Coffee
Board, Karnataka, Bangalore Vs. Commissioner of Commercial
Taxes [1988] INSC 164 (11
May 1988)
Mukharji,
Sabyasachi (J) Mukharji, Sabyasachi (J) Pathak, R.S. (Cj) Natrajan, S. (J)
CITATION:
1988 AIR 1487 1988 SCR Supl. (1) 348 1988 SCC (3) 263 JT 1988 (2) 448 1988
SCALE (1)1055
CITATOR
INFO : D 1990 SC 781 (34)
ACT:
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 section 25(1)-Of-Is compulsory acquisition and not sale or
purchase to attract levy of purchase tax.
HEAD NOTE:
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 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 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 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 be exigible
to sales or purchase tax under the relevant 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
a common judgment. The Coffee Board filed appeals in this Court by 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.
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 Court.
^
HELD:
The question involved in these appeals and the writ petitions 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 the Karnataka Sales Tax Act 1957 as
amended from time to time, and 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] Coffee Board is a 'dealer'
registered as such under the Central 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.
[360B,E]
This Court (Bench of Five Judges) in the case of State of Kerala v. Bhavani Tea
Produce Co., [1966] 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 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
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 350 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 administration 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
levy of duties of excise and customs under sections 11 and 12 of the Coffee Act
are inconsistent with the concept of compulsory acquisition. Section 13(4) of
the Coffee Act clearly fixes the liability for 351 payment of duty of excise on
the registered owner of the estate producing coffee. The Board is required to
deduct the amount of duty payable by such owner from the payment to the grower
under section 34 of the Act. The duty payable by the grower is a first charge
on such pool payment becoming due to the grower from the Board. Section 11 of
the Act provides for levy of duty of customs on coffee exported out of India.
This
duty is payable to the Customs Authorities at the time of actual export. The
levy and collection of this duty 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 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 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 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-B]
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. [378D]
352 Civil Writ Petition No. 358 of 1986 was dismissed. Re. Writ Petition 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 petitioner vis-a-vis
the Coffee Board in respect of the Sales Tax due and payable on the
transactions between the parties in appropriate 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 if necessary for the determination of the liabilities inter se
between the petitioners and the Coffee Board for the amount of the 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] 1 Q.B. 424;
State of Kerala v. Bhavani Tea Produce Co., [1966]
2 S.C.R. 92; Consolidated Coffee Ltd. & Anr. etc. v. Coffee Board, Bangalore, etc. 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,
[1968] 1 S.C.R. 479; State of Madras v. Gannon Dunkerley & Co. Ltd., [1959]
S.C.R. 379; New India Sugar Mills v. Commissioner of Sales Tax, Bihar, [ 19631 Suppl.
2 S.C.R. 459; Charanjit Lal Choudhury v. The Union of India & Ors., [1950]
1 S.C.R. 869;
State
of Karnataka and another etc. v. Ranganatha Reddy and Anr. etc., [1978] 1
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, 119761 1 S.C.R. 38,
referred to.
CIVIL
APPELLATE/ORIGINAL JURISDICTION: Civil Appeal Nos. 4522-4529 of 1985 etc. etc
From the Judgment and order dated 16.8.1985 of the Karnataka High Court in W P.
Nos t5536-40/1982 and W P. Nos. 13981, 17071, . 17072. 19118 and 19285/ 1983.
G. Ramaswami.
Additional Solicitor General, R J Babu, R.F Nariman, Ranjan Karanjawala, Mrs.
M. Karanjawala and Ejaz Maqbool for the Appellant in C.A. Nos 4522-29/1985 Shanti
Bhushan, Kapil Sibal, Soli J. Sorabjee, G.B. Pai, V.A 353 Bobde, K.P. Kumar, R.
Vasudevan, K.T. Anantharaman, Harish N. Salve, H.K. Dutt, Ms. Mridula Ray, O.C.
Mathur, Ms. Meera Mathur and Ms. Lekha Mathur for the Petitioners in W.P. Nos.
36, 37, 39 and 358 of 1986.
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 the Court was delivered by SABYASACHI MUKHARJI, J. These appeals by
certificates are from the judgment and order of the High Court of Karnataka 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 all marketing rights of the growers was
'compulsory acquisition' and not sale or purchase to attract levy of purchase
tax; it was further contended that the appellant was only a 'trustee' or
'agent' of growers not exigible to purchase tax and that all export sales were
'in the course of export' immune to tax under Article 286 of the Constitution.
It was
held by the Division Bench of the Karnataka 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.
The
power conferred on the Board under section 25(2) of the Coffee Act, to which we
will make reference later, to reject coffee offered for delivery or even the
right of a buyer analogous to section 3;' of the Sale of Goods Act showed that
there was an element of consensuality in the compulsory sales regulated by the
Act. The amount paid by the Board to the grower under the Act was the value or
price of coffee in conformity with the detailed accounting done thereto under
354 the Act. It was further held by the High Court that the amount paid to the
grower was neither compensation nor dividend. The payment of price to the
grower was an important element to determine the consensuality test to find out
whether there was sale under section 4(1) of the Sale of Goods Act. The Act
also ensures periodical payments of price to the growers. The Rules provide for
advancing loans to growers. Therefore, according to the Division Bench of the
Karnataka High Court without any shadow of doubt these elements indicated that
in the compulsory sale of coffee, there was an element of consensuality. When
once the Board was held to be a 'dealer' it also followed from the same that
there was sale by the grower, purchase by the Board and then a sale by the
Board. The purchases and the exports if any made by the Board thereafter on any
principle would not be 'local sales' within the State of Karnataka.
