1980 (4) TMI 278 - SC - VAT and Sales Tax

Whether appeal maintainable against the Coffee Board? Whether the amendment introduced by insertion of sub-section (3) in section 5 of the Central Sales Tax Act is ultra vires article 286(2) of the Constitution? At what point of time the property in the coffee sold at export auctions conducted by the Coffee Board passes to the registered exporters (auction purchasers)? Held that - Writ petitions are partly allowed. The impugned circular dated 7th February, 1977, to the extent to which it insists on production of an agreement with or an order from a foreign buyer from the registered exporters before participating in export auctions is quashed; it is also quashed hereafter to the extent to which it requires the registered exporters to make contingency deposits or furnish bank guarantees out of abundant caution inasmuch as such requirement would be unnecessary in view of our authoritative pronouncement. The Coffee Board may, if so advised, modify its circular or issue an appropriate circular requiring the production of an agreement with or an order from a foreign buyer from the registered exporters just before the property in the coffee sold at such auctions passes under clauses 19 and 20 of the auction conditions. As regards past dealings and transactions, final assessment, if any, made by the taxing authorities as well as recoveries if made thereunder contrary to the view expressed by us above deserve to be set aside and reassessments made and the concerned State Governments will direct their taxing authorities to do the needful and further direct the refund of recoveries made to the Coffee Board which in its turn will refund the same to the concerned registered exporters. Assessments or recoveries if made in conformity with our judgment need not be disturbed.

Issues Involved:
1. Maintainability of the writ petitions against the Coffee Board.
2. Constitutional validity of section 5(3) of the Central Sales Tax Act, 1956.
3. Proper construction of section 5(3) of the Central Sales Tax Act, 1956.
4. Point of time at which the property in coffee sold at export auctions conducted by the Coffee Board passes to the registered exporters.

Detailed Analysis:

1. Maintainability of the Writ Petitions Against the Coffee Board:
The preliminary objection raised by the Coffee Board was that no writ would lie against it challenging its circular dated 7th February, 1977, as it was engaged in a commercial activity and had the right to lay down terms and conditions for such sales. However, during the hearing, the learned Attorney-General for the Coffee Board did not press this objection, acknowledging the need for an authoritative decision on the proper construction of section 5(3). Consequently, the Court did not delve into this issue further and focused on the remaining questions.

2. Constitutional Validity of Section 5(3) of the Central Sales Tax Act, 1956:
The contention was that section 5(3) merely enacts an artificial rule or fiction and does not lay down any principle for determining when a sale takes place in the course of export, thus being beyond the power conferred on Parliament by article 286(2) of the Constitution. The Court rejected this argument, stating that the word "deemed" in section 5(3) was used to impose an artificial construction and did not create a legal fiction. The provision was seen as formulating a principle of general applicability to penultimate sales that satisfy specified conditions. The Court concluded that section 5(3) was within the power conferred by article 286(2) and was not ultra vires.

3. Proper Construction of Section 5(3) of the Central Sales Tax Act, 1956:
The main issue was whether the "agreement or order for or in relation to such export" referred to an agreement with a foreign buyer or included any binding agreement to export with a local party. The Court held that the expression "the agreement" in section 5(3) referred to an agreement with a foreign buyer. This conclusion was drawn from the language of the statute, the use of the definite article "the" before "agreement," and the context of the provision. The Court also considered the mischief rule, noting that the amendment aimed to address difficulties arising from previous interpretations of section 5(1) by extending the exemption to penultimate sales that immediately precede the final export sale, provided they satisfy certain conditions.

4. Point of Time at Which the Property in Coffee Sold at Export Auctions Passes to the Registered Exporters:
The Court examined whether the property in coffee sold at export auctions conducted by the Coffee Board passed to the registered exporters at the fall of the hammer, upon payment of the price, weighment, and setting apart for delivery, or after shipment. The Court held that section 64(2) of the Sale of Goods Act did not deal with the passing of property but with the completion of the contract of sale. The auction conditions, particularly clauses 19 and 20, indicated that the property passed to the buyer upon payment of the price, weighment, and setting apart for delivery. Clause 31, which allowed the Coffee Board to seize unexported coffee, was seen as a defeasance clause rather than a reservation of the right of disposal. The Court concluded that the property in the coffee passed to the buyer immediately upon payment of the price, weighment, and setting apart for delivery.

Conclusion:
The writ petitions were partly allowed. The impugned circular dated 7th February, 1977, was quashed to the extent that it insisted on the production of an agreement with or an order from a foreign buyer before participating in export auctions and required contingency deposits or bank guarantees. The Coffee Board was directed to modify its circular to require the production of such agreements or orders just before the property in the coffee passed under clauses 19 and 20 of the auction conditions. For past transactions, the concerned State Governments were directed to reassess and refund any recoveries made contrary to the Court's judgment, and the Coffee Board was instructed to release or refund contingency deposits or bank guarantees obtained contrary to the judgment.

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