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TMI Blog1985 (8) TMI 339X X X X Extracts X X X X X X X X Extracts X X X X ..... risis. With the object of rehabilitating the industry and placing it on a sound footing, accepting the recommendations of a conference held thereto, the then Viceroy and Governor General of India, promulgated the Coffee Market Expansion Ordinance (Ordinance No. 13 of 1940) on 14th December, 1940 inter alia establishing the Board from 21st December, 1940. The said Ordinance continued by another ordinance, was replaced by a permanent enactment of the then British Indian Legislature titled as "The Coffee Market Expansion Act (Act 7 of 1942)", but by later amendments made, is now briefly titled as "The Coffee Act". 4.. The Board is constituted under section 4 of the Coffee Act. The Board is charged with the duty to administer the "Coffee Act", exercise the powers and functions enjoined on it under that Act. The Board is a registered dealer under the KST Act and the Central Sales Tax Act of 1956 (Central Act No. 74 of 1956) ("CST Act") on the file of the Commercial Tax Officer (Legal-A), Bangalore ("CTO"). Amongst a variety of functions and powers that are not material for our purpose, the Board procures all coffee grown in the country and markets the same in and outside the country o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the CTO and the assessment order made by him thereto. In Writ Petitions Nos. 13981, 17071, 17072, 19285 and 19118 of 1983 the petitioner has challenged the assessment orders made by the CTO. 6.. The petitioner has challenged the validity of sections 2(t) and 6 of the KST Act on the ground that they contravene the Coffee Act, articles 265 and 300-A of the Constitution. 7.. The petitioner has urged that under the Coffee Act when the growers compulsorily deliver the coffee grown by them; which it receives, extinguishing all rights over the same for marketing in and outside the country, in law and fact, it was nothing but "compulsory acquisition" and was not a sale or purchase to attract the levy of purchase tax under section 6 of the KST Act. Alternatively, the petitioner has urged that even if there was a compulsory sale or purchase, then also it only acts as a "trustee" or "agent" of the growers, for which reason, it was not exigible to purchase tax under section 6 of the KST Act. Lastly, the petitioner has urged that all export sales directly effected by it were "in the course of export" which were immune from purchase tax in terms of article 286 of the Constitution. On th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Constitution had not been availed by the Karnataka State so far and at any rate for the assessment periods involved in these cases. 13.. We first propose to deal with two minor contentions and then deal with the substantial questions that were seriously debated before us. 14.. As on 1st November, 1956 on which day the new State of Mysore now called as "Karnataka" comprising of the areas specified in section 7 of the States Reorganisation Act, came into being there were 5 sets of sales tax laws in the five integrating areas of the State detailed in section 40 of the KST Act. The new State by virtue of the powers derived by article 246(3) and entry No. 54 of the State List of the Seventh Schedule to the Constitution enacted the uniform KST Act repealing all the earlier enactments on the subject. The KST Act came into force on 1st October, 1957. The KST Act as originally enacted, which has undergone a large number of amendments from time to time, by section 5 provided for levy of sales tax on sales as stipulated in that section. 15.. Section 2(t) of the KST Act which defines the term "sale" with various amendments made to that provision, but not on and after 1st April, 1974, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gent to his principal, if the agent is found in either of the cases aforesaid,- (i) to have sold the goods at one rate and to have passed on the sale proceeds to his principal at another rate; or (ii) to have purchased the goods at one rate and to have passed them on to his principal at another rate; or (iii) not to have accounted to his principal for the entire collections or deductions made by him in the sales or purchases effected by him on behalf of his principal; or (iv) to have acted for a fictitious or non-existent principal; ". 16.. Section 6 of the KST Act, as originally enacted regulated the exemptions and reductions of taxes leviable under the KST Act. But, the Mysore Sales Tax (Amendment) Act, 1970 (Mysore Act 9 of 1970) which came into force from 1st April, 1970 [vide sub-section (2) of section 1 of the said Amending Act) replaced the earlier section 6 with a new section providing for levy of purchase tax in the State for the first time as stipulated in that section. 17.. Section 6 as introduced by Act 9 of 1970 with amendments made to the same thereafter by the Mysore Act No. 78 of 1976 which regulate the levy of purchase tax in the State reads thus: "6. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as hardly any relevance to sustain the challenge of the petitioner to sections 2(t) and 6 of the KST Act. 22.. Article 300-A of the Constitution, which provides that a person shall not be deprived of his property except by the authority of law, does not provide for immunity from taxation. Article 300-A does not also help the petitioner to sustain its challenge to sections 2(t) and 6 of the KST Act. 23.. On the foregoing discussion itself the challenge of the petitioner to sections 2(t) and 6 of the KST Act calls for our rejection. 