Explanation
3(2)(ii) to section 2(1) of the Karnataka Sales Tax Act had hardly any
relevance to hold that the later export sales were 'local sales' to avoid
liability under section 6 of the Karnataka Sales Tax Act. The direct export
sales made by the appellant for the period in challenge were not 'in the course
of export' and they did not qualify for exemption from purchase tax under
section 6 of the Karnataka Sales Tax Act. The levy of sales tax on coffee, it
was held by the High Court fell, under Entry 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 grown by the growers and delivered to the Board was not at all
compulsory acquisition but was sale. If it was compulsory acquisition and there
was payment of compensation, then these provisions would not have found their
places in the Coffee Act at all, according to the High Court. Levy of Customs
and Excise Duties on compensation was something unheard, an incongruity and an
anachronism in compulsory acquisition, according to the High Court.
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 telescope 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 internal sale quota allotted and grown on the estates
which were henceforth to be registered, were required to be compulsorily
delivered to the surplus pool of the Coffee Market Expansion Board set up under
the ordinance. The 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
356 on or about 26th March, 1943 the Act was amended, inter alia, to enable the
Coffee 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 al1owed 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 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 enacted. 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 under the Coffee Market Expansion ordinance, 1940 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)
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 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 the Board excepting the right to receive
payment under section 34 of 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 to 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.
Learned
Additional Solicitor General sought to urge before us 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 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 on 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 was drawn to the 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 be utilised for making payments to growers who had delivered
coffee in that 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 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 have increased greatly.
358 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 l0 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
ex ported in the year 1984-85.
The
Madras High Court in the case of Indian Coffee Board v. / State of Madras, S
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 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 the said Act. This
position was not disputed before us. Section S 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 l0% in Karnataka. The rate in Tamil Nadu,
Andhra Pradesh and Kerala is 6%.
The
question involved in these appeals and the writ petitions is the exigibility of
tax on sale if there be any, by the growers of the coffee to the Board.
Basically, it must depend upon what is sale in the general context as also in
the context of the relevant provisions of the Act namely, the Karnataka Sales
Tax Act, 1957, as amended from time to time, (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 transfer
it, from one party, the seller, to the other, the buyer, in 359 consideration
of a money payment or a promise thereof by the buyer.
Lord
Denning, M.R., in C.E.B. Draper & Sons Ltd. v. Edward Turner & 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
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 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 Act, 1930, (hereinafter
called the 'Sale of Goods Act') Contract of sale of goods is defined under
section 4(1) as a contract whereby the seller transfers or agrees to transfer
the property in goods to the buyer for a price. It also stipulates by
sub-section (4) of section 4 that an agreement to sell becomes a sale when the
time elapses or the conditions are fulfilled subject to which the property in
the goods is to be transferred.
Benjamin's
Sale of Goods (2nd Edition) states that leaving aside the battle of forms, sale
is a transfer of property in the goods by one, the seller, to the other, the
buyer. F Under the Karnataka Sales Tax Act, sale is defined under section 2(t)
as:
"Sale" with all its grammatical variations and
cognate expressions means every transfer of the property in goods 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):
360
"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 Karnataka, Tamil Nadu and
Andhra Pradesh, and also through the Board's own depots located in nine States.
Sale is also effected by way of
allotments to cooperative societies. The Board directly exports coffee and also
sells coffee to registered exporters through separate export auctions. It may
be mentioned that over fifty per cent of the coffee is produced in Karnataka
and most of the Robusta variety of coffee is produced in Kerala. All the coffee
produced in these States cannot be sold within the State where the coffee is
produced. Coffee meant for export has also to be stored at convenient places.
The Board, therefore, transfers coffee from one State to another. Sales tax is
not payable or paid on the transfer of such coffee.
In
order to appreciate the actual controversy and the point at issue in the
instant case, it is vital to appreciate the real nature of the transaction.
In
1966 this Court in the case of State of Kerala v. Bhavani Tea Produce Co., [1966] 2 S.C.R. 92, (an unanimous decision
of a Bench of five learned judges) which arose under the Madras Plantations
Agricultural Income Tax Act, 1955, held that when growers delivered coffee
under section 25 of the Act to the Board all their rights therein were
extinguished and the coffee vested exclusively in the Board.
This
Court observed that when growers delivered coffee to the Board, though the
grower "does not actually sell" the coffee to the Board, there was a
'sale' by operation of law.
This
was in connection with section 25 of the Act. The Court, however, did not hold
that there was a taxable 'sale' by the grower to the Board in the year in
question. The sale, according to this Court in that case took place in earlier
years in which the Agricultural Income Tax Act did not operate. All the States
in which coffee is grown and all the persons concerned with the coffee
industry, it is asserted on behalf of the Additional Solicitor General,
NIRANJAN 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?" at 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 was done in this case unless the question was specifically raised
and determined. We cannot also by-pass this decision by the argument of the
learned Additional Solicitor General that section 10 of the Act had not been
considered or how it was understood by some. This decision in our opinion
concludes all the issues in the instant appeal.
In
1970 purchase tax was introduced. The Karnataka Sales Tax Act was amended by
Karnataka Act 9 of 1970 and section 6 was substituted. The new section 6
provided for the levy of purchase tax on every dealer who in the course of his
business purchased any taxable goods in circumstances in which no tax under
section 5 was leviable and, inter alia, despatched these to a place outside the
State, at the same rate at which tax would have been leviable on the sale price
of such goods under section 5 of the Karnataka Act.
The
delivery of coffee by the coffee growers to the Coffee Board not being treated
a purchase by the Board, the State did not demand any tax from the Board in
respect of such deliveries. Demands were raised for the first time in 1983.
Assessments
for the years 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 also directed the State Governments to refund the amounts collected
as sales tax on such sales and set a time limit for effecting such refunds. The
Karnataka Government, as a consequence, became liable to refund to the Coffee
Board about Rs.7 crores which amount in turn was to be refunded by the Board of
Directors to the exporters. In 1981 the Commissioner of Sales Tax, Karnataka
informed the Board by a letter that the mandatory delivery of coffee to the
Board by the grower would be 362 regarded as 'sale' and that the Board should
pay purchase tax as the coffee growers, being agriculturists are not 'dealers'.
