A

B

COFFEE BOARD, KARNATAKA, BANGALORE

v.

COMMISSIONER OF COMMERCIAL TAXES

MAY 11, 1988

[R.S. PATHAK, CJ, SABYASACHI MUKHARJI

AND S. NATARAJAN, JJ.)

Karnataka Sales Tax Act, 1957-Challenging purchase tax on

coffee levied under provisions of-Coffee Act 1942-Whether

compulsory delivery

of coffee to Coffee Board from growers under

C section 25( 1)-0f-Is compulsory acquisition and not sale or purchase

to attract levy of purchase tax.

The appellant Coffee Board filed writ petitions in the High Court

praying for a declaration that the mandatory delivery of the Coffee

under section 25(i) of the Coffee Act, 1942, was not sale and that section

D 2(t)

of the Karnataka

Sales Tax Act, 1957 required to be struck down if

the same encompassed compulsory acquisition also, and challenging the

show-cause notice, proposing

to re-open the tax assessment and the

pre-assessment notice proposing to assess the Board to purchase tax on

the Coffee transferred from Karnataka to outside the

State. The Coffee

Board has also filed in the High Court writ petitions, challenging the

E assessments

and the demands for the purchase tax. The appellant

Coffee Board had contended that the compulsory delivery of Coffee

under the Coffee Act, 1942 extinguishing all the marketing rights of the

growers was 'compulsory acquisition' and not sale

or purchase to

attract levy of purchase-tax and that the appellant was only a 'trustee'

or agent of the growers not exigible to purchase tax and that all the

F export sales were in the course of export immune to tax under Article

286

of the Constitution. It was held by the High Court that an element

of consensuality subsisted even in compulsory sales governed by law

and once there was an element of consensuality even though minimal,

that would be sale or purchase for purposes of

Sale of Goods Act and

the same would

he exigible to sales or purchase tax under the relevant

G

Sales Tax law of the country. On an analysis of all the provisions of the

Coffee Act in general and sections

17 and 25 in particular, the High

Court held that on the true principles of compulsory acquisition or

eminent domain, it was difficult to hold that on compulsory delivery by

growers to the Board, there would be compulsory acquisition of coffee

by the Coffee Board. The High Court dismissed all the writ petitions by

H a common judgment. The Coffee Board

fil~d appeals in this Court by

348

COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES 349

certificate against the decision of the High Court. The writ petitions

filed in this Court were for the determination of the rights, obligations

and liability between the petitioners and the Coffee Board in respect of

the sales tax due and payable on the transactions between the parties.

A

Dismissing the appeals and the Writ Petitions Nos. 358 and 37 of

1986 and disposing of the Writ Petitions Nos. 36 and 39 of 1986, the B

Court,

HELD: The question involved in these appeals and "the writ peti•

lions was the exigibility of tax on sale, if any, by the growers of the

coffee to the Coffee Board. Basically, it must depend upon what is ·sale

in the general context as also in the context of the relevant provisions of

lhe Karnataka Sales Tax Act 1957 as amended from time to time, and C

the Central Sales Tax Act, 1956. These, however, must be examined in

the context of general law, namely, the Sale of Goods Act," 1930 and the

concept

of sale in general: [358F-G

I

Coffee Board is a 'dealer' registered as such under the Central D

Sales Tax Act

and the Sales Tax Acts of all the States in which it holds

auctions/maintains depots runs coffee houses.

It collects and remits

sales tax on all the coffee

sold by it to the State in which the sale takes

. place.

It transfers coffee from one State to another.

[3608, El

This Court (Bench of Five Judges) in the case of State of Kera/av. E

Bhavani Tea Produce Co., 11966] 2 S.C.R. 92, which arose under the

Madras Plantations Agricultural Income Tax Act, held that when gro­

wers delivered coffee to the Board, all their rights therein were exting­

uished and the Coffee vested in the Board. The Court, however did not

hold that there was a taxable 'sale' by the grower to the Board in the

year in question. The Court in this case was bound by the clear ratio of F

that decision and it could not by-pass the same. That decision concludes

all the issues in this case. Several questions were canvassed in these

appeals in view of the decision

of the High Court, and all the questions

were answered

by this Court in the Bhavani Tea Produce Co.'s case

(supra) against the appellant.

[360F-G; 364B]

All the four essential elements of sale (1) parties competent of

contract, (2) mutual consent, though minimal,

by growing coffee

under

the conditions imposed by the Coffee Act, 1942 (The Act), (3) transfer

G

t' of property in the goods and ( 4) payment of price though deferred were

present in the transaction in question. As regards the provision under

section 26(2) empowering the Coffee Board to purchase additiOnal H

A

B

c

D

E

F

G

H

350 SUPREME COURT REPORTS [1988] Supp. 1 S.C.R.

coffee not delivered for inclusion in the surplus pool, it is only a

supplementary provision enabling the Coffee Board to have a second

avenue

of purchase, the first avenue being the right to purchase coffee

under a compulsory delivery system formulated under section 25(1) of

the Act. The scheme

of the Act is to provide for a single channel for sale

of coffee grown in the registered estates. The Act directs the entire

coffee produced except the quantity allotted for internal sale quota, if

any, to be sold to the Coffee Board through the modality

of compulsory

delivery and imposes a corresponding obligation on the Coffee Board to

compulsorily purchase the coffee delivered to the pool, except

(1) where

the coffee delivered

is found to be unfit for human consumption, and (2)

where the coffee estate is situated in a far off and remote place or the

coffee grown in an estate

is so negligible as to make the sale of coffee

through

compulsory delivery an arduous task and an uneconomical

provision. [367E-H;

368A-B]

In the nature of transactions

contemplated under the Act, mutual

assent either express or implied is not totally absent in this case in the

transactions under the Act. Coffee growers have a volition

or option,

though minimal

or

nominal to enter into the coffee growing trade. If

any one decides to grow coffee, he must transact in terms of the regula­

tion imposed for the benefit of the coffee growing industry. Section 25 of

the Act provides the Board with the right to reject coffee if it is not upto

the standard. Value to be paid as contemplated by the Act is the price of

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 administ­

rati()n of the Act. It cannot be said in the Act, there is any compulsory

acquisition. In essence, the scheme envisages sale and not compulsory

acquisition. The terms 'sale' and 'purchase' have been used in some of

the provisions and that is indicative that no compulsory acquisition was

intended.

The Ievy of duties of excise and customs under sections 11 and 12

of the Coffee Act are inconsistent with the concept of compulsory ac­

quisition. Section 13(4) of the Coffee Act clearly fixes the liability for

COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES 351.

payment of duty of excise on the registered owner of the estate produc-A

ing coffee. The Board is required to deduct the amount

of duty payable

by such owner from the payment to the grower under section 34 of the

Act. The duty payable by the grower is a first charge on such pool

payment becoming due to the grower from the Board. Section

11 of the

Act provides for levy

of duty of customs on coffee exported out of India.

This duty is payable to the Customs Authorities at the time of actual B

export. The levy and collection

of this duty are not unrelated to the

delivery

of coffee by the growers to the Board of the payments made by

the Board to the growers. The. duty of excise as also the duty of

customs

are duties levied by Parliament. It is not a levy imposed by the

Board. The revenue realised from levy of these duties forms

part of the

Consolidated Fund

of India, which may be utilised for the purpose of C

the Coffee Act only if the

Parliament by law so provides. The true

principle

or basis in Vishnu Agencies

(Pvt.) Ltd. v. Commercial Tax

Officer and others, etc., [1978] 2 S.C.R. 433, applies to this case. Offer

and acceptance need not always be in an elementary form, nor does the

law

of contract or sale of goods require that consent to a contract must

be express.