24.. Section 2(t) that defines the term "sale" as in all other sales tax enactments in the country is within the legislative competence of the State Legislature and does not contravene any of the provisions of the Constitution. In more than one case, the Supreme Court has upheld the validity of similar provision. We see no merit in the challenge of the petitioner to section 2(t) of the KST Act and we reject the same. 25.. Section 6 of the Act is within the legislative competence of the State Legislature and is not violative of any of the provisions of the Constitution. In State of Tamil Nadu v. M.K. Kandaswami [1975] 36 STC 191 (SC) the Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 (SC), the taxable event is the purchase and it is on that taxable event, the purchase tax is levied on the taxable person on the taxable goods. Whether the taxable person that bears the tax can or cannot pass on that burden on others, if that is permitted by law, is a matter for him to decide. But, that right, if any, of the taxable person with which we are not concerned cannot affect the validity or otherwise of section 6 or the validity or otherwise of a levy under that provision at all. 30.. Even otherwise, we are also of the view that this contention urged by Sri Raman is plainly opposed to the well accepted rule of construction of taxation statutes admirably stated by Rowlatt, J. In Cape Brandy Syndicate v. Inland Revenue Commissioners [1921] 1 KB 64 at 71 to the effect that "in a taxing Act one has to look merely on what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied". That has become classical, approved by the Supreme Court and this Court in more than one case. What follows from this is that the principles stated in Craies on Statute Law under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1939 that was then in force and rejected the same in these words: "The argument on behalf of the petitioner strenuously urged was that the Board was merely an agent of the producer and as the sale by the producer of his produce is excluded from the 'turnover' definition in the Act, there is no justification for imposing the tax on the assessee. In support of this argument reliance was placed upon the decision of the judicial Committee in Weldon v. Smith [1924] AC 484. We do not think that this argument is sound. There is no question of any agency between the producer and the Board, as there is no contract, express or implied, between them, nor is the Board constituted representative of the producer under the provisions of the statute. The Board does 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 share in the sale proceeds after the goods are sold in accordance with the provisions of the Act. Weldon v. Smith [1924] AC 484 was a case in which there was an agreement between the Government and the producer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and ordinarily the most reliable, source of interpreting the meaning of any writing: be it a statute, a contract or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning'. We must not adopt a strictly literal interpretation of section 52, sub-section (2) but we must construe its language having regard to the object and purpose which the legislature had in view in enacting that provision and in the context of the setting in which it occurs. We cannot ignore the context and the collocation of the provisions in which section 52, sub-section (2) appears, because, as pointed out by Judge Learned Hand in most felicitous language: ..........the meaning of a sentence may be more than that of the separate words, as a melody is more than the notes, and no degree of particularity can ever obviate recourse to the setting in which all appear, and which all collectively create'. Keeping these observations in mind we may now approach the construction of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by "compulsory acquisition" or "eminent domain" as it is called in America. 40.. The principle of compulsory acquisition or eminent domain, an essential attribute of sovereignty of every modern State, is based on two legal maxims or principles and they are (1) "Salus Populieit Supremalex", i.e., the welfare of the people or the public is the law paramount and (2) "Necessitus Publica major est quam Privata", i.e., Public necessity is greater than private. Michols on Eminent Domain (1950 Edition) a classic authority on the subject defining "eminent domain" as "the power of the sovereign to take property for public use" without the owner's consent (vide para 1.11, page 2 of Vol. 1) elaborates 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 connect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty within its jurisdiction which is not prohibited by some clause of the constitution of the United States, and as the taking of property within the jurisdiction of a state for the public use upon payment of compensation is not prohibited by the constitution of the United States, it necessarily follows that it is within the sovereign power of a state, and it needs no additional justification." Cooley in his Treatise on the Constitutional Limitations, Chapter XV expresses the same view at page 524 in these words: "........ More accurately, it is the rightful authority which must rest in every sovereignty to control and regulate those rights of a public nature which pertain to its citizens in common and to appropriate and control individual property for the public benefit, as the public safety, convenience or necessity may demand." Wheanton's International Law, Edited by A. BERRIEDALE KEITH, 6th Edition, Vol. IL explains the same in these words: "The right of the state to its public property or domain is absolute, and excludes that of its own subjects as well as other nations. The national proprietary right, in respect of those belonging to private individuals, or bodies, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coffee interests in the matter. 3.. A Second Coffee Control Conference of the coffee interests was accordingly convened on the 20th October, 1941. The Conference recognised that the control scheme has been greatly beneficial to the coffee industry in its present crisis and unanimously made the following recommendations: (1) that the control scheme as generally embodied in the ordinance should be continued by legislation and that its duration be for the period of the war and one coffee crop year thereafter, and (2) that the control should be limited to estates with area of 10 acres or more but provision should be made whereby control may be extended, if necessary, over estates with areas below 10 acres. These recommendations were endorsed by the Standing Advisory Committee of the Legislature attached to the Commerce Department. 4 In view of the general agreement of all interests for the maintenance of the coffee control scheme it is proposed to continue control by legislation, and the present Bill is designed to achieve this object." The Coffee Act has been enacted to regulate the development of Coffee Industry in the country. The avowed object of the Coffee Act is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of the Act. Section 48(2)(xviii) and (xix) empower the Central Government to regulate the internal sale quota and the manner in which the Board shall exercise its powers of buying or selling coffee. Rule 34 of the Rules framed by the Central Government exhaustively deals with the general and pool funds. Rule 34(2)(d) directs the Board to specify the amounts spent in purchasing coffee from registered owners. Rule 38B empowers the Board to make advances to growers in accordance with the terms and conditions framed and approved by the Central Government. Rule 38C empowers the Board to make ad hoc and final payments to growers. Rule 40 provides for purchasing and selling of coffee by the Board in the internal market. The language of all these general provisions that deliberately employ the terms "sale" and purchase and nowhere employ the term acquisition militate against the case urged by the Board before us. 47.. With this it is now necessary to closely examine sections 17 and 25 of the Coffee Act, which are the fulcrum of the case urged by the Board before us and they read thus: "Control of sale, export and re-import of coffee * * * 17.. No registered owner shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he coffee in each consignment delivered for inclusion in the surplus pool according to its kind and quality and shall make an assessment of its value based on its quantity, kind and quality. (5) The Board may, with the consent of a registered owner treat as having been delivered for inclusion in the surplus pool any coffee from such estate which the registered owner may agree to have so treated. (6) When coffee has been delivered or is treated as having been delivered for inclusion in the surplus pool, the registered owner whose coffee has been so delivered or is treated as having been so delivered shall retain no rights in respect of such coffee except his right to receive the payments referred to in section 34." The first part of section 17 prohibits a grower from selling any coffee in the Indian market without fulfilling the obligation of internal sale quota allotted to his estate by the Board. The provision made in this part of this section only aids in fulfilling the obligations of internal sale quota system by growers, which as noticed earlier, has not been in operation for about 40 years. From this it follows that the first part of section 17 of the Coffee Act has real ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al obligation on every grower to deliver or sell all coffee grown by him to the Board which has a corresponding power or duty to receive or purchase the same, then dispose all such coffee and make payments to the growers in terms of the Act and the Rules. We must remember that coffee is a commercial crop and an important foreign exchange earner providing gainful employment to many. In keeping with the scheme and object of the Act, these and other provisions really establish a marketing agency for securing a fair price to the growers and consumers but at the same time ensuring quality control of the product. The penal provisions in the Act are intended to secure the purposes and objects of the Act and are not made to punish any general crime against the society and the State. 