It is the case of the Coffee Board that no such claim had been made at any time
in the past in any of the States in India. The Commissioner issued a show-cause notice proposing to re-open the
assessment for the year 1974-75. In June 1982 pre-assessment notice was sent by
the authorities proposing to assess the Board to purchase tax for the
assessment year 1975-76 and a sum of Rs.3.5 crores was demanded as purchase tax
on the coffee transferred from Karnataka to outside the State either as stock
transfers or as exports directly to buyers abroad.
In
August 1982 Coffee Board along with two coffee growers filed writ petitions
being writ petition Nos. 15536 to 15540 of 1982 in the High Court of Karnataka
praying for a declaration that the mandatory delivery of coffee under section
25(i) of the Act was not sale and that section 2(t) of the Karnataka Sales Tax
Act required to be struck down if the same encompassed compulsory acquisition
also. The show cause notice and the preassessment notice were also challenged
and prayers 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 Karnataka Sales Tax Act was 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 1st of
August, 1985 by the Karnataka Act 27 of 1985.
After
hearing the State Government, the High Court made absolute the stay of further
proceedings pursuant to the show cause notice of the Commissioner proposing to
re-open the assessment for the year 1974-75. The Court modified the stay order
regarding the pre-assessment notice and permitted the completion of assessment
reserving liberty to the Coffee Board to move the High Court after the
assessment was completed. On 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 assessment year 1975-76 was issued to the Coffee Board. On 2nd July, 1983, the High Court stayed the
assessment demand for purchase tax for the assessment year 1975-76. On or about
18th of June, 1983 the assessment order was issued for the year 1976-77.
The
Board was assessed on a taxable turnover of Rs.92.99 crores and Rs. 10.18 crores
was assessed as tax. Of this sum, Rs.8.06 crores is the demand on account of
purchase tax. Thereafter notice demanding payment of Rs.8.06 crores a 363
arrears of tax for the assessment year 1976-77 was issued.
The
Coffee Board filed a writ petition in August, 1983 being Writ Petition No.
13981 of 1983 challenging the assessment and the demand for the purchase tax
for the assessment year 1976-77. Rule was issued and the assessment as also
demand for purchase tax was stayed . In the meantime, notice of demand for
Rs.8.08 crores as arrears of tax for the assessment year 1977-78 was issued. In
September, 1983 Writ Petition No. 17071 of 1983 was filed by the Coffee Board
for the assessment year 1977-78. Rule was issued. Assessment and demand for
purchase tax was stayed. Similarly, Writ Petition No. 17072 of 1983 was filed
by the Coffee Board regarding assessment year 1978-79. Rule was issued.
Assessment and demand for purchase tax was stayed. In the meantime in October,
1983, there was another Writ Petition No. 19285 of 1983 filed challenging the
demand for the purchase tax for the year 1979-80. Rule was issued. Assessment
and demand was stayed. Writ Petition No . 19118 of 1983 was filed challenging
the demand of purchase tax for the year 1980-81.
Rule
was issued. Assessment and demand for purchase tax was stayed.
All
these writ petitions in January, 1984 were referred to the Division Bench for
hearing and disposal. It may be mentioned here that in or about May, 1984 the
Coffee Board started for the first time to collect contingency deposits to
cover purchase tax liability, if any, for the period 3.2.83 onwards subsequent
to the 46th Amendment to a limited extent. This was by a circular. It is stated
that the Board withheld about Rs.6.8 crores from the pool payment to growers
for the season 1982-83 for meeting in part the liability, if any, for the
purchase tax for the period subsequent to 3.2.1983. The Court however, in 1985
directed the appellant-Coffee Board to remit to the State Government Rs.6.8 crores.
The High Court also directed the Board to remit to the State Government Rs.1.5 crores
collected by the Board as contingency deposits between May and December, 1984.
The State Government undertook to return these monies with interest, in the
event of the writ petitions being allowed. By the judgment delivered on 16th August, 1985, the High Court dismissed the writ
petitions by a common judgment and various sums of money for the various years
became payable as purchase tax. The said judgment is reported in Indian Law
Reports, Karnataka, Vol. 36 at page 1365. These appeals challenge the said
decision.
In
view of the decision of the High Court several questions were canvassed in
these appeals. The questions were
(1) Was
there transfer of coffee to the Board from the coffee growers or acquisition?
(ii)
Was 364 there any element of sale involved?
(iii)
Was the Coffee Board trustee or agent for the coffee growers for sale to the
export market, and
(iv) if
it is sale, is it in the course of export of the goods to the territory outside
India?
The
first and the basic question that requires to be considered in these appeals is
whether the acquisition of coffee by the Board is compulsory acquisition or is
it purchase or sale?
As
mentioned all the questions were answered by this Court in Bhavani Tea Produce Co's
case (supra) against the appellant. We were, however, invited to compare the
transaction in question with transactions in Peanuts Board v. The Rockhampton Harbour Board, 48 Commonwealth Law Reports 266). Was there any
mutuality? In this connection it is necessary to analyse and compare the
decision of this Court in Vishnu Agencies (Pvt.) Ltd. etc. v. Commercial Tax
officer and others etc., [1978] 2 S.C.R. 433 and to what extent the principles
enunciated in the said decision affect the position. In order to address
ourselves to the problem posed before this Court, we must bear in mind the
history and the provisions of the Coffee Market Expansion Act, 1942, under
which the Board was constituted, which we have already noted.
The
control of marketing of farm produce for the economic benefit of the producers
and to bring about collective marketing of the produce is a recognised feature
of Governments of several countries, particularly, United States of America, Britain and Australia. The object was to prevent
unhealthy competition between the producers, to secure the best price for the
produce in the local market, to conserve for local consumption as much produce
as was needed and to make available the surplus for export outside the States
and also to foreign markets. The method usually adopted to achieve the object
is to establish a marketing board with power to control the price, to obtain
possession of the produce and to pool it with a view to collective marketing.
