# COFFEE BOARD, KARNATAKA, BANGALORE v. COMMISSIONER OF COMMERCIAL TAXES

- **Citation:** [1988] Supp. 1 S.C.R. 348
- **Court:** Supreme Court of India
- **Decided:** 1988-05-11
- **Case number:** Writ Petitions Nos. 358 and 37 of 1986
- **Bench:** R.S. Pathak, Sabyasachi Mukharji, S. Natarajan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/coffee-board-karnataka-bangalore-v-commissioner-of-commercial-taxes-10160
- **Pages:** 31

## Headnote

Karnataka Sales Tax Act, 1957-Challenging purchase tax on
coffee levied under provisions of-Coffee Act 1942-Whether
compulsory delivery of coffee to Coffee Board from growers under
C section 25( 1)-0f-Is compulsory acquisition and not sale or purchase
to attract levy of purchase tax.
The appellant Coffee Board filed writ petitions in the High Court
praying for a declaration that the mandatory delivery of the Coffee
under section 25(i) of the Coffee Act, 1942, was not sale and that section
D
2(t) of the Karnataka Sales Tax Act, 1957 required to be struck down if
the same encompassed compulsory acquisition also, and challenging the
show-cause notice, proposing to re-open the tax assessment and the
pre-assessment notice proposing to assess the Board to purchase tax on
the Coffee transferred from Karnataka to outside the State. The Coffee
Board has also filed in the High Court writ petitions, challenging the
E
assessments and the demands for the purchase tax. The appellant
Coffee Board had contended that the compulsory delivery of Coffee
under the Coffee Act, 1942 extinguishing all the marketing rights of the
growers was 'compulsory acquisition' and not sale or purchase to
attract levy of purchase-tax and that the appellant was only a 'trustee'
or agent of the growers not exigible to purchase tax and that all the
F
export sales were in the course of export immune to tax under Article
286 of the Constitution. It was held by the High Court that an element
of consensuality subsisted even in compulsory sales governed by law
and once there was an element of consensuality even though minimal,
that would be sale or purchase for purposes of Sale of Goods Act and
the same would he exigible to sales or purchase tax under the relevant
G
Sales Tax law of the country. On an analysis of all the provisions of the
Coffee Act in general and sections 17 and 25 in particular, the High
Court held that on the true principles of compulsory acquisition or
eminent domain, it was difficult to hold that on compulsory delivery by
growers to the Board, there would be compulsory acquisition of coffee
by the Coffee Board. The High Court dismissed all the writ petitions by
H a common judgment. The Coffee Board fil~d appeals in this Court by
348
COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES
349
certificate against the decision of the High Court. The writ petitions
filed in this Court were for the determination of the rights, obligations
and liability between the petitioners and the Coffee Board in respect of
the sales tax due and payable on the transactions between the parties.
A
\
Dismissing the appeals and the Writ Petitions Nos. 358 and 37 of
1986 and disposing of the Writ Petitions Nos. 36 and 39 of 1986, the
B
Court,
HELD: The question involved in these appeals and "the writ peti•
lions was the exigibility of tax on sale, if any, by the growers of the
coffee to the Coffee Board. Basically, it must depend upon what is ·sale
in the general context as also in the context of the relevant provisions of
lhe Karnataka Sales Tax Act 1957 as amended from time to time, and
C
the Central Sales Tax Act, 1956. These, however, must be examined in
the context of general law, namely, the Sale of Goods Act," 1930 and the
concept of sale in general: [358F-G I
Coffee Board is a 'dealer' registered as such under the Central
D
Sales Tax Act and the Sales Tax Acts of all the States in which it holds
auctions/maintains depots runs coffee houses. It collects and remits
sales tax on all the coffee sold by it to the State in which the sale takes
. place. It transfers coffee from one State to another. [3608, El
This Court (Bench of Five Judges) in the case of State of Kera/av.
E
Bhavani Tea Produce Co., 11966] 2 S.C.R. 92, which arose under the
Madras Plantations Agricultural Income Tax Act, held that when growers delivered coffee to the Board, all their rights therein were extinguished and the Coffee vested in the Board. The Court, however did not
hold that there was a taxable 'sale'

## Text

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COFFEE BOARD, KARNATAKA, BANGALORE
v.
COMMISSIONER OF COMMERCIAL TAXES
MAY 11, 1988
[R.S. PATHAK, CJ, SABYASACHI MUKHARJI
AND S. NATARAJAN, JJ.)
Karnataka Sales Tax Act, 1957-Challenging purchase tax on
coffee levied under provisions of-Coffee Act 1942-Whether
compulsory delivery of coffee to Coffee Board from growers under
C section 25( 1)-0f-Is compulsory acquisition and not sale or purchase
to attract levy of purchase tax.