Offer and acceptance can be spelt out from the conduct of D

the parties which .cover not only their acts but omissions as well. The

limitations imposed by the Control Order on the normal right of the

dealers and consumers to supply and obtain goods, the obligation

imposed on the parties and the penalties prescribed by the Order do not

militate against the position that eventually, the parties must be

deemed to have completed the transaction under an agreement

by E

which one party binds

itself to supply the stated quantity of goods to the

other at a price not higher than the notified price and the other party

consents to accept the goods on the terms and conditions mentioned in

the permit or the order of allotment issued in its favour by the

con­

cerned authority. [375C-H; 376A-Bl

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 Autho­

rities upheld by the High Court was correct and the High Court was

right. The appeals failed. [3780 l

F

G

H

A

352 SUPREME COURT REPORTS 11988] Supp. I S.C.R.

Civil Writ Petition No. 358 of 1986 was dismissed. Re. Writ Peli-

lion No. 36 of 1986, the Court could not go into the contentions in this

petition. The rights and obligations of the parties inter se between the

petitioners

and the Coffee Board might be agitated in appropriate

pro­

ceedings. Writ Petition 37 of 1986 was dismissed without prejudice to

the rights of the petitioners to agitate the question of liability of the

B

petitioner vis-a-vis the Coffee Board in respect of the

Sales Tax due and

payable on the transactions between the parties in ap1>ropriate proceed­

ings. In Civil Writ Petition No. 39 of 1986, the Court passed no order;

this was without prejudice to the right of the parties taking appropriate

proceedings it necessary for the determination of the liabilities inter se

between the petitioners and the Coffee Board for the amount of the

C Sales Tax payable. [378E-G]

Indian Coffee Board v. State of Madras, 5 S.T.C. 292; C.E.B.

Draper & Sons Ltd. v. Edward Turner & Son Ltd., [1965] l Q.B. 424;

State of Kera/a v. Bhavani Tea Produce Co., [1966] 2 S.C.R. 92;

Consolidated Coffee Ltd. & Anr. etc. v. Coffee Board, Bangalore, etc.

D etc., [1980] 3 SCR 625; Peanuts Board v. The Rockhampton Harbour

Board,

48 Commonwealth Law Reports 266; Vishnu Agencies (Pvt.)

Ltd.

etc. v. Commercial Tax Officer and

Others etc., [1978] 2 S.C.R.

433;

Indian Steel and Wire Products Ltd., Andhra Sugar Ltd.

and Karam Chand Thapar,

11968] 1 S.C.R. 479; State of Madras v.

Gan/ion Dunkerley & Co. Ltd., [1959] S.C.R. 379; New India Sugar

E. Mills v. Commissioner of Sales Tax, Bihar, [1963] Suppl. 2 S.C.R. 459;

Charanjit Lal Choudhury v. The Union 'flf India & Ors., [1950] 1

S.C.R. 869; State of Karnataka and another etc. v. Ranganatha Reddy

and Anr. etc.,

[1978] l S.C.R. 641; Milk Board (New South Wales) v.

Metropolitan Cream Pty. Ltd., 62 C.L.R. 116 and State of Tamil Nadu v. N. K. Kamaleshwara, [1976] 1 S.C.R. 38, referred to,

F

CIVIL APPELLATE/ORIGINAL JURISDICTION: Civil

Appeal Nos.

4522-4529 of 1985 etc. etc.

From tile Judgment and Order dated 16.8. 1985 of the Karnataka

High Court in W.P. Nos. 15536-4-0/1982 and W.P. Nos. 13981, 17071,

G 17072, 19il8 and 19285/1983.

H

G. Ramaswami, Additional Solicitor General, R.J. Babu, R.F.

Nariman, Ranjan Karanjawala, Mrs. M. Karanjawala and Ejaz

Maqb6ol for the Appellant in C.A. Nos. 4522-29/1985.

Shanti Bllilshari, Kapil Sibal, Soli J. Sotabjee, G.B. Pai, V.A.

··1!'

.

"

COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJI, J.] 353

Bobde, K.P. Kumar, R. Vasudevan, K.T. Anantharaman, Harish N.

Salve, H.K. Dutt, Ms. Mridula Ray, 0.C. Mathur, Ms. Meera Mathur

and Ms. Lekha Mathur for the Petitioners in W.P. Nos. 36, 37, 39 and

358of1986.

T.S. Krishnamurthi Iyer,

S. Padmanabhan, Soli J. Sorabjee,

R.P. Srivastava,

P. Parmeshwaran, R. Mohan, Harish N. Salve, Ms.

M. Ray and H.K. Dutt for the Intervener in C.A. Nos. 4522-29 of

1985.

Dr. Y.S. Chitale, M.Veerappa, Ashok Kumar Sharma and Atul

Chitale for the Respondents.

The Judgment of

!he Court was delivered by

SABYASACHI MUKHARJI, J. These appeals by certificates

are from the judgment and order of the High Court of Kamataka

dated 16th of August, 1985. By the impugned judgment and order the

writ petitions filed by the Coffee Board and others were dismissed. In

order to appreciate the questions involved in the decision, it may be

noted that the appellant herein-Coffee Board contended that the

compulsory delivery of coffee under the Coffee Act,

1942 extinguishing

alf marketing rights of the growers was 'compulsory acquisition' and

not sale or purchase to attract levy of purchase tax; it was further

contended that the appellant

was only a 'trustee' or 'agent' of growers

not 'exigible to purchase tax and that all export sales were 'in the

course of export' immune to tax under Article

286 of the Constitution.

It was held by the Division Bench of the Kamataka High Court

that an element of consensuality subsists even in compulsory sales

governed by law and once there

is an element of consensuality,

how­

ever minimal that may be, whether express or implied, then that would

be sale or purchase for purposes of Sale of Goods Act and the same

would be exigible to sales or purchase tax as the case may be under the

relevant Sales Tax Law of the country.

A

8

c

D

E

F

The power conferred on

·the Board under section 25(2) of the G

Coffee Act, to which we will make reference later, to reject coffee

offered for delivery or even the right of a buyer analogous to section

37

of

tlte Sale of Goods Act showed that there was an element of con­

sensuality in the compulsory sales regulated by the Act. The amount

paid by· the Board to the grower under the Act was the value or price of

coffee in conformity with the detailed accounting done thereto under H

354 SUPREME COURT REPORTS ['1988) Supp. 1 S.C.R.

the Act. It was further held by the High Court that the amount paid to

A the grower was neither compensation nor dividend. The payment of

price to the grower was an important element to determine the con­

sensuality test to find out whether there

was sale under section 4(1) of

the

Sale of Goods Act. The Act also ensures periodical payments of

price to the growers. The Rules provide for advancing loans to grow-

B ers. Therefore, according to the Division Bench of the Kamataka High

Court without any shadow of doubt these elements indicated that

in

the compulsory sale of coffee, there was an element of consensuality.

When once the Board was held to be a 'dealer' it also followed from

c

D

E

F

G

. the same that there was sale by the grower, purchase by the Board and

then a sale by the Board. The purchases and the exports if any made by

the Board thereafter on any principle would not be 'local sales' within

the State of Kamataka. Explanation 3(2)(ii) to section 2(1) of the

Karnataka Sales Tax Act had hardly any relevance to hold that the

later export sales were 'local sales' to avoid liability under section 6 of

the Karnataka

Sales Tax Act. The direct export sales made by the

appellant for the period in challenge were not 'in the course of export'

and they did not qualify for exemption from purchase tax under sec­

tion 6

of the Karnataka

Sales Tax Act. The levy of sales tax on coffee,

it was held by the High Court fell, under Entry No.