The legislation in this behalf is compendiously described as "pooling
legislation" and is based on the fundamental idea that the collectivist economy
is superior to individualistic economy. There are therefore, different
marketing boards for different kinds of produce, such as sugar, dairy produce,
wheat, lime fruit, apples, pears and so on. The Indian Coffee Market Expansion
Act was modelled somewhat on the lines which obtained in other countries and
was intended to control the development of the coffee industry and to regulate
the export and sale of coffee. If, however, the transaction amounts to sale or
purchase under the relevant Act then that is the end of the matter.
All
parties drew our attention to the decision in the case of Vishnu Agencies Pvt.
Ltd. (supra). There the Court was concerned 365 with the Cement Control order
and the transactions taking place under the provisions of that control order.
The Cement Control order was promulgated under the West Bengal Cement Control
Act, 1948 which prohibited storage for sale and sale by a seller and purchase
by a consumer of cement except in accordance with the conditions specified in
the licence issued by a designated officer. It also provided that no person
should sell cement at a higher price than the notified price and no person to
whom a written order had been issued shall refuse to sell cement "at a
price not exceeding the notified price". Any contravention of the order
became punishable with imprisonment or fine or both.
Under
the A.P. Procurement (Levy and Restriction on Sale) order, 1967, (Civil Appeals
Nos. 2488 to 2497 of 1972) every miller carrying on rice milling operation was
required to sell to the agent or an officer duly authorised by the Government,
minimum quantities of rice fixed by the Government at the notified price, and
no miller or other person who gets his paddy milled in any rice-mill can move
or otherwise dispose of the rice recovered by milling at such rice-mill except
in accordance with the directions of the Collector. Breach of these provisions
became punishable.
It was
held dismissing the appeals that sale of cement in the former case by the allottees
to the permit holders and the transactions between the growers and procuring
agents as well as those between the rice millers on the one hand and the
wholesalers or retailers on the other, in the latter case, were sales exigible
to sales-tax in the respective States. It was observed by Beg, C.J. that the
transaction in those cases were sales and were exigible to tax on the ratio of
Indian Steel and Wire Products Ltd., Andhra Sugar Ltd., and Karam Chand Thapar,
[1968] 1 SCR 479. In cases like New India Sugar Mills, the substance of the
concept of a sale itself disappeared because the transaction was nothing more
than the execution of an order. The Chief Justice emphasised that deprivation
of property for a compensation called price did not amount to a sale when all
that was done was to carry out an order so that the transaction was
substantially a compulsory acquisition. On the other hand, a merely regulatory
law, even if it circumscribed the area of free choice, did not take away the
basic character or core of sale from the transaction. Such a law which governs
a class obliges a seller to deal only with parties holding licences who may buy
particular or allotted quantities of goods at specified prices, but an
essential element of choice was still left to the parties between whom agreements
took place. The agreement, despite considerable compulsive elements regulating
or restricting the area of his choice, might still retain the basic character
of a transaction of sale. In the former type of cases, the binding character of
the transaction arose from the order directed to particular parties asking them
366 to deliver specified goods and not from a general order or law applicable
to a class. In the latter type of cases, the legal tie which binds the parties
to perform their obligations remains contractual. The regulatory law merely
adds other obligations, such as the one to enter into such a tie between the
parties. Although the regulatory law might specify the terms, such as price,
the regulation is subsidiary to the essential character of the transaction
which is consensual and contractual. The parties to the contract must agree
upon the same thing in the same sense.
Agreement
on mutuality of consideration, ordinarily arising from an offer and acceptance,
imports to it enforceability in courts of law. Mere regulation or restriction
of the field of choice does not take away the contractual or essentially
consensual binding core or character of the transaction. Analysing the Act, it
was observed that according to the definition of "sale" in the two
Acts the transactions between the appellants in that case and the allottees or
nominees, as the case may be, were patently sales because in one case the
property in the cement and in the other property in the paddy and rice was
transferred for cash consideration by the appellants. When the essential goods
are in short supply, various types of orders are issued under the Essential
Commodities Act, 1955 with a view to making the goods available to the consumer
at a fair price. Such orders sometimes provide that a person in need of an
essential commodity like cement, cotton, coal or iron and steel must apply to
the prescribed authority for a permit for obtaining the commodity. Those
wanting to engage in the business of supplying the commodity are also required
to possess a dealer's licence. The permit-holder can obtain the supply of
goods, to the extent of the quantity specified in the permit and from the named
dealer only and at a controlled price. The dealer who is asked to supply the
stated quantity to the particular permit-holder has no option but to supply the
stated quantity of goods at the controlled price. Then the decisions in State
of Madras v. Gannon Dunkerley & Co. Ltd., [1959] S.C.R. 379 and New India
Sugar Mills v. Commissioner of Sales Tax, Bihar, [1963] Suppl. 2 S.C.R.459 were
discussed and the correctness of the view taken in the former case was doubted
and the majority opinion in the latter case was overruled.
It was
submitted by the learned Additional Solicitor General that these cases, namely,
Bhavani Tea Estate (supra) and Vishnu Agencies (supra) would have no
application within the set up of the Coffee Act because the provisions of the
statute expressly provided that there could be no sale or contract of sale, yet
the High Court had for purposes of Sales Tax assumed (notwithstanding the
statutory prohibi- 367 tion) that the transaction contemplated by the statute
in the present case, the mandatory delivery, would be a sale.