The appellant Coffee Board filed writ petitions in the High Court
praying for a declaration that the mandatory delivery of the Coffee
under section 25(i) of the Coffee Act, 1942, was not sale and that section
D
2(t) of the Karnataka Sales Tax Act, 1957 required to be struck down if
the same encompassed compulsory acquisition also, and challenging the
show-cause notice, proposing to re-open the tax assessment and the
pre-assessment notice proposing to assess the Board to purchase tax on
the Coffee transferred from Karnataka to outside the State. The Coffee
Board has also filed in the High Court writ petitions, challenging the
E
assessments and the demands for the purchase tax. The appellant
Coffee Board had contended that the compulsory delivery of Coffee
under the Coffee Act, 1942 extinguishing all the marketing rights of the
growers was 'compulsory acquisition' and not sale or purchase to
attract levy of purchase-tax and that the appellant was only a 'trustee'
or agent of the growers not exigible to purchase tax and that all the
F
export sales were in the course of export immune to tax under Article
286 of the Constitution. It was held by the High Court that an element
of consensuality subsisted even in compulsory sales governed by law
and once there was an element of consensuality even though minimal,
that would be sale or purchase for purposes of Sale of Goods Act and
the same would he exigible to sales or purchase tax under the relevant
G
Sales Tax law of the country. On an analysis of all the provisions of the
Coffee Act in general and sections 17 and 25 in particular, the High
Court held that on the true principles of compulsory acquisition or
eminent domain, it was difficult to hold that on compulsory delivery by
growers to the Board, there would be compulsory acquisition of coffee
by the Coffee Board. The High Court dismissed all the writ petitions by
H a common judgment. The Coffee Board fil~d appeals in this Court by
348
COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES
349
certificate against the decision of the High Court. The writ petitions
filed in this Court were for the determination of the rights, obligations
and liability between the petitioners and the Coffee Board in respect of
the sales tax due and payable on the transactions between the parties.
A
\
Dismissing the appeals and the Writ Petitions Nos. 358 and 37 of
1986 and disposing of the Writ Petitions Nos. 36 and 39 of 1986, the
B
Court,
HELD: The question involved in these appeals and "the writ peti•
lions was the exigibility of tax on sale, if any, by the growers of the
coffee to the Coffee Board. Basically, it must depend upon what is ·sale
in the general context as also in the context of the relevant provisions of
lhe Karnataka Sales Tax Act 1957 as amended from time to time, and
C
the Central Sales Tax Act, 1956. These, however, must be examined in
the context of general law, namely, the Sale of Goods Act," 1930 and the
concept of sale in general: [358F-G I
Coffee Board is a 'dealer' registered as such under the Central
D
Sales Tax Act and the Sales Tax Acts of all the States in which it holds
auctions/maintains depots runs coffee houses. It collects and remits
sales tax on all the coffee sold by it to the State in which the sale takes
. place. It transfers coffee from one State to another. [3608, El
This Court (Bench of Five Judges) in the case of State of Kera/av.
E
Bhavani Tea Produce Co., 11966] 2 S.C.R. 92, which arose under the
Madras Plantations Agricultural Income Tax Act, held that when growers delivered coffee to the Board, all their rights therein were extinguished and the Coffee vested in the Board. The Court, however did not
hold that there was a taxable 'sale' by the grower to the Board in the
year in question. The Court in this case was bound by the clear ratio of F
that decision and it could not by-pass the same. That decision concludes
all the issues in this case. Several questions were canvassed in these
appeals in view of the decision of the High Court, and all the questions
were answered by this Court in the Bhavani Tea Produce Co.'s case
(supra) against the appellant. [360F-G; 364B]
All the four essential elements of sale (1) parties competent of
contract, (2) mutual consent, though minimal, by growing coffee under
the conditions imposed by the Coffee Act, 1942 (The Act), (3) transfer
G
t'
of property in the goods and ( 4) payment of price though deferred were
present in the transaction in question. As regards the provision under
section 26(2) empowering the Coffee Board to purchase additiOnal
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350
SUPREME COURT REPORTS
[1988] Supp. 1 S.C.R.
coffee not delivered for inclusion in the surplus pool, it is only a
supplementary provision enabling the Coffee Board to have a second
avenue of purchase, the first avenue being the right to purchase coffee
under a compulsory delivery system formulated under section 25(1) of
the Act. The scheme of the Act is to provide for a single channel for sale
of coffee grown in the registered estates. The Act directs the entire
coffee produced except the quantity allotted for internal sale quota, if
any, to be sold to the Coffee Board through the modality of compulsory
delivery and imposes a corresponding obligation on the Coffee Board to
compulsorily purchase the coffee delivered to the pool, except (1) where
the coffee delivered is found to be unfit for human consumption, and (2)
where the coffee estate is situated in a far off and remote place or the
coffee grown in an estate is so negligible as to make the sale of coffee
through compulsory delivery an arduous task and an uneconomical
provision. [367E-H; 368A-B]
In the nature of transactions contemplated under the Act, mutual
assent either express or implied is not totally absent in this case in the
transactions under the Act. Coffee growers have a volition or option,
though minimal or nominal to enter into the coffee growing trade. If
any one decides to grow coffee, he must transact in terms of the regulation imposed for the benefit of the coffee growing industry. Section 25 of
the Act provides the Board with the right to reject coffee if it is not upto
the standard. Value to be paid as contemplated by the Act is the price of
the coffee. There is no time fixed for delivery of coffee either to the
Board or the curer. These indicate consensuality not totally absent in
the transaction. [368C-E]
The scheme contemplated under the Act was not an exercise of
eminent domain power. The Act was to regulate the development of
coffee industry in the country. The object was not to acquire coffee
grown and vest the same in the Coffee Board. The Board is only an
instrument to implement the Act. The High Court had rightly observed
that the Board has been chosen as the instrumentality for the administrati()n of the Act. It cannot be said in the Act, there is any compulsory
acquisition. In essence, the scheme envisages sale and not compulsory
acquisition. The terms 'sale' and 'purchase' have been used in some of
the provisions and that is indicative that no compulsory acquisition was
intended.
