of compulsory acquisi
tion 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
G 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 Edition) 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
H elaborates the same in these words:
COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJI,J.] 369
" ...This definition expresses the meaning of the power in
A
its irreducible terms:
(a) Power to take,
(b) Without the owner's consent,
(c) For the public use.
A ll else that may be found in the numerous definitions B
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 ihat inclusion of the term 'for
the public use' is also by way of limitation. In this connec
tion, however, it should be pointed out that from the very
beginning of the exercise of the power the concept of the
c
'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'. D
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 E
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 stich 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 F
Constitutional Law. But while this 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 G
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 H
370 SUPREME COURT REPORTS [1988] Supp. 1 S.C.R.
attach to it as an incident, an obligation to make compensa-
A
tion; 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:
B
"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 jurisdic-
c tion which is not prohibited by some clause of the Constitu-
tion 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 constitu-
tion of the United States, it necessarily follows that it is
D within the sovereign power of a state, and it needs no addi-
tional justification." -
Cooley in his treatise on the Constitutional Limitations Chapter
XV expressed the same view at page 524 of the book in these words:
E " . . . 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 pro-
perty for the public benefit, as the public safety, conve-
nience or necessity may demand."
F
In Charanjit Lal Chowdhury v. The Union of India and others,
[1950] 1 S.C.R. 869, Mukherjea, J. as the learned Chief Justice then
was, while examining the scope and ambit of Article 31 of the <:onsti-
tution observed as follows:
G "It is a right inherent in every sovereign to take and
appropriate private property belonging to individual
citizens for public use. This right, which is described as
eminent domain in American law, is like the power of taxa-
tion, and offspring of political necessity, and it is supposed
to be based upon an implied reservation by Government
H that private property acquired by its citizens under its pro-
COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJI, J. I 371
tection may be taken or its use controlled for public benefit
A
irrespective of the wishes of the owner."
~'
--.~
This Court in the State of Karnataka and another etc. v. Ranga-
natha Reddy and another etc., [1978] 1 S.C.R. 641 held that the power
of acquisition could be exercised both in respect of immovable and
movable properties. B
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.
c·
·- The High Court in its judgment has rightly observed that the
Board has been chosen as the instrumentality for the administration of
the Act. The role of the Board of this type has been noted in three
Australian decisions which must be taken note of. It is appropriate at D
this stage to refer to the decision of the Australian High Court, in
Peanuts Board v. The Rockhampton Harbour Board, (supra). The
question posed before the High Court was in relation to Section 92 of
t
the Constitution Act of Commonwealth of Australia and the decision
is instructive, though not in point. Rich, J. observed at pages 275 to
277 of the report as follows: E
"It therefore. remains only t-0 consider whether the
operative instruments affecting to deal with peanuts do or
do not interfere with the freedom of inter-State trade. This
should be done weighing compulsory acquisition as a mat-
ter perhaps characterizing the enactments, but not of F
necessity determining their effect. The feature which at
once challenges attention is that these instruments provide
a means of marketing. They are concerned with establish-
ing a compulsory pool through which growers producing
peanuts for sale must dispose of their product for distribu-
tion and receive their reward. The pith and substance of G
the enactments is the establishment of collective sale and
distribution of the proceeds of the total crop and the con-
comitant abolition of the grower's freedom to dispose of his
product voluntarily in the course of trade and' commerce,
whether foreign, inter-State of intra-State. Section 15 of
the Act of 1926 provides that "all the commodity" shall be H
372 StrPREME 'COURT REPORTS [1988] Supp. 1 S.C.R.
A deliveted by the growers to the marketing board, and that
"all 'the commodity" so delivered shall be deemed to have
been delivered to the board for sale by the board, "who
shalI account .to the growers thereof for the proceeds
thereof after making all lawful deductions therefrom
for expenses and outgoings and deductions of all kinds in
B consequence of such delivery and sale or otherwise under
these Acts" (sec. 15(1), (2), as modified by the Order in
Council). Sub-section 3 of section 15 penalizes the sale or
delivery of any of the "commodity" to, or the purchase or
the receipt of any of the "commodity" from, any person
except the board. ·These provisions operate even although
the Governor in Council does not resort to compulsory
c acquisition. It was said by Mr. Mitchell that the provisions
authorizing the borrowing of money constituted the chief
purpose of the compulsory acquisition. If this means that
the control of the marketing of peanuts is a subordinate or
consequential purpose of the instruments, I cannot agree.