It was
submitted that where a statute prohibited a registered owner from selling or
contracting to sell coffee from any registered estate, there could be no
implication of any purchase on the part of the Coffee Board of the coffee
delivered pursuant to the mandatory provisions of section 25(1) of the Act. It
was urged that section 17 of the Coffee Act read with sections 25 and 47 enacts
what since 1944 is a total prohibition against the sale of coffee by growers
and corresponding purchase of coffee from growers. In view of section 17 read
with section 25, purchase by the Coffee Board of coffee delivered under section
25(1) was also impliedly prohibited. It is in view of this express prohibition
of sale and corresponding implied prohibition of purchase that the Act provided
the only method of disposal of coffee, viz., by the delivery of all coffee to
the Coffee Board with no rights attached on such delivery, save and except the
statutory right under section 34. It was also argued that the Legislature has
made a conscious difference between acquisition of coffee by compulsory
delivery by the growers under Section 25(1) of the Act and purchase of coffee
by the Board under Section 26(2) and, as such, compulsory delivery of coffee
under Section 25(1) cannot constitute a sale transaction as known to law
between the growers and the Coffee Board. We are, however, unable to accept the
submissions of the learned Additional Solicitor General. All the four essential
elements of sale-(1) parties competent to contract, (2) mutual consent-though
minimal, by growing coffee under the conditions imposed by the Act, (3)
transfer of property in the goods and (4) payment of price though deferred,-are
present in the transaction in question.
As
regards the provisions under Section 26(2) empowering the Coffee Board to
purchase additional coffee not delivered for inclusion in the surplus pool, it
is only a supplementary provision enabling the Coffee Board to have a second
avenue of purchase, the first avenue being the right to purchase coffee under
the compulsory delivery system formulated under Section 25(1) of the Act. The
scheme of the Act is to provide for a single channel for sale of coffee grown
in the registered estates. Hence, the Act directs the entire coffee produced
except the quantity allotted for internal sale quota, if any, to be sold to the
Coffee Board through the modality of compulsory delivery and imposes a
corresponding obligation on the Coffee Board to compulsorily purchase the
coffee delivered to the pool, except:
(1) where
the coffee delivered is found to be unfit for human 368 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.
Since
all persons including the Coffee Board are prohibited from purchasing/selling
coffee in law, there could be no sale or purchase to attract the imposition of
sales/purchase tax it was urged. Even if there was compulsion there would be a
sale as was the position in Vishnu Agencies (supra). This Court therein
approved the minority opinion of Hidayatullah, J. in New India Sugar Mills v.
Commissioner of Sales Tax (supra). In the nature of the transactions
contemplated under the Act mutual assent either express or implied is not
totally absent in this case in the transactions under the Act. Coffee growers
have a volition or option, though minimal or nominal to enter into the coffee
growing trade. Coffee growing was not compulsory.
If any
one decides to grow coffee or continue to grow coffee, he must transact in
terms of the regulation imposed for the benefit of the coffee growing industry.
Section 25 of the Act provides the Board with the right to reject coffee if it
is not up to the standard. Value to be paid as contemplated by the Act is the
price of the Coffee. Fixation of price is regulation but is a matter of dealing
between the parties. There is no time fixed for delivery of coffee either to
the Board or the curer. These indicate consensuality which is not totally absent
in the transaction.
It was
urged that regard having been to the sovereign nature of the power exercised by
the Coffee Board and the scheme of the Coffee Act, the ratio of Vishnu Agencies
(supra) will not apply to the acquisition of coffee under section 25(1) by the
Coffee Act. It is in this connection appropriate to refer to the question of
compulsory acquisition and this naturally leads to the problem of exercising
eminent domain by the State. It is trite knowledge that eminent domain is an
essential attribute of sovereignty of every state and authorities are universal
in support of the definition of eminent domain as the power of the sovereign to
take property for public use without the owner's consent upon making just
compensation. Nichols on Eminent Domain (1950 Edition) a classic authority on
the subject, defines 'eminent domain' as 'the power of the sovereign to take
property for public use without the owner's consent'; see para 1.11 page 2 of
Vol. 1 which elaborates the same in these words:
369
"...This definition expresses the meaning of the power in its irreducible
terms:
(a)
Power to take, (b) Without the owner's consent, (c) For the public use.
All
else that may be found in the numerous definitions which have received judicial
recognition is merely by way of limitation or qualification of the power. As a
matter of pure logic it might be argued that inclusion of the term 'for the
public use' is also by way of limitation. In this connection, however, it
should be pointed out that from the very beginning of the exercise of the power
the concept of the 'Public use' has been so inextricably related to a proper
exercise of the power that such element must be considered as essential in any
statement of its meaning. The 'public use' element is set forth in some
definitions as the 'general welfare', the 'welfare of the public', the 'public
good', the 'public benefit' or 'public utility or necessity'.
It
must be admitted, despite the logical accuracy of the foregoing definition and
despite the fact that the payment of compensation is not an essential element
of the meaning of eminent domain, that it is an essential element of the valid
exercise of such power. Courts have defined eminent domain so as to include
this universal limitation as an essential constituent of its meaning. It is
much too late in the historical development of this principle to find fault
with such judicial utterances. The relationship between the individual's right
to compensation and the sovereign's power to condemn is discussed in Thayer's
cases on Constitutional Law. But while this obligation (to make compensation)
is thus well established and clear let it be particularly noticed upon what
ground it stands, viz., upon the natural rights of the individual. On the other
hand, the right of the State to take springs from a different source, viz, a
necessity of government. These two, therefore, have not the same origin; they
do not come, for instance, from any implied contract between the state and the
individual, that the former shall have the property, if it will make
compensation; the right is no mere right of pre-emption, and it has no
condition of compensation annexed to it, either precedent or subsequent. But,
there is a right to take, and 370 attach to it as an incident, an obligation to
make compensation; this latter, morally speaking, follows the other, indeed
like a shadow, but it is yet distinct from it, and flows from another
source." It is concluded thus:
"Accordingly,
it is now generally considered that the power of eminent domain is not a
property right, or an exercise by the state of an ultimate ownership in the
soil, but that it is based upon the sovereignty of the state. As the sovereign
power of the state is broad enough to cover the enactment of any law affecting
persons or property within its jurisdiction which is not prohibited by some
clause of the Constitution of the United States, and as the taking of property
within the jurisdiction of a state for the public use upon payment of
compensation is not prohibited by the constitution of the United States, it
necessarily follows that it is within the sovereign power of a state, and it
needs no additional justification." Cooley in his treatise on the
Constitutional Limitations Chapter XV expressed the same view at page 524 of
the book in these words:
"...