The Ievy of duties of excise and customs under sections 11 and 12
of the Coffee Act are inconsistent with the concept of compulsory acquisition. Section 13(4) of the Coffee Act clearly fixes the liability for
COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES
351.
payment of duty of excise on the registered owner of the estate producA
ing coffee. The Board is required to deduct the amount of duty payable
by such owner from the payment to the grower under section 34 of the
Act. The duty payable by the grower is a first charge on such pool
payment becoming due to the grower from the Board. Section 11 of the
Act provides for levy of duty of customs on coffee exported out of India.
This duty is payable to the Customs Authorities at the time of actual
B
export. The levy and collection of this duty are not unrelated to the
delivery of coffee by the growers to the Board of the payments made by
the Board to the growers. The. duty of excise as also the duty of
customs are duties levied by Parliament. It is not a levy imposed by the
Board. The revenue realised from levy of these duties forms part of the
Consolidated Fund of India, which may be utilised for the purpose of C
the Coffee Act only if the Parliament by law so provides. The true
principle or basis in Vishnu Agencies (Pvt.) Ltd. v. Commercial Tax
Officer and others, etc., [1978] 2 S.C.R. 433, applies to this case. Offer
and acceptance need not always be in an elementary form, nor does the
law of contract or sale of goods require that consent to a contract must
be express. Offer and acceptance can be spelt out from the conduct of D
the parties which .cover not only their acts but omissions as well. The
limitations imposed by the Control Order on the normal right of the
dealers and consumers to supply and obtain goods, the obligation
imposed on the parties and the penalties prescribed by the Order do not
militate against the position that eventually, the parties must be
deemed to have completed the transaction under an agreement by
E
which one party binds itself to supply the stated quantity of goods to the
other at a price not higher than the notified price and the other party
consents to accept the goods on the terms and conditions mentioned in
the permit or the order of allotment issued in its favour by the concerned authority. [375C-H; 376A-Bl
A contract, express or implied, for the transfer of the property in
the goods for a price paid or promised is an essential requirement for a
'sale'. In the absence of a contract, express or implied, there cannot be
any sale in law; however, in this case, as the scheme of the Act is, there
was contract contemplated between the growers and the Coffee Board.
In law, there cannot be a sale whether or not compulsory in the absence
of a contract express or implied. [376B-C]
The imposition of tax in the.manner done by the Sales Tax Authorities upheld by the High Court was correct and the High Court was
right. The appeals failed. [3780 l
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352
SUPREME COURT REPORTS
11988] Supp. I S.C.R.
Civil Writ Petition No. 358 of 1986 was dismissed. Re. Writ Pelilion No. 36 of 1986, the Court could not go into the contentions in this
petition. The rights and obligations of the parties inter se between the
petitioners and the Coffee Board might be agitated in appropriate proceedings. Writ Petition 37 of 1986 was dismissed without prejudice to
the rights of the petitioners to agitate the question of liability of the
B
petitioner vis-a-vis the Coffee Board in respect of the Sales Tax due and
payable on the transactions between the parties in ap1>ropriate proceedings. In Civil Writ Petition No. 39 of 1986, the Court passed no order;
this was without prejudice to the right of the parties taking appropriate
proceedings it necessary for the determination of the liabilities inter se
between the petitioners and the Coffee Board for the amount of the
C
Sales Tax payable. [378E-G]
Indian Coffee Board v. State of Madras, 5 S.T.C. 292; C.E.B.
Draper & Sons Ltd. v. Edward Turner & Son Ltd., [1965] l Q.B. 424;
State of Kera/a v. Bhavani Tea Produce Co., [1966] 2 S.C.R. 92;
Consolidated Coffee Ltd. & Anr. etc. v. Coffee Board, Bangalore, etc.
D
etc., [1980] 3 SCR 625; Peanuts Board v. The Rockhampton Harbour
Board, 48 Commonwealth Law Reports 266; Vishnu Agencies (Pvt.)
Ltd. etc. v. Commercial Tax Officer and Others etc., [1978] 2 S.C.R.
433; Indian Steel and Wire Products Ltd., Andhra Sugar Ltd.
and Karam Chand Thapar, 11968] 1 S.C.R. 479; State of Madras v.