51.. On a careful analysis of all the provisions of the Coffee Act in general and sections 17 and 25 in particular vis-a-vis the true principles of compulsory acquisition or eminent domain we find it difficult to hold that on compulsory delivery by growers to the Board, there would be compulsory acquisition of coffee by the Board and any such conclusion, to borrow the inimitable language of Viscount Simonds i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transport (Rajasthan) Limited v. State of Rajasthan AIR 1962 SC 1406 S.K. Das, J. (as his Lordship then was), speaking for the majority of the Supreme Court reiterated these principles in these words: "This Court pointed out in the Atiabari Tea Co. case [1961] 1 SCR 809; AIR 1961 SC 232, that it would not be always safe to rely upon the American or Australian decisions in interpreting the provisions of our Constitution. Valuable as those decisions might be in showing how the problem of freedom of trade, commerce and intercourse was dealt with in other federal constitutions, the provisions of our Constitution must be interpreted against the historical background in which our Constitution was made; the background of problems which the Constitution-makers tried to solve according to the genius of the Indian people whom the Constitution-makers represented in the Constituent Assembly." Bearing this note of warning, we now proceed to examine the rulings of the Australian High Court. 53.. In State of New South Wales v. Commonwealth 20 CLR 54 referred to as Wheat case, the High Court of Australia was examining the validity of the Wheat Acquisition Act of 1914 enacted by the State o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be deemed to have been delivered to the board for sale by the Board, 'who shall account to the growers thereof for the proceeds thereof after making all lawful deductions therefrom for expenses and outgoings and deductions of all kinds in consequence of such delivery and sale or otherwise under these Acts' [see 15(1)(2) as modified by the Order in Council]. Sub-section (3) of section 15 penalizes the sale or delivery of any of the 'commodity' 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Constitution, and so far as it does so is necessarily void." (per Starke, J.) "..........It compels every grower to dispose of his peanuts to the statutory Board in order that it may conduct the marketing of the commodity as a whole in the interests of the growers collectively, and it acquires the property in the peanuts as and when they come into existence in order to insure that the grower producing them for sale shall not exercise his former freedom of selling them by an ordinary transaction of commerce whether intra-State or inter-State." (per Dixon, J.) "..........Gathered from the effect which has been wrought by these provisions of the Act and Order in Council, their primary object or real object or pith and substance is, in my opinion, to constitute an authority for marketing peanuts, to vest in it an owner all peanuts produced in Qaeensland during the period for which it was to operate, to prevent all persons other than the Board from buying or selling peanuts, to give it the exclusive right to engage in trade and commerce in peanuts whether inter-State, intra-State, or overseas, to make it unlawful for any other person to engage in this trade and commerce, to regulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of compulsory acquisition or eminent domain by the State but has been used for compulsory delivery by the growers or purchase by the Board, which is also the other expression that has been used by all of them at more than one place. We are, therefore, of the opinion that the ratio in Peanut Board's case 48 CLR 266 does not really assist the petitioner. This is also true of the original decision rendered by Webb, J., of the Supreme Court, Brisbane. 55.. What is true of Peanut Board's case 48 CLR 266 is also true of the two other cases in (i) Milk Board (New South Wales) v. Metropolitan Cream Private Limited 62 CLR 116 and (ii) Crothers v. Sheil 49 CLR 399 of that very Court that really followed Peanut Board's case 48 CLR 266 with reference to similar enactments. 56.. In Chittar Mal Narain Das v. Commissioner of Sales Tax [1970] 26 STC 344 (SC); AIR 1970 SC 2000 the Supreme Court dealing with the U.P. Wheat Procurement (Levy) Order, 1959 which compelled the dealers to deliver 50 per cent of the stocks to Government expressed that it was a case of acquisition and therefore, it was not exigible to sales tax under the U.P. Sales Tax Act, 1948. But, that is not the position in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re agreement with the view of the Tribunal that the assessee was a dealer and therefore the assessee was rightly assessed to sales tax on the turnover." We are in respectful agreement with these views. 58.. On the above analysis of all the provisions of the Coffee Act and the Rules and in particular sections 17 and 25, with due regard to the meaning and principles of compulsory acquisition, we are of the considered opinion that when growers compulsorily deliver their coffee to the Board for marketing, that would not result in compulsory acquisition as contended by Sri Nariman. We, therefore, reject this contention of Sri Nariman. 