43 of the second

schedule of the Act and it was governed

by section 5(3)(a) of the Act

and not

by section 5(1) of the Act. It was further held that under

section 5 of the Central

Sales Tax Act, 1956 purchases and exports

made

by the Coffee Board are 'for export' and not 'in the course of

export' and thus did not qualify for exemption under Article

286 of the

Constitution of India.

It was observed by the High Court that the

Board did not purchase or take delivery of any specific coffee

or goods

of any grower and exported the same under prior contracts of

sale. The

Board did not purchase any specific coffee of

any specific grower for

purposes of direct exports at all. The purchases made and exportes

made would be 'for export' only and not in 'in the course of export' to

earn exemption under Article 286 of the Constitution of India. It was

further held that sections 11 and 12 of the Act which regulate the levy

and payment of Customs and Excise Duties when closely examined

really established according to the High Court that what

was

gro~n by

the growers and delivered to the Board was not at all compulsory

acquisition but was sale.

If it was compulsory acquisition and there was

payment of compensation, then these provisions would not have found

their places

in the Coffee Act at all, according to the High Court. Levy

of Customs and Excise Duties on compensation was something un­

heard, an incongruity and an anachronism

in compulsory acquisition,

H according to the High Court.

,

COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJI,J.] 355

On an analysis of all the provisions of the Act in general and

sections

17 and 25 in particular it was held by the High Court that on

the true principles of compulsory acquisition or eminent domain, it

was difficult to hold that on compulsory delivery by growers to the

Board, there would be compulsory acquisition of coffee by the Board.

In order to determine the questions at issue, that is to say the

nature of the transaction one has to in a case of this nature

t6iescope

into the history and project it into the dimensions of the present levy.

In November 1935 the Indian Coffee Cess Act, 1935 (Act 14 of 1935)

came into operation, for levying cess on coffee produced in and

exported out of India, for promoting the consumption

in India and

elsewhere

of coffee produced in India and also for promoting

agri­

cultural and technological research in the interests of the coffee in­

dustry in India. The purpose seems to have been to develop the coffee

industry, popularise the same and win a market in the international

field. On 14th of September, 1940 Coffee Market Expansion Ordi­

nance (No. XIII of 1940) was promulgated by the Central Government

and the Pool Marketing Scheme for coffee introduced in India for the

first time.

An 'internal sale quota' was to be allotted to each coffee

estate upto which the owner could sell his coffee in the Indian Market.

Coffee in excess

of the hiternal sale quota allotted and grown on the

estates which were

henceforth to be registered, were required to be

compulsorily delivered to the surpius pool

of the Coffee Market

Expansion Board set

up under the Ordinance.

Ute Pool Marketing

Scheme was inspired by the pool marketing schemes for agricultural

produce under Australian statutes. On or about 2nd March, 1942 the

Coffee Market Expansion Act,

1942 (the title of the Act was later

changed .to Coffee Act in 1955) (hereinafter referred to as

"the Act")

was enacted and the ordinance repealed. The Act was to remain in

operation for the duration of the second world war and a period of one

year thereafter. The Act, inter alia, added a new sub-section (6) to

section

25 of the Act, specifically providing for extinguishment of all

the rights

of the owners of the registered coffee estates in the coffee

delivered by them to the surplus pool

of the Coffee Board (hereinafter

referred to as

'the Board') set up under the Act, except the right to

receive payments referred to

in section 34 of the Act.

Under section 34

of the Act the Coffee Board was required to pay to the registered

owners who had delivered coffee for inclusion

in the surplus pool such

payments out of the

Pool Fund (comprising of the monies realised from

the sale

of coffee pooled with the Board) as the Board may think

proper, the amount so paid being dependent upon the quantity and the

kind

of the coffee delivered to the Board.

A

B

c

D

E

F

G

H

'

A

B

356 SUPREME COURT REPORTS [19881 Supp. 1 S.C.R.

On or about 26th March, 1943 the Act was amended, inter alia,

to enable the Carree Board with the previous approval of the Central

Government not to allow any internal sale quota to the growers. Since

1943 in each year the Board with the previous sanction of the Central

Government has decided that

no internal sale quota should be allowed.

Sections 38A and

38B were added making failure to deliver coffee to

the Board an offence to be penalised by fine and confiscation of the

quantities not delivered.

Power was also conferred on the Coffee

Board to seize coffee required to be but not delivered to the Board.

Ever since 1943, internal sale quotas have not been allowed and all the

coffee grown on estates in the areas to which

Section 25(1) of the Act

was applicable was required to be compulsorily pooled. The surplus

C pool referred to in the Act was now

in fact the pool of practically all

coffee produced in India, it

is not necessary to refer to the actual

quantities available in the internal pool in different years though a

table to that effect was placed before

us by the learned Additional

Solicitor General,

Sree G. Ramaswamy. On the 11th of March, 1947

the Coffee Market Expansion (Amendment) Act IV of 1947 was enac-

D ted. The life of the Act was extended without any time limit and,

inter

alia,

changes were made in the constitution of the Board providing for

representation of labour.

On 1st August, 1955 the Coffee Market

Expansion (Amendment) Act,

1954 was brought into force. The

object of the Coffee Act was modified from 'the continuation of the

provisions made

uni:ler the Coffee Market Expansion Ordinance, 1940

E for assistance to the coffee industry by regulating the sale of coffee in

India and

by other means' to

"Development under the control of the

union

of the coffee

industry". It was highlighted before us in the

course of the submission that the pool system of marketing

is a unique

feature of the coffee industry in India. The principal features, accord­

ing to the learned Additional

Solicitor General, of this system are: (a)

F Compulsory registration of all lands planted with coffee (section

14 of

the Coffee

Act).,(b) Mandatory delivery of all coffee grown in the

registered estates except the quantities permitted

by the Board to be

retained for domestic consumption and for seed purposes, (see section

25(1) of the Coffee Act). Estates situated in remote areas specified in

the notification issued by the Central Government under the proviso

G

to section 25(1) of the Coffee Act are exempt from this provision.

( c) Seizure

by the Board of coffee wrongly withheld from the pool.

Prosecution for failure to deliver and confiscation of quantity not

delivered. ( d) Delivery to be effected at such times and at such places

as designated by the Board (section 25(2)); the extinguishment on

delivery of all rights of the growers in respect of the coffee delivered to

H

the Board excepting the right to receive payment under section 34 of

i

_,

l

,

'

COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJI, J.] 357

the Act. (section 25(6)). (e) Sale of coffee in the pool by the Board in

the domestic market and for export through auctions and other

channels in regulated quantities and at convenient intervals. (section

26(1)).

(f) Payment to growers in such amounts and at such times as

decided by the Board (section 34). The payment to be made on the

basis of the value as determined by the price differential scale (section

24( 4)), and in proportion to the value of such coffee

tci the total reali­

sations in the pool (section 34(2)). (g) Sale or contracts to sell coffee

by growers in the years in which internal sale quota

was not allotted

were prohibited by section

17 of the Act. All contracts for the sale of

coffees at variance with the provisions of the Act were declared

as void

by section

47 of the Act.

A

B

Learned Additional Solicitor General sought to urge before us C

that the framers of the Act made a conscious distinction

between· (i)

mandatory delivery of coffee to the Coffee Board under section 25(1)

and (ii) purchase of coffee by the Coffee Board from the growers

exempted from mandatory delivery and from out of the internal sale

quota during the years when such quotas were allotted

under section D

26(2) and (iii) sale of coffee by the growers

in the Indian Market

whenever internal sale quotas were allotted under sections

17 and 22.

It was highlighted that the Board has no capital of its own and it did

not have any Reserve Fund. The estates ori which coffee is grown are

not owned by the Board. The Board is required to maintain two sepa­

rate funds one General Fund and the other

Pool Fund. Our attention E

was drawn to tbe fact that the Pool Fund consists of amounts realised

from the sale of coffee marketed by the Board. The accounts of the

Pool Fund are required to be maintained separately for each coffee

season. The coffee season is from July to June of the following year.

