Holding

Section 5(3) is a valid parliamentary provision within Article 286(2), the phrase "the agreement or order" refers only to a foreign buyer’s contract, "sale" means a transfer of property, title passes upon payment, weighment and setting apart, and the Coffee Board’s circular imposing contingency deposits is ultra vires and unconstitutional.

Summary

The Coffee Board conducts export auctions of coffee and requires registered exporters to furnish security deposits and, under a 1977 circular, contingency deposits or bank guarantees equal to the sales tax that would have been payable despite the exemption granted by Section 5(3) of the Central Sales Tax Act, 1956. The exporters challenged the constitutional validity of Section 5(3) and the circular, arguing that the provision was ultra vires Article 286(2) and that the phrase "the agreement or order for or in relation to such export" should include agreements with local agents, not only foreign buyers. The Supreme Court held that Section 5(3) is a valid exercise of Parliament’s power, that "deemed" does not create a legal fiction, and that the phrase refers exclusively to an agreement or order with a foreign buyer. It further clarified that "sale" means a transfer of property under the Act, and that ownership of coffee passes to the buyer only after full payment, weighment and setting apart as per the auction conditions, rendering the circular’s requirement of contingency deposits unlawful. The petitions were allowed in part, the circular was quashed to the extent it imposed those requirements, past tax assessments were set aside, and refunds were ordered.

Issues considered

The constitutionality of Section 5(3) of the Central Sales Tax Act, 1956 in view of Article 286(2) of the Constitution.
The proper construction of the phrase "the agreement or order for or in relation to such export" in Section 5(3).
Whether the word "sale" in Section 5(3) includes an "agreement to sell" under the Sale of Goods Act, 1930.
The point in time at which title in coffee sold at export auctions passes to the buyer.
The validity and constitutional validity of the Coffee Board's circular dated 7 February 1977 requiring contingency deposits or bank guarantees.
Whether the circular violates the fundamental rights of the exporters under Articles 14, 19 and 31 of the Constitution.

Legislation cited

Central Sales Tax Act, 1956s. 2(g), s. 5(1), s. 5(3), s. 6(1)
Coffee Act, 1942
Constitution of Indias. Article 286(2)
Sale of Goods Act, 1930s. 20, s. 25, s. 4, s. 64(2)

Subjects

Central Sales Tax ActArticle 286Deeming provisionExport auctionCoffee BoardSale of Goods ActTitle passageConstitutional validityFundamental rightsContingency deposit

Judgment

625

CONSOLIDATED COFFEE LTD. AND ANR. ETC. A

v.
COFFEE BOARD, BANGALORE ETC. ETC.
April 15, 1980
B
[V. D. TULZAPURKAR, D. A. DESAI AND A. P. SEN, JJ.]
'
central Sales Tax Act, 1956, as amended by Amending Act 103 of1966, Section

. ., 5(3) read with section 5(1) and 6(1), interpretation of-Whether Section 5(3) is
beyond. the power of authority of Article 286(2) of the Constitution and therefore
ultra vires.
Words and Phrases-"the.agreement or order for or in relation to such export,"
c
in Section 5(3) of the Central Safes Tax Act, meaning and interpretation of-Whether
the agreement referred to means only .the agreement with a foreign buyer or would
include any binding or enforceable agree111ent to export even with a local party to
implement which penultimate sale should have taken place.
Sale-Whether the word 'sale' in the phrase "if such last sale or-purchase takes
place after" in section 5(3) of Central Sales Tax Act, 1956, includes"agreement to
D
sell" as defined in Section 4 of the sale of Goods Act 1930.
Sale of Goods Act, 1930 Sections 25, 64(2) scope of-Auction sales--When does
the property in the Coffee sold at the export auctions conducted hy the Co,,__'ffee Board
pass:--Clauses 19, 26 and 31 of the Auction conditions.
The Coffee Board, Bangalore is a statutory Corporation incorporated under 1
section 5 of the Coffee Act, I 942, an enactment passed to provide for the develop-
ment of the Coffee industry under the Control of the Union. The Coffee Board
under various sections of the Coffee Act, exercises complete control-almost mono-
polistic-over the coffee trade in exercises of its statutory powers.
Export of coffee outside India is particularly controlled under the Act and the
Rules by the Coffee Board. Coffee can ,be exported either by the Coffee Board
directly to parties outside India or the Coffee Board authorises other exporters to F
eft'eCt such exports. For effecting exports through other exporters the Coffee
Board periodically conducts auctions known as 'export auctions' and it follows
a procedure in that behalf. To be able to bid at these auctions, exporters have to
get themselves registered with the Board. The Board maintains a 1ist of Registered
Exporters and grants to each one of them a permit. which authorises him to take
part in the •export auctiQn', The conditions which are imposed by the permit
require, inter alia, a security deposit and a standing deposit (which may be in cash G
' or in the form of bank guarantee) from the Registered Exporters; such permit is
is liable to be withdrawn or cancelled by the Chief Coffee Marketing Officer, an
executive appointed by the Central Government on the Board, at any time if it is
found that a permit-holder has sold or has attempted to sell coffee bought by him
at the 'export auction' within the internil market without his written permission
or if any of the other permit conditions are contravened. The actual 'export
H
~
.r\
auctions' are conducted on the basis of the "the Terms and Conditions of Sale of
Coffee in the course of Export'' framed by it and the Registered Exporters partici-
pate in such auctions on those terms and conditions. Clause 3 of the "Auction
626 SUPREME COURT REPORTS [1980] 3 s.c.R.

A. Conditions" declares that all auctions and sales made thereat are subject to (i) the
Auction conditions, (ii) the Permit conditions and (iii) such other rules or con-
ditions as may be prescribed by the Chief Coffee Marketing Officer. Under Cl. 4
only dealers who have registered themsev1es as Exporters of coffee with the Coffee
Board and who hold a permit from the Chief Coffee Marketing Officer in that be-
half are permitted to participate in th~ auctions. Under Cl. 11 no one is allowed
to retract his bid when once the same has been entered in the Register of Bids. The
B highest bid is ordinarily accepted but the Sale Conducting Officer may not accept
such bid if he has reason to belie.Ye that the name is not bona fide or genuine or the
same is the outcome of concerted action on the part of the dealers or a section of
them for the purpose of controlling or manipulating prices, etc. subject to hiS
recording the reasons for such rejection in the Register of Bids. Clause 19 deals
with weighment, delivery and payment of price and contains a.n over·riding pro·
visions to the effect that the "property in the coffee sold shall not pass to the buyer
'
until after he has paid the ful1 price and the coffee sold to him is weighed and set
apart for delivery to him." Clause 26 declares that it is an essential condition of
·the auction that the coffee sold thereat shall be exported to the destination stipu·
lated in the catalogue of lots or to any other foreign country outside India as may
be approved by the Chief Coffee Marketing Offioer within three months or within
such extended period as shall not exceed one year from the Notice of Tender issued
to the auction buyer (Registered Exporter) and that under no circumstances the
D coffee purchased at such auction shall be diverted to other destinations or sold or
be disposed of or otherwise released in India. Clauses 30 and 31 provide for the
consequences of default on the part of the buyer to export the coffee or to produce
evidence thereof; he is liable to pay penalty at the rates specified in Cl. 30- and
under Cl. 31 Chief Coffee Marketing Officer is entitled to seize and take possession
of the unexported coffee and deal with it as if were part and parcel of the Board's
coffee in its surplus pool. Under Cl. 32 it is provided that in the event of the buyer
E committing any default in respect of any of the terms and conditions of the cexport
auction" he sha11 be liable; (i) to be removed from the list of the Registered Ex,.
porters, the permit granted to him being cancelled; (ii) to forfeit the deposit made
by him at the time of obtaining the permit and (iii) to forfeit the deposit of any
covered by the conditions contained in Cl. 14 (ii).

Prior to the enactment of sub section (3) of section 5 of the Central Sales ·Tax

' Act, 1956, which has inserted on September,?, 1976 with retrospective effect from
April 1, 1976 by the Amending Act (103 of 1976), the exemption from liability to
tax under the Act in i:egard to a sale in the course of the export was and continues
to be governed by s. 5(1) of the Act. The said provision was examined by the
Supreme Court in f\vo leading cases, namely, Coffee Board Bangalore v. Joint
Commercial Tax Officer, Madras and Anr., and Mohd. Serajuddli1 etc. v. State of
Orissa, and a certain interpretation had been accorded by this Court to the ex,.
G pression "in the course of export", and, according to these decisions the last sale,
immediately preceding the sale occasioning the export of goods oUt of India, (the
penultimate sale), however closely related to the final export, was held not to be
in the course of export but only for export and hence liable to tax, it was with a view
to remove the difficulties caused by these and other similar decisions that the Par·
liarnent enacted the new sub~s. (3) of s.• 5 and added a proviso to s. 6(1) by the
Amending Act (103 of 1976).
H
The Coffee Board issued a circular dated February 7, 1977 to the Registered
Exporters o~ Coffee, by which it took the view that in order to avail of the benefit

'
CONSOLIDATED COFFEE V. COFFEE BOARD 627

of section 5(3) of the Central Sales Tax as amended by Amendment Act 103of1976, A
in respect of the coffee sold by it at the export auctions the Registered Exporters
(bidders) should satisfy three conditions; (a) he must have an expoit contract
(i.e. either agreement or order) from a foreign buyer, (b) he must have it on hand
at the time when he participates in the export auction and (c) he should give proof
of the export of the coffee purchased at the auction. By way of compliance with
the conditions (a) and (b) above the said Circular requires the Registered Exporters
to deposit with the Board before the commencement of each auction copies of the B
' export orders or agreements from their foreign buyers. As the Coffee Board
could not be certain as to how the Sales Tax Authorities would treat the penul-
timate sales in the matter of granting exemption the said Circu1ar requires the
. bidders to make a contingency deposit in cash equivalent to the sale tax liabiJity
or furnish bank guarantee in lieu thereof, each of such deposit or guarantee being
"required to be kept in force for a period of four years. In other words, even in cases
where the Registered Exporters (auction bidders) shall have satified aJl the aforesaid c
conditions, the Coffee Board has insisted upon such Exporters making contingency
deposits or furnish bank guarantees for amount equivalent to the sales tax charge-
able on such sales inspite of the enactment of s. 5(3) and this has been done oste-
nsibly for the protection of the Coffee Board in the event of Sale Tax Authorities
holding that even in such cases the benefit of s. 5(3) would not be available. Since
retrospective effect was given to the amendments introduced by Act 103 of 1976
the Coffee Board collected and the Petitioners paid sales tax on these export auc- D
tions during the period of the retrospectivity and for few months more and there-
after the Coffee Board has, in tenns of the said Circular, obtained from the petition-
ers bank guarantees to secure payment of sales tax which but for the enactment
of sub-s. (3) of s. 5 might have been payable on Ca.ch such sale.

The petitioners, who are Registered Exporters of Coffee, therefore have filed
under Art.32 .of the Constitution raising an important question of proper construc-
tion of section 5(3), of the Central Sales Tax Act as amended by Amending Act (103
of 1976) and also challenging the constitutional validity of the circular dated Feb-
•
ruary 7, 1977, issued by the Coffee Board, whereby it required the petitioners and
other Registered Exporters. of Coffee to furnish contingency deposits or bank
guarantees equal to the amount of sales tax in respect of the exempted sales under
the said section 5(3) of the Central Sales Tax and praying for its cancellation or
withdrawal and consequential reliefs.

Allowing the petitions in part, the Court

HELD 1. Section 5(3) of the Central Sales Tax Act as amended by the Ame-
ndment Act 103 of t 976 is not ultra vires Article 286(2) of the Constitution and the
T
said provision neither creates any legal fiction nor is it beyond the po\ver or autho-
G
rity conferred on Parliament by Article 286(2) of the Constitution. [645A·DJ

It is true that the word "deemed" has been used in Section 5(3) but the same
word has been used not merely in s. 5(1) but also in the other two sections 3 and
4 of Chapter II of the Central Sales Tax Act which has the heading "Formulations
of Principles for determining when a sale or purchase of goods takes place in the
course of inter·state trade or commerce or outside a State or in the course of export B
or import'', the heading of Chapter J[ on the face of it suggests that what is done
under ss. 3, 4 and 5 including sub-s. (3) is formulation of principles. Secondly
628 SUPREME COURT REPORTS [1980] 3 S.C.R.

A the word "deemed'' is used a great deal in modern legislation in different senses
and it is not that a deeming provision is every time made for the purpose of creating
a fiction. A deeming provision might be made to include for the purpose of a statute
an artificial construction of a word or phrase that would not otherwise prevail
but in each case it would be a question as to with what object the Legislature has
made such a deeming provision. When- sub-section (3) of the section 5 used the
word "deemed" and says that the penultimate sale "shall also be deemed to be in
B the course of export" what is intended to be conveyed is that the penultimate sale
shaH also be regarded as being in the course of such export. In other words, no '
legal fiction is created. Moreover, it was conceded by counsel that the word
"deemed" in sections 3, 4 and 5(1) laid down general principles and did not create
any fiction; if that be so, it is difficult to accept the contention that i.n sub~s. (3) •
the same word should be construed as creating a fiction. Thirdly, suS~scction (3)
of section 5 formulates a principle in as much as it Jays down a general guiding rule
c applicable to all penultimate sales that satisfy the two conditions specified therein
and not any s~cific direction governing any particular or specific transaction of
a penultimate sale. In other words the content of the provision shows that it lays
down a principle. [645 EH, 646C-E, G-H]
On a proper construction of section 5(3), it cannot be said that the said pro~
vision is applicable only to the export auctions conducted by the Coffee Board and
D the terms and conditions governing them because it applies to v;triety of parties
including the small manufacturers who seek a foreign market for their goods through
private export houses or canalised agencies like State Trading Corporation. [646H,
647AJ
St. Aubyn and Ors, v. Attorney Generel, [1952] A. C. 15 at p. 53 ; referred to.
2. Section 5(3) of the Central Sales Tax Act has been enacted to extend the
E exemption from tax liability under the Act not to any kind of penultimate sale but
only to such penultimate sale as satisfies the two conditions specified therein,
namely, (a) that such penultimate sale must take place (i. e. become complete)
after the agreement or order under which the goods are to be exported and (b)
it must be for the purpose of complying with such agreen1ent. or order and it is
, only then that such penultimate sale is deemed to be a sale in the course of export.
[647DEJ
F It is true that the language employed in section 5(3) is a little ambiguous
or equivocal and there is no indication in express terms whether the ''agreement"
mentioned therein necessarily refers to the agreement with a foreign buyer or would
include any biding or enforceable agreement to export with a local party. The
material words which prescribe the two conditions on satisfying which the penulti-
mate sale is to be regarded as a sale in the course of export are : "If such last sale or
purchase (meaning the penultimate sale or purchase) tgok place after, ~nd was for
the purpose of complying with, the agreement or order for or in relation to such
export". It is true that Parliament has not said "the agreement or order for or in
relation to such sale occasioning the export", but has used the phrase "the agree..
ment or order for or in relation to such export". But, two aspects emerge very
clearly on a close scrutiny of this phrase which by implication show that the
'"agreement" spoken of there refers to the agreement with a foreign buyer and not
an 3greement with a local party containing a covenant to export. [~90, 650B~D]
H In the first place, the concerned phrase speaks of two things in disjunctive :
"agreement" or order. The word "order" which appears in a statute dealing
with sales tax must be understood in a commercial s~nse, that is, in the sense in
CONSOLIDATED COFFEE V. COFFEE BOARD 629

which traders and commercial men will understand it.- In commercial sense an
order means a firm request for supply of definite goods emanating from a buyer
an indent placed by a purchaser and, therefore, an order for or in relation to export
would mean an indent from a foreign buyer. The word .. order" in section 5(3)
cannot mean or refer to an order or direction, mandate, command or authorisation
to export that may be issued by a statutory body like the Coffee Board foi' two
reasons : first, occurring in a sales tax statute the word must be given its commercial
meaning and secondly, while enacting the provision Parliament could not be said .B
• to have only statutory b,dies, like Coffee board or S.T.C. in mind. If, there-
fore, an order for export in the concerned Phrase means an indent. from a foreign
buyer, the Preceding word "agreement" in the phrase would take colour from the
word "order" and would on the principle of noscitur a sociie mean an agreement
• with a foreign buyer and not the agreement \\'ith a local party containing the CO"'
venant to export; and
(ii) Secondly and more importantly, the user of the definite artide "the" be-
c
fore the word ..agreement", is very significant. Parffament has. not said "an
agreement" or "any agreement" for or in relation to !lUch export and in the c:onte'tt
the exPres!-ion "the agreement" would refer to that agreement which is implicit in the
sale occasioning -the export. Between the two sales (the penultimate ·and the final)
spoken of in the earlier part of the sub section ordinarily it is the final sale that would
be connected with the export, and, therefore, the expression "the agreement" for
D
export must refer to that agreement which is implicit in the sale that ~asions the
export~ The user of the definite article, "the", therefore, c·Jearly suggests that the
agreement spoken of must be the agreement with a foreign buyer. As a matter of
Pure construction, by necessan implication the expression ''the agreement ' occur-
ring- in the relevant Phrase means or refers to the agreement with a foreign buyer
and not an agreement with a local party containing the covenant to export.
[650E-H, 651A-EJ E
3. Prior to the enactment of Section 5 (1) there was no Jegisiative guidance as
to what transactions of sale or purchase could be said to be "in the c 0 urse of export"
and· the said exPression occurring in Art. 286 (1) (b) of the Constitution was conS-
crued by this Court in what have come to be known as the first and the second
Travancore-Cochin cases, namely, The State ofTravancore-Cochin and Ors. v. The
Bombay Company Ltd., (1952) 3 S.T.C. 434, and The State of Travancore-Cochin
and Ors. v. The Shanmugha Vilas Cashew J1lut Factory and Ors., (1953) 4 STC F
205; to include two types of sales or purchases (a) a sale or purchase which
itself occasions, the export and (b) a sale or purchase affected by a transfer of do·
euments of title to the goods after the goods are put in the export stream (i. e. after
they have crossed the customs frontiers of India). Then came the Constitution
(Sixth Amendtrtent) Act, 1956 introducing a new clause being cJ. (2) in Art.
286 whereby Parliament was empowered by Jaw to fonnulate principles for de-
termining when a sale or purchase took pJace in the course of the export of the goods G
out of the territory of India only if the sale or purchase either occasions such export
or is affected by a transfer of documents of title to the goods if the goods have crossed
the customs frontiers of India••·. In other words, this was legislative recognition
of what was said by this Court in the two Travancore cases about the true meaning
of the exprt:Ssion "in the course of export" occurring in Art. 286 (1) (b). [651G-H,
65~,D-F]
Section 5 (1) was construed by this Court in the context of two sales (though H
both were closely connected with the ultimate expol'tation of the goods out of
)
India) rather very strictly in the two case, Coffee Board, Bangalore,, v. Joint Com-
'
630 SUPREME COURT REPORTS [1980] 3 S.C.R.

