TaxTMI 
TaxTMI 
1988 (5) TMI 338
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....9 of 1985. Shanti Bhushan, Kapil Sibal, Soli J. Sorabjee, G.B. Pai and V.A. Bobde, Senior Advocates (K.P. Kumar, R. Vasudevan, K.T. Anantharaman, Harish N. Salve, H.K. Dutt, Miss Mridula Ray, O.C. Mathur, Miss Meera Mathur and Miss Lekha Mathur, Advocates, with them), for the petitioners in Writ Petitions Nos. 36, 37, 39 and 358 of 1986. -------------------------------------------------- The judgment of the Court was delivered by SABYASACHI MUKHARJI, J.-Civil Appeals Nos. 4522 to 4529 of 1985; 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-the 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 ex....
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.... 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 export 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 exports made would be "for export" only and not "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 c....
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....iod 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. 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 maki....
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....ted 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 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 coffee 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 s....
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....85. The Madras High Court in the case of Indian Coffee Board v. State of Madras [1954] 5 STC 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, the 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 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 singl....
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.... transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration, and includes a transfer of goods on the hire-purchase or other system of payment by instalments, but does not include a mortage or hypothecation of 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 co- operative 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....
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....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 up to 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. v. Coffee Board [1980] 46 STC 164; [1980] 3 SCR 625 held that sales of coffee at export auctions were sales which preceded the actual export and thus exempt from sales tax under section ....
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....urt made absolute the stay of further proceedings pursuant to the show cause notice of the Commissioner proposing to reopen 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 as 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 an....
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....on of the High Court several questions were canvassed in these appeals. The questions were (i) Was there transfer of coffee to the Board from the coffee growers or acquisition. (ii) Was 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 [1966] 2 SCR 92 against the appellant. We were, however, invited to compare the transaction in question with transactions in Peanut Board v. Rockhampton Harbour Board 48 CLR 266. Was there any mutuality? In this connection it is necessary to analyse and compare the decision of this Court in Vishnu Agencies (P.) Ltd. v. Commercial Tax Officer [1978] 42 STC 31; [1978] 2 SCR 433 and to what extent the principles enunciated in the said decision affect the position. In order to address our....
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....ng 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 transactions in those cases were sales and were exigible to tax on the ratio of Indian Steel and Wire Products Ltd. [....
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....cause 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. [1958] 9 STC 353 (SC); [1959] SCR 379 and New India Sugar Mills v. Commissioner of Sales Tax [1963] 14 STC 316 (SC); [1963] Supp ....
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....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 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 uneconom....
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....aborates the same in these words: "...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 ....
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....ts 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. Union of India [1950] 1 SCR 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 pro- perty acquired by its citizens under its protection may be taken or its use controlled for public benefit irrespective of the wishes of the owner." This Court in the State of Karnataka v. Ranganatha Reddy [1978] 1 SCR 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 exe....
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....modity' 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....
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....dient 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 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 is sale and not compulsory acquisition. It has also to be borne in mind that the terms "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 fund as it may think proper. (2) The sum of all payments made under sub-section (1....
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....ustoms 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 A....
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....d 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 pl....
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....n 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 export sale by the Coffee Board. In Consolidated Coffee Ltd. v. Coffee Board, Bangalore [1980] 46 STC 164 (SC); [1980] 3 SCR 625 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 [1963] 14 STC 316 (SC); [1963] Supp 2 SCR 459, 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' case [1978] 42 STC 31 (S....