The

sales realisations, less the costs of storing, curing and marketing

the coffee, are to lle utilised for making payments to growers who had F

delivered coffee in th&! season, in proportion to the value of the coffee

delivered by them. The value

is determined with reference to the kind,

quality and quantity

of coffee delivered by the growers. There are vari-

ous other features which have to be borne in mind on the maintenance

of the separate funds.

It may be highlighted, however, that the

General Fund consisted principally of the amounts paid to the Board G

by the Central Government from out of appropriations

made. by the

Parliament annually. This fund

was to be utilised for meeting

the.·costs

of administration, research, measures for the welfare of plantation

labour, promotion

of coffee consumption and developmental assist­

ance to coffee estates. After the Coffee Act was enacted the produc­

tion

of coffee and the quantities exported and

the value of the exports H

have increased greatly.

A

B

c

358 SUPREME COURT REPORTS [19881 Supp. 1 S.C.R.

It may be mentioned that the production of coffee was less than

15,000 tonnes in 1940. The production in the year 1984-85 was about

1,93,000 tonnes. Over 50% of the coffee grown in the country is grown

in the State of Karnataka. There are 1, 12, 153 coffee estates in the

country of which 1,04,958 estates are less than 10 acres in size and

3,62,689 persons were employed on the estates

in 1982-83.

Over

59,000 tonnes of coffee of the value of about Rs.209 crores was ex­

ported in the year

1984-85.

The Madras High Court in the case of Indian Coffee Board v.

State of Madras, 5

S. T.C. 292 held that the Coffee Board was a 'dealer'

under the Madras General Sales Tax Act, 1939 and inter alia, held that

there was no contract, express or implied, between the coffee grower

and the Board and that the object and scheme of the Act were analog­

ous to the statutes in Australia, providing for compulsory acquisition

of pool marketing of agricultural produce.

So far as the Madras High

Court held that the Indian Coffee Board was a dealer

we accept the

same. The observation that there was no contract

was made in the

D context of agency contract between the Coffee Board and the grower.

In

or about 1957 Karnataka

Sales Tax Act, 1957 was enacted and

the Mysore Sales Tax Act, 1948 repealed. 'Sale' is defined in section

2(t) and 'dealer' in section 2(k) of the said Act. Growers of agricultural

produce are not 'dealers'

by reason of the Exception to section 2(k) of

E

the said Act. This position was not disputed before us.

Section 5 of the

Act provides for levy of sales tax. Coffee is mentioned at item 43 in

Schedule II to the Karnataka Sales Tax Act. Sales tax on coffee is a

single point tax payable on the first sale in the State. The basic rate of

tax

is

10% in Karnataka. The rate in Tamil Nadu, Andhra Pradesh and

Kerala

is 6%.

F

The question involved in these appeals and the writ petitions is

the exigibility of tax on sale if there be any, by the growers of the

coffee to the Board. Basically, it must depend upon what

is sale in the

general context

as also in the context of the relevant provisions of the

Act namely, the Karnataka

Sales Tax Act, 1957, as amended from

G time

to time, (hereinafter called the Karnataka Act) and the Central

Central

Sales Tax Act, 1956, (hereinafter called the Central Act). We

must, however, examine these in the context of general law, namely,

the

Sale of Goods Act, 1930 and the concept of sale in general. The

essential object of the contract of sale

is the exchange of property for a

money price. There must be a transfer of property,

or an agreement to

H transfer it, from one party, the seller, to the other, the buyer, in

•

COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJl,J.[ 359

consideration of a money payment or a promise thereof by the buyer. A

Lord Denning,

M.R., in

C.E.B. Draper & Sons Ltd. v . .Edward

Turner

& Son Ltd., [1965] 1 Q.B. 424, at page 432, observed as

follows:

•

"I know that often times a contract for sale is spoken of as a

sale. But the word 'sale' properly connotes the transfer of

the absolute or general property in a thing for a price

in

money (see: Benjamin on sale, 2nd ed. (1873) p. 1 quoted

B

in Kirkness v. John Hudson &

Co., [1955] A.C. 696, 708,

719. In this Act of 1926 I think that 'sale' is used in its

proper sense to denote the transfer of property in the C

goods. The sale takes place at the time when the property

passes from the seller to the buyer and it takes place at the

place where the goods are at that time. Lord Denning was

speaking for the English Act of

1926 for the sale of Goods

Act.

D

In the

Sale of Goods Ac.t, 1930, (hereinafter called the 'Sale of

Goods Act') Contract of sale of goods is defined under sectiion 4(1) as

a contract whereby the seller transfers

or agrees to transfer the

pro­

perty in goods to the buyer for a price. It also stipulates by sub-section

( 4)

of section 4 that an agreement to sell becomes a sale when the time E

elapses

or the conditions are fulfilled subject to which the property in

the goods is to be transferred.

Benjamin's

Sale of Goods (2nd Edition) states that leaving aside

the battle

of forms, sale is a transfer of property in the goods by one,

the seller, to the other, the buyer.

Under the Karnataka Sales Tax Act, sale is defined under

section 2(t) as:

F

"Sale" with all its grammatical variations and cognate

expressions means every transfer

of the property in goods G

by one person to another in the course of trade or business

for case

or for deferred payment or other valuable

consi­

deration, but does not include a mortgage, hypothecation,

charge

or

pledge."

The Central Act defines "sale" as under in section 2(g):

H

A

B

c

360 SUPREME COURT REPORTS I 1988] Supp. 1 S.C.R.

"Sale" with its grammatical variations and cognate expres­

sions, means any transfer of property in goods by one

person to another for case or for deferred payment

or for

any other

valuable consideration, and includes a transfer of

goods on the hire-purchase

or other system of payment by

instalments, but does not include a mortgage or

hypotheca­

tion of or a charge or pledge on goods." .

Coffee Board

is a 'dealer'

duly registered as such under the Sales

Tax Acts of all the States in which it holds auctions/maintains depots/

runs coffee houses. The Board

is

also registered as a 'dealer' under the

Central Sales Tax Act. The Board collects and remits sales tax on all

the coffee sold by it for domestic consumption to the State in which the

sale takes place. Coffee is sold through auctions held in the States of

Kamataka, Tamil Nadu and Andhra Pradesh, and also through the

Board's own depots located in nine States. Sale is also effected by way

of allotments to cooperative societies. The Board directly exports

coffee and also sells coffee to registered exporters through separate

D export auctions.

It may be mentioned that over fifty per cent of the

coffee is produced in Kamataka and most of the Robusta variety of

coffee

is produced in Kerala. All the coffee produced in these

States

cannot be sold within the State where the coffee is produced. Coffee

meant for export has also to be stored at convenient places. The

Board, therefore, transfers coffee from one State to another. Sales tax

E is not payable or paid on the transfer of such coffee. In order to

appreciate the actual controversy and the point at issue in the insta!}t

case, it is vital to appreciate the real nature of the transaction.

In

1966 this Court in the case of State of Kera/av. Bhavani Tea

Produce Co., ]1966] 2

S.C.R. 92, (an unanimous decision of a Bench

F

of five learned judges) which arose under the Madras Plantations

Agricultural

In'come Tax Act, 1955, held that when growers delivered

coffee under section

25 of the Act to the Board

all their rights therein

were extinguished and the coffee vested exclusively in the Board. This

Court observed that when growers delivered coffee to the Board,

though the grower "does not actually sell" the coffee to the Board,

G there was a 'sale' by operation of

law. This was in connection with

section

25 of the Act. The Court, however, did not hold that there was

a taxable 'sale' by the grower to the Board in the year in question. The

sale, according

to this Court in that case took place in earlier years in

which the Agricultural Income Tax Act did not operate. All the

States

in which coffee is grown and all the persons concerned with the coffee

H industry, it

is asserted on

behalf of the Additional Solicjtor General,

COFFEE BOARD '· COMMR. OFCOMMERCIAL TAXES [MUKHARJI,J.[ 361

understood this decision as laying down that the 'sale by operation of

law' mentioned therein only meant the 'compulsory acquisition' of the

coffee by the Coffee Board.

