Udita Saraf, National Law University Orissa
This case deals with the extent and scope the expression ‘sale’. The question of law is whether mandatory sale to the board warrants taxes or is under the course of import and thus exempt from all taxes under A.286 of the Constitution. The Coffee Act made it mandatory upon coffee growers to deliver its produce to the coffee board, who was under compulsion to purchase the coffee. It was held by the Division Bench that compulsory delivery of coffee by the board constitutes a component of consent and thus there is an agreement of ‘sale’ or ‘purchase’ between the board and the coffee growers according to Sales of Goods Act. Thus the board is not free from tax liabilities under relevant tax laws. The Hon’ble High Court held that any sales thereafter were not ‘in the course of export’ or local sales within the State of Karnataka but ‘for export’. Thus the appellant cannot attract article 286 for exemption of tax liability. The Hon’ble Supreme Court upheld the same and dismissed the appeal with no costs.
Facts Of The Case
This is a case before the Supreme Court where the appellant, Coffee Board had filed an appeal against the decision of the High Court. The appellant had bring in question section 25(i) of the Coffee Act, 1942. This section provides for single channel for sale of coffee grown in the registered estates[i] . Thus as per the act, there is an obligation on the coffee growers to deliver all its produce, except internal sale quota, to the coffee board. Similarly, the board is under compulsion to purchase the coffee. The board contends that according to provision of the Coffee Act, ‘mandatory delivery’ of coffee do not constitute a sale transaction between the board and the coffee growers and thus they are liable to any purchase tax. The appellant had further put up the argument that they are acting as an ‘agent’ or ‘trustee’ of the coffee growers and thus responsible to pay tax. Also, that they were immune under art. 286 of the constitution because all the sales were in the nature of ‘export sales’.
On the other side, the respondent herein-the Commissioner of Commercial Taxes had invoked section 6 of the Karnataka Sales Tax Act, 1957 and claimed that according to this provision the board is under a liability to pay tax. The respondent are of the opinion that ‘compulsory delivery’ of coffee according to section 25(i) of the Coffee Act is an act of sale and purchase only and thus it makes them liable to pay tax under relevant sales tax laws for any such transaction.
Therefore in this case scope and extent of the expression ‘sale’ and its applicability for determining the rights, responsibility and duties of the appellant is in dispute.
Issues Framed By the Court
Whether compulsory delivery of coffee to the appellant as per section 25(i) Coffee Act of 1942 is in the nature of ‘sale’ or ‘purchase’ agreement?
Whether the tax levied on the coffee board under section 6 of the Karnataka Sales Tax Act valid?
Is the Coffee board only a ‘trustee’ or ‘agent’ of growers and thus not liable to pay tax?
Were all the sales’ in the course of export’ and thus immune to tax under Article 286 of the constitution?
Issues Overlooked By The Court
Determination of the liabilities inter-se between the petitioners and the Coffee Board for the amount of sales tax payable.
Decision Of The Court
It was held by the Division Bench of Karnataka that compulsory delivery of coffee by the board constitute a component of consent and thus there is an agreement of ‘sale’ or ‘purchase’ between the board and the coffee growers according to Sales of Goods Act. Since there is element of ‘sale’ or ‘purchase’, the board is not free from tax liabilities under relevant tax laws. When once the Board was held to be a ‘dealer’ it also followed from the same that there was sale by the grower, purchase by the Board and then a sale by the Board[ii].
Also, it was held by the High Court that any sales thereafter were not ‘in the course of export’ or local sales within the State of Karnataka but ‘for export’. Thus the appellant cannot attract article 286 for exemption of tax liability.
In Supreme Court the decision of the High Court was upheld and imposition of tax on the appellant was correct. It was also held that Coffee board do not act as a trustee and is neither an agent of the growers.
Thus the appeal of the Coffee board had was dismissed and there was no order as to the cost.
Reasons For The Decision Of The Court
The decision of the Supreme Court in this case was guided by various statutes and precedent and also the decision of the High Court.
The High Court based its judgment on the opinion that since an element of ‘consent’ exists in the compulsory sales, though negligible and by way of either expressed or implied then that would be regarded as a sale or purchase transaction. For the same it would be also covered under the purview of relevant tax laws. The court took into consideration various provision of the Sales of Goods Act 1979 and held that according to Section 3 of the act, there does exists an element of consensus in the compulsory sales regulated by the Act. It was also observed by the act that the price paid by the growers to the board was an essential component in determining that the nature of the transaction involved ‘sale’ under Section 4(1) of the Sales of Goods Act.
