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It was held by the Division Bench of the Karnataka High Court that an element of consensuality subsists even in compulsory sales governed by law and once there is an element of consensuality, however minimal that may be, whether express or implied, then that would be sale or purchase for purposes of Sale of Goods Act and the same would be exigible to sales or purchase tax as the case may be under the relevant Sales Tax Law of the country.

The power conferred on the Board under section 25(2) of the Coffee Act, to which we will make reference later, to reject coffee offered for delivery or even the right of a buyer analogous to section 3;' of the Sale of Goods Act showed that there was an element of consensuality in the compulsory sales regulated by the Act. The amount paid by the Board to the grower under the Act was the value or price of coffee in conformity with the detailed accounting done thereto under the Act. It was further held by the High Court that the amount paid to the grower was neither compensation nor dividend. The payment of price to the grower was an important element to determine the consensuality test to find out whether there was sale under section 4(1) of the Sale of Goods Act. The Act also ensures periodical payments of price to the growers. The Rules provide for advancing loans to growers. Therefore, according to the Division Bench of the Karnataka High Court without any shadow of doubt these elements indicated that in the compulsory sale of coffee, there was an element of consensuality. 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. The purchases and the exports if any made by the Board thereafter on any principle would not be 'local sales' within the State of Karnataka. Explanation 3(2)(ii) to section 2(1) of the Karnataka Sales Tax Act had hardly any relevance to hold that the later export sales were 'local sales' to avoid liability under section 6 of the Karnataka Sales Tax Act. The direct export sales made by the appellant for the period in challenge were not 'in the course of export' and they did not qualify for exemption from purchase tax under section 6 of the Karnataka Sales 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 exported 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 exportes made would be 'for export' only and not in '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 compulsory acquisition but was sale. If it was compulsory acquisition and there was payment of compensation, then these provisions would not have found their places in the Coffee Act at all, according to the High Court. Levy of Customs and Excise Duties on compensation was something unheard, an incongruity and an anachronism in compulsory acquisition,according to the High Court.

All parties drew our attention to the decision in the case of Vishnu Agencies Pvt. Ltd. (supra). There the Court was concerned with the Cement Control order and the transactions taking place under the provisions of that control order. The Cement Control order was promulgated under the West Bengal Cement Control Act, 1948 which prohibited storage for sale and sale by a seller and purchase by a consumer of cement except in accordance with the conditions specified in the licence issued by a designated officer. It also provided that no person should sell cement at a higher price than the notified price and no person to whom a written order had been issued shall refuse to sell cement "at a price not exceeding 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 permitholders 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 transaction in those cases were sales and were exigible to tax on the ratio of Indian Steel and Wire Products Ltd., Andhra Sugar Ltd., and Karam Chand Thapar, [1968] 1 SCR 479. In cases like New India Sugar Mills, the substance of the concept of a sale itself disappeared because the transaction was nothing more than the execution of an order. The Chief Justice emphasised that deprivation of property for a compensation called price did not amount to a sale when all that was done was to carry out an order so that the transaction was substantially a compulsory acquisition. On the other hand, a merely regulatory law, even if it circumscribed the area of free choice, did not take away the basic character or core of sale from the transaction. Such a law which governs a class obliges a seller to deal only with parties holding licences who may buy particular or allotted quantities of goods at specified prices, but an essential element of choice was still left to the parties between whom agreements took place. The agreement, despite considerable compulsive elements regulating or restricting the area of his choice, might still retain the basic character of a transaction of sale. In the former type of cases, the binding character of the transaction arose from the order directed to particular parties asking them to deliver specified goods and not from a general order or law applicable to a class. In the latter type of cases, the legal tie which binds the parties to perform their obligations remains contractual. The regulatory law merely adds other obligations, such as the one to enter into such a tie between the parties. Although the regulatory law might specify the terms, such as price, the regulation is subsidiary to the essential character of the transaction which is consensual and contractual. The parties to the contract must agree upon the same thing in the same sense. Agreement on mutuality of consideration, ordinarily arising from an offer and acceptance, imports to it enforceability in courts of law. Mere regulation or restriction of the field of choice does not take away the contractual or essentially consensual binding core or character of the transaction. Analysing the Act, it was observed that according to the definition of "sale" in the two Acts the transactions between the appellants in that case and the allottees or nominees, as the case may be, were patently sales because 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., [1959] S.C.R. 379 and New India Sugar Mills v. Commissioner of Sales Tax, Bihar, [1963] Suppl. 2 S.C.R.459 were discussed and the correctness of the view taken in the former case was doubted and the majority opinion in the latter case was overruled.

(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 uneconomical provision.

Since all persons including the Coffee Board are prohibited from purchasing/selling coffee in law, there could be no sale or purchase to attract the imposition of sales/purchase tax it was urged. Even if there was compulsion there would be a sale as was the position in Vishnu Agencies (supra). This Court therein approved the minority opinion of Hidayatullah, J. in New India Sugar Mills v. Commissioner of Sales Tax (supra). In the nature of the transactions contemplated under the Act mutual assent either express or implied is not totally absent in this case in the transactions under the Act. Coffee growers have a volition or option, though minimal or nominal to enter into the coffee growing trade. Coffee growing was not compulsory. If any one decides to grow coffee or continue to grow coffee, he must transact in terms of the regulation imposed for the benefit of the coffee growing industry. Section 25 of the Act provides the Board with the right to reject coffee if it is not upto the standard. Value to be paid as contemplated by the Act is the price of the Coffee. Fixation of price is regulation but is a matter of dealing between the parties. There is no time fixed for delivery of coffee either to the Board or the curer. These indicate consensuality which is not totally absent in the transaction.

The High Court has referred to the provisions of section 34(2) of the Act and observed that the said provisions ensure periodical payments of price to the growers. The Rules provide for advancing loans to the growers. Without a shadow of doubt these elements indicate, according to the High Court, that in the compulsory sale of coffee, there was an element of consensuality. We are in agreement that there is consensuality in the scheme of the section. The High Court has referred to section 25(2) of the Coffee Act and observed that the power conferred by section 25(2) of the Coffee Act must be read subject to the very requirement 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. The High Court was of the view that if a grower delivered coffee to the Board, the Coffee Act extinguished his title and absolutely vested the same in the Board, however, preserving his right for payment of its value or its price in accordance with the provisions of that Act. According to the High Court the amount paid by the Board to the grower under the Act is the value or price of coffee in conformity with the detailed accounting done thereto under the Coffee Act. The High Court was right. The High Court went on to observe that the amount paid to the grower was neither compensation nor dividend. The payment of price to the grower is an important element to determine the consensuality in the sale and the sale itself is under section 4(1) of the Sale of Goods Act. Therefore, the High Court was of the view that neither section 25(2) read with section 17 nor the provisions for payment of compensation indicate that coffee becomes the property of the Coffee Board not by consent but by the operation of law.