The ability to borrow upon the whole crop may afford an
advantage, if not an incentive, in the concentration of the
"commodity" in the hands of one marketing authority. But
the weight attached to supposed advantages arising from
the policy adopted in these enactments is not material.
What is material is whether the scope and object of the
'E enactments as gathered from their contents are to deal with
trade and commerce including inter-State trade and
commerce. In examining this question one cannot fail to
observe that compulsory acquisition is resorted to as a
measure towards ensuring that the whole crop grown in
Queensland is available for collective marketing by the
F central authority. The case is not one in which a State seeks
to acquire the total production of something it requires for
itself and its citizens. It is interposing in the course of trade
in the "commodity" an organization estabished for the
purpose of carrying out one of the functions of trade. In my
opinion the enactment controls directly the commercial
dealing in Peanuts by the grower and aims at, and would,
apart from section 92 accomplish, the complete destruction
of his freedom of commercial disposition of his product.
Part of ibis freedom is guaranteed by section 92. Accord-
ingly the Primary Producers' Organization and Marketing
Act 1926-50 and the brder in Council thereunder are in-
H effectual to prevent the grower of peanuts from disposing
COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJJ, J .[ 373
of them in inter-State trade and commerce and the appel- A
!ant Board had no title to the peanuts the subject matter of
this action."
In Milk Board (New South Wales) v. Metropolitan Cream Pty.
Ltd., (62 C.L.R. 116), Chief Justice Latham at page 131 of the report
observed as follows: B
"It is true that the decision in the Peanut Board Case (48
C.L.R. 266) was approved in James v. The Commonwealth,
55 C.L.R. 1, but it is important to consider carefully the
precise words in which this appro'llll was expressed. They
were as follows: "The producers of the peanuts, it was
held, were prevented by the Act from engaging in inter- c
State and other trade in the commodity. The Act embo-
died, so the majority of the court held, a compulsory
marketing scheme, entirely restrictive of any freedom of
action on the part of the producers; it involved a compul-
sory regulation and control of all trade, domestic, inter- D
State and foreign; on the basis of that view, the principles
laid down by this board were applied by the Court" (55
C.L.R. 520)."
Justice McTiernan observed at page 158 of the report as follows:
E
"It is clear that the Milk Act does not profess to expro-
priate in order to hinder or burden the passing of milk, and
the other products which the word 'milk' is expressed to
include, from other States; and there is no ground for the
contention that any such burden or hindrance is imposed
under the disguise of expropriation. The Act replaces an F
individualist economy by a collectivist one for the distribu-
tion of milk within the area containing the most densely
populated part of the State; and all that can be presumed is
that the substitution was deemed by the legislature to be an
expedient one for reasons only of health, hygiene, effi-
ciency and the economic benefii of farmers in the milk- G
producing districts. I agree, therefore, that the operation of
section 26 is not inconsistent with section 92 of the
Constitution."
The aforesaid observations are most apposite. In the light
aforesaid along with the provisions of section 17 and section 25 of the H
374 SUPREME COURT REPORTS [1988] Supp. 1 S.C.R.
A Act, it cannot be said in the Act, there is any compulsory acquisition.
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 in sale-and not compulsory acquisition.
B
It has also to be borne in mind that the term '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:
c " 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
funds as it may think proper. '
D (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 propor-
tion as the value of 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."
E
The High Court has referred to the provisions of section 34(2) of
the Act and observed that the said provisions ensure periodical pay-
ments 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,
F 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
G 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
H title and absolutely vested the same in the Board, however, preserving
COFFEEBOARDv. COMMR.OFCOMMERC!AL TAXES [MUKHARJI,l.) 375
his right for payment of its value or its price in accordance with the
A
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 B
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.
c
The levy of duties of excise and customs under sections 11 and 12
of the Coffee Act are inconsistent ·with tlie concept of compulsory
acquisition. Section 13(4) of the Coffee Act clearly fixesthe. liahility
for payment of duty of excise on the registered owner of the estate
producing coffee. The Board is required to deduct ihe amount of duty D
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 E
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 F
be utilised for the purpose of the Coffee Act only if Parliament by
appropriation made by law in this regard so provides. The true princi-
ple 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
of 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 G
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 H
l
376 SUPREME COURT REPORTS 11988] Supp. 1 S.C.R.
which one party binds itself to supply the stated quantity of goods to
A
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.