mercia/ Tax Officer, Madras and Ors., [1970] 3 SCR 147; and Mohd. Serajt«kl/n
etc. v. State of Orissa, [1975] Supp S.C.R. 169. In the former case, this Court
laid down the test that there must be a single sale which itself caused the exPort and
there was no room for two or more sales being •m the course of exPort". In other
words , notwithstanding the compulsion to export arising from clauses 26, 30 and
31 Qf the Auction Conditions, the Penultimate sale was held to be not in the cause
of ex.Ports. In the latter case. this court took the view that the crucial wards
B in Section 5 (I) showed that only if a sale occasioned the export, it would be in the
course of export and that the• two sets of contracts were separate and indepit
and Mohd. Serajuddin was under no contractual obligation to the foreign yer
•
either directly 0 r indirectly and that his rights and obligations were only aga st
the S.T.C. Even when the S.T.C. had with it foreign buyers contracts and
Mohd, Serajuddin's contracts with S.T.C. had been entered into for the purpose •
of implementing such foreign buyer's contracts, thIB Court hcld that the sales
c between Mohd. Serajuddin and S.T.C. were not sales in the c..;,.e of exPort.
It was at this stage i.e. when s. 5 (l) was interpreted so by this Court that the Par-
liament felt the necessity of enacting s. 5 (3) for the purpose of giving relief in
resPect of penultimate sales that immediately precede the final (export) sales
Provided the former satisfy the conditions specified therein. [652F-H, 653A-B,E-G]

4. Two things become clear from the Statement of Objects and Reasons in the
D Amendment Act 103 of 1966; first Mohd. Serajuddin's decision is specifically re-
ferred to as necessitating the amendment and secondly penultimate sales made by
small and medium scale mannfacturers to an export, canalising agency or private
export house to enable the latter to exPort these goods in compliance with existing
contracts or orders are regarded as inextricably connected with the export of the
goods and hence earmarked for conferal of the benefit of exemption. But the
existing contract with whom is not clarified. The Statement being silent on
E this crucial point whether the existiog contract should be with a foreign buyer or
will include an agreement with a local party containing a covenant to export,
by n~ irrplication "the agreentent" spoken of·by section 5 (3) refers to the
agreement with a foreign buyer. [654F-H]
I
, It is true that the benefit of the exemption was intended to be extended to small
and medium scale manufacturers desirous of exPorting their goods but the require-
ment of the new Provision is not that they must Procure or have with them a
foreign buyer's contract but the requirement is that before they complete the sale
of their goods to the canalising agency or the private export house there must be
in existence a foreign buyer's contract to implement which Ibey should have sold
their goods to such agency or export house. In the nature of things such manu-
facturers who have no expertise of exPort trade are not expected to have a foreign
buyer's contract with them and it would be sufficient compliance of the provision
G of the canalising agency or the export house has with it the foreign buyer's con-
tract. It would, therefore, be incorrect to say that the benefit of the exemption
depends upon the fortuitous circumstance of a foreign buyer's contract being
available with such mannfacturer when he sells his product to the agency or the
export house. Neither any hardship is involved nor would the small or medium
>Cale mannfacturers be depriv<d of the. benefit of the exemption, by the construction
of the expression as "the agreement'' in Section 5 (3), namely, that it means an
B agreement with a foreign buyer and not with a local party containing a covenant
to ex.Port. In fact it is in consonance with the trade practice obtaining in export
trade, namely, that normally the export activity commences with securing or
CONSOLIDATED COFFEll V. COFFEE BOARD 631

obtaining an ex.Port contract or a firm order from a foreign buyer as the first step A
towards the ultimate export. [655A-F]

State of Mysore v. The Mysore Spinning and Manufacturing Co. Ltd. 9 S.T.C.
188@ 189 SC; folJowed.

It is difficult to say that the Parliament intended to prefer one and sacrifice the
other, among the two public H:iterests involved, namely, promotion of the ex- B
• ports of the country and augmentation of the States' revenues through sales ~ ·
while enacting section 5 (3). Jn fact the granting of exemption to penu1timate
sales was obviously with a view to Promote the exPorts but limiting the exemption
to certain types of penultimate sales that sati~fy the two specified conditions
display an anxiety not to diminish the States• revenues beyond a certain limiL
The section in any case not giving any indication that one public interest is to
be prefered to the other, by necessary implication "the agreement" occurring in c
section 5(3) refers to the agreement with a foreign buyer. [656A-C]

5. In Ben Gorm Ni/giri Plantations Company, Coonoor and Ors. v. Sales
Tax Officer, Special Circle Ernaku/am. {1964] 7 S.C.R. 706 at p. 711-12, this
Court held that. even in the case of a single sale which ultimately resulted in the
export, the sale was not in the course of export, because there was no obligation to
export which afforded the inextricable link between the sale and the export. [657A-B] D

It is true that if the obligation to export affording the inextricable link between
the sale and the export is necessary in the case of a single sale even though it re-
sults in export, then all the more such obligation will be necessary in the case of a
penuJtimate sale if such penultimate sale is to constitute a sale 0 in the course of
export" but even if Ben Gorm Ni/giri Plantations Company's case is regarded as
laying down a general proposition that what is required is an obligation which
inextricably connects the sale with the export and that such obligation may, in
the absence of legislative guidance, arise by reason of statute, contract, mutual
understanding or the nature of transaction which links the sale to exp0 rt, stiJl
the question would be what type of obligation and arising from what circumS<-
tances would be necessary or enough in the case of a penultimate sale must de-
pend upon the language of the statute concerned and, therefore, the question will
again be what type of obligation and arising from what circumstances has been
·P
Prescribed by the Parliament by enacting s. 5 (3) and that would dePend upon the
Proper construction of the phrase "the agreement or order for or in relation to
such export" occurring therein. Since on Proper construction the exPression
"the agreement or order" means the agreement with or an order from a foreign
buyer, it is clear that the Parliament intended to prescribe that the obligation to
export arising only from such agreement or order that would affofd the inextricable
link so as to constitute the penultimate sale a sale in the course of export. [65'ffi..F]
G
6. The word 'sale' occurring in the phrase "if such last sale or purchase
talces place after" in section 5(3) of the Central Sale Tax Act 1956 does not
mean the "agreement to sell" but only sale in the sense of a transfer of proPerty
in the goods by one person to another. Section 5(3) cannot be construed other-
wise for more than one reason. In the first pJilce the definitions of 'sale' and
"agreement to sell" in the sale of Goods Act 1930 would not apply to the expression
'sale' occurring in the Central Sales Tax Act, 1956 wherein the expression 'sale' B
has been defined in s. 2 (g) for the purpose of that Act and under s. 2 (g) of the
Central Sales Tax Act 'sale' means "any transfer of property in goods by one
632 SUPREME COURT REPORTS [1980] 3 S.C.lt.

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". in other words, wherever the word 'sale' occurs
in the Central Sales Tax Act, i956 it is this definition given in s. 2 (g) ihat
will be applicable and therefore the word 'sale' in s. 5(3) must mean transfer of
the goods by one person to another for ca~h or for deferred payment or for any
8 other valuable considerations; it cannot mean "agreement to sell". Moreover, •
there is nothing in the context of s. 5 (3) to suggest that the word 'sale' occurring
therein should be understood differently. On the contrary, the context suggests
that the word 'sale' in the Phrase "if such last sale or purchase takes place after
"refers to a completed sale i.e. a sale as defined in section 2(g) of the Act. •
•
[658E·H, 659A·CJ
Balabhagas Hu/aschandv. State ofOrissa. [1976] 2 SCR 939; distinguished.
c 7. Section 64(2} of the Sale of Goods Act, 1930, being in pan' materia with
Section 58(2) of the English sale of Goods Act, 1893 does not deal with the
question of passing pf the property at auction sale but merely deals with com-
pletion of the contract of sale which takes place at the fall of the hammer or at the
announcement of the close of the sale in other customary manner by the auctioneer.
If the auction sale of chattels is unconditional and is in respect of specific ascer~
tained goods and nothing remains to be done to the good~ for Pttttin2 theni in a
0

D
condition rfady for deliv~ry, the Prope:rty in the good, \Vould pas<; to the purchaser
upon the accePtance of the bid but that would not be because of s. 64 (2) but be-
cause of s. 20 and such would not be the case if the goods sold there at are non~
specific or unascertained goods or the auction sale is conditional. And, Sectio.q.
64(2) has nothing to do with the aspect of the passing of the property at an auc-
tion sale and it is by virtue of goods being specific and in a deliverable state that
E under section 20 the Property in such good passess to the buyer at the completion
of the contract at the fall of the hammer at such sale. [667F-H, 669C-D]

Mc Entire & Anr. v. Crossley Bros Ltd., [1895-99] All. E.R. (Reprint) 829@ 832,
Dennant v, Skinner and Collom, [1948] 2 All. E.R. 29; quoted with approval.

A. V. Thomas & Co. Ltd. v. Deputy Commissioner of Agricultural I1:1come tax,
F [1963] Supp, 3 SCR, 608; followed •.

8. Section 64 of the Sale of Goods Act could be subject to a contract to the ··"(
contrary and would be subject to section 62. In the first place section 64 occurs
in Chapter VII which contains "Miscellaneous" provisions and s. 62 whiCh
•
occurs in the same Ch.1pter clearly provides that where any right, duty or 1i2bility
would arise under a contract of sale by implication of law, it may be negatived
or varied by express agreement or by the course of dealing between the parties or
G by usage. If the usage is such as to bind both the parties. to the contract. Ordinarily,
the rights, duties and liabilities arising under a contract of sale by implication of
law spoken of in s. 62 refer· to the rights, duties and obligations referred to ·in
Chapter III containing provisions which lay down rules as to transfer of property
as between seller and buyer and transfer of title but there is no reason by s. 62
should not apply to rights, duties and obligations arising under s. 64 in regard to
auction sale. Sub section (1) of [section 64 provides that where goods are
H put up for sale in lots then each lot is prima facie deemed to be the subject of' a
separate contract for sale, which means terms between the parties may Proville to
the contrary or circumstances may indicate to the c"ntrary. Again sub s. (S)
CONSOLIDATED CE>FFEil V. COFFEE BOARD 633

Provides that the sale may be notified to be subject to a reserved or up set price A
Which means· that the auctioneer may not fix a reserved price; further, it is well ,
settled that if such a reserved price baa been fixed then notwithstanding the fact
the highest bid has been accepted by the auctioneer and the sale relates to specific
or identifiable goods no concluded contract comes into existence if the bigb.est
bid so accepted falls short of the reserved price and the ProPer!Y in the goods
will not pass. Sub-ss (3) and (4) if carefully scrutinised also indicate that there
• cduld be a contract to the contrary. Moreover, once it is accepted that auction sales B
to Which s. 64 applies could be unconditional or conditional and that tho auctioneer
can prescribe his own terms and conditions on the basis of which the Property is
ex.Posed to sale by auction it must be held that the acceptance of any bid as well
as the passing of the Proper!Y in the goods sold thereat would be governed by
those terms and conditions. [669D-H, 670A.C]

9. In the instant case: c
(a) The export auctions of Coffee conducted by the Coffee Board are ad·
mittedly conducted on terms and conditions prescribed by it called "Auction
Conditions". [n the absence of a suggestion in the case that a statutory body
like the .Coffee Board while prescribing the auction conditions has acted not in
good faith or that the said terms and coriditions do not tru1y govern the rights
and obligations of the parties, thereto it is clear. that the question at what point of
time the property in the Coffee sold thereat passes to the auction purchaser (Re- D
gistered Exporter) mu&t depend upon the intention of the partiCs to be derived
from the aforesaid terms and conditions. The property in coffee sold thereat does
not pass to the buyer at the fall of the hammer under section 64 (2) of the Indian
Sale of Goods Act. 1930. All that happens 't the fall of the hammer is that a
completed contract of sale comes into existence creating a relationship of pro-
miser and promisee between the pilrties in an executory contract, which is very
clear from clause 13 (a) of the Auction conditions. [670C-F] E

•
(b) Clause 19 principally deals with aspects of delivery, weighment and pay-
ment of price and to\vards the end it contains an over~riding provision to the
effect that notwithstanding anything contained in these conditions. the property
in the Coffee sold shall not pass to the buyer until after he has paid the full price
and the coffee sold to him is weighed and set apart for delivery to him. In other
words, it is clear that parties intended that the passing of the property shall not take F
place till the full price is paid and the coffee sold is weighed and set apart for de-
livery. Now there is nothing in any of the other privisiolls Of these Auction Con.
ditions wliich indicates that ihe property in coffee sold. should pass either at the
fall of the hammer or at any point of time prior to the payment of price and weigh-
ment and setting apart of coffee for delivery to the buyer. [670R, 67lA-B]
'Mc Entire and Anr. v. Crossley Bros. Ltd., [1895-99) All. E.R. (Reprint) 829 @
832; distinguished.

4. (c) It is true that the over-riding prov1s1on contained in clause 19 is negative
in character, that is to say, the parties are agreed that the property'ShaII not pass
to the buyer until after the payment of the price, weighment and setting apart of
the coffee for delivery to the buyer. But there are two provisions contained in
clause 20 (d) and (0 which show that positively upon payment of price and weigh-
ment and setting apart the coffee sold for delivery to the buyer, the property in H
the coffee sold passes to the buyer at that point of time. Under clause 19, after
the payment of full price the buyer has to apply for and take delivery within
2-463 SCI/80
634 SUPREME COURT REPORTS [1980) 3 S.C.R.