59.. Sri Nariman has next contended that in the compulsory sales and purchases of coffee under the Coffee Act, consensuality was totally lacking, as in compulsory sales arising under the control orders and the principles enunciated by the Supreme Court in Vishnu Agencies' case [1978] 42 STC 31 (SC) had no application at all. 60.. Sri Hegde refuting the contention of Sri Nariman has urged that in the compulsory sales and purchases under the Coffee Act, there was consensuality and therefore, the Board was exigible to purchase tax under section 6 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssarily means that exposition in State of Madras v. Gannon Dunkerley and Company [1958] 9 STC 353 (SC); AIR 1958 SC 560 the correctness of which was only doubted but not overruled in Vishnu Agencies' case [1978] 42 STC 31 (SC), which is also the basis of that very decision, at any rate, governs these cases. 66.. In Gannon Dunkerley and Company's case [1958] 9 STC 353 (SC) on the meaning of the term "sale" occurring in entry 48 of the Government of India Act of 1935 corresponding to entry 54 of the State List of the Constitution, the Court expressed thus: "(46) To sum up, the expression 'sale of goods' in entry 48 is a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement." In Vishnu Agencies' case [1978] 42 STC 31 (SC) the Supreme Court has proceeded to examine compulsory sales on this basis only. We must, therefore, proceed to examine the same on that basis only. 67.. In New India Sugar Mills Limited v. Commissioner of Sales Tax, Bihar [1963] 14 STC 316 (SC); AIR 1963 SC 1207 Hidayatullah, J. (as his Lordship then was), in his dissenting opinion has traced the law of sales tax from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Now, under Act No. 45 of 1961 and the Rules framed under it, the cane grower in the factory zone is free to make or not to make an offer of sale of cane to the occupier of the factory. But, if he makes an offer, the occupier of the factory is bound to accept it. The resulting agreement is recorded in writing and is signed by the parties. The consent of the occupier of the factory to the agreement is not caused by coercion, undue influence, fraud, misrepresentation or mistake. His consent is free as defined in section 14 of the Indian Contract Act though he is obliged by law to enter into the agreement. The compulsion of law is not coercion as defined in section 15 of the Act. Inspite of the complusion, the agreement is neither void nor voidable. In the eye of the law, the agreement is freely made. The parties are competent to contract. The agreement is made for a lawful consideration and with a lawful object and is not void under any provisions of law. The agreements are enforceable by law and are contracts of sale of sugarcane as defined in section 4 of the Indian Sale of Goods Act. The purchases of sugarcane under the agreement can be taxed by the State Legislature under entry 54 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er clauses 4 and 5 of the Iron and Steel (Control of Production and Distribution) Order, 1941 were exigible to tax under entry 54, List II. The Court found that the parties had entered into contracts of sale though in view of the Order the area of bargaining between the buyer and the seller was greatly reduced. Hedge, J., speaking for the Court said that as a result of economic compulsions and changes in the political outlook the freedom to contract was now being confined gradually to narrower and narrower limits. We have here a case where one party to a contract of sale is compelled to enter into it on rigidly prescribed terms and conditions and has no freedom of bargaining. But the contract, nonetheless, is a contract of sale. * * * On the special facts of that case, the majority decision was that there was no offer and acceptance and no contract resulted. That decision should not be treated as an authority for the proposition that there can be no contract of sale under compulsion of a statute. It depends upon the facts of each case and the terms of the particular statute regulating the dealings whether the parties have entered into a contract of sale of goods." In Vishu Agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lition carries with it the willingness to trade in the commodity strictly on the terms of the Control Orders. The consumer too, who is under no legal compulsion to acquire or possess cement, decides as a matter of his volition to obtain it on the terms of the permit or the order of allotment issued in his favour. That brings the two parties together, one of whom is willing to supply the essential commodity and the other to receive it. When the allottee presents his permit to the dealer, he signifies his willingness to obtain the commodity from the dealer on the terms stated in the permit. His conduct reflects his consent. And when, upon the presentation of the permit, the dealer acts upon it, he impliedly agrees to supply the commodity to the allottee on the terms by which he has voluntarily bound himself to trade in the commodity. His conduct too reflects his consent. Thus, though both parties are bound to comply with the legal requirements governing the transactions, they agree as between themselves to enter into the transaction on statutory terms, one agreeing to supply the commodity to the other on those terms and the other agreeing to accept it from him on the very terms. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al considerations. 