1994 (11) TMI 350 - SC - VAT and Sales Tax

Supreme Court rules Coffee Board liable for purchase tax on transactions with growers

Consolidated Coffee Limited and Another Versus Coffee Board and Another (and writ petitions)

The Supreme Court affirmed that the Coffee Board was liable to pay purchase tax under the Karnataka Sales Tax Act, 1957, for transactions with coffee ... Whether the Board was entitled to make payment of the 'purchase tax' out of the pool fund required to be maintained under section 30 of the Coffee Act? Held that:- The registered owners who grow coffee and deliver the same for inclusion in the surplus pool are entitled to the payment on some reasonable basis and their interest cannot be defeated or put in jeopardy by any act or omission on the part of the Board. But in view of the stand taken by the Board itself in the paragraph 47 of the counter-affidavit filed in the connected writ petition before this Court, the appellants, need not be apprehensive about their payments. Accordingly, the appeals are disposed of with a direction to the respondent- Board to perform its statutory duty in respect of payment for the coffee delivered to them by the registered owners in accordance with the provisions of the Act and to make payment to the growers at a rate which in the facts and circumstances prevailing in any particular year can be held to be just and reasonable and which should cover cost of production of the concerned coffee and reasonable percentage of profit thereon. Issues Involved:1. Liability of the Coffee Board to pay purchase tax under the Karnataka Sales Tax Act, 1957.2. Authority of the Coffee Board to use the pool fund for payment of purchase tax.3. Rights of coffee growers concerning the pool fund and payments under the Coffee Act, 1942.Issue-wise Detailed Analysis:1. Liability of the Coffee Board to Pay Purchase Tax:The High Court held that growers/producers were not liable under section 5(3)(a) of the Karnataka Sales Tax Act, 1957, to pay tax on the sale of coffee to the Coffee Board. The Board was liable to pay the 'purchase tax' under section 6 of the Act. The Supreme Court affirmed this, referencing its earlier decision in Coffee Board v. Commissioner of Commercial Taxes [1988] 70 STC 162, which established that section 6 applied to transactions between the Board and coffee growers, making the Board liable for the purchase tax.2. Authority of the Coffee Board to Use the Pool Fund for Payment of Purchase Tax:The appellants contended that the Board could not use the pool fund, maintained under section 30 of the Coffee Act, 1942, to pay the purchase tax. They argued that section 32(2) of the Coffee Act restricts the use of the pool fund to specific purposes, none of which include the payment of purchase tax. The High Court had found that the payment of purchase tax was part of the marketing process and thus covered under section 32(2)(b). However, the Supreme Court emphasized that the appellants failed to show how using the pool fund for purchase tax payment affected their rights. The Court noted that any excess in the pool fund could be transferred to the general fund with the Central Government's sanction, as per section 32(2).3. Rights of Coffee Growers Concerning the Pool Fund and Payments Under the Coffee Act, 1942:Section 25(6) of the Coffee Act states that once coffee is delivered to the Board for inclusion in the surplus pool, the registered owner retains no rights except to receive payments as per section 34. The appellants were concerned that using the pool fund to pay purchase tax might affect their payments. The Supreme Court directed the Board to ensure that payments to growers are just and reasonable, covering production costs and a reasonable profit margin. The Court referenced paragraph 47 of the Board's counter-affidavit, which assured that payments to growers have historically been above production costs and reasonable, alleviating the appellants' concerns.Conclusion:The Supreme Court dismissed the appeals, directing the Coffee Board to perform its statutory duty of making reasonable payments to coffee growers from the pool fund, ensuring that these payments cover production costs and a reasonable profit. The Court found no basis for the appellants' concerns about the use of the pool fund for purchase tax payments, given the statutory framework and assurances provided by the Board. The writ petitions were permitted to be withdrawn without any orders as to costs.