Gan/ion Dunkerley & Co. Ltd., [1959] S.C.R. 379; New India Sugar
E.
Mills v. Commissioner of Sales Tax, Bihar, [1963] Suppl. 2 S.C.R. 459;
Charanjit Lal Choudhury v. The Union 'flf India & Ors., [1950] 1
S.C.R. 869; State of Karnataka and another etc. v. Ranganatha Reddy
and Anr. etc., [1978] l S.C.R. 641; Milk Board (New South Wales) v.
Metropolitan Cream Pty. Ltd., 62 C.L.R. 116 and State of Tamil Nadu
v. N. K. Kamaleshwara, [1976] 1 S.C.R. 38, referred to,
F
CIVIL
APPELLATE/ORIGINAL
JURISDICTION: Civil
Appeal Nos. 4522-4529 of 1985 etc. etc.
From tile Judgment and Order dated 16.8. 1985 of the Karnataka
High Court in W.P. Nos. 15536-4-0/1982 and W.P. Nos. 13981, 17071,
G
17072, 19il8 and 19285/1983.
H
G. Ramaswami, Additional Solicitor General, R.J. Babu, R.F.
Nariman, Ranjan Karanjawala, Mrs. M. Karanjawala and Ejaz
Maqb6ol for the Appellant in C.A. Nos. 4522-29/1985.
Shanti Bllilshari, Kapil Sibal, Soli J. Sotabjee, G.B. Pai, V.A.
··1!'
.
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COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJI, J.]
353
Bobde, K.P. Kumar, R. Vasudevan, K.T. Anantharaman, Harish N.
Salve, H.K. Dutt, Ms. Mridula Ray, 0.C. Mathur, Ms. Meera Mathur
and Ms. Lekha Mathur for the Petitioners in W.P. Nos. 36, 37, 39 and
358of1986.
T.S. Krishnamurthi Iyer, S. Padmanabhan, Soli J. Sorabjee,
R.P. Srivastava, P. Parmeshwaran, R. Mohan, Harish N. Salve, Ms.
M. Ray and H.K. Dutt for the Intervener in C.A. Nos. 4522-29 of
1985.
Dr. Y.S. Chitale, M.Veerappa, Ashok Kumar Sharma and Atul
Chitale for the Respondents.
The Judgment of !he Court was delivered by
SABYASACHI MUKHARJI, J. These appeals by certificates
are from the judgment and order of the High Court of Kamataka
dated 16th of August, 1985. By the impugned judgment and order the
writ petitions filed by the Coffee Board and others were dismissed. In
order to appreciate the questions involved in the decision, it may be
noted that the appellant herein-Coffee Board contended that the
compulsory delivery of coffee under the Coffee Act, 1942 extinguishing
alf marketing rights of the growers was 'compulsory acquisition' and
not sale or purchase to attract levy of purchase tax; it was further
contended that the appellant was only a 'trustee' or 'agent' of growers
not 'exigible to purchase tax and that all export sales were 'in the
course of export' immune to tax under Article 286 of the Constitution.
It was held by the Division Bench of the Kamataka High Court
that an element of consensuality subsists even in compulsory sales
governed by law and once there is an element of consensuality, however minimal that may be, whether express or implied, then that would
be sale or purchase for purposes of Sale of Goods Act and the same
would be exigible to sales or purchase tax as the case may be under the
relevant Sales Tax Law of the country.
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The power conferred on ·the Board under section 25(2) of the G
Coffee Act, to which we will make reference later, to reject coffee
offered for delivery or even the right of a buyer analogous to section 37
of tlte Sale of Goods Act showed that there was an element of consensuality in the compulsory sales regulated by the Act. The amount
paid by· the Board to the grower under the Act was the value or price of
coffee in conformity with the detailed accounting done thereto under H
354
SUPREME COURT REPORTS
['1988) Supp. 1 S.C.R.
the Act. It was further held by the High Court that the amount paid to
A the grower was neither compensation nor dividend. The payment of
price to the grower was an important element to determine the consensuality test to find out whether there was sale under section 4(1) of
the Sale of Goods Act. The Act also ensures periodical payments of
price to the growers. The Rules provide for advancing loans to growB ers. Therefore, according to the Division Bench of the Kamataka High
Court without any shadow of doubt these elements indicated that in
the compulsory sale of coffee, there was an element of consensuality.