Court’s decision that compulsory delivery of Coffee does involve a sale agreement was further based after considering all the elements of sale which are as follow :
Parties competent to contract,
Mutual consent-though minimal, by growing coffee under the conditions imposed by the Act,
transfer of property in the goods and
Payment of price though deferred.
The court was of the opinion that since all elements of sale are present in the transaction in question it in an agreement of sale.
The principle applied in the case of Vishnu Agencies[iii] was also referred to in this case which was that consent to a contact can either be expressed or implied. Also, interpretation of various section of the Coffee Board Act 1942 , for instance Coffee growers had an option to enter into coffee growing trade, boards right to reject the coffee so delivered, no fix time for delivery of the coffee, indicates that consent was not totally absent. Court’s decision that compulsory delivery of coffee constitute an agreement of sale was further substantiated by the minority opinion of J.Hidayatullah in the case of New Sugar Mills v. Commissioner of Sales Tax[iv] which states that so long the parties agrees to trade and fixes the price for such a contract it is a contract of sale and thus imposition of tax is valid.
Considering the second issue of imposition of tax, the judgement of the court was based on the rational that since there is a sale, obligation to pay related tax is valid. 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[v].
According to section 5 of the Central Sales Tax,1956 Coffee Board does not qualify to be exempted under Article 286 of the constitution as the exports made are not “in the course of export” but “for export”. The export is not in the nature of local sales and thus cannot avoid liability.
Moreover, Coffee board was declared not be an agent of the board neither a trustee since there was no trust created in the scheme of the act instead compulsory acquisition of coffee by board was a statutory duty on the board.
Analysis Of The Decision Of The Court
The decision given by Justice S. Mukherjee was derived at after taking into consideration every minute detail of the case, giving rational reasons and also relying on precedent cases sharing the same subject matter.
In order to arrive at the above stated decision, the court had examined the meaning, nature and applicability of ‘sale’ in reference to general law, that is, Sales of Goods Act, 1930. Also, various other definition and explanation of the term sale had been being referred to.
The decision of the court had been acceptable by right interpretation and application of the relating laws. The ratio of the case that there is no ‘compulsory acquisition’ by the board but involves a contract of sale is justified on the grounds that there exists an element of ‘consent’ which is one of the most important criteria for determining any contract. The principle that mere regulation or control by a statutory body do not change the essential character of a contract and makes it binding on both the parties had been correctly applied. Since the board is there only for administrative purpose and proper implementation of the coffee act, for the betterment of coffee industry there also needs to be safeguard from escaping tax liabilities.
The court after proper examination and study of few of the earlier cases based on somewhat similar grounds had either rejected or taken into consideration such cases. Also, since there was no ambiguity in relation to the concerned laws applicable in the case, the decision given by High Court and Supreme Court did not vary. Thus the case was decided in a right and justified manner.
Departure From Earlier Precedent
There exists cases which are based on similar grounds but the judgement given in those cases differ from the case in discussion.
In the case of Indian Coffee Board v. State of Madras[vi] it was held that there was no contract either expressed or implied between the board and the coffee grower. In another case of State of Kerala v. Bhavani Tea produce Co[vii] it was held that though delivery of coffee by the growers to the board was sale but such a transaction was not taxable.
In Consolidated Coffee ltd and Anr. V. Coffee Board, Bangalore[viii], Sale of coffee at export auction was exempted from sales tax under section 5(3) of the Central Sales Tax Act. Thus it this decision is a departure from judgment of the present case.
Edited by Neerja Gurnani
[i] Coffee Board v. Commr of Commercial Taxes, Karnataka AIR 1988 SC 1487.
[iii] Vishnu Agencies (Pvt.) Ltd. etc. v. Commercial Tax officer and others etc.,  2 S.C.R. 433
[iv] New India Sugar Mills v. Commissioner of Sales Tax, Bihar, 1963 AIR 1207
[v] Supra note 2
[vi] Indian Coffee Board v. State of Madras, 5 S.T.C. 292
[vii] State of Kerala v. Bhavani Tea Produce Co.,  2 S.C.R.92
[viii] Consolidated Coffee Ltd. & Anr. etc. v. Coffee Board, Bangalore, etc. etc.,  3 SCR 625;