'The entry in other words should not be shorn of all its content to leave a mere husk of legislative power. For the purposes of legislation such as on sales tax it is only necessary to see whether there is a sale, express or implied..........The entry has its meaning and within its meaning there is a plenary power. If a sale express or implied is found to exist then the tax must follow.' 39.. We are of the opinion that the true position in law is as is set out in the dissenting judgment of Hidayatullah, J., and that the view expressed by Kapur and Shah, JJ., in the majority judgment, with difference, cannot be considered as good law. * * * 45.. We would, however, like to clarify that though compulsory acquisition of property would exclude the element of mutual assent which is vital to a sale, the learned judges were, with respect, not right in holding in Chittar Mal [1970] 26 STC 344 (SC); AIR 1970 SC 2000 that even if in respect of the place of delivery and the place of payment of price, there could be a consensual arrangement, the transaction will not amount to a sale (at page 348 of STC, 2004 of AIR). The true position in law is as stated above, namely, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to above, struck the new path; and Bachawat, J., who spoke for the Court in Andhra Sugars [1968] 21 STC 212 (SC); AIR 1968 SC 599 went a step ahead by declaring that 'the contract is a contract of sale and purchase of cane, though the buyer is obliged to give his assent under compulsion of a statute (at page 223 of STC; 606 of AIR). The concept of freedom of contract, as observed by Hegde, J., in Indian Steel and Wire Products [1968] 21 STC: 138 (SC); AIR 1968 SC 478 has undergone a great deal of change even in those countries where it was considered as one of the basic economic requirements of a democratic life (page 148 of STC). Thus, in Ridge Nominees Ltd. [1962] Ch 376 the Court of Appeal, while rejecting the argument that there was no sale because the essential element of mutual assent was lacking, held that the dissent of the shareholder was overriden by an assent which the statute imposed on him, fictional though it may be, that a sale may not always require the consensual element mentioned in Benjamin on Sale, 8th edition, page 2 and that there may in truth be a compulsory sale of property with which the owner is compelled to part for a price against his will (pages 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try in "The Sale of Goods Act of 1893" on which the Sale of Goods Act of 1930 of our country also is generally modelled. But, that high authority cannot override the law declared by the Supreme Court in Vishnu Agencies [1978] 42 STC 31 (SC); AIR 1978 SC 449 and other cases referring to Benjamin, Cheshire and Fifoot's Law of Contracts, Friedman's Law in a Changing Society, the Constitution of our country, its philosophy and its economic conditions. We may with advantage refer to the very scholarly and stimulating treatises of Julius Stone (1) "Social Dimensions of Law and Justice", 1977 edition, on the topic "Freedom of Contract" pages 251 to 254 of Chapter 5 "Individual Interests or Conditions of Individual Life in Society" and again on topic "Positive Action for the adjustment of conflicts with economic security, efficiency and progress" pages 467-469, (2) Human Law and Human justice of the same author on the topic "Traditional legal restraints on abstract liberty in order to secure liberty of contract" pages 96 and 97 of Chapter 3 "Metaphysical Individualism"; and (3) Seervai Constitutional Law of India, Vol. II, 3rd edition, paras 22-34 to 22-83 (pages 1913 to 1951) which withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pletely excluded. 75.. The power conferred by section 25(2) of the Coffee Act must be read subject to the very requirements of that and all other provisions of the Act. When a grower sells coffee that has become totally unfit for human consumption for one or the other valid reason, such a grower cannot compel the Board to purchase such coffee on the ground that it was coffee and thus endanger public safety and also pay its value or price. In the very nature of things, these things cannot be foreseen or enumerated exhaustively. We are also of the view that the power conferred on the Board cannot be restricted in the manner suggested by Sri Nariman. 76.. On the above discussion, we hold that the power of rejection conferred on the Board has an element of consensuality in the compulsory sales under the Coffee Act. 77.. When a grower delivers coffee to the Board, the Coffee Act extinguishes his title and absolutely vests the same in the Board, however, preserving his right for payment of its value or its price thereof in accordance with the provisions of that Act. The amount paid by the Board to the grower under the Act is the value or price of coffee in conformity with the detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard. The Coffee Board only pays a proportionate price to the planter. Even though the planter does not actually sell coffee to the Coffee Board there is in reality a sale by operation of law as a result of which the planter ceases to be the owner of coffee the moment he has handed over his produce to the Coffee Board. He is then entitled to receive payment and is not concerned any more with his coffee. The