When once the Board was held to be a 'dealer' it also followed from
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. the same that there was sale by the grower, purchase by the Board and
then a sale by the Board. The purchases and the exports if any made by
the Board thereafter on any principle would not be 'local sales' within
the State of Kamataka. Explanation 3(2)(ii) to section 2(1) of the
Karnataka Sales Tax Act had hardly any relevance to hold that the
later export sales were 'local sales' to avoid liability under section 6 of
the Karnataka Sales Tax Act. The direct export sales made by the
appellant for the period in challenge were not 'in the course of export'
and they did not qualify for exemption from purchase tax under section 6 of the Karnataka Sales Tax Act. The levy of sales tax on coffee,
it was held by the High Court fell, under Entry No. 43 of the second
schedule of the Act and it was governed by section 5(3)(a) of the Act
and not by section 5(1) of the Act. It was further held that under
section 5 of the Central Sales Tax Act, 1956 purchases and exports
made by the Coffee Board are 'for export' and not 'in the course of
export' and thus did not qualify for exemption under Article 286 of the
Constitution of India. It was observed by the High Court that the
Board did not purchase or take delivery of any specific coffee or goods
of any grower and exported the same under prior contracts of sale. The
Board did not purchase any specific coffee of any specific grower for
purposes of direct exports at all. The purchases made and exportes
made would be 'for export' only and not in 'in the course of export' to
earn exemption under Article 286 of the Constitution of India. It was
further held that sections 11 and 12 of the Act which regulate the levy
and payment of Customs and Excise Duties when closely examined
really established according to the High Court that what was gro~n by
the growers and delivered to the Board was not at all compulsory
acquisition but was sale. If it was compulsory acquisition and there was
payment of compensation, then these provisions would not have found
their places in the Coffee Act at all, according to the High Court. Levy
of Customs and Excise Duties on compensation was something unheard, an incongruity and an anachronism in compulsory acquisition,
H according to the High Court.
,
COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJI,J.]
355
On an analysis of all the provisions of the Act in general and
sections 17 and 25 in particular it was held by the High Court that on
the true principles of compulsory acquisition or eminent domain, it
was difficult to hold that on compulsory delivery by growers to the
Board, there would be compulsory acquisition of coffee by the Board.
In order to determine the questions at issue, that is to say the
nature of the transaction one has to in a case of this nature t6iescope
into the history and project it into the dimensions of the present levy.
In November 1935 the Indian Coffee Cess Act, 1935 (Act 14 of 1935)
came into operation, for levying cess on coffee produced in and
exported out of India, for promoting the consumption in India and
elsewhere of coffee produced in India and also for promoting agricultural and technological research in the interests of the coffee industry in India. The purpose seems to have been to develop the coffee
industry, popularise the same and win a market in the international
field. On 14th of September, 1940 Coffee Market Expansion Ordinance (No. XIII of 1940) was promulgated by the Central Government
and the Pool Marketing Scheme for coffee introduced in India for the
first time. An 'internal sale quota' was to be allotted to each coffee
estate upto which the owner could sell his coffee in the Indian Market.
Coffee in excess of the hiternal sale quota allotted and grown on the
estates which were henceforth to be registered, were required to be
compulsorily delivered to the surpius pool of the Coffee Market
Expansion Board set up under the Ordinance. Ute Pool Marketing
Scheme was inspired by the pool marketing schemes for agricultural
produce under Australian statutes. On or about 2nd March, 1942 the
Coffee Market Expansion Act, 1942 (the title of the Act was later
changed .to Coffee Act in 1955) (hereinafter referred to as "the Act")
was enacted and the ordinance repealed. The Act was to remain in
operation for the duration of the second world war and a period of one
year thereafter. The Act, inter alia, added a new sub-section (6) to
section 25 of the Act, specifically providing for extinguishment of all
the rights of the owners of the registered coffee estates in the coffee
delivered by them to the surplus pool of the Coffee Board (hereinafter
referred to as 'the Board') set up under the Act, except the right to
receive payments referred to in section 34 of the Act. Under section 34
of the Act the Coffee Board was required to pay to the registered
owners who had delivered coffee for inclusion in the surplus pool such
payments out of the Pool Fund (comprising of the monies realised from
the sale of coffee pooled with the Board) as the Board may think
proper, the amount so paid being dependent upon the quantity and the
kind of the coffee delivered to the Board.
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SUPREME COURT REPORTS
[19881 Supp. 1 S.C.R.
On or about 26th March, 1943 the Act was amended, inter alia,
to enable the Carree Board with the previous approval of the Central
Government not to allow any internal sale quota to the growers. Since
1943 in each year the Board with the previous sanction of the Central
Government has decided that no internal sale quota should be allowed.
Sections 38A and 38B were added making failure to deliver coffee to
the Board an offence to be penalised by fine and confiscation of the
quantities not delivered. Power was also conferred on the Coffee
Board to seize coffee required to be but not delivered to the Board.
Ever since 1943, internal sale quotas have not been allowed and all the
coffee grown on estates in the areas to which Section 25(1) of the Act
was applicable was required to be compulsorily pooled. The surplus
C pool referred to in the Act was now in fact the pool of practically all
coffee produced in India, it is not necessary to refer to the actual
quantities available in the internal pool in different years though a
table to that effect was placed before us by the learned Additional
Solicitor General, Sree G. Ramaswamy. On the 11th of March, 1947
the Coffee Market Expansion (Amendment) Act IV of 1947 was enacD ted. The life of the Act was extended without any time limit and, inter
alia, changes were made in the constitution of the Board providing for
representation of labour. On 1st August, 1955 the Coffee Market
Expansion (Amendment) Act, 1954 was brought into force. The
object of the Coffee Act was modified from 'the continuation of the
provisions made uni:ler the Coffee Market Expansion Ordinance, 1940
E for assistance to the coffee industry by regulating the sale of coffee in
India and by other means' to "Development under the control of the
union of the coffee industry". It was highlighted before us in the
course of the submission that the pool system of marketing is a unique
feature of the coffee industry in India. The principal features, according to the learned Additional Solicitor General, of this system are: (a)
F
Compulsory registration of all lands planted with coffee (section 14 of
the Coffee Act).,(b) Mandatory delivery of all coffee grown in the
registered estates except the quantities permitted by the Board to be
retained for domestic consumption and for seed purposes, (see section
25(1) of the Coffee Act). Estates situated in remote areas specified in
the notification issued by the Central Government under the proviso
G to section 25(1) of the Coffee Act are exempt from this provision.