A a certain time but in case h.e fails to take delivery, as provided in clause 20, the
coffee is first stored by the Pool Agent in the 'Pool Warehouse pending its expor-
tation by the buyer by the 15th May and if it is not exported by that date the
Curer or Depot Manager removes it from the West Coast to inland countries
for safe· storage during the ~onsoon season but at the risk and cost of the buyer.
Having regard to clauses~ 19 and 20 of the Auction conditions, therefore, it is clear
that in these penultimate sales i. e. sales of coffee at the export auctions con-
B ducted by the Coffee Board; to property in coffee sold thereat passes to the buyer •.
upon payments of price, weighn1ent and setting apart of the coffee sold for de-
livery to the buyer. [671C-F, 672C-D]

(d) Passing of the property in such coffee cannot be said to be further post-
poned till actual shipment by reason of clause 31 of the Auction conditions, for, •
if the title has already passed under clauses 19 and 20 of the Auction Conditions
c immediately upon payment of price, weighment and setting apart of the coffee for
delivery to the buyer, it cannot pass again. [672D-F]

(e) It is not correct to say that in view of clause 31 a res~rvation of the right
of disposal over the goods in favour of the Coffee Board within the meaning of
section 25 of the Sale of Goods Act is made. Section 25 (I) provides that where
there is a contract for sale •of specific goods or where goods are subsequently
l> appropriated to the contract, the seller may by terms of the contract or appropria-
tion, reserve the riSht of disposal of the goods until certain conditions are ful·
filled and if he does so, the legal consequence Inentioned in the section flows,
namely, that in such case notwithstanding the delivery of goods to a buyer or to a
carrier or bailee for transaction to the buyer, the property in the goods does not
pass to the buyer until the conditions imposed by the seller are fulfilled. It is
true that Cl. 26 declares that it is an essential condition of the auction that
E coffee sold thereat shall .be exported to stipulated destinations orto any other foreign
country outside India as may be approved by the Chief Coffee Marketing Officer
within 3 months or within the extended period but s_uch essential condition
is applied to the~coffee which has already become the property of the buyer under
Cls. 19 and 20 oftbe Auction Conditions and all that Cl. 34 provides is that if
default is made by buyer in exporting coffee within the prescribed time or extended
time it shall be lawful for the Coffee Board without reference to the buyer
11 to seize the unexported coffee and take possession thereof and deal with it as
if it were the part and parcel bf the Board's Coffee held by them in their Pool Stock. -~
Far from amounting to a reservation of the right of disposal over the unexported
coffee to the Coffee Board, Cl. 31 is in the nature of a defeasance clause in •
the sense that what is vested in the buyer under the earlier conditions, the same
shall revert back to the Coffee Board if the buyer commits a default in fulfilling
the ess_ential condition. Such a reading of Cl. 31 would be consistent with a fur-
G ther provision which is to be found in the latter portion of that clause. The
latter part of CI. 31 provides that after the coffee is seized and it becomes part and
parcel of Board's Coffee beld by it in its pool stock, the Board shall re-sell the same
but after such re-sale the CWef Coffee Marketing Oflioor shall pay to the default-
ing buyer only the balance of the sale proceeds after deducting godown charges,
insurance premium, selling commission payable to agents and all other expenses
of.sale together with the penalty due under Cl. 30. In other words the proviso
clearly suggests that the seized coffee becomes Coffee Board's property and is
resold as such, otherwise the surplus should go to the buyer (Registered Exporter).
The fact that the payment to the defaulting buyer is limited to the actual sal•
CONSOLIDATED COFFEE V. COFFEE BOARD 635

price paid by him and that the surplus if any reverts to the Coffee Board clearly }..
shows that under Cl. 31 upon seizure the property reverts back to the Coffee
Board. ClaUse 31 properly read amounts to a defeasance clause and nothing
more, especially when it is clear that property in the coffee sold at auction passes
to the buyer under Cls. 19 and 20 immediately upon payment of price, weighment
and setting apart of the coffee for delivery to the buyer. Once the property has
passed there would be no question of reserving any right of disposal over the same
• to the Coffee Board within the meaning of s. 25 (I) of the Sale of Goods Act. ··B
[662F·H, 673A-H]
(g) In the penultimate sales (sales of coffee effected to Registered Exporters at
export auctions conducted by the Coffee Board) the property in the Coffee sold
• thereat passes to the buyer immediately upon payment of full price, weighment
and setting apart of coffee for delivery to the buyer under Cls. 19 and 20 of the
Auction Conditions and it would be at this stage i.e. just before this stage is reached
that the agreement with or order from a foreign buyer must be available or produc.. C
ed in order to attracts. 5 (3) of the Central Sales Tax Act, 1956. [674C-D]

ORIGINAL JURISDICTION : Writ Petition Nos. 3130/78, 4238-4239/
78, 8/79 and 1458/79.
(Under Article 32 of the Constitution)
D
Mr. F. S. Nariman, C. N. Murthy, K. P. Kumar, H. K. Dutt,
T. Subba Rao and D. N. Gupta for the petitioners in WP No.
3130/78.
A.K. Sen, Dr. Y.S. Chitale, K. P. Kumar, R. Vasudevan, C. N.
Murthy, Ajay Mehta and T. Subba Rao for the petitioners in W. P.
Nos. 4238-4239/78. .E

F.S. Nariman, K. P. Kumar, R. Vasudevan, C. N. MurthJ·, Ajay Mehta
and T. Subba Rao for the petitioner in WP 8/79.
Dr. Y.S. Chita/e, K. P. Kumar, R. Vasudevan, C.N. Murthy, AJaY
Mehta and T. Subba Rao for the petitioner in WP No. 1458/79. .f

r L. M. Sinha, Att. Genl. K. J. Chandran, J.B. Dadachanji, K. J.
John and Sri Narain for the Respondent in WP No. 3130/78.
P. G. Nair, K. J. Chandran, J. B. Dadachanji, K. J. John and ~·ri
Narain for RR. 1 in WP Nos. 4238-4239/78.
N. Nettar, fo~ RR. 2 in WP 4238-39/78.
S.T. Desai and A. V. Rangam for RR 3 in WP 4238-39/78.'
P. A. Francis, & V. J. Francis for RR 4 in WPs 4238-39/78.
K. K. Venugopal. Addi. Sol. Genl. and N. Nettar for RR. 1 in WP
No. 8/79. H
S. T. Desai and A. V. Rangam for the RR 2 in WP 8/79.
636 SUPREME COURT REPORTS [1980] 3 s.c.R.

V. J. Francis for RR 3 in WP No. 8/79.
K. J. Chandran, J. B. Dadachanji, K. J. John and Sri Narain for
RR 4 in WP No. 8/79.
N. Nettar for RR in WP No. 1458/79.
B V. J. Francis for the RR in WP No. 1458/79.
K. J. Chandran, J.B. Dadachanji K. J. John, Sri Narain for the
RR in WP No. 1458/79.
The Judgment of the Court was delivered by
•
Tur.zAPURKAR, J. These writ petitions filed by Registered Ex-
c porters of co.ffee under Art. 32 of the Constitution raise an important
question of proper construction of s. 5(3), a provision newly
inserted in the Central Sales Tax Act 1956 by an Amending Act
(103of1976) and the petitioners also seek to challenge the constitutio·
nal validity ofa Circular dated February 7, 1977 issued by the Coffee
1> Board, whereby it requires the Register~d Exporters of coffee to fur· .
nish contingency deposits or bank guarantees equal to the amount
of sales tax in respect of the exempted sales under the said s. 5(3) and
pray for its cancellation or withdrawal and consequential reliefs.
'
The facts giving rise to the writ petitions ·being common and
almost identical may be stated. The Coffee Board, Bangalore is a
statutory corporation incorporated under s. 5 of the Coffee Act,
1942, an enactment passed to provide for the development of the
Coffee Industry under the control of the Union., Sections 4 to 10
of the Act deal with the setting µp of the coffee Board on which all
interests are represented and some Members Of Parliament and Go·
F verriment officers are nominated. The Board exercises powers and dis-
charges functions assigned to it under the Act and the Coffee Rules
framed thereunder. The Act compels the registration of all owners
of coffee estates and licensing of curers and dealers and it also iiu-
poses cciht'rol on the sate, export and re-import of coffee into
India. In regard to sale it fixes prices for sale of coffee either whole·
sale or retail by regist€red owners and licensed curers for the pur-
pose of sale in the Indian Market and the Coffee Board fixes internal
sale quota for each estate owner and the owner has to observe this
quota and also the price fixed under s. 25 all coffee produced
by a registered estate in excess of the quantities specified in the
internal sale quota allotteed to that estate, or when no internal
ii sale quotas have been allotted to the estates, all the coffee pro-
duced by the estate has to be delivered to the Board for inclusion
in the surplus pool by the owner of the estate or by the cilring
CONSOLIDATED COFFEE v. COFFEE BO.').llD (Tulzapurkar, !.) 637

establishment receiving the coffee from the estate and under sub- A
s. (6) in respect of coffee so delivered for inclusion in the surplus
pool the registered owner retains no right except his right to
receive payments referred to in s. 34. Section 26(1) enjoins
upon the Coffee Board to take all practical measures to market
the coffee included in the suplus pool and all sales thereof have to be
• conducted by or through the Board. These sales include internal '
sales in India and outside India. We are concerned in these petitions
with sales outside India. Under s. 20 of the Act no coffee (bar-
ring certain exceptions specified in the proviso) can be exported
' from India otherwise than by the Board or otherwise than under
an authorisation granted by the Board in the prescribed manner C
and , in the prescribed cases, while under s. 21 no coffee which
has been exported from India shall be re-imported;into India except
under and in accordance with a permit granted by the Board. Section
47 provides that all contracts for the sale of coffee in so far as they
are at variance with the provisions of this Act shall be void. It will
thus, appear clear that the Coffee Board exercises complete control- Q
almost monopolistic-over the coffee trade in exercise of its statutory
powers.
Export of coffee outside India is particularly controlled under
the Act and the Rules by the Coffee Board. As stated earlier coffee
can be exported either by the Coffee Board directly to parties out-
E,
side India or the Coffee Board authorises other exporters to effect
such exports. For effecting exports through other exporters the
Coffee Board periodically conducts auctions known as "export
auctions" and it follows a procedure in that behalf. To be able to
bid at these auctions, exporters have to get themselves registered with
the Board. 1'The Board maintains a list of Registered Exporters and
grants to each one of them a permit, which authorises him to take
part in the "export auction". The conditions which are imposed by
th.e permit (hereinafter called the permit conditions') require, inter
alia, a security deposit and a standing deposit (which may be in cash
or in the form of bank guarantee) from the Registered Exporters; such
r permit is liable to be withdrawn or cancelled by the Chief Coffee G
Marketing Officer, an executive appointed by the Central Govern-
ment on the Board, at any time if it is found that a permit-holder
has sold or has attempted to sell coffee bought by him at the "export
auction" within the internal market without his written permission or
if any of the other permit conditions are contravened). A speci-
men of the permit together with the conditions attaching to

.
it has been annexed to each petition. (The aCtual "export auctions"
are conducted on the basis of "the Term and Conditions of Sale
' '
638 SUPREME COURT REPORTS [1980] 3 s.c.R.
of Coffee in the course of Export" framed by it and the Registered
Exporters participate in such auctions on those terms aud conditions.)
A specimen copy of these Auction Conditions has been annexed to
each petition. Clause 3 thereof declares that all auctions and sales
made thereat are subject to (i) the Auction conditions, (ii) the Permit
conditions and (iii) such other rules or conditions as may be prescribed
B by the Chief Coffee Marketing Officer. Under Cl. 4 only dealers •
who have registered themselves as Exporters of coffee with the Coffee
Board and who hold a permit from the Chief Coffee Marketing
Officer in that behalf are pemitted to participate in the auctions. ·
Under Cl. 11 no one is allowed to retract his bid when once the
same has been entered in the Register of Bids. The highest bid is
ordinarily accepted but the sale Conducting Officer may not accept
such bid if he has reason to believe that the same is not bona fide
or genuine or the same is that outcome of concerted action on the
part of the dealers or a section of them for the purpose of con-
trolling or manipulating prices, etc. subject to his recording the
reasons for such rejection in the Register of Bids. Clause 19 deals
D with weighment, delivery and payment of price and contains
an over-riding provision the effect that the "property in the coffee
sold shall not pass to the buyer until after he has paid the full price
and the coffee sold to him is weighed and set apart for delivery to him".
Clause 26 declares that it is an essential condition of the auction
that the coffee sold thereat shall be exported to the destination
stipulated in the catalogue of lots or to any other foreign country
outside India as may be approved by the Chief Coffee Marketing Offi~
cer within three months or within such extended period as shall not
exceed one year from the Notice of Tender issued to the auction
buyer (Registered Exporter) and that under uo circumstances the
coffee purchased at such auction shall be diverted to other desti-
nations or sold or be disposed of or otherwise released in India,
Clauses 30 and 31 provide for the consequences of default on
the part of the buyer to export the coffee or to produce evidence
thereof; he is liable to pay a penalty at the rate specified in Cl. 30
aud what is more under Cl. 31 Chief Coffee Marketing Officer is en-
G titled to seize and take possession of the unexported coffee and deal
with it as it were part and parcel of the Board's coffee in it surplus
pool. Under Cl. 32 it is provided that in the event of the buyer com-
mitting any default in respect of any of the terms and conditions of the
"export auction" he shall be liable (i) to be removed from the
list of the Registered Exporters, the permit granted to him being
B cancelled; (ii) to forfeit the deposit made by him at the time of obtain-
ing the permit and (iii) to forfeit the deposit if any covered by the
conditions contained in Cl. 14(ii),
CONSOLIDATED COFFEE v. COFFEE BOARD (Tulzap_urkar, /.) 639

According to the petitioners prior to the enactment of sub-s. A
(3) of s. 5 of the Central Sales Tax Act, 1956, which was inser-
ted on September 7, 1976 with retrospective effect from April
I, 1976 by the Amending Act (103 of 1976), the exemption from lia-
bility to tax under the Act in regard to a sale in the course of the
export was and continues to be governed by s. 5(1) of the Act which
• runs thus B
"5(1) A sale or purchase of goods shall be deemed
to take place in the course of the export of the goods out
of the territory of India only if the sale or purchase either
• occasions such export or is effected by a transfer of documents
of title to the goods after the goods have crossed the customs
frontiers oflndia". c
The aforesaid provision was examined by this Court in two leading
cases, namely, Coffee Board Bangalore v. Joint Commercial Tax Officer,
Madras & Anr. (')and Mohd. Serajuddin etc. v. State of Orissa (2) and
a certain interpretation had been accorded by this Court to the exp-
ression "in the course of export" and according to these decisions
the last sale, immediately preceding the sale occasioning the export of D
goods out oflndia (hereinafter called the "penultimate sale"), however
closely related to the final export, was held not to be the course of export
but only for export and hence liable to tax and according to the petit-
ioners it was with a view to temove the difficulties caused by these and
other similar decisions that the Parliament enacted the new sub-s. (3)
of s.5 and added a proviso to s.6(1) by the Amending Act (103 of E
1976). The newly enacted provisions run thus
"5(3) Notwithstanding anything contained in sub-section (1),
the last sale or purchase of any goods preceding the sale or pur-
chase occasioning the export of those goods out of the territory
of India shall also be deemed to ·be in the course of such export,
F
if such last sale or purchase took place after, and was for the pur-
pose of complying with, the agreement or order for or in relation
to such export."
'"'6(1) ..••....•.•.......••....•...•.•••.....
Provided that a dealer shall not be liable to pay tax under this
Act on any sale of goods which, in accordance with the provisions G
of sub-section (3) of section 5, is a sale in the course of export of
these goods out of the territory of India."
The petitioners have strongly relied upon the Statement of Objects
and Reasons appended to the relevant Bill in this behalf. In other·
words, according to the petitioners under sub-section (3) of s.5 even
the 'penultimate sale' is to be regarded as a sale 'in the course of ex- R
' (I) [1970] 3 SCR 147=25 STC 258.
(2) [1975] Suppl. S.C.R. 169 =36 S.T.C. 136.
640 SUPREME COURT Rl!PORTS [1980] 3 S.C.R.