B 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
C
Agencies's case (supra ) the consensual test laid-down in the earlier
decision of this Court in the State of Madras v. Gannon Dunkerley,
11959) S.C.R. 379 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
' D the Madras High Court very lucidly in The Indian Coffee Board,
Batlagundu v. The State of Madras (supra), 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
E held that the Board was not a constituted representative of the pro
ducer 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.
F
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
G 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
s uite d 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,
H the average life of the plant being 40 years. Coffee estates require
COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES !MUKHARJI, J.J 377
constant attention and expenses have to be incurred for manuring,
A
cultural operations; application of pesticides,. etc:llt regular iniervais.
Removal of old and diseased plants and replanting them with superior
disease-resistant varieties is also necessary and is done each ye~r. The
coffee grower has thus no choice at all 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 B
can be discontinued at will. Such practical difficulties, however, do not
in essence make any difference.
Because coffee is grown on the estate, the owner of the land can
be presumed to have consented to surrender his produce to the Board
it was submitted. But the surrender is thus clearly an act of volition.
The planting of the seeds of a coffee plant by a grower can be regarded c
as his act of volition in respect of the surrender to the Board of the
; coffee yielded by the plant. ·
The coffee growers being agriculturists are not dealers and there-
fore are not liable to pay any sales tax or purchase tax, it was submit· D
ted. The demand for purchase tax is in effect a demand on the growers
who were exempt from such levy, as the mqnies 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 E
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 Kamataka Sales Tax Act, 1957 meets the situation
created by such circumstances. This was examined by this Court in
State of Tamil Nadu v. N.K. Kamaleshwara, [1976] 1 SCR 38 which F
examined section 7A 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 Kamataka Act would
be attracted.
The alternative submission of the appellant was that the Coffee G
Board was a trustee or agent of the growers. We are unable to accept
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 H
378 SUPREME COURT REPORTS [1988] Supp. 1 S.C.R.
A export sale by the Coffee Board. In Consolidated Coffee Ltd. &
Another v. Bangalore etc., (supra) it has been held that there must be a
prior agreement at the time when the transaction of sale takes place.
No such prior agreement existed in this case.
In New India Sugar Mills Ltd .. v. Commissioner of Sales Tax
B Bihar (supra), Hidayatullah, J. as the Chief Justice then was, observed
that so long as the parties trade under controls at fixed price and
accept these as any other law of the realm because they must be
deemed to have contracted at a fixed price both sides having or
deemed to have agreed to such price. Consent under the law of con-
tract need not be expressed, it can be implied. This is the position
under the scheme of the Coffee Act. It has to be emphasised like th"
C Vishnu Agencies's case a person for all practi•cal purposes is free to
become or not to become a gro~er of coffee. So it is also covered by
the ratio of Vishnu Agencies Pvt. Ltd.
In the aforesaid view of the matter, we are of the opinion that the
imposition of tax in a manner done by the Sales Tax Authorities which
D had been upheld by the High Court is correct and the High Court was
right.
The appeals fail and are di.smissed. There, will, however, be no
order as to costs. ·
Civil Writ Petition No. 358 of 1986 under Article 32 of the Con-
E stitution of India is dismissed. Re. Writ Petition No. 36 of 1986, we are
of the opinion that we cannot go into in the contentions in this peti-
tion. The rights and obligations of the parties, inter-se between the
petitioners and the Coffee Board may be agitated in appropriate pro-
ceedings. Re. Writ Petition No. 37 of 1986. This writ petition is dismis-
sed without prejudice to the rights of the petitioner to agitate the
F question of liability of the. petitioner, vis-a-vis, Coffee Board in respect
of the sales tax due and payable on the transactions between the
parties in appropriate proceedings. Re. Civil <Writ Petition No. 39 of
1986. There will be no order in this petition. But it is made clear that
this is without prejudice to the right of the parties taking appropriate
proceedings if necessary for determination of the liabilities inter-se
G between the petitioners and the Coffee Board for the amount of sales
tax payable.
Parties in these writ petitions will pay and bear their own costs.
Interim orders, if any, are all vacated.
S.L. C.M.P. No. 2447 of 1986 is allowed.
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "sale tax"Sign in to search