unsold coffee is not returned to him and he does not enjoy any rights of ownership in it. The Coffee Board can pledge it and sell it as and when it likes. In these circumstances it is plain that the handing over of coffee by the planter amounts to a sale to the Coffee Board and the payment of the price is from the sale of all the coffee in the surplus pool unless the planter settles for immediate payment. The system of account must make a difference. If it were a cash system income would be taxable when actually received but in the mercantile system it would be taxable in the year in which the relevant entry is made about the sale of coffee to the Coffee Board." We are of the view that this enunciation is a complete answer to the contention urged for the petitioner and the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e principles with which we are in respectful agreement, the contention urged for the petitioner has no merit. 83.. On the foregoing discussion, we hold that there is no merit in this contention of Sri Nariman and we reject the same. 84.. Sri Nariman has urged that all export sales directly made by the Board must be held as purchases "in the course of export" on which purchase tax under section 6 of the Act cannot be levied, such a construction alone would subserve the purposes of article 286 of the Constitution and section 5 of the CST Act before or after its amendment by the Central Sales Tax (Amendment) Act, 1976 ("CST Amendment Act"). 85.. Sri Hegde has urged that all purchases made were only "for export" and were not "in the course of export" which do not decidedly earn exemption under article 286 of the Constitution from payment of purchase tax under section 6 of the Act. 86.. We first consider it useful to broadly notice the coffee deliveries to the Board and their exports from this country. 87.. All coffee compulsorily delivered by the growers in the country to the Board without reference to the rival contentions urged before us, which we have earlier dealt, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three essentials (i) that there must be a sale, (ii) that goods must actually be exported, and (iii) the sale must be a part and parcel of the export. Therefore either the sale must take place when the goods are already in the process of being exported which is established by their having already crossed the customs frontiers, or the sale must occasion the export. The word 'occassion' is used as a verb and means 'to cause' or 'to be the immediate cause of'. Read in this way the sale which is to be regarded as exempt is a sale which causes the export to take place or is the immediate cause of the export. The export results from the sale and is bound up with it. The word 'course' in the expression 'in the course of' means 'progress or process of', or shortly 'during'. The phrase expanded with this meaning reads 'in the progress or process of export' or 'during export'. Therefore the export from India to a foreign destination must be established and the sale must be a link in the same export for which the sale is held. To establish export a person exporting and a person importing are necessary elements and the course of export is between them. Introduction of a third party dealing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court has examined the true import of section 5(3) of the CST Act as amended by Act 103 of 1976 and Tulzapurkar, J., who spoke for the Bench has expressed on the same thus: "Section 5(1) was construed by this Court in the context of two sales (though both were closely connected with the ultimate exportation of the goods out of India) rather very strictly in the two cases, namely, the Coffee Board's case [1970] 25 STC 528 (SC) and the Mohd. Serajuddin's case [1975] 36 STC 136 (SC). In the former case, in regard to the very export auctions conducted by the Coffee Board for the avowed purpose of exporting the coffee through the registered exporters (which are the subject-matter of the instant writ petitions) this Court negatived the claim that the sales of coffee at such auctions were made 'in the course of export' within the meaning of section 5(1) on the ground there were two sales, one by the Coffee Board to the intermediary (registered exporter) and the other by the intermediary to the importer and that the first sale was not 'in the course of export' for the export began from the intermediary and ended with the importer and that the introduction of the intermediary (registe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relief in respect of penultimate sales that immediately precede the final (export) sales provided the former satisfy the conditions specified therein. The Statement of Objects and Reasons in this behalf runs thus: 'According to section 5(1) of the Central Sales Tax Act, a sale or purchase of goods can qualify as a sale in the course of export of the goods out of the territory of India only if the sale or purchase has either occasioned such export or is by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India. The Supreme Court has held [vide Mohd. Serajuddin v. State of Orissa [1975] 36 STC 136 (SC)] that the sale by an Indian exporter from India to the foreign importer alone qualifies as a sale which has occasioned the export of the goods. According to the Export Control Orders exports of certain goods can be