We are, however, bound by the clear ratio of this decision. The

Court considered this question "was there a sale to the Coffee

Board?" ai page 99 of the Paper Book and after discussing clearly said

the answer must be in the affirmative. It was rightly argued, in our

opinion, by Dr. Chitale on behalf of the respondents that the question

whether there was sale or not or whether the Coffee Board was a

trustee or an agent could not have been determined by this Court, as it

A

B

was done in this case unless the question was specifically raised and

determined. We cannot also by-pass this decision by the argument of

the learned Additional Solicitor General that section 10 of the Act had

C

not been considered or how it was understood by some. This decision

in our opinion concludes all the issues in the instant appeal.

·

In 1970 purchase tax was introduced. The Kamataka·Sales Tax

Act was amended by Karnataka Act 9 of 1970 and section 6 was sub-D

stituted. The new section 6 provided for the levy of purchase tax on

every dealer who in the course of his business purchased any taxable

goods in circumstances in which no tax under section 5 was leviable

and, inter alia, despatched these to a place outside the State, at the

same rate at which tax would have been leviable on the sale price of

such goods under section 5 of the Kamataka Act. The delivery of E

coffee by the coffee growers to the Coffee Board not being treated a

purchase by the Board, the State did not demand any tax from the

Board in respect of such deliveries. Demands were raised for the first

time in 1983. Assessments for the years upto 1975 were completed

without any demand for purchase tax being raised.

This Court on or about 15th of April, 1980 in the case of

Consolidated Coffee Ltd. and Anr. etc. v. Coffee Board, Bangalore etc.

etc., [1980) 3 S.C.R. 625 held that sale of coffee at export auctions

were sales which preceded the actual export and thus exempt from

sales tax under section 5(3) of the Central Sales Tax Act. The Court

F

also directed the State Governments to refund the amounts collected

G

as sales tax on such sales and set a time limit for effecting such refunds.

The Kamataka Government, as a consequence, became liable to re­

fund to the Coffee Board about Rs. 7 crores which amount in tum was

to be refunded by the Board to the exporters. In 1981 the Commis­

sioner of Sales Tax, Kamataka informed the Board by a letter that the

mandatory delivery of coffee to the Board by the grower would be H

362 SUPREME COURT REPORTS [19881 Supp. 1 S.C.R.

A

regarded as 'sale' and that the Board should pay purchase

tax as the

coffee growers, being agriculturists are not 'dealers'.

It is the case of

the Coffee Board that no such claim had been made at any time in the

past in any of the States in India. The Commissioner issued a show­

cause notice proposing

to re-open the assessment for the year 1974-75.

In

June 1982 pre-assessment notice was sent by the authorities propos-

B ing

to assess the Board to purchase tax for the assessment year 1975-76

(

and a sum of Rs.3.5 crores was demanded as purchase tax on the

coffee transferred from

Kamataka to outside the

State either as stock 1.

transfers or as exports directly to buyers abroad.

In August 1982 Coffee Board along with two coffee growers filed

C writ petitions being writ petition Nos.

15536 to

1554-0 of 1982 in the

High Court of Kamataka praying for a declaration that the mandatory

delivery

of coffee under section 25(i) of the Act was not sale and that

section 2(t)

of the Kamataka Sales Tax Act required to be struck down

if

the

same encompassed compulsory acquisition also. The show cause

notice and the preassessment notice were also challenged and prayers

D

were made for

quashing the same. The High Court granted interim

stay.

In the meantime on or about 3rd of February, 1983 Constitution

( 46th

Amendment) Act, 1983 came into force and the definition of

"Tax on sale or purchase of goods" was added by insertion of clause

29A in Article 366. This definition is prospective in operation. Subse­

quent to 3rd of February, 1983, the Kamataka Sales Tax Act was

E

amended by Act

10 of-1983, Act 23/1983 and Act 8/1984. The defini­

tion of 'sale' in section 2(t), however, was not amended. That defi­

nition was amended with effect from !st of August, 1985 by the

Kamataka Act 27 of 1985. After hearing the State Government, the

High Court made absolute the stay of further proceedings pursuant to

the show cause notice of the Commissioner proposing to re-open the

F assessment for

the year 1974-75. The Court modified the stay order

regarding the pre-assessment notice and permitted the completion of

assessment reserving liberty to

the Coffee Board to move the High

Court after the assessment was completed.

On 31st of May, 1983

assessment order was made for the year 1975-76. On or about 17th of

June, 1983 demand for Rs.3.5 crores as arrears of tax for the assess-

G

ment year 1975-76 was issued to the Coffee. Board.

On 2nd July, 1983,

the High Court stayed the assessment demand for purchase tax for the

assessment year 1975-76. On or about 18th of June, 1983 the assess­

ment order was is~ued for the year 1976-77. The Board was assessed on

a taxable turnover of Rs.92.99 crores and Rs.10.18 crores was assessed

as tax. Of this sum, Rs.8.06 crores is the demand on account of pur-

H

chase tax. Thereafter notice demanding payment of

Rs.8.06 crores a

(

COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJI,J.I 363

arrears of tax for the assessment year 1976-77 was issued. The Coffee

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 pur­

chase tax was stayed.

All these writ petitions in January,

1984 were referred to the

Divisio.n Bench for hearing and disposal.

It may be mentioned here

that in or abotft May, 1984 the Coffee Board started for the first time

to collect contingency deposits to cover purchase tax liability, if any,

A

B

c

D

for the period 3.2.83 onwards subsequent to the 46th Amendment to a

limited extent. This was by a circular.

It is stated that the Board E

withheld about Rs.6.8 crores from the pool payment to growers for the

season

1982-83 for meeting in part the liability, if any, for the purchase

tax for the period subsequent to 3.2.1983. The Court however,

in 1985

directed the appellant-Coffee Board to remit to the State Government

Rs.6.8 crores. The High Court also directed the Board to remit to the

State Government Rs.1.5 crores collected by the Board as contingency F

deposits between May and December,

1984. The

State Government

undertook to return these monies with interest,

in the event of the writ

petitions being allowed. By the judgment delivered

on 16th August,

1985, the High Court dismissed the writ petitions by a common judg­

ment and various sums of money for the various years became payable

as purchase tax. The said judgment

is reported in Indian Law Reports, G

Kamataka,

Vol. 36 at page 1365. These appeals challenge the said

decision.

In view of the decision of the High Court several questions were

canvassed in these appeals. The questions were

(1) Was there transfer

of coffee to the Board from the coffee growers or acquisition? (ii) Was H

A

B

c

D

364 SUPREME COURT REPORTS [1988] Supp. 1 S.C.R.

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 men­

tioned all the questions were answered by this Court

in Bhavani Tea

Produce Co's case (supra) against the appellant. We were, however,

invited to compare the transaction

in question with transactions in Peanuts Board v. The Rockhampton Harbour Board, 48 Common­

wealth Law Reports 266). Was there any mutuality? In this connection

it

is necessary to analyse and compare the decision of this Court in

Vishnu Agencies

(Pvt.) Ltd. etc. v. Commercial Tax Officer and others

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,

E to secure the best price for the produce

in the local market, to

con­

serve for local consumption as much produce as was needed and to

make available the surplus for export outside the States and also to

foreign markets. The method usually adopted to achieve the object

is

to establish a marketing board with power to control the price, to

obtain possession of the produce and to pool it with a view to collective

F marketing. The legislation

in this behalf is compendiously described as

"pooling legislation" and is based on the fundamental idea that the

collectivist economy

is superior to individualistic economy. There are

therefore, different marketing boards for different kinds of produce,

such

as sugar, dairy produce, wheat, lime fruit, apples, pears and so

on. The Indian Coffee Market Expansion Act was modelled somewhat

G on the lines which obtained

in other countries and was intended to

control the development of the coffee industry and to regulate the

export and sale of coffee.