More accurately, it is the rightful authority which must rest in every
sovereignty to control and regulate those rights of a public nature which
pertain to its citizens in common and to appropriate and control individual
property for the public benefit, as the public safety, convenience or necessity
may demand." In Charanjit Lal Chowdhury v. The Union of India and others,
[1950] 1 S.C.R. 869, Mukherjea, J. as the learned Chief Justice then was, while
examining the scope and ambit of Article 31 of the Constitution observed as
follows:
"It
is a right inherent in every sovereign to take and appropriate private property
belonging to individual citizens for public use. This right, which is described
as eminent domain in American law, is like the power of taxation, and offspring
of political necessity, and it is supposed to be based upon an implied
reservation by Government that private property acquired by its citizens under
its pro 371 tection may be taken or its use controlled for public benefit
irrespective of the wishes of the owner." This Court in the State of Karnataka and another etc. v. Ranganatha
Reddy and another etc., [1978] 1 S.C.R. 641 held that the power of acquisition
could be exercised both in respect of immovable and movable properties.
While
conceding the power of acquisition of coffee in exercise of eminent domain, the
scheme contemplated under the Act was not an exercise of eminent domain power.
The Act was to regulate the development of coffee industry in the country. The
object was not to acquire coffee grown and vest the same in the Board. The
Board is only an instrument to implement the Act.
The
High Court in its judgment has rightly observed that the Board has been chosen
as the instrumentality for the administration of the Act. The role of the Board
of this type has been noted in three Australian decisions which must be taken
note of. It is appropriate at this stage to refer to the decision of the
Australian High Court, in Peanuts Board v. The Rockhampton Harbour Board,
(supra). The question posed before the High Court was in relation to Section 92
of the Constitution Act of Commonwealth of Australia and the decision is
instructive, though not in point. Rich, J. Observed at pages 275 to 277 of the
report as follows:
"It
therefore remains only to consider whether the operative instruments affecting
to deal with peanuts do or do not interfere with the freedom of inter-State
trade. This should be done weighing compulsory acquisition as a matter perhaps
characterizing the enactments, but not of necessity determining their effect.
The feature which at once challenges attention is that these instruments
provide a means of marketing. They are concerned with establishing a compulsory
pool through which growers producing peanuts for sale must dispose of their
product for distribution and receive their reward. The pith and substance of
the enactments is the establishment of collective sale and distribution of the
proceeds of the total crop and the concomitant abolition of the grower's
freedom to dispose of his product voluntarily in the course of trade and
commerce, whether foreign, inter-State of intra-State. Section 15 of the Act of
1926 provides that "all the commodity" shall be 372 delivered by the
growers to the marketing board, and that "all the commodity" so
delivered shall be deemed to have been delivered to the board for sale by the
board, "who shall account to the growers thereof for the proceeds thereof
after making all lawful deductions therefrom for expenses and outgoings and
deductions of all kinds in consequence of such delivery and sale or otherwise
under these Acts" (sec. 15(1), (2), as modified by the order in Council).
Sub-section 3 of section 15 penalizes the sale or delivery of any of the "commodity"
to, or the purchase or the receipt of any of the "commodity" from,
any person except the board. These provisions operate even although the
Governor in Council does not resort to compulsory acquisition. It was said by
Mr. Mitchell that the provisions authorizing the borrowing of money constituted
the chief purpose of the compulsory acquisition. If this means that the control
of the marketing of peanuts is a subordinate or consequential purpose of the
instruments, I cannot agree.
The
ability to borrow upon the whole crop may afford an advantage, if not an
incentive, in the concentration of the "commodity" in the hands of
one marketing authority. But the weight attached to supposed advantages arising
from the policy adopted in these enactments is not material. What is material
is whether the scope and object of the enactments as gathered from their
contents are to deal with trade and commerce including inter-State trade and
commerce. In examining this question one cannot fail to observe that compulsory
acquisition is resorted to as a measure towards ensuring that the whole crop
grown in Queensland is available for collective
marketing by the central authority.
The
case is not one in which a State seeks to acquire the total production of
something it requires for itself and its citizens. It is interposing in the
course of trade in the "commodity" an organization established for
the purpose of carrying out one of the functions of trade. In my opinion the
enactment controls directly the commercial dealing in Peanuts by the grower and
aims at, and would, apart from section 92 accomplish, the complete destruction
of his freedom of commercial disposition of his product. Part of this freedom
is guaranteed by section 92. Accordingly the Primary Producers' organization and
Marketing Act 1926-30 and the order in Council thereunder are ineffectual to
prevent the grower of peanuts from disposing 373 of them in inter-State trade
and commerce and the appellant Board had no title to the peanuts the subject
matter of this action." In Milk Board (New South Wales) v. Metropolitan
Cream Pty. Ltd., (62 C.L.R. 116), Chief Justice Latham at page 131 of the
report observed as follows: R "It is true that the decision in the Peanut
Board Case (48 C.L.R. 266) was approved in James v. The Commonwealth, 55 C.L.R.
