1985 (8) TMI 339 - HC - VAT and Sales Tax

Issues Involved:
1. Validity of Sections 2(t) and 6 of the Karnataka Sales Tax Act (KST Act).
2. Whether the Coffee Board's procurement of coffee constitutes "compulsory acquisition" or "compulsory sale."
3. The applicability of purchase tax under Section 6 of the KST Act to the Coffee Board.
4. Whether the Coffee Board acts as a "trustee" or "agent" for the growers.
5. Whether export sales by the Coffee Board qualify as "in the course of export" under Article 286 of the Constitution.
6. The applicability of additional tax and surcharge under Sections 6B and 6C of the KST Act.

Detailed Analysis:

1. Validity of Sections 2(t) and 6 of the Karnataka Sales Tax Act (KST Act):
- The petitioner challenged the validity of Sections 2(t) and 6 of the KST Act, arguing they contravene the Coffee Act, Articles 265 and 300-A of the Constitution.
- The Court found the challenge to be bald and unsupported by detailed arguments. It rejected the challenge, noting that Section 2(t) defines "sale" within the legislative competence of the State Legislature and does not contravene any constitutional provisions.
- Section 6, providing for the levy of purchase tax, was upheld as valid and within the legislative competence of the State Legislature, citing the Supreme Court's decision in State of Tamil Nadu v. M.K. Kandaswami, which upheld similar provisions.

2. Whether the Coffee Board's procurement of coffee constitutes "compulsory acquisition" or "compulsory sale":
- The petitioner argued that the compulsory delivery of coffee to the Board under the Coffee Act was "compulsory acquisition" and not a sale, thus not attracting purchase tax under Section 6 of the KST Act.
- The Court rejected this contention, stating that the Coffee Act's provisions do not amount to compulsory acquisition. The Board's procurement of coffee is a "compulsory sale" with an element of consensuality, fitting within the definition of "sale" under the KST Act.
- The Court relied on the Supreme Court's ruling in State of Kerala v. Bhavani Tea Produce Co. Ltd., which held that the Coffee Board is neither a trustee nor an agent of the planter, and the delivery of coffee to the Board amounts to a sale.

3. The applicability of purchase tax under Section 6 of the KST Act to the Coffee Board:
- The Court held that the Coffee Board is liable to pay purchase tax under Section 6 of the KST Act for the coffee it procures from growers.
- The Court noted that the Board's procurement operations involve an element of consensuality, making the transactions taxable under the KST Act.
- The Court also rejected the petitioner's argument that the Board acts as a "trustee" or "agent" for the growers, reiterating the Supreme Court's position in Bhavani Tea Produce Co. Ltd.'s case.

4. Whether the Coffee Board acts as a "trustee" or "agent" for the growers:
- The petitioner claimed that the Board acts as a "trustee" or "agent" for the growers, which should exempt it from purchase tax.
- The Court rejected this claim, citing the Supreme Court's decision in Bhavani Tea Produce Co. Ltd., which explicitly stated that the Coffee Board is neither a trustee nor an agent of the planter.
- The Court emphasized that the coffee delivered to the Board becomes its absolute property, and the growers retain no rights except to receive payment.

5. Whether export sales by the Coffee Board qualify as "in the course of export" under Article 286 of the Constitution:
- The petitioner argued that export sales directly made by the Board should be considered "in the course of export" and thus exempt from purchase tax under Article 286 of the Constitution.
- The Court rejected this argument, relying on the Supreme Court's rulings in Coffee Board, Bangalore v. Joint Commercial Tax Officer, Madras, and Consolidated Coffee Limited v. Coffee Board, Bangalore. These rulings clarified that only sales that directly cause the export qualify for exemption, not intermediary sales.
- The Court held that the Board's purchases and subsequent exports were "for export" and not "in the course of export," thus not qualifying for exemption under Article 286.

6. The applicability of additional tax and surcharge under Sections 6B and 6C of the KST Act:
- The Court upheld the levy of additional tax under Section 6B and surcharge under Section 6C of the KST Act on the purchase tax imposed on the Board.
- The Court found that these levies were in conformity with the provisions of the KST Act and did not warrant any exception.

Conclusion:
The Court dismissed the petitions, upholding the validity of Sections 2(t) and 6 of the KST Act, confirming the applicability of purchase tax to the Coffee Board's procurement of coffee, and rejecting the claim that export sales by the Board qualify for exemption under Article 286 of the Constitution. The Court also upheld the levy of additional tax and surcharge on the purchase tax imposed on the Board.

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