made only by specified agencies such as the State Trading Corporation. In other cases also, manufacturers of goods, particularly in the small-scale and medium sectors, have to depend upon some experienced export house for exporting the goods because special expertise is needed for carrying on export trade. A sale of goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nant to export, the next question that arises for our consideration is as to when does the penultimate sale (the sale of coffee at export auctions conducted *Here italicised. by the Coffee Board to the registered exporters) takes place, i.e., becomes complete by the passing of the property in the coffee sold thereat to the registered exporters? The determination of the point of time at which the property in the coffee passes to the registered exporters becomes necessary because before that the agreement with or order from a foreign buyer in respect of those goods must come into existence to implement which the penultimate sale must have taken place. * * * Having regard to the above discussion it is clear to us that in the penultimate sales (sales of coffee effected to the registered exporters at export auctions conducted by the Coffee Board) the property in the coffee sold thereat passes to the buyer immediately upon payment of full price, weighment and setting apart of the coffee for delivery to the buyer under clauses 19 and 20 of the auction conditions and it would be at this stage, i.e., just before this stage is reached that the agreement with or order from a foreign b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on which ground all the purchases made cannot be subjected to purchase tax under section 6 of the KST Act. 94.. We are of the view that all the purchases made and the exports, if any, made by the Board thereafter on any principle will not be "local sales" within the State of Karnataka. Explanation (3)(2)(ii) to section 2(t) of the KST Act has hardly any relevance to hold that the later export sales were "local sales" to avoid liability under section 6 of the KST Act. We are of the view that this contention is also opposed to the principles enunciated by the Supreme Court in Kandaswami's case [1975] 36 STC 191 (SC). 95.. In P.P.M. Thangiah Nadar v. State of Tamil Nadu [1980] 46 STC 67 followed in P.S. Sankaralinga Nadar v. Commissioner for Commercial Taxes, Board of Revenue, Madras-5 [1982] 49 STC 302 and D.A. Sathyanarayana Chettiar v. State of Tamil Nadu [1982] 49 STC 303 all of which have been decided by one and the same Bench of the Madras High Court consisting of Sethuraman and Balasubrahmanyan, JJ., of the Madras High Court on 19th November, 1979 and 22nd November, 1979 which were characterised by one of the learned counsel as not consistent and even contradictory, but w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax is also authorised and is in conformity with that provision. We, cannot, therefore take exception to the levy of additional tax on the purchase tax imposed by the CTO. 104.. In his assessment made on 5th September, 1983 for the assessment periods 1979-80 and 1980-81 the CTO has imposed surcharge on the purchase tax levied under section 6 of the KST Act. The levy of surcharge is authorised by section 6C of the KST Act. This levy is in conformity with section 6C of the Act. We cannot, therefore, take exception to the same. 105.. As the respondents succeed, the question of this Court directing the repayment of the amounts paid by the petitioner with any interest thereon in pursuance of the interim order made on 20th February, 1985 does not arise and the same is not therefore made. 106.. As all the contentions urged for the petitioner fail these writ petitions are liable to be dismissed. We, therefore, dismiss these writ petitions and discharge the rule issued in all these cases. But, in the circumstances of the cases, we direct the parties to bear their own costs. Orders on the oral application made by the petitioner for certificate of fitness to appeal to the Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 1974-75. We, therefore, reject the prayer of the petitioner for stay of the proceedings before the Commissioner for the assessment year 1974-75. 3.. Sri Babu, in our opinion, very rightly submits that the Board is in custody of a sum of Rupees two crores eight laks collected either as contingency deposit or as balance amount remaining in the pool fund account corresponding to the assessment years 1975 to 1981. We do not see any justification for the Board withholding the payment of the aforesaid sum to the State. Sri Babu prays for one month's time for payment of this sum to the State. We are of the view that this request of Sri Babu is fair and reasonable and we grant the same. 4.. Sri Hegde, in our opinion, very fairly and rightly submits that the respondents will not enforce the demands for the outstanding amounts for a period of ten weeks from this day to enable the petitioner to obtain necessary certified copies and certificate of fitness and move for stay before the Supreme Court. We record this submission of Sri Hegde. In view of this submission of Sri Hegde, we do not consider it necessary to stay the operation of our order in respect of the outstanding amounts. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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