1, but it is important to consider carefully the precise words in which this
approval was expressed. They were as follows: "The producers of the
peanuts, it was held, were prevented by the Act from engaging in inter-State
and other trade in the commodity. The Act embodied, so the majority of the
court held, a compulsory marketing scheme, entirely restrictive of any freedom
of action on the part of the producers; it involved a compulsory regulation and
control of all trade, domestic, inter-State and foreign; on the basis of that
view, the principles laid down by this board were applied by the Court"
(55 C.L.R. 520)." Justice McTiernan observed at page 158 of the report as
follows:
"It
is clear that the Milk Act does not profess to expropriate in order to hinder
or burden the passing of milk, and the other products which the word 'milk' is
expressed to include, from other States; and there is no ground for the
contention that any such burden or hindrance is imposed under the disguise of
expropriation. The Act replaces an individualist economy by a collectivist one
for the distribution of milk within the area containing the most densely
populated part of the State; and all that can be presumed is that the
substitution was deemed by the legislature to be an expedient one for reasons
only of health, hygiene, efficiency and the economic benefit of farmers in the
milk-producing districts. I agree, therefore, that the operation of section 26
is not inconsistent with section 92 of the Constitution.
"
The aforesaid observations are most apposite. In the light aforesaid along with
the provisions of section 17 and section 25 of the 374 Act, it cannot be said
in the Act, there is any compulsory acquisition.
We
accept the submission of the learned Additional Solicitor General that it is
not necessary that every member of the public should benefit from property that
is compulsorily acquired. But in essence the scheme envisaged in sale-and not
compulsory acquisition.
It has
also to be borne in mind that the term 'sale' and 'purchase' have been used in
some of the provisions and that is indicative that no compulsory acquisition
was intended.
Section
34 of the Act reads as follows:
"
34(1) The Board shall at such times as it thinks fit make to registered owners
who have delivered coffee for inclusion in the surplus pool such payments out
of the Pool funds as it may think proper.
(2)
The sum of all payments made under sub- section ( 1) to any one registered
owner shall bear to the sum of the payments made to all registered owners the
same proportion as the value of coffee delivered by him out of the year's crop
to the surplus pool bears to the value of all coffee delivered to the surplus
pool out of that year's crop." The High Court has referred to the provisions
of section 34(2) of the Act and observed that the said provisions ensure
periodical payments of price to the growers. The Rules provide for advancing
loans to the growers. Without a shadow of doubt these elements indicate,
according to the High Court, that in the compulsory sale of coffee, there was
an element of consensuality. We are in agreement that there is consensuality in
the scheme of the section. The High Court has referred to section 25(2) of the
Coffee Act and observed that the power conferred by section 25(2) of the Coffee
Act must be read subject to the very requirement of that and all other
provisions of the Act.
When a
grower sells coffee that has become totally unfit for human consumption for one
or the other valid reason, such a grower cannot compel the Board to purchase
such coffee on the ground that it was coffee and thus endanger public safety
and also pay its value or price. In the very nature of things, these things
cannot be foreseen or enumerated exhaustively. The High Court was of the view
that if a grower delivered coffee to the Board, the Coffee Act extinguished his
title and absolutely vested the same in the Board, however, preserving 375 his
right for payment of its value or its price in accordance with the provisions of
that Act. According to the High Court the amount paid by the Board to the
grower under the Act is the value or price of coffee in conformity with the
detailed accounting done thereto under the Coffee Act.
The
High Court was right. The High Court went on to observe that the amount paid to
the grower was neither compensation nor dividend. The payment of price to the
grower is an important element to determine the consensuality in the sale and
the sale itself is under section 4(1) of the Sale of Goods Act. Therefore, the
High Court was of the view that neither section 25(2) read with section 17 nor
the provisions for payment of compensation indicate that coffee becomes the
property of the Coffee Board not by consent but by the operation of law.
The
levy of duties of excise and customs under sections 11 and 12 of the Coffee Act
are inconsistent with the concept of compulsory acquisition. Section 13(4) of
the Coffee Act clearly fixes the liability for payment of duty of excise on the
registered owner of the estate producing coffee. The Board is required to
deduct the amount of duty payable by such owner from the payment to the grower
under section 34 of the Act. The duty payable by the grower is a first charge
on such Pool payment becoming due to the grower from the Board. Section 11 of
the Act provides for levy of duty of customs on coffee exported out of India. This duty is payable to the
Customs authorities at the time of actual export. The levy and collection of
this duty is not unrelated to the delivery of the coffee by the growers to the
Board or the pool payments made by the Board to the growers. The duty of excise
as also the duty of customs are duties levied by Parliament in exercise of its
powers of taxation. It is not a levy imposed by the Board. It is a fact that
the revenue realised from the levy of these duties form part of the
Consolidated Fund of India and can be utilised for any purpose. It may be utilised
for the purpose of the Coffee Act only if Parliament by appropriation made by
law in this regard so provides. The true principle or basis in Vishnu Agencies
case applies- to this case. Offer and acceptance need not always be in an
elementary form, nor does the law of contract or of sale of goods require that
consent to a contract must be express. Offer and acceptance can be spelt out
from the conduct of the parties which cover not only their acts but omissions
as well. The limitations imposed by the Control order on the normal right of
the dealers and consumers to supply and obtain goods, the obligations imposed
on the parties and the penalties prescribed by the order do not militate
against the position that eventually, the parties must be deemed to have
completed the transaction under an agreement by 376 which one party binds
itself to supply the stated quantity of goods to the other at a price not
higher than the notified price and the other party consents to accept the goods
on the terms and conditions mentioned in the permit or the order of allotment
issued in its favour by the concerned authority.
A
contract whether express or implied between the parties for the transfer of the
property in the goods for a price paid or promised is an essential requirement
for a 'sale'. In the absence of a contract whether express or implied, it is
true, there cannot be any sale in the eyes of law. However, as we see the
position and the scheme of the Act, in the instant case, there was contract as
contemplated between the growers and the Coffee Board. This Court applied in
Vishnu Agencies's case (supra) the consensual test laid- down in the earlier
decision of this Court in the State of Madras v. Gannon Dunkerley, [1959]
S.C.R. 379 in this regard. In law there cannot be a sale whether or not
compulsory, in the absence of a contract express or implied.