port' and will under the proviso to s.6(1) be entitled to claim exemp-
tion from the liability to tax under the Act provided such penultimate
sale-(i) took place after, and (ii) was for the purpose of complying with,
the agreement or order for or in relation to such export. According
to the petitioners the. sales of coffee made to the Registered Exporters
at the export auctions conducted by the Coffee Board constitute 'pe-
• nultimate sales' falling within s.5(3) and qualify for the exemption
from the tax liability under the Act in as much as both the conditions
mentioned above are satisfied.
The petitioners' case is that !notwithstanding the aforesaid position
the Coffee Board by its Circular dated February 7, -1977 issued to the
c Registered Exporters of coffee has taken the view that in order to
avail of the benefit of sec. 5(3) (in respect of the coffee sold by it at
the export auctions. the Registered Exporters (bidders) should satisfy
three conditions (a) he must have an export contract (i. e. either agree-
ment or order) from a foreign buyer, (b) he must have it on hand at
the time when he partiCipates in the export au~on and (c) he should
give proof of the export of the coffee purcha~d at the auction. By way
of compliance with the conditions (a) and (b) above the said Circular
requires the Registered Exporters to deposit with the Board before
the commencement of each auction copies of the export orders or agree-
ments from their foreign buyers). Obviously the Coffee Board proceeds
op. the basis thats. 5(3) requires an agreement with or an order from a
foreign buyer and that too it must exist at .the time of participation
in the auction inasmuch as in its view the property in the coffee sold at
such auction passes and the penultimate sale takes place at the fall
of the-hammer under s.64(2) of the Sale of Goods Act. Further as the
Coffee Board conld not be certain as to how the Sales Tax Authorities
would treat the penultimate sales in the matter of granting exemption
F the said Circular requires the bidders to make a contingency deposit
in cash equivalent to the sales tax liability or furnish bank guarantee
in lieu thereof, each of such deposit or guarantee being required to be
kept in force for a period of four years. In other words, according to
the petitioners even in cases where the Registered Exporters (auction
bidders) shall have satisfied all the aforesaid conditions,
G the Coffee Board has insisted upon such Exporters making
contingency deposits or furnish bank guarantees for amounts equiva- ~
lep.t to the sales tax chargeable on such sales inspite of the enactment
of s.5(3) and this has been done ostensibly for the protection of the
Coffee Board in the event of Sales Tax Authorities holding that even
in such cases the benefit of s. 5(3) would not be availal;>le.
The petitioners contend that the words "the agreement" for or' 'in
relation to such export" in s. 5(3) do not necessarily refer to the 11gree
CONSOLIDATED COFFEE ¥· qJFFEE BOARD (T11lzapurkar, !.) 641

ment with a foreign buyer but would include any binding or enforce.·
able agreement to export even with a local party to implement which
the penultimate sale must have taken place and;since here:the penulti·
mate sales (sales of coffee to Reigistered Exporters by the Coffee Board)
take place on the express and essential condition that the said coffee
shall be exported and the same shall not be diverted to any other desti~
• nation or sold or disposed of or released in India (vide Clause 26)
and which condition is enforced on pain of imposition of penalty and
seizure of the unexported coffee (vide: Clauses 30 and 31) these must
be regarded as having been made for the purpose of complying with
• agreement for or in relation to export and secondly, these penul-
. tim.ate sales invariably take place (i.e. become complete after the
agreement to export is entered into inasmuch as the latter comes into
c
existence invariably before the property in the coffee passes to the
Registered Exporters (auction purchasers). Alternatively the ·petitioners
contend that even if the words "the agreement for or in relation
to such export" mean only the agreement with a foreign buyer all
that is required is that such agreement with the foreign [buyer must
exist before the penultimate sale becomes ~omplete, i.e. before the
property in the coffee sold thereat passes to the auction purchaser and
according to the petitioners the property in the coffee sold at such
penultimate sales passes to the auction purchaser after the same is
shipped or sent to the custom station for shipment because till then
the Coffee Board has a right of disposal over the same within the imean-
ing of s.25 of the Sale of Goods Act under Cl. 31 and in any event [not
until the same is weighed and set apart and price paid. therefor under
Cl. I 9 and hence if the agreement with the foreign buyer is available
before that it would be sufficient compliance of s.'5'(3). The Board's
view that the property in the coffee sold at the aucti~ns passes to the
bidders at the fall of hammer is clearly unsustainable. The petitioners
thus contend that the aforesaid action on the part of the Coffee Board
in forcing the Registered Exporters of coffee, including the petitioners,
to make contingency deposits or to furnish bank guarantees to secure
payment of sales tax on transactfons which have been specifically
exempted from sales tax by s. 5(3) and the proviso to s. 6(1) of the
Central Sales Tax Act, 1956 read with·Art. 286(1) of the Constitution G
of India is without authority of law and the Board's Circular dated
February 7, 1977 is unreasonable, arbitrary, illegal, without authority
of law and violative of their fundamental rights under Arts. 14, 19
.and 31 of the Constitution.
The. petitioners, therefore, seek issuance of writs of certiorari and ff
prohibition quashing the said circular and restraining further action
thereunder in future. It seems that since retrospective effect was given
642 SUPREME COURT REPORTS [1980] 3 s.c.R.
•
A.. m the amendments introduced by Act 103 of 1976 the Coffee Board
collected and the petitioners paid sales tax on these export auctions
during the period of the retrospectivity and for few.months more and
thereafter the Coffee Board has, in terms of the said Circular, obtained
from the petitioners bank guarantees to secure payment of sales tax
B
which but for the enactment of sub-s. (3) of s. 5 might have been pay-
able on each such sale. To obtain appropriate reliefs in this behalf in . -
two of the three writ petitions, the petitioners therein have also im-
pleaded the concerned States, namely, State of Karnataka, State of
Tamil Nadn and the State of Kerala as party respondents to their
petitions. The petitioners have sought appropriate orders or directions
against these State Governments directing them to make refunds to
c the Coffee Board of the amounts collected by them from the Coffee
Board as and by way of sales tax and further restraining them from
collecting or threatening to collect from the Coffee Board any amount
as and by way of sales tax on the transactions in question or subject-
ing such transactions to sales tax. The petitioners have also sought
D the consequential reliefs of directing the Coffee Board to pay over
to the petitioners the refunds which it may receive from the State
Governments pursuant to the Court's order and further directing the
Coffee Board to release the bank guarantees or contingency deposits
obtained by it under the impugned Circular.
In the returns filed on behalf of the the Coffee Board by way of
E reply to the writ petitions two or three contentions have been raised.
First, by way of preliminary objection it is contended that no writ
would lie against it challenging its Circular dated February 7, 1977
inasmuch as though the Coffee Board is constituted under a Central
enactment and has monopolistic control over the coffee trade, when
it exposes coffee in export auctions it is merely engaged in a commer-
F
cial activity in exercise of its power to make contracts and while so
engaged it cannot be denied its legitimate rjght, like any other trader•
to lay down the terms and conditions for snch sales a.nd the Circular
dated February 7, 1977 is one such communication addressed to the
Registered Exporters containing additional terms or conditions con-
G cerning sales tax in the matter of such auctions and neither the auction
conditions nor the Circular stem from any statute but are matters
falling within the realm of contract and therefore no writ petition .~.
challenging the Circular is maintainable. Secondly, the Coffee Board
is eatitled to protect its interest and since it has an apprehension that
exemption provided for by s. 5(3) of the Central Sales Tax Act, 1956
H may not be made available by the Assessing Authorities under the
sales Tax Law, the Coffee Board decided to safeguard its interest by
taking contingency deposits or bank guarantees equivalent to the
,

CONSOLIDATED COFFEE v. COFFEE BOARD (Tulzapurkar, !.) 643

amount of sales tax th&t would be payable in re~pect of the export A
auctions. It is pointed out in this behalf that all kinds of penultimate
sales or purchases are not exempt under s.5(3) but the exemption is
hedged in with conditions specified therein and only when those con·
ditions are proved to the satisfaction of the Assessing Authority the
• exemption will arise and until then there is a risk of the Coffee Board
B
being visited with the sales tax and so to protect itsel( against any
possible levy of sales tax it is obliged to insist upon furnishing of con·
tingency deposits or bank guarantees. By doing it the Coffee Board is
• not exacting any sales tax as such and, therefore, a protective measure
of the type adopted by it cannot be said to be illegal _or unconstitutional
·or violative of any of the petitioners' fundamental rights. Thirdly, c
on merits it is contended that its interpretation of section 5(3) that
what is required the.1eunder is an agreement with or an order from a
foreign buyeF is correct as also its conclusion that in the export auctions
conducted by it property in the coffee sold thereat passes to the Regis-
tered Exporter (bidder) at the fall of hammer and, therefore, the con-
ditions imposed by the Circular on the Registered Exporters before D
they can claim exemption from the tax liability are justified. The States
of Karnataka, Tamil Nadu and Kerala in their respective counter-
affidavits have supported the stand taken by the CoffeeBoard on
both the points. It may, however, be stated that all the three States
are desirous of having an authoritative pronouncement from this Court
E
on the question of proper construction of the words "the agreement
or order for or in relation to such export" occurring in s. 5(3) of the
Central Sales Tax Act 1956 but on the second point counsel for States
of Karnataka and Tamil Nadu have urged that since the question of
passing of property does not depend merely upon proper construction
bf the auction conditions read in the context of the relevent provisions F
of the Sale of Goods Act but will need investigation into all the rele-
vant facts and circumstances of each auction sale including the con-
duct of the parties as also the correctness and true nature of the deal-
ings between them any expression of opinion by this Court on that
question would not be proper and may bar such investigation into
all the relevant facts at the hands of their Sales Tax Authorities as G
and when exemption is claimed in assessment proceedings. Counsel
for the State of Kerala was, however, not in agreement with this
submission and statfd that even that question was a pure question
of fa'N dtprnding upon the pre per constn1cticn of the auction con-
diticns nr.d with the rel~vant provisicns cf the Sale of Gccds Act
H
on the basis that the auction conditions truly govern the rights and
obligations of the parties to such sale. We may also state that during
644 SUPREME COURT jlJlP9RTS [1980] 3 S.C.R.

the hearing counsel for the State of Tami.I Nadu also raised the ques-
tion of the vires of s. 5(3), apart from its construction; he contended
that the provision itself was u/tra vires Art. 286(2) on the ground that
instead of formulating any principle for determining when a sale or
purchase of goods takes place in the course of export outside the ter-
B ritory of India-for which alone power to make law has been con-
ferred on Parliament-the Parliament has created a legal fiction to
the effect that a penultimate sale of purchase, in certain circumstances,
shall be deemed to be in the course of export when in truth and realit
it is not and the creation of such legal fiction is beyond the power or
outside the authority conferred by Art. 286(2).
c
From the rival contentions which have been summarised above
it will appear clear that principally four questions arise for our dedision
in these Petitions. The first relates to the maintainability cf the writ
petitions against the Coffee Board; the second is whether the amend-
ment introduced by insertion of sub-s. (3) in s. 5 of the Cnetral Sales
D Tax Act is ultra vires Art. 286(2) of the Constitution, the third relates
to the proper construction of s. 5(3) of the said Act and the fourth is
at what point of time the property in the coffee sold at export auctions
conducted by the Coffee Board passes to the Registered Exporters
(auction purchasers). We may, however, state that during the course
of the hearing the learned Attorney General ·appearing on behalf of
E
the Coffee Board fairly stated that since the question of proper cons-
truction of s. 5(3) would affect a large number of dealers in expo_rt
trade, including the Coffee Board (which was concerned with export
trade in coffee). the Board was interested in having an· authoritative
decision of this Court on the point, that such authoritative decision
F would also facilitate the issuance of a proper Circular in regard to its
future transactions and, therefore, he was not pressing the preliminary
objection to the maintainability of the writ peti!lons against the Coffee
Board. We would, therefore, deal with the remaining three questions
one after the other.

G Dealing first with the question whether s. 5(3) of the Act which
has been introduced by the Amending Act 103 of 1976 is u!tra vires
Art. 286(2) of the Constitution, the precise contention Of Mr. S. T ·
Desai appearing for the State of Tamil Nadu has been that the said
provision merely enacts an artificial rule or fiction that a penultimate
sale which in fact is not in the course of the export of goods out of the
'H '
territory of India, shall be "deemed to be in the course of such export'
if it satisfies the conditions specified therein, it does not lay down or
CONSoLIDAtED COFFEil v. ciJFFEE BOARD (Tu/zapurkar, !.) 645

formulate any principle for determining when a sale takes place in A
the course of export of the gocds out of the territory of India and,
therefore, it is beyond the power or authority conferred on Parliament
by Art. 286(2J. We pointed out that prior to the Constitution (Sixth
Amendment) Act 1956 this Court in its decisions while interpreting
the expression "sale in the course of export" occurring in Art. 286
(!) (b) laid down two principles as to when a sale could be said to be a
sale in the course of export and it held that two types of sales, viz.
(a) sale which occasions the expert ai:d (b) sale which is effected by a
transfer of documents of title to the goods after the goods have crossed
• customs frontiers of India, would be sales in the course of export.
Section 5(1) which was enacted in Central Sales Tax Act 1956 pursuant
to the power conferred on Parliament by Art. 286(2) which was in-
c
troduced by the Constitution (Sixth Amer.dment) Act 1956 mP.rely
gave legislative recognition to the aforesaid two principles which had
been formulated by this Court while interpretir.g Art. 286(2) (b) hut
while adding sub-s. (3) to f. 5 of the Act Parliament had created a
legal fiction to the effect that a penultimate sale satisfying certain D
specified conditions shall also be deemed to be a sale in the courSe
of export when in truth and reality it is not. According to him, C:rea-
tion of such fiction is ~ot formulaticn cf any principle and as such
the provision is beyord the pcwer or authority conferred on Parlia-
ment by Art. 286(2).
E
It is not possible to accept the aforesaid contention for the reasons
we shall presently indicate. It is true that the word "deemed" hits
been used in s. 5(3) buuhe same word has been used not merly in s.5(1)
but also in the other two sections 3 and 4 of Chapter II of the Central
Sales Tax Act which has the heading "Formulations of {Principles
for determining when a sale or purchase of goods takes place in the
course of inter-State trade or commerce or outside a State or in the
course of export or import", the heading of Cha:Pter II on the face of
it suggests that what is done under ss. 3, 4 and 5 inchidirtg sub-s (3) is
formulation of.principles. Secondly, the wotd "deemed" is used a
great deal in modern legislation, different senSes and it is not that a
deeming provision is every time made for the purpose of .creatirtll a G
'r
fiction. A deeming provision might be made to ihclude what is obvioUs
or what is uncertain or to impose for the purpose of a stat11te art arti-
ficial construction of a word or phrase that would not otherwise pre-
vail but in each case it would be a question as to with what object
·the 'Legislature has made such a deeming provision. In St. Aub)'n <ind II!
Ors. v. Attorney General,(') Lord Radcliffe observed thus:
(!) [1952] A. C. 15 at p. 53.
646 SUPREME COURT REPORTS [1980] 3 S.C.R.

A "The word 'deemed' is used a great deal in modern legislation.
Sometimes it is used to impose for the purposes of a statute an
artificial construction of a word or phrase that would not other-
wise prevail. Sometimes it is used to put beyond doubt a particular
construction that might otherwise be uncertain. Sometimes it is
used to give a comprehensive description that includes what is
B obvious, what is uncertain and what is in the ordinary sense
impossible."
After making these observations the learned Law Lord went on
to hold that it was in the last of the three ways (indicated in the ob-
servations) that the deeming provision was made in s. 58(2) of the
c Finance Act, 1940, which came for interpretation before the House
of Lords. Similarly in Words & Phrases, Permanent Edition, Vol. 1lA
at page 181 it is explained that the word 1'deemed" is also used to mean
"regarded as being", it is equivalent to "shall be taken to be" (at page
185). In our view when sub-s. (3) of s. 5 uses the word "deemed" and
says that the penultimate sale "shall also be deemed to be in the course
D of export" what is intended to be conveyed is that the penultimate
sale shall also be regarded as being in the course of such export. In
other words, no legal fiction is created. Moreover, it was concieded
by counsel that the word "deemed" in sections 3, 4 and 5(1) laid down
general principles and did not create any fiction; if that be so, it is
difficult to accept the contention that in sub-s. (3) the same word should
E be construed as creating a fiction. Thirdly, a principle has been ex-
plained in Butterworths' Words and Phrases, Second Edition, Vol. 4
at page 177 thus :
"A 'principle' means a general guiding rule, and does not in-
clude specific directions, which vary according to the subject mat-
F ter." (per Shearman J., in M' Creagh v. Frearson 1922 W. N. 37)
Similarly in Words and Phrases, Permanent Edition, Vol. 33A
at page 327 it is explained that "principle means a general law or rule
adopted or professed as a guide to action". In other words, as opposed
to any specific direction governing any particular or specific instance,
G transaction or situation a principle would be a guiding rule applicable
generally to cases or class or cases. Looked at from this angle it will
be clear that sub-s. (3) of s. 5 formulates a principle inasmuch as it
lays down a general guiding rule applicable to all penultimate sales
that satisfy the two conditions specified therein and not any specific
direction governing any particular or specific transaction of a penulti-
B mate sale. In other words the content of the provision shows that i(
lays down a principle. In fact, while addressing arguments on proper
construction of the s. 5_(3) counsel for the three States strenuously
' CONSOLIDATED COFFEE v. COFFEE BOARD (Tulzapurkar, !.) 647

contended that the said provision should not be construed as being
applicable only to the export auctions conducted by the Coffee Board
and the terms and conditions governing them because it applies to
variety of parties including the small manufacturers who seek a
foreign market for their goods through private export houses or cana-
. lised agencies like State Trading Corporation. It is thus clear to us that B
s. 5(3) formulates a principle of general applicability in regard to all
penultimate sales provided they satisfy the specified conditions men-
tioned therein and there is no question of the said provision creating
• a legal fiction as has been contended for by counsel. The contention,
therefore, that s. 5(3) is beyond the power or authority of Art. 286(2)
and, therefore, ultra vires, must be rejected. c
Turning next to the main issue regarding the proper construction
to be placed on the words "the agreement or order for or in relation
to such export" occurring in s. 5(3) of the Act, the question is whether
the agreement referred to therein means only the agreement with a
.foreign buyer or would include any binding or enforceable agreement D
to export even with a local party to implement which penultimate sale
should have taken place. Section 5(3), quoted above in extenso, has
.-Obviously been enacted to extend tbe exemption from tax liability
under the Act not to any kind of penultimate sale but only to such
penultimate sale as satisfies the two conditions specified therein, name·
ly, (a) that such penultimate sale must take place{i. e. become com- E
plete) after the agreement or order under which the goods are to be
exported and (b) it must be for the purpose of complying with such
agreement or order and it is only then that such penultimate sale is
deemed to be a sale in the course of export. Counsel for the petitioners
contended that all that the section requires is that before the penulti.
mate sale becomes complete by passing of property in the goods, there
must be in existence an agreement for or in relation to the export of
those goods outside India and the language does not suggest that such
agreement must necessarily be with a foreign buyer. In other words,
the phrase ''the agreement for or in relation to such export" is wide
enough to include any binding or enforceable agreement to export
G
even with a local party to implement which the penultimate sale should
have taken place. According to counsel the words "such export" oc-
curring at the end of the sub-section mean the physical export of the
goods outside India and it is significant that Parliament has linked
"the agreement or order" with "such export" (meaning the physical
export outside India) and not with "the sale occasioning the export" H
The argument is had Parliam!nt intended that the agreement with
-0r order from a foreign bu e1 was essential it would have said "the
646 SUPREME COURT REPORTS [19801 3 s.c It.