( c) Seizure by the Board of coffee wrongly withheld from the pool.
Prosecution for failure to deliver and confiscation of quantity not
delivered. ( d) Delivery to be effected at such times and at such places
as designated by the Board (section 25(2)); the extinguishment on
delivery of all rights of the growers in respect of the coffee delivered to
H the Board excepting the right to receive payment under section 34 of
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COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJI, J.]
357
the Act. (section 25(6)). (e) Sale of coffee in the pool by the Board in
the domestic market and for export through auctions and other
channels in regulated quantities and at convenient intervals. (section
26(1)). (f) Payment to growers in such amounts and at such times as
decided by the Board (section 34). The payment to be made on the
basis of the value as determined by the price differential scale (section
24( 4)), and in proportion to the value of such coffee tci the total realisations in the pool (section 34(2)). (g) Sale or contracts to sell coffee
by growers in the years in which internal sale quota was not allotted
were prohibited by section 17 of the Act. All contracts for the sale of
coffees at variance with the provisions of the Act were declared as void
by section 47 of the Act.
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Learned Additional Solicitor General sought to urge before us
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that the framers of the Act made a conscious distinction between· (i)
mandatory delivery of coffee to the Coffee Board under section 25(1)
and (ii) purchase of coffee by the Coffee Board from the growers
exempted from mandatory delivery and from out of the internal sale
quota during the years when such quotas were allotted under section D
26(2) and (iii) sale of coffee by the growers in the Indian Market
whenever internal sale quotas were allotted under sections 17 and 22.
It was highlighted that the Board has no capital of its own and it did
not have any Reserve Fund. The estates ori which coffee is grown are
not owned by the Board. The Board is required to maintain two separate funds one General Fund and the other Pool Fund. Our attention
E
was drawn to tbe fact that the Pool Fund consists of amounts realised
from the sale of coffee marketed by the Board. The accounts of the
Pool Fund are required to be maintained separately for each coffee
season. The coffee season is from July to June of the following year.
The sales realisations, less the costs of storing, curing and marketing
the coffee, are to lle utilised for making payments to growers who had F
delivered coffee in th&! season, in proportion to the value of the coffee
delivered by them. The value is determined with reference to the kind,
quality and quantity of coffee delivered by the growers. There are various other features which have to be borne in mind on the maintenance
of the separate funds. It may be highlighted, however, that the
General Fund consisted principally of the amounts paid to the Board G
by the Central Government from out of appropriations made. by the
Parliament annually. This fund was to be utilised for meeting the.·costs
of administration, research, measures for the welfare of plantation
labour, promotion of coffee consumption and developmental assistance to coffee estates. After the Coffee Act was enacted the production of coffee and the quantities exported and the value of the exports
H
have increased greatly.
A
B
c
358
SUPREME COURT REPORTS
[19881 Supp. 1 S.C.R.
It may be mentioned that the production of coffee was less than
15,000 tonnes in 1940. The production in the year 1984-85 was about
1,93,000 tonnes. Over 50% of the coffee grown in the country is grown
in the State of Karnataka. There are 1, 12, 153 coffee estates in the
country of which 1,04,958 estates are less than 10 acres in size and
3,62,689 persons were employed on the estates in 1982-83. Over
59,000 tonnes of coffee of the value of about Rs.209 crores was exported in the year 1984-85.
The Madras High Court in the case of Indian Coffee Board v.
State of Madras, 5 S. T.C. 292 held that the Coffee Board was a 'dealer'
under the Madras General Sales Tax Act, 1939 and inter alia, held that
there was no contract, express or implied, between the coffee grower
and the Board and that the object and scheme of the Act were analogous to the statutes in Australia, providing for compulsory acquisition
of pool marketing of agricultural produce. So far as the Madras High
Court held that the Indian Coffee Board was a dealer we accept the
same. The observation that there was no contract was made in the
D context of agency contract between the Coffee Board and the grower.