The
position of the Coffee Board so far as sale is concerned is explained by the
Madras High Court very lucidly in The Indian Coffee Board, Batlagundu v. The
State of Madras (supra), where the High Court expressed the view that the
Indian Coffee Board which derived its existence from the Coffee Market
Expansion Act is a dealer within the meaning of section 2(b) of the Madras
General Sales Tax Act, 1939, and is therefore, liable to sales tax on its
turnover. The High Court held that the Board was not a constituted representative
of the producer and it did not hold the goods on behalf of the producer. After
the goods enter the pool after delivery, they become the absolute property of
the Board and the producer, a registered owner, has no right or claim to the
goods except to a share in the sale proceeds after the goods are sold in
accordance with the provisions of the Act.
It was
said by the learned Additional Solicitor General that the cultivation of coffee
in India was over a century old and numerous
plantations existed long prior to the enactment of the Coffee Act. There was no
act of volition on the part of the growers in taking to coffee cultivation and
subjecting themselves to the provisions of the Act by taking up such
cultivation. The cultivation of coffee can be carried on only in certain types
of soil and in high elevations. The land suited for coffee cultivation cannot
be used for growing other crops on a similar scale. Coffee is a perennial crop.
The growers have no choice in growing coffee one year and then changing to a
different crop in the following year. Coffee plants have a life ranging from 30
to 70 years, the average life of the plant being 40 years.
Coffee
estates require 377 constant attention and expenses have to be incurred for manuring,
cultural operations, application of pesticides, etc. at regular intervals.
Removal of old and diseased plants and replanting them with superior
disease-resistant varieties is also necessary and is done each year. The coffee
grower has thus no choice at all continuing to be a coffee cultivator, it was
argued. The cultivation of coffee is not in any way comparable to the
cultivation of sugarcane, the cultivation of which can be discontinued at will.
Such practical difficulties, however, do not in essence make any difference.
Because
coffee is grown on the estate, the owner of the land can be presumed to have
consented to surrender his produce to the Board it was submitted. But the
surrender is thus clearly an act of volition. The planting of the seeds of a
coffee plant by a grower can be regarded as his act of volition in respect of
the surrender to the Board of the coffee yielded by the plant.
The
coffee growers being agriculturists are not dealers and therefore are not
liable to pay any sales tax or purchase tax, it was submitted. The demand for
purchase tax is in effect a demand on the growers who were exempt from such
levy, as the monies required for paying the tax if the same is lawful has
necessarily to come out of the monies otherwise payable to the growers. The object
of the pool marketing system is not to deprive the growers of a fair
compensation for their produce by making them suffer a tax which they would not
otherwise be required to suffer. An analysis of the different provisions of the
Coffee Act makes it clear that there was no sale to attract exigibility to
duty, it was submitted. We are unable to accept these submissions. Section 6 of
the Karnataka Sales Tax Act, 1957 meets the situation created by such
circumstances. This was examined by this Court in State of Tamil Nadu v. N.K. Kamaleshwara,
[1976] 1 SCR 38 which examined section 7A of Tamil Nadu General Sales Tax Act,
1959-which was in pari materia with section 6 of the Karnataka Sales Tax Act.
In that view of the matter section 6 of the Karnataka Act would he attracted The
alternative submission of the appellant was that the Coffee Board was a trustee
or agent of the growers. We are unable to accept this submission either. There
is no trust created in the scheme of the Act in the Coffee Board;
it is
a statutory obligation imposed on the Coffee Board and does not make it a
trustee in any event. It is also not possible to accept the submission that the
Central Sales Tax Act will not be applicable to any sale by the Coffee Board
because it was an 378 export sale by the Coffee Board. In Consolidated Coffee
Ltd. & Another v. Bangalore etc., (supra) it has been held that there must
be a prior agreement at the time when the transaction of sale takes place. No
such prior agreement existed in this case.
In New
India Sugar Mills Ltd. v. Commissioner of Sales tax Bihar (supra), Hidayatullah,
J. as the Chief Justice then was, observed that so long as the parties trade
under controls at fixed price and accept these as any other law of the realm
because they must be deemed to have contracted at a fixed price both sides
having or deemed to have agreed to such price. Consent under the law of
contract need not be expressed, it can be implied. This is the position under
the scheme of the Coffee Act. It has to be emphasised like the Vishnu Agencies's
case a person for all practical purposes is free to become or not to become a
grower of coffee. So it is also covered by the ratio of Vishnu Agencies Pvt.
Ltd.
In the
aforesaid view of the matter, we are of the opinion that the imposition of tax
in a manner done by the Sales tax Authorities which had been upheld by the High
Court is correct and the High Court was right.
The
appeals fail and are dismissed. There, will, however, be no order as to costs
Civil Writ Petition No. 358 of 1986 under Article 32 of the Constitution of
India is dismissed. Re. Writ Petition No. 36 of 1986, we are of the opinion
that we cannot go into in the contentions in this petition. The rights and
obligations of the parties, inter-se between the petitioners and the Coffee
Board may be agitated in appropriate proceedings. Re. Writ Petition No. 37 of
1986. This writ petition is dismissed without prejudice to the rights of the
petitioner to agitate the question of liability of the petitioner, vis-a-vis,
Coffee Board in respect of the sales tax due and payable on the transactions
between the parties in appropriate proceedings. Re. Civil Writ Petition No. 39
of 1986. There will be no order in this petition. But it is made clear that
this is without prejudice to the right of the parties taking appropriate
proceedings if necessary for determination of the liabilities inter-se between
the petitioners and the Coffee Board for the amount of sales tax payable.
Parties
in these writ petitions will pay and bear their own costs. Interim orders, if
any, are all vacated.
Back