A.- agreement or order for or in relation to such sale occasioning tbe-
export." Further, relying upon the Statement of Objects and Reason&
appended to the relevant Bill it is contended that the benefit of this
.new provision was intended to be extended to even small manufacttirera
who produce goods for a foreign market but have to depend np6n
private export houses possessing the . requisite expertise of eitpo·rt .,
trade or a statutory canalising agency like the State Trading Corpora-
tion for the export of their goods and if while selling his produdt 'to·
such export house or canalising agency the small manufacturer enter&
info a binding covenant or agreement with the export house or the •
agency that the latter shall export the product that should be enough
c to satisfy the condition mentioned in the sub-section and the exemp-
tion from tax liability under the Act cannot be made to depend upon
the fortuitous circumstance of a foreign buyer's contract or foreign
buyer's order being available with him when he sells his product to·
the export house or the agency. Moreover, counsel contended that
according to the decisions of this Court what is required to constitute·
a sale in the course of export is that the sale should be so inextrica'b1y
bound with the ultimate export that the link between the two cannot
be voluntarily interrupted without a breach of, the contract. In other
words, an inextricable bond or obligation must subsist between sale-
on the one hand and the final export on the other and such obligation
can arise by reason of statute, contract or mutual understanding bet-
E ween the parties arising from the nature of the transaction and in this.
behalf strong reliance was placed by counsel for the petitioners on
the following observations of Justice Shah in the case of Ben Gorm-
Nilgiri Plantations Company, Coonoor and Ors. v. Sales Tax Officer,.
Special Circle, Ernakulam and Ors.(1)

F "A sale in the course of export predicates a connection between
the sale and export, the two activities being so integrated that the
connection between the two cannot be voluntarily interrupted,
without a breach of the contract or the compulsion arising from
the nature ·of the transaction. In this sense to constitute a sale in.
the course of export it may~be said that there must be an interltilln
G
on the part of both the buyer and the seller to export, there niust
be obligation to export, and there must be an· actual export. The·
obligation may arise by reason of statute, contract between '(he-
parties, or .from mutual understanding or agreement between.
them, or even from the nature of the transaction which links the
B sale to export ........ In general where the sale is effected 'by ilie
0

seller, and he is not connected with the export which actually tllkes.
(!) [1964] 7 s.c.'R. 706 at pp. 711 and 712.
j:O~SQLll>ATED COFFEE v. COFFEE BOARD (Tulzapurkar, !.) 649

place, it is a sale for export. Where the export is the result of sale, A
the export being inextricably linked up with the sale so that the
bond cannot be dissociated without a breach of the obligation
arising by statute, contract or mutual understanding between the
parties arising from the nature of the transaction, the sale is in
the course of export."
B
• Counsel urged that securing a foreign buyer's contract or a foreign
buyer's order is not the only mode in which the requisite obligation
to export, affording the inextricable link between the sale and export,
can arise; such obligation can arise by reason of a binding or enforce-
able covenant to export being incorporated in the contract of the
penultimate sale entered into with a local party as is the case in the c
export auctions conducted by the Coffee Board where under Cl. 26
it is obligatory on the part of the Registered Exporters to export the
coffee sold to them and perhaps with the Coffee Board possessing
statutory powers to enforce the condition on pain of imposition of
penalty and seizure of an exported coffee the obligation to export will
have greater sanctity that the obligation arising from a foreign buyer's D
contract or a foreign buyer's order. Counsel, therefore, contended
• that the penultimate sales herein, namely, the export auctions con-
ducted by the Coffee Board since they satisfy the two conditions spe-
cified in s. 5(3) must be regarded as sales in the course of export and
insistence on production of an agreement with or order from a foreign
E
buyer in terms of the impugned Circular is clearly uncalled for.
It may be stated that though initially·· the learned Attorney General
appearing for the Coffee supported the construction that the
words "the agreement or order for or in relation to such export" oc-
curring in s.5 (3) necessarily referred to the agreement with or an order
from a foreign buyer, at a later stage during the course of his sub-
F
missions he did not stick to that stand but submitted that the cons-
• truction sought to be placed on those words by counsel for the peti-
tioners would be proper as it would promote the export trade in coffee
by making Indian coffee available at competitive rates in the inter-
national market, an objective sought to be achieved by enacting the
new provision in s. 5 of the Act. G
It is true that the language employed in s.5 (3) is a little!ambiguous
or equivocal and there is no indication in express terms whether the
"agreement" mentioned therein necessarily refers to the agreement
with a foreign buyer or would include any binding or enforceable
agreement to export with a local party and that is why counsel on H
either side have heavily relied upon the Statement of Objects and
Reasons appended to the relevant Bill to show what was the legal po-
3-46JSCl/80
650 SUPREME COURT REPORTS [1980] 3 S.C.R.

sition under s. 5(1) as interpreted by this Court in the Coffee Board's
case and Mohd. Serajuddin's case (supra) before the proposed amend-
ment and what was the lacuna or mischief that was sought to be re-
medied as also the object with which this provision came to be enacted.
However, before applying the mischief rule initially enunciated in
Heydon's case(!) for arriving at the true construction we propose to
B examine the new provision rather closely with a view to see whether
1Jy implication any indication one way or the other is available from •
the language thereof. The material words which prescribe the two
conditions on satisfying which the penultimate sale is to be regarded
as a sale in the course of export are: "If such last sale or purchase
(meaning the penultimate sale or purchase) took place after, and was
for the purpose of complying with, the agreement or order for or in
relation to such export." It is true that Parliament has not said "the
;igreement or order for or in relation to such sale occasioning the
export", but has used the phrase "the agreement or order for or in
relation to such export." But in our view two aspects emerge very
clearly on a close scrutiny of this phrase which by implication show
D
that the "agreement" spoken of there refers to the agreement with a
foreign buyer and not an agreement with a local party containing a
covenant to export.

In the first place the concerned phrase speaks of two things in
E disjunctive: 'agreement' or 'order'. The word 'order' which appears
in a statute dealing with sales tax must be understood in a commer-
cial sense, that is, in the sense in which traders and commercial men
will understand it. In commercial sense an order means;a firm request
for supply of definite goods emanating from a buyer, an indent placed
by a purchaser and, therefore, an order for or in relation to export
F would mean an indent from a foreign buyer. It is not possible to ac-
cept the contention urged by counsel for the petitioners that the word
'order' in this phrase can mean or refer to an order, direction, mandate,
command or authorisation to export that may be issued by a statutory
body like the Coffee Board for two reasons; first, occurring in a sales
tax statute the word must be given its commercial meaning and, se-
G condly, while enacting the provision Parliament could not be said to
have only statutory bodies like Coffee Board or S. T. C. in mind. If,
therefore, an order for export in the concerned phrase means an indent
from a foreign buyer, the preceding word "agreement" in the phrase
would take colour from the word "order" and would~on the principle
of noscitur a sociis mean an agreement with a foreign buyer. In Max-
B \;eilon:the Interpretation of Statutes (at p. 289 12th Edn.) the rule
(I) [1584]3 Co. Rep. 79.:
CONSoLmATED COFFEE v. COFFEE BOARD (Tulzapurkar, !.) 6 51

of noscitur a sociis is explained thus: "where two or more words,
which are susceptible of analogous meaning, are coupled together
"' ,\

they are understood to be used in their cognate sense. They take, as
it were, their colour from each other, the meaning of the more general
being restricted to a sense analogous to that!of the less general." Ap-
plying this rule of construction it becomes clear that "the agreement"
occurring in the phrase must mean the agreement with a foreign buyer B
and not the agreement with a local party containing a covenant to
export. Secondly and more importantly, the user of the definite article
"the" before the word "agreement" is, in our view, very significant.
Parliament has not said 'an agreement' or 'any agreement' for or in
relation to such export and in!the context the expression "the agree-
ment" would refer to that agreement which~s implicit in the sale oc- c
casioning the export. Between thetwo sales (the penultimate and the
final) spoken of in the earlier part of the sub-section ordinarily it is
the final sale that would be connected with the export, and, therefore,
the expression "the agreement" for export must refer to that agree-
ment which is implicit in the sale that occasions the export. The user
D
of the definite article "the", therefore, clearly suggests that the agree-
ment spoken of must be the agreement with a foreign buyer. As a mat-
ter of pure construction it appears to us clear, therefore, that by neces-
sary implication the expression "the agreement" occurring in the
relevant phrase means or refers to the agreement with a foreign buyer
and not an agreement or any agreement with a local party containing
the covenant to export.
Coming to the mischief rule, in Re Mayfair Property Co.,(I) Lindley
M. R. re-enunciated it thus: "In order properly to interpret any statute
it is necessary to consider how the law stood when the statute to be
construed was passed, what the mischief was for which the old law
did not provide, and the remedy provided by the statute to cure that F
mischief." Looked at from this angle it will be desirable to indicate
in brief the position that obtained prior to the enactment of s. 5(1)
of the Central Sales Tax Act 1956, hows. 5(1) after its enactment had
been interpreted by this Court and why the enactment of the new
provision contained in s. 5(3) was felt necessary. Prior to the enact-
G
ment of s. 5(1) there was no legislative guidance as to what transac-
tions of sale or purchase could be said to:be "in the course of export"
and the said expression occurring in Art. 286(1) (b) of the Constitu-
tion was construed by this Court in what have come to be known as
the first and the second Travancore-Cochin cases, namely, The State
of Travancore-Cochin and;Ors.)'v. The:Bombay, Company_Ltd.(2) and The H
(I) [1898] 2 Ch. 28 at p. 35.
(2) [I952J 2 STC 434.
652 SUPREME COURT REPORTS [1980] 3 s.c.c.

State of Travancore-Cochin and Ors. v. The Shanmugha Vilas Cashew-
nut Factory and Ors.,(1) to include two types of sales or purchases (a)
a sale of purchase which itself occasions the export and (b) a sale or
purchase effected by a transfer of documents of title to the goods after
the goods are put in the export stream (i.e. after they have crossed the
customs frontiers of India). Patanjali Sastri, C.J. observed in the first
case that "a sale by export involved a seriet of integrated activities com- >
mencing from the agreement of sale with a foreign buyer and ending
with the delivery of the goods. to a commor, carrier for transport out of
the country by land or sea. Such a 3ale cannot be dissociated from the
export without which it cannot be effectuated, and the sale and resul-
tant export form parts of a single transaction". In the second case this
G Court held that a sale or purchase for the purpose of export, like pro-
duction or manufacture for export, being merely an act preparatory
to export could not be regarded as an act clone "in the course of the
export of the goods out of the territory of India" because etymologi-
cally the expression "in the course of export" denoted an integral
relation between the sale and the export. Then came the Constitution
D
(Sixth Amendment) Act, 1956 introducing a new clause being cl. (2)
in Art. 286 whereby Parliament was empowered by law to formulate
principles for determining when a sale or purchase took place in the
course of export and pursuant to this power Parliament enacted s. 5(1)
in the Act which provides that a "sale or purchase of goods shall be
E deemed to take place in the course of the export of the goods out of the
territory of India only if the sale or purchase either occasions such.
export or is effected by a transfer of documents1of title to the goods
if the goods have crossed the customs frontiers of India". In other .
words, this was legislative recognition of what was said by this Court·
in the two Travancore .cases (supra) about the true meaning of the
F expression "in the course of export" occurring in Art. 286 (!) (b).
Section 5(1) was construed by this Court in the context of two sales
(though both were closely connected with the ultimate exportation
of the goods out of India) rather very strictly in two cases, namely,
the Coffee Board's case (supra) and Mohd. Serajuddin's case (supra).
In the former case in regard to the very export auctions conducted
G
by the Coffee Board for the avowed purpose of exporting the coffee
through Registered Exporters (which are the subject-matter of the
instant writ petitions) this Court negatived the claim that the sales of
coffee at such auctions were made "in the course of export" within
the meaning of s. 5(1) on the ground there were two sales, one by the
n Coffee Board to the intermediary (Registered Exporter) and the other
by the intermediary to the importer and that the first sale was not
(1) [19531 4 S. T. C. 205.
CONSOLIDATED COFFEE v. COFFEE BOARD (Tulzapurkar, !.) 653

"in the course of export" for the export began from the intermediary A
and ended with the importer and that the introduction of the inter-
mediary (Registered Exporter) between the seller (Coffee Board) and
the importing buyer broke the link. This Court laid down the test
that there must be a single sale which itself caused the export and there
was no room for two or more sales being "in the course of export".
In other words, notwithstanding the compulsion to export arising 'B
from Cls. 26, 30 and 31 of the Auction Conditions the penultimate
sale was held to be not in the course of export. The latter case (Mohd.
Serajuddin's case (supra) was stronger than Coffee Board's case (supra)
• inasmuch as the penultimate sales (two contracts for sale of mineral
ore entered into by Mohd. Serajuddin with State Trading Corpora-
tion) were so inextricably connected with the final sales (two corres-
c
ponding contracts for sale of the identical goods entered into by S.T.C.
with foreign buyers) that the former were to stand cancelled if the latter
'Jbr any reason fell through and vice versa and further the penultimate
sales were effected to implement the contracts with the foreign buyers
and even then following the ratio of Coffee Board's case (supra) this D
Court held that. the penultimate sales (Mohd. Serajuddin's contracts
with S.T.C.) were not sales in the course of export. Negativing the
·contention that the contracts between Mohd. Serajuddin and the
S. T. C. and the contracts between the S. T. C. and the foreign buyer
fbrmed integrated activities in the course of export, this Court took
the view that the crucial words in s. 5(1) showed that only if a sale
occasioned the export, it would be in the course of export and that the
two sets of contracts were separate and independent and Mohd.
Serajuddin was under no contractual obligation to the foreign buyer
either directly or indirectly and that his rights and obligations were
only against the S. T. C. It will thus appear clear that even when the
S. T. C. had with it foreign buyer's contracts and!Mohd. Serajuddin's :r
contracts with S. T C. had been entered into for the purpose of im-
plementing rnch foreign buyer's contracts, this Court held that the
sales between Mohd. Serajuddin and S. T. C. were not sales in the
course of export. It was at this stage i.e. whens. 5(1) was interpreted
by this Court in the aforesaid manner that the Parliament felt the
necessity of enacting s. 5(3) for the purpose of giving relief in respect G
of penultimate sales that immediately precede the final (export) sales
provided the former satisfy the conditions specified therein. The
Statement of Objects and Reasons in this behalf runs thus:
"According to Section 5(1) of the Central Sales Tax Act, a sale
of purchase of goods can qualify as a sale in the course of export H
of the goods out of the territory of India only if the sale or pur-
chase has either occasioned such export or is by a transfer of docu-
654 SUPREME COURT REPORTS [1980] 3 S.C.lt.