If, however, the transaction amounts to sale

or purchase under the relevant Act then that is the end of the matter.

All parties drew our attention to the decision

in the case of

H Vishnu Agencies

Pvt. Ltd. (supra). There the Court was concerned

COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES IMUKHARJI,J.J 365

with the Cement Control Order and the transactions taking place

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 contraven-

tion

of the order became punishable with imprisonment or fine or

both.

Under the A.P. Procurement (Levy and Restriction on Sale)

Order, 1967, (Civil Appeals Nos. 2488 to 2497 of 1972) every miller

carrying on rice milling operation was required to sell to the agent or

an officer duly authorised by the Government, minimum·quantities of

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 dis­

appeared because the transaction was nothing more than the execution

of an order. The Chief Justice emphasised that deprivation

of property

for a compensation called price did not amount to a sale when all that

was done was to carry out an order

so that the transaction was substan­

tially a compulsory acquisition.

On the other hand, a merely regula­

tory law, even if it circumscribed the area of free choice, did not take

away the basic character or core of sale from the transaction. Such a

A

B

c

D

E

F

law which governs a class obliges a seller to deal only with parties

holding licences who may buy particular or allotted quantities of goods

G

at specified prices, but an essential element of choice was still left to

the parties between whom agreements took place. The agreement,.

despite considerable compulsive elements regulating or restricting the

area

of his choice, might still retain the basic character of a transaction

of sale. In the former type of cases, the binding character of the trans­

action arose from the order directed to particular parties asking them

H

A

B

366 SUPREME COURT REPORTS [1988] Supp. 1 S.C.R.

to deliver specified goods and not from a general order or law appli­

cable to a class. In the latter type of cases, the legal tie which binds the

parties to perform the;r obligations remains contractual. The regula­

tory law merely adds other obligations, such

as the one to enter into

such a tie between the parties. Although the regulatory law might

specify the terms, such

as price, the regulation is subsidiary to the

essential character of the transaction which

is consensual and contrac­

tual. The parties to the contract must agree upon the same thing

in the

same sense. Agreement on mutuality of consideration, ordinarily aris­

ing from an offer and acceptance, imports to it enforceability in courts

of law. Mere regulation or restriction of the field of choice does not

take away the contractual or essentially consensual bioding core or

C character

of the transaction. Analysing the Act, it was observed that

according to the definition of

"sale" in the two Acts the transactions

between the appellants in that case and the allottees or nominees,

as

the case may be, were patently sales because in one case the property

in the cement and in the other property in the paddy and rice was

0

transferred for cash consideration by the appellants. When the essen­

tial goods arc in short supply, various types of Orders are issued under

the Essential Commodities Act, 1955 with a view to making the goods

available to the consumer at a fair price. Such Orders sometimes pro­

vide that a person in need of an essential commodity like cement,

cotton, coal

or iron and steel

must apply to the prescribed authority for

E a permit for obtaining the commodity. Those wanting to engage

in the

business

of supplying the commodity are also required to possess a

dealer's licence. The permit-holder can obtain the supply of goods, to

the extent

of the quantity specified in the permit and from the named

dealer only and at a controlled price. The dealer who

is asked to supply

the stated quantity to the particular permit-holder has no option but to

F

G

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

H purposes

of

Sales Tax assumed (notwithstanding the statutory prohibi-

COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJI, J.[ 367

ti on) 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 contract­

ing to sell coffee from any registered estate, there could be no implica­

tion of any purchase on the part of the Coffee Board of the coffee

delivered pursuant to the mandatory provisions of section 25(1) of the

Act.

It was urged that section 17 of the Coffee Act read with sections

25 and 47 enacts what since 1944 is a total prohibition against the sale

of coffee by growers and corresponding purchase of coffee from

growers. In view of section

17 read with section 25, purchase by the

Coffee Board of coffee delivered under section 25(

1) was also

impliedly prohibited.

It is in view of this express prohibition of sale

and corresponding implied prohibition

of purchase that the Act pro­

vided the only method of disposal of coffee, viz., by the delivery of all

coffee to the Coffee Board with no rights attached on such delivery,

save and except the statutory right under section

34. It was also argued

that the Legislature has made a conscious difference between acquisi­

tion

of coffee by compulsory delivery by the growers under Section

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 trans­

action in question. As regards the provisions under Section 26(2)

empowering the Coffee Board to purchase additional coffee not

delivered for inclusion in the surplus pool, it is only a supplementary

provision enabling the Coffee Board to have a second avenue of pur­

chase, the first avenue being the right to purchase coffee under the

compulsory delivery system formulated under Section 25(1) of the

Act.

The scheme of the Act is to provide for a single channel for sale of

coffee grown in the registered estates. Hence, the Act directs the

entire coffee produced except the quantity allotted for internal sale

quota, if any, to be sold to the Coffee Board through the

mod~lity of

compulsory delivery arid imposes a corresponding obligation on the

Coffee Board to compulsorily purchase the coffee delivered to the

pool, except:

A

B

c

D

E

F

G

( 1) where the

·coffee delivered is found to be unfit for human H

368

A

B

SUPREME COURT REPORTS !1988] Supp. 1 S.C.R.

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

C

Hidayatullah, J. in New India Sugar Mills v. Commissioner of Sales

Tax (supra). In the nature of the transactions contemplated under the

Act mutual assent either express or implied is not totally absent in this

case in the transactions under the Act. Coffee growers have a volition

or option, though minimal or nominal to enter into the coffee growing

O

trade. Coffee growing was not compulsory. If any one decides to grow

coffee or continue to grow coffee, he must transact in terms of the

regulation imposed for the benefit of the coffee growing industry.

Section 25 of the Act provides the Board with the right to reject coffee

if it is not upto the standard. Value to be paid as contemplated by the

Act is the price of the Coffee. Fixation of price is regulation but is a

. E

matter of dealing between the parties. There is no time fixed for deliv­

ery of coffee either to the Board or the curer. These indicate consensu­

ality which is not totally absent in the transaction.

It was urged that regard having been to the sovereign nature of

the power exercised by the Coffee Board and the scheme of the Coffee

F Act, the ratio of Vishnu Agencies (supra) will not apply to the acquisi­

tion of coffee under section 25(1) by the Coffee Act. It is in this

connection appropriate to refer to the question of compulsory acquisi­

tion and this naturally leads to the problem of exercising eminent

domain by the State. It is trite knowledge that eminent domain is an

essential attribute of sovereignty of every state and authorities are

G

universal in support of the definition of eminent domain as the power

of the sovereign to take property for public use without the owner's

consent upon making just compensation. Nichols on Eminent Domain

(1950 Edition) a classic authority on the subject, defines 'eminent

domain' as 'the power of the sovereign to take property for public use

without the owner's consent'; see para 1.11 page 2 of Vol. 1 which

H elaborates the same in these words:

COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJI,J.] 369

" ... This definition expresses the meaning of the power in

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 ihat inclusion of the term 'for

the public use' is also by way of limitation. In this connec­

tion, however, it should be pointed out that from the very

beginning of the exercise of the power the concept of the

'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 stich judicial utterances. The relationship between the

individual's right to compensation and the sovereign's

power to condemn is discussed in Thayer's cases on

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

A

B

c

D

E

F

G

H

A

B

c

D

E

F

G

H

370 SUPREME COURT REPORTS [1988] Supp. 1 S.C.R.

attach to it as an incident, an obligation to make compensa­

tion; this latter, morally speaking, follows the other,

indeed like a shadow, but it

is yet distinct from it, and flows

from another

source."