In or about 1957 Karnataka Sales Tax Act, 1957 was enacted and
the Mysore Sales Tax Act, 1948 repealed. 'Sale' is defined in section
2(t) and 'dealer' in section 2(k) of the said Act. Growers of agricultural
produce are not 'dealers' by reason of the Exception to section 2(k) of
E
the said Act. This position was not disputed before us. Section 5 of the
Act provides for levy of sales tax. Coffee is mentioned at item 43 in
Schedule II to the Karnataka Sales Tax Act. Sales tax on coffee is a
single point tax payable on the first sale in the State. The basic rate of
tax is 10% in Karnataka. The rate in Tamil Nadu, Andhra Pradesh and
Kerala is 6%.
F
The question involved in these appeals and the writ petitions is
the exigibility of tax on sale if there be any, by the growers of the
coffee to the Board. Basically, it must depend upon what is sale in the
general context as also in the context of the relevant provisions of the
Act namely, the Karnataka Sales Tax Act, 1957, as amended from
G
time to time, (hereinafter called the Karnataka Act) and the Central
Central Sales Tax Act, 1956, (hereinafter called the Central Act). We
must, however, examine these in the context of general law, namely,
the Sale of Goods Act, 1930 and the concept of sale in general. The
essential object of the contract of sale is the exchange of property for a
money price. There must be a transfer of property, or an agreement to
H transfer it, from one party, the seller, to the other, the buyer, in
•
COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJl,J.[
359
consideration of a money payment or a promise thereof by the buyer.
A
Lord Denning, M.R., in C.E.B. Draper & Sons Ltd. v . .Edward
Turner & Son Ltd., [1965] 1 Q.B. 424, at page 432, observed as
follows:
•
"I know that often times a contract for sale is spoken of as a
sale. But the word 'sale' properly connotes the transfer of
the absolute or general property in a thing for a price in
money (see: Benjamin on sale, 2nd ed. (1873) p. 1 quoted
B
in Kirkness v. John Hudson & Co., [1955] A.C. 696, 708,
719. In this Act of 1926 I think that 'sale' is used in its
proper sense to denote the transfer of property in the C
goods. The sale takes place at the time when the property
passes from the seller to the buyer and it takes place at the
place where the goods are at that time. Lord Denning was
speaking for the English Act of 1926 for the sale of Goods
Act.
D
In the Sale of Goods Ac.t, 1930, (hereinafter called the 'Sale of
Goods Act') Contract of sale of goods is defined under sectiion 4(1) as
a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. It also stipulates by sub-section
( 4) of section 4 that an agreement to sell becomes a sale when the time E
elapses or the conditions are fulfilled subject to which the property in
the goods is to be transferred.
Benjamin's Sale of Goods (2nd Edition) states that leaving aside
the battle of forms, sale is a transfer of property in the goods by one,
the seller, to the other, the buyer.
Under the Karnataka Sales Tax Act, sale is defined under
section 2(t) as:
F
"Sale" with all its grammatical variations and cognate
expressions means every transfer of the property in goods G
by one person to another in the course of trade or business
for case or for deferred payment or other valuable consideration, but does not include a mortgage, hypothecation,
charge or pledge."
The Central Act defines "sale" as under in section 2(g):
H
A
B
c
360
SUPREME COURT REPORTS
I 1988] Supp. 1 S.C.R.
"Sale" with its grammatical variations and cognate expressions, means any transfer of property in goods by one
person to another for case or for deferred payment or for
any other valuable consideration, and includes a transfer of
goods on the hire-purchase or other system of payment by
instalments, but does not include a mortgage or hypothecation of or a charge or pledge on goods." .
Coffee Board is a 'dealer' duly registered as such under the Sales
Tax Acts of all the States in which it holds auctions/maintains depots/
runs coffee houses. The Board is also registered as a 'dealer' under the
Central Sales Tax Act. The Board collects and remits sales tax on all
the coffee sold by it for domestic consumption to the State in which the
sale takes place. Coffee is sold through auctions held in the States of
Kamataka, Tamil Nadu and Andhra Pradesh, and also through the
Board's own depots located in nine States. Sale is also effected by way
of allotments to cooperative societies. The Board directly exports
coffee and also sells coffee to registered exporters through separate
D export auctions. It may be mentioned that over fifty per cent of the
coffee is produced in Kamataka and most of the Robusta variety of
coffee is produced in Kerala. All the coffee produced in these States
cannot be sold within the State where the coffee is produced. Coffee
meant for export has also to be stored at convenient places. The
Board, therefore, transfers coffee from one State to another. Sales tax
E is not payable or paid on the transfer of such coffee. In order to
appreciate the actual controversy and the point at issue in the insta!}t
case, it is vital to appreciate the real nature of the transaction.
In 1966 this Court in the case of State of Kera/av. Bhavani Tea
Produce Co., ]1966] 2 S.C.R. 92, (an unanimous decision of a Bench
F
of five learned judges) which arose under the Madras Plantations
Agricultural In'come Tax Act, 1955, held that when growers delivered
coffee under section 25 of the Act to the Board all their rights therein
were extinguished and the coffee vested exclusively in the Board. This
Court observed that when growers delivered coffee to the Board,
though the grower "does not actually sell" the coffee to the Board,
G there was a 'sale' by operation of law. This was in connection with
section 25 of the Act. The Court, however, did not hold that there was
a taxable 'sale' by the grower to the Board in the year in question. The
sale, according to this Court in that case took place in earlier years in
which the Agricultural Income Tax Act did not operate. All the States
in which coffee is grown and all the persons concerned with the coffee
H industry, it is asserted on behalf of the Additional Solicjtor General,
COFFEE BOARD'· COMMR. OFCOMMERCIAL TAXES [MUKHARJI,J.[
361
understood this decision as laying down that the 'sale by operation of
law' mentioned therein only meant the 'compulsory acquisition' of the
coffee by the Coffee Board.