ments of title to the goods after goods have crossed the customs
frontiers ofindia. The Supreme Court has held (vide: Mohd. Sera·
juddin v. State of Orissa, 36 STC 136) that the sale by an Indian
exporter from India to the foreign importer alone qualifies as a
sale which bas occasioned the export of the goods. According
to the Export Control Orders, exports of certain goods can be
B made only by specified agencies such as the State Trading Cor·
porations. In other cases also, manufacturers of goods, particular·
ly in the small scale and medium sectors, have to depend upon
some experienced export house for exporting the goods because
special expertise is needed for carrying on export trade. A sale of
goods made to an export canalising agency such as;the State Trading
c Corporation or to an export house to enable such agency or export
house to export those goods in compliance with an existing contract or
order is inextricably connected with the export of the goods. Further,
if such sales do not qualify as sales in the course of export, they
would be liable to State sales tax and there would be a correspond·
ing increase in the price of the goods. This would make our exports
D
uncompetitive in the fiercely competitive international markets.
It is, therefore, proposed to amend, with effect from the beginning
of the current financial year, Section 5 of the Central Sales Tax
Act to provide that the last sale or purchase of any goods preced·
ing the sale or purchase occasioning export of those goods out
E of the territory of India shall also be deemed to be in the course
of such export if such last sale or purchase took place after, and
was for the purpose of complying with, the agreement or order,
for, or in relation to, such export." (Emphasis supplied).
Two things become clear from this Statement; first, Mohd. Sera·
juddin's decision (supra) is specifically referred to as necessitating the
amendment and secondly, penultimate sales made by small and me·
dium scale manufacturers to an export canalising agency or private
export house to enable the latter to export those goods in compliance
with existing contracts or orders are regarded as inextricably con·
nected with the export of the goods and hence ear-marked for conferal
of the benefit of the exemption. But here again, 'existing contract'
with whom is not clarified. In other words, on this crucial point the
Statement is silent and does not throw light on whether the existing
contract should be with a foreign buyer or will include any agreement
with a local party containing a covenant to export. Therefore, the
question will again depend upon pr0per construction and, as we have
B said above, in the matter of construction the two aspects discussed
earlier show that by necessary implication 'the agreement' spoken of
by s. 5(3) refers to the agreement with a foreign buyer.
CONSOLIDATED COFFEE v. COFFEE BOARD (Tulzapurkar, !.) 655

However, in support of his construction counsel for the petitioners A
pressed into service two aspects arising from the Statement of Objects
and Reasons, namely, (a) that the exemption was intended to be ex-
tended even to small and medium scale manufacturers who manu-
facture goods for foreign market but have to depend upon a canalising
agency or private export house for the export of their goods and (b)
that the object of granting the exemption was to promote our exports B
in fiercely competitive international markets and, according to coun-
sel, both these objectives would be frustrated if the narrow construc-
tion was placed on the expression 'the agreement as meaning the agree-
ment with a foreign buyer and that the construction suggested by him
would carry out the objectives. It is true that the benefit of the exemp-
tion was intended to be extended to small and medium scale manu- c
facturers desirous of exporting their goods but the requirement of the
new provision is not that they must procure or have with them a fore-
ign buyer's contract but the requirement is that before they complete
the sale of their goods to the canalising agency of the private export
house there must be in existence a foreign buyer's contract to imple- D
ment which they should have sold their goods to such agency or export
house. In the nature of things such manufacturers who have no ex-
pertise of export trade are not expected to have a foreign buyer's
contract with them and it would be sufficient compliance of the pro-
vision if the canalising agency or the export house has with it the foreign
buyer's contract. It would, therefore, be incorrect to say that the bene- E
fit of the exemption depends upon the fortuitous circumstance of a
foreign buyer's contract being available with such manufacturer when
he sells his product to the agency or the export house. No hardship as
is sought to be suggested is involved and we do not agree that by the
construction which we are inclined to place on the expression 'the
agreement' occurring in s. 5(3) the small or medium scale manufac- F
turers would be deprived of the benefit of the exemption. In fact, the
construction which we are inclined to accept would be in consonance
with the trade practice obtaining in export trade, namely, that normal-
ly the export activity commences with securing or obtaining an export
contract or a firm order from a foreign buyer as the first step towards
the ultimate export [vide: observations of this Court in State of Mysore G
v. The Mysore Spg. and Mfg. Co. Ltd.(1) where obtaining"'a firm order
froin overseas buyer is described the first out of nine steps enumerated
in the entire procedure for export]. As regards the other aspect it is
clear to us that two public interests are involved; promotion of the
exports of the country is one public interest while augmentation of
the States' revenues through sales tax is the other and it is obvious B
(!) 9 S. T. C 188 at 190.
SUPRI:MF. COURT REPORTS [1980] 3 S.C.R.
A that if the libral construction, as suggested by the counsel for the
petitioner, is accepted the former public interest will undoubtedly be
served while the latter will greatly suffer and ifthe narrow construction
is accepted the latter public interest will be served and the former
will suffer. It is difficult to say that the Parliament intended to prefer
one and sacrifice the other. In fact the granting of exemption to pe-
B nultimate sales was obviously with a view to promote the exports but
limiting the exemption to certain types of penultimate sales that
satisfy the two specified conditions displays an anxiety not to diminish
the States' revenues beyond a certain limit. The section in any case
gives no indication that one public interest is to be preferred to the
other and therefore, in our view, the matter must again depend upon the
c proper construction of the language employed. On construction we
are of the view that by implication the expression 'th~ agreement'
occurring ins. 5(3).refers to the agreement with a foreign buyer.
Counsel for the petitioners lastly urged that the penultimate
sales by the Coffee Board to the Registered Exporters include in them
D a covenant to export and having regard to Cls. 26, 30 and 31 there is
a compulsion on the Registered Exporters to export the coffee on pain
of imposition of a penalty and seizure of unexported coffee and reliance
in that behalf was placed upon the observations of Shah, J., in Ben
Gorm Nilgiri Plantations Company's case (supra). In our view, the
observations '(quoted in extenso in the earlier part of the judgment)
E will have to be read in the context of the facts which obtained in that
case. It has a case of only one sale which had resulted in the export
and the question was whether transactions of sale of tea chests by the
manufacturer at public auctions held at Port Cochin to the local agents
of foreign buyers were exempt from levy of sales tax under Art. 286(1)
F (b) and though it was common ground that the purchases by the local
agents of foreign buyers were with a view to export the goods to their
principals abroad and that the goods were in fact exported out of ~·
.,
India this Court found nothing in the transactions from which a bond
or obligation could be said to spring between the sale and the intended
export linking them as part of the same transaction and though the
G seller (manufacturer) could be said to have knowledge that the tea
sold to the local agents of foreign buyers was meant for the export and
would be exported, the seller had no concern with the export, that the
sale imposed or involved no obligation to export and there was pos-
sibility that the goods might be diverted for internal consumption.
It was in that context that Shah, J., observed in that case that there
H must be an intention on the part of both the buyer and the seller to
export, that there must be obligation to export, and that there must
be an actual export, and further that the obligation may arise by reason
CONSOLIDATED COFFEE v. COFFEE BOARD (Tulzapurkar, !.) 657

of statute, contract between the parties, or mutual understanding or A
agreement between them or even from the nature of tbe transaction
which links the sale to export. In other words, even in the case of a
single sale 'which ultimately resulted in the exoort it was held that the
sale was not in the course of export because there was no obligation
to export which afforded the inextricable link between the sale and
.B
• the export. It is true that if the obligation to export affording the in-
extricable link between the sale and the export is necessary in the case
of a single sale even though it results in export, then all the more such
obligation will be necessary in the case of a penultimate sale if such
penultimate sale is to comtitute a sale "in the course of export" but
even if Ben Gorm Nilgiri Plantations Company's case (supra) is regard-
ed· as laying down· a general proposition that what is required is an
c
obligation which inextricably connects the sale with the export and
that such obligation may, in the absence of legislative guidance, arise
by 'reason of statute, contract, mutual understanding, or the nature
of transaction which Jinks the sale to export, still the question would
be what type of obligation and arising from what circumstances.would D
be necessary. or enough in the case of a penultimate sale must depend
upon the language of the statute concerned and, therefore, the.question
will again be what type of obligation and arising from what circum-
stances has been prescribed by the .Parliament by enacting s.5 (3) and
that would depend upon the proper construction of the phrase "the
agreement or order for or in relation to such export" occurring therein E
and, as we have said above, since on proper construction the expres-
sion "the agreement or order" means the agreement with or an order
from a foreign buyer it must be held that the Parliament intended to
prescribe that the obligation to export arising only from such

..,_. agreement or order that would afford the inextricable link so as to
constitute the penultimate sale a sale in the course of export .
Having come to the conclusion that on proper construction the
F

• expression "the agreement" occurring in s.5 (3) refers to the agreement
.with a foreign buyer and does not include any agreement with a local
party containing a covenant to export, the next question that arises
l for our consideration is as to when does the penultimate sale (the
G
sale of coffee at export auctions conducted by the Coffee Board to
Registered Exporters) takes place, i.e. becomes complete by the passing
-+ of the property in the coffee sold thereat to the Registered Exporters?
The determination of the point of time at which the property in the
coffee passes to the Registered Exporters becomes necessary because
before that the agreement with or order from a foreign buyer in res- B
pect of those goods must come into existence to implement which
the penultimate sale must have taken place. We have indicated earlier
658 SUPREME COURT REPORTS [1980] 3 s.c.R.

A the rival contentions of the parties on this issue. But before addressing
ourselves to these rival contentions we shall dispose of a small con-
tention that was put forward by Mr. Venugopal counsel for the State
of Karnataka that the word 'sale' occurring in the phrase "if such last
sale or purchase takes place after" in s.5 (3) means the agreement to
sell and not sale in the sense of a transfer of property in goods by one
B person to another and the argument has been that since the word
'sale' in the aforesaid phrase means an agreement to sell such agree-
ment to sell in the case of export auctions conducted by the Coffee
Board takes place or becomes complete at the fall of the hammer when
the bid of the highest bidder gets accepted and the regular contract
containing the covenant to export is invariably entered into by the
c Registered Exporter with the Coffee Board at a later stage and, there-
fore, even the covenant to export to be found in the contract with the
Coffee Board can never be regarded as having come into existence
before the agreement to sell becomes complete and consequently the
penultimate sale to the Registered Exporter would not qualify for
D the exemption. In support of the contention that the word 'sale' means
an agreement to sell counsel relied upon s.~4 of the Sale of Goods Act,
1930 wherein a contract of sale of goods is defined as contract wherein
the seller either transfers or agrees to transfer the property in goods
to the buyer for a price and also upon a decision of this Court in Bala-
bhagas Hulaschand v. State of Orissa,(1) atcase under Central Sales Tax
E Act, 1956, where this Court has taken the view that for purposes of
s.p:(a) ands. 4(2) (a) and (b) the word 'sale' includes an agreement to
sell and, therefore, in s. 5(3) also the word 'sale' should be constrJJed
as agreement to sell. It is not possible to accept this contention for
more than one reason. In the first place the definitions of 'sale' and
"agreement to sell' in the Sale of Goods Act 1930 would not apply to
F the expression 'sale' occurring in the Central Sales Tax Act, 1956
wherein the expression 'sale' has been defined in s. 2(g) for the purpose
of that Act and under s. 2 (g) of the Central Sales Tax Act 'sale' 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
G payment by instalments, but does not include a mortgage or hypothe-
cation of or a charge or pledge on goods." In other words, wherever
the word 'sale' occurs in the Central Sales Tax Act, 1956 it is this +
definition given in s. 2(g) that will be applicable and therefore
the word 'sale' in s. 5(3) must mean transfer of the goods by one
person to another for cash or for deferred payment or for any
H other valuable considerations; it cannot mean "agreement to sell".
(I} (1976] 2 S.C-R. 939.
CONSOLIDATED COFFEE v. COFFEE BOARD (Tulzapurkar, ].) 659

Moreover, there is nothing in the context of s. 5(3) to suggest that the
word 'sale' occurring therein should be understood differently. In
Balabhagas Hulaschand's case (supra) this Court in the context of the
question as to when a sale could be said to take place in the course of
inter State trade or commerce gave an extended meaning to the
word 'sale' as defined ins. 2(g) and as used in ss. 3(a) and 4(2) and (b)
of Central Sales Tax Act, 1956 and what was said by this Court was B
that the word 'sale' as used in s. 3 (a) and s."4 (2) (a) and (b) was wide
enough to include not only a concluded contract of sale but also an
agreement of sale provided that the latter stipulated that there was a
transfer of property or movement of goods; the ratio of that decision
will be inapplicable to s. 5(3) which deals with the question as to when
a penultimate sale shall also be deemed to be in the course of export c
and there is nothing therein to suggest that the word 'sale' should
have any such extended meaning; on the contrary, the context
suggests that the word 'sale' in the phrase "if such last sale or
purchase takes place after" refers to a completed sale i. e. a sale as
defined in s. 2(g) of the Act. The contention urged by counsel
D
must, therefore, be rejected.
Dealing next with the three stages at which the property in the
coffee sold at the export auctions conducted by the Coffee Board is
said to pass to the highest bidder (Registered Exporter) three ques-
tions arise that need our close examination. Does it pass at the fall
of the hammer when his bid is entered in the Register of Bids under E
his signature under s. 64(2) of the Sale of Goods Act, 1930 as con-
tended for by counsel for the States of Karnataka, Tamil Nadu
and Kerala? Does it pass after the coffee sold is weighed and set apart
for delivery and price is paid therefor by the auction purchaser in
view of Cl. 19 (particularly the over-riding provision contained there-
in) and other clauses of Auction Conditions (this being the alternative F
plea of the petitioners) ? or Does it pass only after the coffee sold is
shipped or is sent to the customs station for shipment because till
then the Coffee Board has a right of disposal under Cls. 26 and 31
read with s. 25'of the Sale of Goods Act (this being the principal plea
of the petitioners) ? It will be desirable to set out the concerned
G
provisions in order to appreciate properly the rival submissions
of counsel based thereon. Sub-s. (2) of s. 64 of the Sale of Goods Act,
which deals with auction sales, runs thus :
"64. In the case of a sale by auction :-
(I) x x x x x x x
D
(2) the sale is complete;when the auctioneer announces its eom-
pletion by the fall of the hammer or in other customary manner;
660 SUPREME COURT REPORTS [1980] 3 s.c.R.

and, until such announcement is made, any bidder may retract
his bid."

Clause 19 of the Auction Conditions which deals with weighment,
delivery and payment of price contains an over-riding provision to
this effect :
B
"Notwithstanding anything contained in these conditions, the
property in the coffee sold shall not pass to the buyer until after
he has paid the full price and the coffee sold to him is weighed and
set apart for delivery to him." .,.
c C:ause 26 declares that it is an essential conditions of the Auction ·-.c-
that the coffee sold thereat shall be exported to stipulated destinations
in the catalogue of lots or to such foreign country as may be approved
'
by the Chief Coffee Marketing Officer within three months or such
extended time as may be allowed (which extension shall not exceed
one year) and the same shall not, under any circumstances, be divert-
D ed to any other destination or sold or be disposed of, or otherwise
released in India, while this condition is enforced by seizure of the
unexported coffee under Cl. 31 which runs thus :
"31. On default by the Buyer to export the coffee aforesaid
within the prescribed time or such extension, thereof as may be
E granted, it shall be lawful for the Chief Coffee Marketing Officer,
without reference to the Buyer, to seize the unexported coffee a.nd
for that purpose to make entry into any building, godown, or
warehouse where the said coffee may be stored, and take posses-
sion of the same and deal with it as if, it were part and parcel of
Board's coffee held by them in their Pool Stock.
F
Out of the net sale proceeds of such coffee sold in persuance of
conditions prescribed in Clause 15, the Chief Coffee Marketing
Officer shall pay to the defaulting Buyer only the balance of the
--A J

amount remaining over after deducting therefrom godown charges
and Insurance premia, and selling commission payable to the
Agents, and all other expenses of sale, togetherwith the penalty
·due under Clause 30.
Provided however that if such balance is in excess of the sale +
i:irice by the Buyer, the payment shall be limited to the actual sale
pnce.
H Provided further that such payment shall not affect or pre-
judice the right of the Board to levy the penalties under clause
32 hereunder."
CONSOLIDATED COFFEE v. COFFEE BOARD (Tulzapurkar, !.) 661

According to counsel for the three States s. 64 is a special provision
in the sale of Goods Act which deals wilh Auction Sales and under
sub-s.(2) thereof the sale is complete no sooner the auctioneer makes
an announcement in that behalf either by fall of the hammer or in
other customary manner and, therefore, the property in the goods
sold thereat passes at the fall of the hammer or immediately after the
B
announcement of completion is made in other customary manner
and since in the instant case the Coffee Board conducts export auctions
of coffee in lots which are specified in catalogues supplied to theauc-
tion purchasers before-hand, the property in the coffee sold thereat
must be regarded as having passed to the buyer at the fall of
the hammer when the successful bid is entered in the Register of Bids c
under the signature of the bidder as per Cls. 10 and 11 of Auction
Conditions. As regards Cl. 19 a two-fold argument was urged : in
the first place it was contended that s. 64 is not subject to any contract
to the contrary and, therefore, s. 64(2) must prevail under which the
property will pass at the fall of the hammer or at the close of the sale
in the customary manner; secondly, Cl. 19 containing the over-riding
provision may bind the parties to the contract but will not have the
effect of creating an estoppel against a third party like a State Govern
ment or its Sales Tax Authorities from contending or showing that
the property at such auctions passes at the fall of the hammer and if
under the other terms of the auction it is clear that the property has
passed or does pass to the auction purchaser at the fall of the hammer E
a mere declaration of the intention on the part of the contracting
parties deferring or postponing the passing of the property will not
affect the question and in that behalf reliance was placed upon
observations of Lord Chancellor Herschell in Mc Entire And Anothe
v. Crossley Bros., Ltd.(I) where observations run thus:
"Upon an agreement to sell, it depends upon the intention of
the parties whether the property passes or does not pass. Here
the parties have in terms expressed their intention, and said that the
property shall not pass until the full purchase money is paid. I
know no reason to prevent that being a perfectly lawful agreement.
If that was really the intention of the parties, I know of no rule G
or principle of law which prevents it from being given effect to.
I quite agree that if, although the parties have inserted a provision
to that effect, they have shown in other parts of the agreement, by
the language which they have used, or the provivions which
they have made, that they intended the property to pass, one
H
must look at the transaction as a whole, and it might be
(1) [1895-1899] All England Reports (Reprint) 829 at 832.
662 SUPREME COURT REPORTS [1980] 3 S.C.R.

necessary to hold that the property has passed,'a/though the parti2<
have said that their intention was that it •should not, because
they have provided that it shall. No doubt any provisions which
were inconsistent with the intention that the property should not
pass would be given effect to in preference to a mere expression
of intention in word<."
B
As regards Cl. 31 Counsel contended that it does not amount to any
reservation of the right of disposal over the goods to the Coffee Board
within the meaning of s. 25 of the Sale of Goods Act.