It is concluded thus:

"Accordingly, it is now generally considered that the power

of eminent domain is not a property right, or an exercise by

the state of an ultimate ownership

in the soil, but that it is

based upon the sovereignty of the state. As the sovereign

power of the state

is broad enough to cover the enactment

of any law affecting persons or property within its jurisdic­

tion which is not prohibited by some clause of the

Constitu­

tion of the United States, and as the taking of property

within the jurisdiction of a state for the public use upon

payment of compensation

is not prohibited by the constitu­

tion of the United

States, it necessarily follows that it is

within the sovereign power of a state, and it needs no addi­

tional justification." -

Cooley in his treatise on the Constitutional Limitations Chapter

XV expressed the same view at page 524 of the book in these words:

" . . . More accurately, it is the rightful authority which

must rest

in every sovereignty to control and regulate those

rights of a public nature which pertain to its citizens

in

common and to appropriate and control individual pro­

perty for the public benefit,

as the public safety, conve­

nience or necessity may

demand."

In Charanjit Lal Chowdhury v. The Union of India and others,

[1950] 1 S.C.R. 869, Mukherjea, J. as the learned Chief Justice then

was, while examining the scope and ambit of Article

31 of the

<:onsti­

tution observed as follows:

"It is a right inherent in every sovereign to take and

appropriate private property belonging to individual

citizens for public use. This right, which

is described as

eminent domain

in American law, is like the power of taxa­

tion, and offspring of political necessity, and it is supposed

to be based upon an implied reservation by Government

that private property acquired by its citizens under its pro-

<

~'

--.~

·-

t

COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJI, J. I 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. Ranga­

natha Reddy and another etc.,

[1978] 1

S.C.R. 641 held that the power

of acquisition could be exercised both in respect of immovable and

A

movable properties. B

While conceding the power

of acquisition of coffee in exercise of

eminent domain, the scheme contemplated under the Act was not an

.exercise

of eminent domain power. The Act was to regulate the

development

of coffee industry in the country. The object was not to

acquire coffee grown and vest the same in the Board. The Board

is

only an instrument to implement the Act.

The High Court in its judgment has rightly observed that the

Board has been chosen as the instrumentality for the administration of

c·

the Act. The role of the Board of this type has been noted in three

Australian decisions which must be taken note of. It is appropriate at D

this stage to refer to the decision

of the Australian High Court, in

Peanuts Board v. The Rockhampton Harbour Board, (supra). The

question posed before the High Court was in relation to Section 92 of

the Constitution Act of Commonwealth of Australia and the decision

is instructive, though not in point. Rich,

J. observed at pages 275 to

277

of the report as follows: E

"It therefore. remains only t-0 consider whether the

operative instruments affecting to deal with peanuts do

or

do not interfere with the freedom of inter-State trade. This

should be done weighing compulsory acquisition

as a mat-

ter perhaps characterizing the enactments, but not of F

necessity determining their effect. The feature which at

once challenges attention is that these instruments provide

a means

of marketing. They are concerned with establish-

ing a compulsory pool through which growers producing

peanuts for sale must dispose

of their product for distribu­

tion and receive their reward. The pith and substance

of G

the enactments is the establishment

of collective sale and

distribution of the proceeds

of the total crop and the con­

comitant abolition

of the grower's freedom to dispose of his

product voluntarily in the course of trade and' commerce,

whether foreign, inter-State

of intra-State. Section 15 of

the Act of 1926 provides that

"all the commodity" shall be H

A

B

c

'E

F

H

372 StrPREME 'COURT REPORTS [1988] Supp. 1 S.C.R.

deliveted by the growers to the marketing board, and that

"all 'the commodity" so delivered shall be deemed to have

been delivered to the board for sale

by the

board, "who

shalI account .to the growers thereof for the proceeds

thereof after making all lawful deductions therefrom

for expenses and outgoings and deductions of

all kinds in

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 estabished for the

purpose of carrying out one of the functions of trade.

In my

opinion the enactment controls directly the commercial

dealing

in Peanuts by the grower and aims at, and

would,

apart from section 92 accomplish, the complete destruction

of his freedom of commercial disposition of

his product. Part of ibis freedom is guaranteed by section 92. Accord­

ingly the Primary Producers' Organization and Marketing

Act 1926-50 and the brder in Council thereunder are in­

effectual to prevent the grower of peanuts from disposing

COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES [MUKHARJJ, J .[ 373

of them in inter-State trade and commerce and the appel-A

!ant Board had no title to the peanuts the subject matter

of

this

action."

In Milk Board (New South Wales) v. Metropolitan Cream Pty.

Ltd., (62 C.L.R. 116), Chief Justice Latham at page 131 of the report

observed as follows:

"It is true that the decision in the Peanut Board Case (48

C.L.R. 266) was approved in James v. The Commonwealth,

55 C.L.R. 1, but it is important to consider carefully the

precise words in which this appro'llll was expressed. They

were as follows: "The producers of the peanuts, it was

held, were prevented by the Act from engaging in inter­

State and other trade in the commodity. The Act embo­

died, so the majority

of the court held, a compulsory

marketing scheme, entirely restrictive of any freedom of

action on the part

of the producers; it involved a compul­

sory regulation and control

of all trade, domestic, inter­

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 expro­

priate in order to hinder

or burden the passing of milk, and

B

c

D

E

the other products which the word 'milk' is expressed

to

include, from other States; and there is no ground for the

contention that any such burden

or hindrance is imposed

under the disguise

of expropriation. The Act replaces an F

individualist economy by a collectivist one for the distribu-

tion

of milk within the area containing the most densely

populated part

of the

State; and all that can be presumed is

that the substitution was deemed by the legislature to be an

expedient one for reasons only of health, hygiene, effi­

ciency and the economic benefii of farmers in the milk-G

producing districts. I agree, therefore, that the operation of

section

26 is not inconsistent with section 92 of the

Constitution."

The aforesaid observations are most apposite. In the light

aforesaid along with the provisions

of section 17 and section 25 of the H

374 SUPREME COURT REPORTS [1988] Supp. 1 S.C.R.

A

Act, it cannot be said in the Act, there is any compulsory acquisition.

B

c

D

E

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 propor­

tion as the value of coffee delivered by

him out of the year's

crop to the surplus pool bears to the value of all coffee

delivered to the surplus pool out of that year's

crop."

The High Court has referred to the provisions of section 34(2) of

the Act and observed that the said provisions ensure periodical pay­

ments of price to the growers. The Rules provide for advancing loans

to

the growers. Without a shadow of doubt these elements indicate,

according to the High Court, that

in the compulsory sale of coffee,

F

there was an element of consensuality.

