# CONSOLIDATED COFFEE LTD. AND ANR. ETC v. COFFEE BOARD, BANGALORE ETC. ETC

- **Citation:** [1980] 3 S.C.R. 625
- **Court:** Supreme Court of India
- **Decided:** 1980-04-15
- **Bench:** V. D. Tulzapurkar, D. A. Desai, A. P. Sen
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/consolidated-coffee-ltd-and-anr-etc-v-coffee-board-bangalore-etc-etc-8205
- **Pages:** 51

## Headnote

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,"
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
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
section 5 of the Coffee Act, I 942, an enactment passed to provide for the development of the Coffee industry under the Control of the Union. The Coffee Board
under various sections of the Coffee Act, exercises complete control-almost monopolistic-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
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
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
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 participate in such auctions on those terms and conditions. Clause 3 of the "Auction
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SUPREME COURT REPORTS
[1980] 3 s.c.R.
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 conditions 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 behalf 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
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 f

## Text

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625
CONSOLIDATED COFFEE LTD. AND ANR. ETC.
v.
COFFEE BOARD, BANGALORE ETC. ETC.
April 15, 1980
[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,"
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
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
section 5 of the Coffee Act, I 942, an enactment passed to provide for the development of the Coffee industry under the Control of the Union. The Coffee Board
under various sections of the Coffee Act, exercises complete control-almost monopolistic-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
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
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
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 participate in such auctions on those terms and conditions. Clause 3 of the "Auction
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SUPREME COURT REPORTS
[1980] 3 s.c.R.
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 conditions 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 behalf 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
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
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
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,.
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).
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
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CONSOLIDATED COFFEE V. COFFEE BOARD
627
of section 5(3) of the Central Sales Tax as amended by Amendment Act 103of1976,
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
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 penultimate 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
conditions, the Coffee Board has insisted upon such Exporters making contingency
deposits or furnish bank guarantees for amount equivalent 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 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 auctions during the period of the retrospectivity and for few months more and thereafter the Coffee Board has, in tenns of the said Circular, obtained from the petitioners 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 construction 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 February 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 Amendment Act 103 of t 976 is not ultra vi res Article 286(2) of the Constitution and the
said provision neither creates any legal fiction nor is it beyond the po\ver or authority 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
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
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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
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
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
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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,
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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
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
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 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) 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]
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
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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
to have only statutory b,dies, 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 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" before 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
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 ' occurring- 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
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 c0urse of export"
and· the said exPression occurring in Art. 286 (1) (b) of the Constitution was conScrued 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
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 determining when a sale or purchase took pJace 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 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
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-
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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
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
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 Parliament 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
Amendment Act 103 of 1966; first Mohd. Serajuddin's decision is specifically referred 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
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 requirement 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 manufacturers 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
of the canalising agency or the export house has with it the foreign buyer's contract. 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
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
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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 exports 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 ex Ports 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
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
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export which afforded the inextricable link between the sale and the export. [657A-B]
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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 results 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 depend 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
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]
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 otherwise 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'
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
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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
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.
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 completion 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~
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tained goods and nothing remains to be done
0to the good~ for Pttttin2 theni in a
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 because 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 auction 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 •.
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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
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
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)
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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:
(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 (Registered 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 promiser and promisee between the pilrties in an executory contract, which is very
clear from clause 13 (a) of the Auction conditions. [670C-F]
(b) Clause 19 principally deals with aspects of delivery, weighment and payment 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
place till the full price is paid and the coffee sold is weighed and set apart for delivery. 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 weighment 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.
(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 weighment and setting apart the coffee sold for delivery to the buyer, the property in
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
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SUPREME COURT REPORTS
[1980) 3 S.C.R.
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 exportation
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 conducted 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 delivery to the buyer. [671C-F, 672C-D]
(d) Passing of the property in such coffee cannot be said to be further postponed 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
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
appropriated to the contract, the seller may by terms of the contract or appropriation, 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
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
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 further 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 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. 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•
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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.