On the other hand co.unsel for the petitioners contended that s.
c 64(2) of the Sale of Goods Act does not deal with the question of pas-
sing of the propert)' at auction sale but mere!Y deals with the comple-
tion of the contract of sale, that is. to say, upon the fall of hammer or
announcement of the close of sale in[ other customerY manner the agre-
• :ment to sell becomes:complete; in other words an executory contract
D comes into existence between a promissor and a promisee. Secondly,
even if the. said provision is regarded as one relating to completion of
sale in the sense of passing of property from one hand to the other such
result will ocC'iir only if the auction sale is in respect of specific or as-
certained and identifiable goods and unconditional; in other words,
it is only in an unconditional sale by auction the property in the good.;
E passes on the fall of hammer. Thirdly, s. 64 is subject to a contract
to the contrary and the auctioneer holding the auction could fix the
terms and conditions on the basis of which he would be accepting the
bids and in the terms and conditions so set forth by him he could
provide for passing of the property at a point of time later than the
fall of the hammer or the closure of the auction in the customary
F manner or on fulfilment of certain conditions (like Cl. 19 in the instant
case) and such terms would hind the parties and the property will pass
in accordance with those terms. As far as the instant case is concerned
counsel for the petitioners urged thats. 64(2) was not attracted.for two
reasons : (a) the export auctions conducted by the Coffee Board are
not unconaitional but subject to certain conditions, particularly con· f
G
di ti on expressly relating to the r passing of property as contained iu
Cl. 19 and (b) factually the sale is never in respect of lots of specific
or ascertained goods inasmuch as it is abundantly clear from the
affidavit of Shri Meenaxi Sunderam, the Chief Coffee Marketing Offi·
cer of the Coffee Board dated 20th February, 1980 that every
R lot put up for auction invariably contains 5 %of coffee mor e than the
quantity indicated in the catalogues and the coffee sold from only
particular lot is required to be weighed and set apart and appropriated
CONSOLIDATED COFFEE v. COFFEE BOARD (Tulzapurkar, 1.) 663

to the contract before delivery is given. Apart from the factual A
ground, counsel urged that the position in law that s. 64 is subject
to a contract to the contrary is very clear and under Cl.19 the passing
of property in the coffee sold at the Export Auctions has been deferred
until after the coffee sold is weighed, set apart for delivery and price
· is paid therefor and according to him Lord Chancellor Herschell's
observations cannot avail the States of Karnataka, Tamil Nadu and B
Kerala for the simple reason that there is nothing contra indicated in
other conditions so that the declared intention in Cl. 19 should ·n;n
prevail. He urged that a statutory body like the Coffee Board must
be presumed to act in a bona fide manner and has prescribed terms
and conditions of auction genuine\)' intended to bind the parties to c
the auction and those terms and conditions must be regarded as
truly governing the rights and obligations of the parties and a third
par(!y like a State Government or its Sales Tax Authorities must apply
their taxing measures by having regard to those terms and conditions.
He, therefore, pointed out that if the Court would be inclined to take
the view that the property passes to the auction purchaser under CL D
19 then the agreement with or order from a foreign buyer mu'st be
available or come into existence just before such passing of the pro-
perty. However, he contended that Cl. 19 makes a negative provision,
namely, that the property shall not pass until after the coffee sold is
weighed, set apart for delivery and price is paid therefor which would
mean it passes not till then but some time later and, therefore, strong
.reliance has placed by counsel on Cl. 31 which empowers the Coffee
Board to seize the unexported coffee and deal with it as if it were part
and parcel of Board's coffee held by it in its pool stock if default is
committed by the buyer to export the coffee within the prescribed
time or such extension thereof as may be granted and such provision
·Constitutes a reservation of the right of disposal to the Coffee Board F
within the meaning of s. 25 of the Sale of Goods Act. He, therefore,
urged that under Cls. 26 and 31 read with s. 25 of the Sale of Goods
Act the property would pass after the coffee is shipped or sent to the
customs station for shipment by the auction purchaser· and production
of the agreement with or order from a foreign buyer before such ship- G
ment or despatch to customs station would satisfy the requirement
of s. 5(3) of the Central Sales Tax Act, 1956.

In view of the aforesaid rival submissions two questions arise for
-determination : what is the true import of s. 64(2) and whether s. 64
is subject to a contract to the contrary? On both these we find
c?nsiderable force in the submissions made by counsel for the peti- H
tioners. Regarding s. 64(2) of the Sale of Goods Act it seems to-us
664 SUPREME COURT REPORTS [1980] 3 !M~.R.

A that that provision does not deal with question of the passing ofthe
property;in"1be goods sold at auction' sale but inste2d it c!e~ls witr t1'e.
completion of the contr~ct of sale. It is true that sub-s.(2) mys that
"the sale is complete" when the auctioneer announces its comple··
tion by the fall of hammer or in other customary manner, but, the nex1
following provision which says : "and until such announcement is
B
made any bidder may retract his bid" suggests that what is complete
at the fall of the hammer or the announcement of closure in other cus-
tomary manner is that the contract for sale is co1,11plete. It is well-
known that our Sale of Goods Act 1930 is based:upon and is largely
a reproduction of the English Sale of Goods Act 1893 andin principle
c as well as in most details the law of sale of goods in both the countries
is now the same and, therefore, English authorities on interpretation
of different sections, although not technically binding in India, would
have great pursuasive value. It wiil be pertinent to observe that our
s. 64 is based upon s. 58 of the English Act, though it is somewhat
0

differently arranged; but sub-s. (2) of s. 64 is particularly in identical
D . terms as s. 58(2) of the English Act. Section 58(2) of the English
Act runs as follows :
"58. In the case of a sale by auction-
(1) x x x x x x x
(2) A sale by auction is compkte whrn the Ol'Cticneer announ-
E
ces its completion by the fall of the hammer, er in other customary
manner. Until such announcement is made any bidder may retract
his bid."
Jn Halsbury's Laws of England (4th Edn., Vol. 2) at pege 380 Para
742 runs thus :
"742. Bidding. The method of bidding and the amctmt
of the bids are usually regulated by the ccnditicns cf sale (!).
Until the property is actually knocked down thae is no complete
contract of sale. A bid is a mere offer, and can be retracted by' the
bidder at any time before the auctioneer announces the completion
G of the safe by the fall of the hammer, for in other customary man·
ner (2)" (Emphasis supplied).
At foot-note (2), s. 58(2) of the Sale of Goods Act 1893 is the provision
indicated in support of the aforesaid statement of law and it is further
stated : "In an unconditional sale the property in the gocds passes on
the fall of the hammer" Sale of Goods Act 1893, s. 18 r. 1 [Dennant
8 v. Skinner and Collom (1). This would show that under s. 58(2) of
(I) (19481 2 Aii. E. R. 29.
CO>ISOLIDATED COFFEE v. COFFEE BOARD (Tulzapurkar, !.) 665
:, ~; '.

the,English Sale of Goods Act 1893 normally in an auction sale A
at the fall of the hammer a completion of the contract of
sale takes place and until such time the bidder may retract his bid
but if the auction sale happens to be an unconditional sale in respect
of specific and ascertained goods, the title to the property passes simul-
taneously at the fall of the hammer not by virtue of s. 58(2) but by
reason of the operation ofs.18 r. 1 of the English Act which is equiva- B
lent to s. 20 of our Act].

In Dennant v. Skinner and Co/'om (supra) D, the auctioneer
knocked down five vehicles including a Stand1rd motor car to King
After the sales, king said that he would like to pay by cheque, but D c
replied that it was not his practice to accept cheques from people he
did not know. King represented that he was the.son of the proprietors
of King's Motors of Oxford, a well-known firm and produced counter-
foils in his cheque books, according to which he had been paying
large amounts to well-known auctioneers. D thus accepted the cheque
King signing a form which stated : "I hereby certify that my cheque D
No ..... will be met on presentation at my bank. Furthermore, I
agree that the ownership of the vehicles will not pass to me until such
time as the proceeds of my cheques have been credited to South London
Motor Auction account at Lloyds Bank." King was permitted to
remove the vehciles and he sold the Standard Car to a third party
C, who sold it to the defendant, S. The cheque was dishonoured E
on presentation and it transpired that King had no connections with
King's Motors. D sought from S return of the car or payment of it
value. Negativing the claim, the Court held that the contract for sat
was unconditional and, therefore, the property in the car passed oe
the fall of the hammer under the Sale of Goods Act, 1893, s. J8(l)n
and D's right under s. 39(1) (b) of that Act to retain the car until pay- F
ment was made was relinquished when· he gave possession to King.
On the question of the passing of the property the Court at page 34
observed thus :

"The second point on which the plaintiff relies is that the
property in the circumstances of this case did not pass until the G
price was paid by the cheque being in order or cash substituted for
it. A contract of sale is concluded in an auction sale on the fall
of the hammer, and indeed, the Sale of Goods Act, 1893, s. 58(2)
so provides. Section 18 provides : -Rule I : "Where there is a~
unconditional contract for the sale or specific goods, in a deliverable
state._ihe property in the goods passes to the buyer when the con-
D
tract is made, and it is immaterial whether the time of payment
4-463 SCI/90 or
666 SUPREME COURT REPORTS [19SOJ :J s:c.R.
A the time of delivery or both be postponed. Accordingly on the'(all
of the hammer the property of this car passed to King ..... ·.•.,"
As regards the undertaking obtained from King the Court oflserved.
"Since the property had already passed a document subsequently
e!tecuted by the bidder acknowledging that the ownership of t'he
vehicle would not pass to him till the cheque was encashed could >
B
not have any effect on what had already taken place."

It will thus appear clear that because the auction sale was unconditional
and' it related to specific goods that it was held that the property in
the car had passed to King at the completion of the contract wllich
c occurred at the fall of the hammer under s. 58(2) but the proJierty
had passed under s. 18(1). This case also shows that to an auction
sale normally governed by s. 58 the implied rule pertaining to the pas-
sing of property contained ins. 18(1) applied; if so, it stands to reason
that the auctioneer could incorporate an express term pertaining to
the passing of property, different from the implied rule, in his auction
D conditions and if he were to do so it will be operath'e.

In American Jurisprudence 2d, Vol. 7, it is clarified that sale by
auction may be conditional or unconditional and what happens when
a bid is accepted is explained in Para 20 under the heading "Offer
and Acceptance: Bidding" at page 237 thus :
E
"20. Generally.

A sale at auction, like every other sale, must have the assent,
express or implied, of both seller and buyer . An announcement
of an auction or the act of putting property up for sale thereat
F does not constitute an offer to sell capable of acceptance by the
making of a bid .... It is mere invitation to those attending the
sale to make offers by bids. The contract becomes complete only
when the bid is accepted, this being ordinarily denoted' by the fall
of the hammer. These common-law p~inciples are a~opted by
both the Uniform Sales Act and the Umform Commercial Code.

Where the seller reserves the right to refuse to accept any bid +·
made a binding sale is not consummated between the seller and
the bidder until the seller accepts the bid ....

Once a bid has been accepted the parties occupy the same relation
H towards each other as exists between promisor and promise In an
executory contract of sale conventionally made.
CONSOLIDATED COFFEE v. COFtEE.BOA1!:0 '(Tulzapurkar, !.) 667

Again in Para 48 at page 260 on the question of passing of title the A
folf6wing statement of law o.ccurs :
"48. Passing of title; risk of toss of property.
The acceptance of the bid upon the fall of the hammer gives
rise to contract rights which may be enforced, but does not neces-
B
sarily convey or transfer the title to the property. As in the case
sales generally, the intention of the parties derived from the terms
of the contract and the circumstances of the case primarily detennines
the question as to when title passes.
;Many cases hold that in an auction sale of chattels, when the
sale is without condition and where nothing remains to be done
to the property before its delivery, either to separate it from other
property or to put it in condition ready for delivery, the title, as
between the parties, passes to the purchaser upon the acceptance
of his bid, without payment of the Price, even though the right to
possession does not pass until the price is paid or arranged for to
D
the satisfaction of the seller. Under this view, title oridinarily
passes to the successful bidder when the auctioneer announces
the completion of the sale." (Emphasis supplied).
Two things appear very clear from what we have stated above. At
an auction sale all that happens at the fall of hammer or atthe announce-
ment of the closure of the sale in other customary manner is that a E
contract of sale comes into existence and parties get into the relation-
ship of a promiser and a promisee in an executory contract. Secondly,
auction sales could be conditional or unconditional and if it is latter
then by virtue of the goods being specific and in a deliverable state
tile property in the goods knocked down passes at the fall of hammer
by reason of the concerned provision relating to the passing of the F
property.

Section 64(2) of our Sale of Goods Act, being in pari materia
with s. 58(2) of the English Sale of Goods Act 1893, will have to be
interpreted in the same manner and we are therefore, of the view that
' it does not deal with the question of passing of the property at auction G
sale but merely deals with completion of the contract of sale which
. takes place at the fall of the hammer or at the announcement of the
dose of the sale in other customary manner by the auctioneer. It
would also be correct to say that if the auction sale of chattels is un-
condi_tional and is in respect of specific a~certained goods and nothing
remams to be done to the goods for puttmg them in a condition ready n
for delivery,_ the property in the goods would pass to the purchaser
668 SUPREME COURT REPORTS [1980] 3 S.C.R.