We are in agreement that there

is consensuality

in the scheme

of the section. The High Court has

referred to section 25(2) of the Coffee Act and observed that the

power conferred by section 25(2) of the Coffee Act must be read

subject to the very requirement of that and all other provisions of the

Act. When a grower sells coffee that has become totally unfit for

G human consumption for one or the other valid reason, such a grower

cannot compel the Board to purchase such coffee on the ground that it

was coffee and thus endanger public safety and also pay its value

or

price. In the very nature of things, these things cannot be foreseen or

enumerated exhaustively. The High Court

was of the view that if a

grower delivered coffee to the Board, the Coffee Act extinguished his

H title and absolutely vested the same

in the Board, however, preserving

l

COFFEEBOARDv. COMMR.OFCOMMERC!AL TAXES [MUKHARJI,l.) 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 tlie concept of compulsory

acquisition. Section 13(4) of the Coffee Act clearly fixesthe. liahility

A

B

c

for payment of duty of excise on the registered owner of the estate

producing coffee. The Board

is required to deduct ihe amount of duty D

payable by such owner from the payment to the grower under section

34 of the Act. The duty payable by the grower is a first charge on such Pool payment becoming due to the grower from the Board. Section 11

of the Act provides for· levy of duty of customs on coffee exported out

of India. This duty is payable to the Customs Authorities at the time of

actual export. The levy and collection of this duty

is not unrelated to E

the delivery of the coffee

by the growers to the Board or the pool

payments made by the Board to the growers. The duty of excise as also

the duty of customs are

duties levied by Parliament in exercise of its

powers of taxation.

It is not a levy imposed by the Board. It is a fact

that the revenue realised from the levy of these duties form part of the Consolidated Fund of India and can be utilised for any purpose. it may F

be utilised for the purpose of the Coffee Act only if Parliament

by

appropriation made by law in this regard so provides. The true princi-

ple

or basis in Vishnu Agencies case applies to this case.

Offer and

acceptance need not always be in an elementary form, nor does the law

of contract or of sale of goods require that consent to a contract must

,.

be express. Offer and acceptance can be spelt out from the conduct of G

the parties which cover not only their acts but omissions as well. The

limitations imposed by the Control Order on the normal right of the

dealers and consumers to supply and obtain goods, the obligations

imposed on the parties and the penalties prescribed by the order do

not militate against the position that eventually, the parties must be

deemed to have completed the transaction under an agreement

by H

'

376 SUPREME COURT REPORTS 11988] Supp. 1 S.C.R.

A

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.

B A contract whether express or implied between the parties for

the transfer of the property in the goods for a price· paid or promised is

an essential requirement for a 'sale'. In the absence of a contract

whether express or implied, it is true, there cannot be any sale in the

eyes of law. However, as we see the position and the scheme of the

Act, in the instant case, there was contract as contemplated between

C 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,

11959) S.C.R. 379 in this regard. In law there cannot be a sale whether

or not compulsory, in the absence of a contract express or implied. The

position of the Coffee Board so far as sale is concerned is explained by

D the Madras High Court very lucidly in The Indian Coffee Board,

Batlagundu v. The State of Madras (supra), where the High Court

expressed the view that the Indian Coffee Board which derived its

existence from the Coffee Market Expansion Act is a dealer within the

meaning of section 2{b) of the Madras General Sales Tax Act, 1939,

and is therefore, liable to sales tax on its turnover. The High Court

E held that the Board was not a constituted representative of the pro­

ducer and it did not hold the goods on behalf of the producer. After

the goods enter the pool after delivery, they become the absolute

property of the Board and the producer, a registered owner, has no

right or claim to the goods except to a share in the sale proceeds after

the goods are sold in accordance with the provisions of the Act.

F

It was said by the learned Additional Solicitor General that the

cultivation of coffee in India was over a century old and numerous

plantations existed long prior to the enactment of the Coffee Act.

There was no act of volition on the part of the growers in taking to

coffee cultivation and subjecting themselves to the provisions of the

G

Act by taking up such cultivation. The cultivation of coffee can be

carried on only in certain types of soil and in high elevations. The land

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,

H the average life of the plant being 40 years. Coffee estates require

;

COFFEE BOARD v. COMMR. OF COMMERCIAL TAXES !MUKHARJI, J.J 377

constant attention and expenses have to be incurred for manuring,

cultural operations; application of pesticides,. etc:llt regular iniervais.

Removal of old and diseased plants and replanting them with superior

disease-resistant varieties

is also necessary and is done each

ye~r. The

coffee grower has thus no choice at all continuing to be a coffee

cultivator, it was argued.' The cultivation of coffee is not in any way

comparable to the cultivation of sugarcane, the cultivation of which

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 there­

fore are not liable to pay any sales tax or purchase tax, it was submit·

ted. The demand for purchase tax is in effect a demand on the growers

who were exempt from such levy, as the mqnies required for paying

the tax if the same is lawful has necessarily to come out of the monies

otherwise payable to the growers. The object of the pool marketing

system

is not to deprive the growers of a fair compensation for their

produce by making

them· suffer a tax which they would not otherwise

be required to suffer.

An analysis of the different provisions of the

Coffee Act makes it clear that there was no sale to attract exigibility to

duty, it was submitted.

We are unable to accept these submissions.

Section 6 of the Kamataka Sales Tax Act, 1957 meets the situation

created by such circumstances. This

was examined by this Court in State of Tamil Nadu v. N.K. Kamaleshwara, [1976] 1 SCR 38 which

examined section 7A of Tamil Nadu General Sales Tax Act, 1959-

which was in pari materia with section 6 of the Karnataka Sales Tax

Act. In

that view of the matter section 6 of the Kamataka Act would

be attracted.

A

B

c

D

E

F

The alternative submission of the appellant was that the Coffee G

Board was a trustee or agent of the growers. We are unable to accept

this submission either. There is no trust

created in the scheme of the

Act in the Coffee Board; it is a statutory obligation imposed on the

Coffee Board and does not make it a trustee

in any event. It is also not

possible to accept the submission that the Central

Sales Tax Act will

not be applicable to any sale by the Coffee Board because it was an H

378 SUPREME COURT REPORTS [1988] Supp. 1 S.C.R.

A export sale by the Coffee Board. In

Consolidated Coffee Ltd. &

Another v. Bangalore etc., (supra) it has been held that there must be a

prior agreement at the time when the transaction of sale takes place.

No such prior agreement existed in this case.

In New India Sugar Mills Ltd .. v. Commissioner of Sales Tax

B Bihar (supra), Hidayatullah, J. as the Chief Justice then was, observed

that so long as the parties trade under controls at fixed price and

accept these as any other law of the realm because they must be

deemed to have contracted at a fixed price both sides having

or

deemed to have agreed to such price. Consent under the law of

con­

tract need not be expressed, it can be implied. This is the position

under the scheme

of the Coffee Act. It has to be emphasised like

th"

C Vishnu Agencies's case a person for all practi•cal purposes is free to

become

or not to become a

gro~er of coffee. So it is also covered by

the ratio of

Vishnu Agencies

Pvt. Ltd.

In the aforesaid view of the matter, we are of the opinion that the

imposition

of tax in a manner done by the

Sales Tax Authorities which

D had been upheld by the High Court

is correct and the High Court was

right.

The appeals fail and are

di.smissed. There, will, however, be no

order as to costs.

·

Civil Writ Petition No. 358 of 1986 under Article 32 of the Con-

E stitution of India

is dismissed. Re. Writ Petition No. 36 of 1986, we are

of the opinion that we cannot go into in the contentions in this peti­

tion. The rights and obligations of the parties,

inter-se between the

petitioners and the Coffee Board may be agitated

in appropriate pro­

ceedings. Re.

Writ Petition No. 37 of 1986. This writ petition is dismis­

sed without prejudice to the rights of the petitioner to agitate the

F question

of liability of the. petitioner, vis-a-vis, Coffee Board in respect

of the sales tax due and payable on the transactions between the

parties in appropriate proceedings. Re.

Civil

<Writ Petition No. 39 of

1986. There will be no order in this petition. But it is made clear that

this is without prejudice to the right of the parties taking appropriate

proceedings if necessary for determination of the liabilities

inter-se

G between the petitioners and the Coffee Board for the amount of sales

tax payable.

Parties

in these writ petitions will pay and bear their own costs.

Interim orders, if any, are all vacated.

S.L. C.M.P. No. 2447 of 1986 is allowed.