We are, however, bound by the clear ratio of this decision. The
Court considered this question "was there a sale to the Coffee
Board?" ai page 99 of the Paper Book and after discussing clearly said
the answer must be in the affirmative. It was rightly argued, in our
opinion, by Dr. Chitale on behalf of the respondents that the question
whether there was sale or not or whether the Coffee Board was a
trustee or an agent could not have been determined by this Court, as it
A
B
was done in this case unless the question was specifically raised and
determined. We cannot also by-pass this decision by the argument of
the learned Additional Solicitor General that section 10 of the Act had
C
not been considered or how it was understood by some. This decision
in our opinion concludes all the issues in the instant appeal.
·
In 1970 purchase tax was introduced. The Kamataka·Sales Tax
Act was amended by Karnataka Act 9 of 1970 and section 6 was subD
stituted. The new section 6 provided for the levy of purchase tax on
every dealer who in the course of his business purchased any taxable
goods in circumstances in which no tax under section 5 was leviable
and, inter alia, despatched these to a place outside the State, at the
same rate at which tax would have been leviable on the sale price of
such goods under section 5 of the Kamataka Act. The delivery of
E
coffee by the coffee growers to the Coffee Board not being treated a
purchase by the Board, the State did not demand any tax from the
Board in respect of such deliveries. Demands were raised for the first
time in 1983. Assessments for the years upto 1975 were completed
without any demand for purchase tax being raised.
This Court on or about 15th of April, 1980 in the case of
Consolidated Coffee Ltd. and Anr. etc. v. Coffee Board, Bangalore etc.
etc., [1980) 3 S.C.R. 625 held that sale of coffee at export auctions
were sales which preceded the actual export and thus exempt from
sales tax under section 5(3) of the Central Sales Tax Act. The Court
F
also directed the State Governments to refund the amounts collected
G
as sales tax on such sales and set a time limit for effecting such refunds.
The Kamataka Government, as a consequence, became liable to re
fund to the Coffee Board about Rs. 7 crores which amount in tum was
to be refunded by the Board to the exporters. In 1981 the Commis
sioner of Sales Tax, Kamataka informed the Board by a letter that the
mandatory delivery of coffee to the Board by the grower would be
H
362
SUPREME COURT REPORTS
[19881 Supp. 1 S.C.R.
A regarded as 'sale' and that the Board should pay purchase tax as the
coffee growers, being agriculturists are not 'dealers'. It is the case of
the Coffee Board that no such claim had been made at any time in the
past in any of the States in India. The Commissioner issued a showcause notice proposing to re-open the assessment for the year 1974-75.
In June 1982 pre-assessment notice was sent by the authorities proposB ing to assess the Board to purchase tax for the assessment year 1975-76
(
and a sum of Rs.3.5 crores was demanded as purchase tax on the
coffee transferred from Kamataka to outside the State either as stock
1.
transfers or as exports directly to buyers abroad.
In August 1982 Coffee Board along with two coffee growers filed
C
writ petitions being writ petition Nos. 15536 to 1554-0 of 1982 in the
High Court of Kamataka praying for a declaration that the mandatory
delivery of coffee under section 25(i) of the Act was not sale and that
section 2(t) of the Kamataka Sales Tax Act required to be struck down
if the same encompassed compulsory acquisition also. The show cause
notice and the preassessment notice were also challenged and prayers
D were made for quashing the same. The High Court granted interim
stay. In the meantime on or about 3rd of February, 1983 Constitution
( 46th Amendment) Act, 1983 came into force and the definition of
"Tax on sale or purchase of goods" was added by insertion of clause
29A in Article 366. This definition is prospective in operation. Subsequent to 3rd of February, 1983, the Kamataka Sales Tax Act was
E amended by Act 10 of-1983, Act 23/1983 and Act 8/1984. The definition of 'sale' in section 2(t), however, was not amended. That definition was amended with effect from !st of August, 1985 by the
Kamataka Act 27 of 1985. After hearing the State Government, the
High Court made absolute the stay of further proceedings pursuant to
the show cause notice of the Commissioner proposing to re-open the
F
assessment for the year 1974-75. The Court modified the stay order
regarding the pre-assessment notice and permitted the completion of
assessment reserving liberty to the Coffee Board to move the High
Court after the assessment was completed. On 31st of May, 1983
assessment order was made for the year 1975-76. On or about 17th of
June, 1983 demand for Rs.3.5 crores as arrears of tax for the assessG ment year 1975-76 was issued to the Coffee. Board.