A upon the acceptance of the hid but that would. not be because of s.
64(2) but because of s. 20 and such would not be the case if the goods
sold thereat are non-specific or nnascertained goods or the auction sale
is conditional. In this context it will be useful to refer to a decision
of this Court in A. V. Thomas & Co. Ltd. v. Deputy Commissioner of
Agricultural Income Tax.(1) where this Court recognised a distinc-
B
tion between auction sales pertaining to specific or identifiable goods
and auction sales in regard to unascertained goods and held that in '
regard to the former the property in the goods passed when the con-
tract was accepted at the fall of hammer and not in the latter case.
That was a case where the teas were stored in the godowns in the Wil-
c lingdon Island which was'in the State of Travancore Cochin and samples
of those teas were taken to Fort Cochin which at the relevant time was
in the State of Madras. At Fort Cochin by the samples the teas were
sold by public auction in lots, some of the lots were purchased in
their entirety and others in parts and after the consideration money
was paid at Fort Cochin delivery orders were given to the buyers ad-
D dressed to the godown keepers at Willingdon Islands and actual deli-
very of tea was taken there. These teas were then sent out from wil-
lingdon Island in Travancore Cochin for consumption either in oth6r
parts of India or were exported out of India. The taxability of the
sales of teas in the manner mentioned above under the Travancore
Cochin General Sales Tax Act depended upon whether the sales could
E be held to have taken place at Willingdon Island. i.e., within the ter-
ritory of Travancore Cochin State and were liable to sales tax under
the Act or whether the sales were 'outside sales' and, therefore, not
subject to sales tax in the State of Travancore Cochin in view of Article
286(1) (a) read with the Explanation. This Court after referring to
s. 64(2) and the definition of 'specific goods' in s. 2(14) of our Sale of
F Goods Act, took the view that ou the fall of the hammer the offer
would get accepted and if the goods were specific goods the title would
pass to the buyer. The distinction that was made by the Sales Tax
Appellate Tribunal between goods which were sold in "full lots" and
those which were sold "in portions" and its view that in regard to the
former title had passed as soon as the hammer fall and not in regard
G to the latter was referred to by this Court with approval. At page
612 this Court observed thus :

"In the present case as soon as the hammer fall the title in the
goods passed to the buyer as the goods were specific goods i.e.
goods which were auctioned in full lots and this event took place
H at Fort Cochin which was in the State of Madras. But in the
(!) [1963] Suppl. 2 S.C.R. 608.
CONSOLIDATED COFFEE v. COFFEE BOARD (Tulzapurkar, J.) 669

case of unascertained goods the title in the goods does not pass A
to the buyer unless and until the goods are ascertained. It was
for this reason that a distinction was drawn by the Sales Tax Ap-
pellate Tribunal between goods which were sold in full lots and
those which were sold in portions. In regard to the former it was
held that the title passed as soon as the hammer fell but not rn
• in regard to the latter and therefore the sale of 'full lots' was held B
to have taken place outside the State of Travancore Cochin and of
portions of lots inside that State."
Approving the disti1tction this Court ultimately held that the sales of
'full lots' being outside sales were not liable to the levy of sales tax.
Thus s. 64(2) has nothing to do with the aspect of the passing of the c
property at an auction sale and it is by virtue of goods being specific
and in a deliverable state that under s. 20 the property in such goods
passes to the buyer at the completion of the contract at the fall of
hammer at such sale.
On the other question there is no "difficulty in coming to the con- D
clusion that s. 64 is subject to a contract to the contrary, especially
in light of the above discussion. Jn the first places. 64 occurs in Chap-
ter VII which contains "Miscellaneous" provisions and s. 62 which
occurs in the same Chapter clearly provides that where any right,
duty or liability would arise under a contract of sale by implication
of law, it may be negatived or varied by express agreement or by the B
course of dealing between the parties or.by usage, if.the usage is such as
to bind both the parties to the contract. Ordinarily, the rights, duties
and liabilities arising under a contract of sale by implication of law
spoken of in. s. 62 refer to the rights, duties and_ obligations referred
to in Chapter III containing provisions which lay down rules as to
transfer of property as between seller and buyer!and transfer;of title F
but there is no reason why s. 62 should not apply to rights, duties;and
obligations arising under s. 64 in regard to auction sales. In other
words, s. 64 would be subject to s. 62. Moreover, there is intrinsic
material in s. 64 itself which shows that the provisions thereof could
be subject to a contract to the contrary. For instance, sub-s. (I) G
thereof provides that where goods are put up for sale in lots than
each lot is prima facie deemed,o be the)subjectlofa separate contract
for sale, which means terms between the parties may provide to the
contrary or circumstances may indicate to the contrary. Again,
sub-s. (5) provides that the sale may be notified to be subject to!a re-
served or up set price which means that the auctioneer may not fix B
a reserved price; further, it is well settled that if such a reserved price
has been fixed than not withstanding the fact that the highest bid has
670 SUPREME COURT REPORTS [19801 3 s.c.li.

been accepted by the auctioneer and that the sale relates to specific
or identifiable goods no concluded contract comes into existence if
the highest, bid so accepted falls short of the reserve price and .the
property in the goods will not pass. Sub-ss. (3) and (4), if carefully
scrutinised, also indicate that t!iere could be a contract to the cont-
rary. Moreover, once it is accepted that auction sales to which s.
64 applies could be unconditional or conditional and that the auctio-
neer can prescribe b.is own terms and conditions on the basis of which
the property is exposed to sale by <1uction it must be held that the acce-
ptance of any bid as well as the passing of the property in the goods
sold thereat would be governed by those terms and conditions.
c Having clarified the legal position as above we shall now deal
with the export auctions of coffee conducted by the Coffee Board in
the instant case. Such auction sales are admittedly conducted by the
Coffee Board on terms and conditions prescribed,by it called 'Auction
Conditions'. Further, there is no suggestion in the case that a statu-
D tory body like the Coffee Board while prescribing the Auction Con-
ditions has acted not in good faith or that the said terms and conditio.ns
do not truly govern the rights and obligatipns of the parties the~eto.
It will, therefore, be clear that the question at what point of time the
property in the coffe.e sold thereat passes to the auction purchaser
(Registered E:&porter) must depend upon the intention.ofthe parties
E to b~ derived from the aforesaid terms and conditions. The conten-
tion that the property in coffee sold thereat passes to the buyer at the
fall of the hammer under s. 64(2) of our Sale,,of Goods Act has simply
to be rejected, for, as we have indicated above, all that happens at the
fall of the hammer is that a completed contract of salelcomes into exis-
tence creating a relationship of promisor and promisee hetwq:n .the
F parties in an executory contract. This is also made clear e;i:pressly
by Cl. 13(a) of the Auction Conditions which runs thus :
"13(a) After the bidding has come to a close on each lot,
the Sale Conducting Officer shall declare the bid accepted by him
and make entry accordingly in the Register of Bids. There-
upon the Contract between the Registered Dealer by or on whose
G
behalf the bid was tendered 4nd the Coffee Board becomes complete."

The aforesaid clause suggests that the parties to the auction sale also
understood s. 64(2) of the Sale of Goods Act in the manner in which
we have interpreted it. On the question of the passing of the pro-
perty the specific provision is to be found in Cl. 19 of the Auction
H Conditions. ·As stated earlier Cl. 19 principally deals with aspects
of delivery, weighment and payment of price and towards the end it
CON!iOLIDATED COFFEil v. roFl'EE BOARD (Tulzapurkar, J.) 671

cont11.ins an over-riding provision to the effect that notwithstandin.g A
anything contained in these conditions, the property in the coffee
sold shall not pass to the buyer until after he has paid the full price
and the coffee sold to him is weighed and set apart for delivery to him.
In .other words, it is clear that parties intended that the passing of the
prop~rty shall not take place till the full price is paid and the coffee
sold is weighed and set apart for delivery. Now there is nothing in B
• any of the other provisions of these Auction Conditions which
indicates that the property in coffee sold should pass either at the fall
of the .hammer or at any point of time prior to the payment of price
and weighment and setting apart of coffee for delivery to the buyer.
Therefore, the observations of Lord Chancellor Herschell in Mc Entire
And Al!Other v. Crossley Bros. Ltd. (supra) relied upon by counsel c
of three States cannot avail them. Further, it is true that the over-
ridinip,rovision contained at the end of Cl.19 is negative ia character,
that is to 6lly, the parties are agreed that the property shal! not pass
to fie buyer until after the payment of the price, weighment and set-
ting 8,ll4rt of the coffee for delivery to the buyer. But, does it posi-
tively follow that upon payment of price and weighment and setting
apal'.1 the coffee sold for delivery to the buyer, the property passes to
•
the buyer? On this aspect, in our view, there are two provisions
coatained in Cl. 20(d) and (f) which show that positively the property
in tlae coffee sold passes to the buyer at that point of time. Under
CJ. ill after the payment offull price the buyer has to apply for and take
delivery within a certain time but in case he fails to take delivery what
shai happen to the coffee sold is provided for in Cl. 20. On the buyer's
failure to take delivery, the coffee is first stored by the P-00! Agent
in the Pool Warehouse pending its exportation by the buyer by the
15th May and if it is not exported by that date the Curer or Depot
Maaa1er removes it from the West Coast to inland centres for safe
storage during the monsoon season but at the risk and cost ofthe
buyer. Clause 20(d) provides : "Duriag the interval the coffee so
remains with the Board or the Pool Agent, it shall be held at the risk
and on account of the Buyer" and Cl. 20(e) proVides : "Gain or loss
in weijht of Coffee, as the case may be, during the period when the
coffee (Boid, weighed and paid for) remains in the godown of the Pool G
Agenl as above, shall be to the benefit of detriment of the Buyer
himself and he shall be at liberty to export the quantity gained in
weight." The aforesaid provisions contained in CJ. 20 clearly go
to show that after price is fully paid and the coffee sold is weighed and
set apart for delivery to the buyer the same lies with the Coffee Board
at the risk of the buyer and if during the interval if there be any gain
or loss in weight the same will be credited and debited to his account.
This provision clearly indicates in positive terms that the property
•
672 SUPREME COURT REPORTS [1980] 3 s.c.R.

A in coffee sold at the export auction passes to the buyer not before pay-
ment of full price, weighment and setting apart thereof for delivery to
the buyer but immediately after such payment, weighment and set-
ting apart for delivery. We might refer to another clause, namely,
Cl. 23 which contains another special over-riding provision providing
for non-liability @f the Coffee Board in case damage to the coffee
B sold or to the warehouse wherein the coffee was stored occurs by
fire, flood, strike, riot, civil commotion, etc. etc. and it is provided
that notwithstanding anything contained in the Auction Conditions
in regard to the payment of prices, insurance/warehouse charges,
delivery or other conditions and notwithstanding the provisions of the
Sale of Goods Act in regard to passing of property, the Boarid or its
c Agents shall not be liable to deliver the coffee in specie, in the event of
loss or damage caused to the coffee sold by any of the aforesaid causes.
But this clause has no bearing on the question of passing of the pro-
perty. Having regard to C!s. 19 and 20 of the Auction Conditions,
therefore, it is clear to us that in these penultimate sales (i.e. sales of
coffee at the export auctions conducted by the Coffee Board) the pro-
D
perty in coffee sold there at passes to the buyer upon payment of price,
weighment and setting apart of the coffee mid for delivery to the
buyer:
If once it is held that the property in coffee sold at such export
auctions passes under Cls. 19 and 20 of the Auction Conditions imme-
E diately upon payment of prke, weighment and setting apart of the
coffee for delivery to the buyer, it will be'difficult to accept the peti-
tioners' contention that passing of the property in such Coffee is fur-
ther postponed till actual shipment by reason of Cl. 31 of the Auction
Conditions, for, if the title has already passed it cannot pass again.
Counsel for the petitioners contended that in view of cl. 31 a reser- .
F
vation of the right of disposal over the goods in favour of the Coffee
Board )Vithin the meaning of s. 25 of the Sale of Goods Act is made.
It is difficult to accept this contention. Section 25(1) which· deals
with the reservation of the right of disposal provides that where there
is a contract for sale of specific goods or where goods are subsequently
G appropriated to the contract, the seller may by terms of the co•tract
or appropriation, reserve the right of disposal of the goods until cer-
tain conditions are fulfilled and if he does so, the legal consequence
mentioned in the section flows, namely, that in such case
notwithstanding the delivery of goods to a buyer or to a carrier or
bailee for transaction to the buyer, the property in the goods does not
H pass to the buyer until the conditions imposed by the seller are fulfil-
led. In the instant case it is true that Cl. 26 declares that it is an
essential condition of the auction that the coffee sold thereat sha
CONSOLIDATED COFFEE v. COFFEE BOARD (Tulzapurkar, !.) 673

be exported to stipulated destinations or to any other foreign country A
outside India as may be approved by the Chief Coffee Marketing
Officer within 3 months or within the extended period but such essen•
tial condition is applied to the coffee which has already become the
property of the buyer under Cls. 19 and 20 of the Auction Conditions
and all that Cl. 31 provides is that if default is made by Buyer in ex-
B
• porting coffee within the prescribed time or extended time it shall be
lawful for the Coffee Board without reference to the buyer to seize
the unexported coffee and take possession thereof and deal with it as
if it were the part and parcel of the Board's Coffee held by them in their

• Pool Stock. Far from amounting to a reservation of the right of dis•
posal over the unexported coffee to the Coffee Board, Cl. 31 is in the
nature ofa defeasance clause in the sense that what is vested in the buyer
under the earlier conditions, the same shall revert back to the Coffee
Board if the buyer commits a default in fulfilling theJessential condition,
Such a reading of Cl. 31 would be consistent with a further provision
c

which is to be found in the latter portion of that clause. The latter
part of Cl. 31 provides that after the coffee is seized and it becomes D
part and parcel of Board's coffee held by it in its pool stock, the Board
shaU re-sell the same but after such re-sale the Chief Coffee Marketing
Officer shall pay to the defaulting buyer only the balance of the sale
proceeds after deducting godown charges, insurance premium, selling
commission payable to agents and all other expenses of sale together
with the penalty due under Cl. 30. But under the proviso it is pro- E
vided thus:
"Provided, however, that if such balance is in excess of the
sale price paid by the buyer, the payment shall be limited to the
a.ctua/ sale price."
F
In other words the proviso dearly suggests that the seized coffee be-
comes Coffee Board's property and is re-sold as such, otherwise the
suqilus should go to the buyer (Registered Exporter). The fact that
the payment to the defaulting buyer is limited to the actual sale price
paid by him and that the surplus if any reverts to the Coffee Board
clearly shows that under Cl. 31 upon seizure the property reverts back G
to the Coffee Board. In our view, Cl. 31 properly read amounts to
a defeasance clause and nothing more, especially when it is clear that
property in the coffee sold at auction passes to the buyer under Cls. 19
and 20 immediately upon payment of price, weighment and setting
apart of the coffee for delivery to the buyer. Once the property has
passed there would be no question of reserving any right of disposal H
over the same to the Coffee Board within the meaning of s. 25(1) of
the Sale of Goods Act.
674 SUPREME COURT REPORTS [19&o] 3 .scc.R.

A It will be noticed that though on the question of the passing of
the property facutal material in the form of affidavit of the Chief
Coffee Marketing Officer (on the point whether the lots exposeci at
the auctions are specific and ascertained goods .or not) and siweral
documents executed by the Registered Exporters in favour of their
bankers to obtain packing and other credit facilities was placed before
us we have not gone into the factual aspects at all and we have reached
our conclusion on the point purely on the basis of construction of the
relevant Auction Conditions from which primarily the intention oC the
parties is to be gathered. It is only when a clear-intention in that be-
half is not deducible from the terms and conditions that other factors
such as the c0urse of dealings and the conduct of the parties assume
c relevance.
Having regard to the above discussion it is clear to us that in the
penultimate sales (sales of coffee effected to Registered Exporter$ at
export auctions conducted by the Coffee Board) the property in the
Coffee sold thereat passes to the buyer immediately upon pay~nt
D of full price, weighment and setting apart of coffee for delivery to 'the
buyer under Cls. 19 and 20 of the Auction Conditions and it wo,uld
be at this stage i.e. just before this stage is reached that the agreement
with or order from a foreign buyer must be available or prodU<:ed
in order to attract s. 5(3) of the Central Sales Tax Act, 1956.
'
E In the result the writ petitiQns are partly allowed.. The impugned
· Circular dated 7th February, 1977 to the extent to which it i.usists .on
production of an agreement with or an order from a foreigµ buyer
from the Registered Exporters before participating in export auctions
is quashed; it is also quashed hereafter to the extent to which it requires
Registered Exporters to make contingency deposits or furnish bank
F guarantees out of abundant caution inasmuch as such requirement
would be unnecessary in view of our authoritative pronouncemeµt.
The Coffee Board may, if so advised, modify its Circular or iss11e an
appropriate Circular .requiring the production of an agreement with
or an order from a foreign buyer from the Registered Exporters j1'St
before the property in the Coffee sold at such auctions passes
G under Cls. 19 and 20 of the Auction Conditions.
As regards past dealings and transactions, final assessment, if
any, made by the Taxing Authorities as well as recoveries if made
thereunder contrary to the view expressed by us above deserve
to be set aside and reassessments made and the concerned State
H Governments will direct their Taxing Authorities to do the needful
and further direct the refund of recoveries made to the Coffee Board
which in its turn will refund the same to the concerned Registered
CONSOLIDATED COFFEE v. COFFEE BOARD (Tulzapurkar, !.) 675

Exporters. Assessments or recoveries if made in conformity with A
our judgment need not be disturbed. Siiajlarly contingency deposits
or bank guarantees already obtained by the Coffee Board from the
Registered Exporters, if they are contrary to our judgment, these will
be refunded or released forthwith, as the case may be, by the Coffee
Board.
· In the circumstances of the case there will be no order as
to <;O.Sts.

WRIT PETITION NO. 1458 OF 1979
TULZAPURKAR, J .-In view of our Judgment just delivered in W .P
Nos. 3130/78, 4238-39/78 and 8/79, this Writ Petition will have also c
to be allowed partly and the same order would follow.

S. R. Petitions allowed in part.