CONSOLIDATED COFFEE LIMITED AND ANR.versusCOFFEE BOARD AND ANR.

A              CONSOLIDATED COFFEE LIMITED AND ANR.
                                   v.
                         COFFEE BOARD AND ANR.

                            NOVEMBER22, 1994

B       [B.P. JEEVAN REDDY, N.P. SINGH AND S.B. MAJMUDAR, JJ.)

         Karnataka Sales Tax Act, 1957-Section 6-Coffee Act, 1942-
   Sections 25, 26, 30, 31 and 32-Payment of Purchase Tax-Liability of
    Coffee Board to pay-Application of Pool Fund-Whether Coffee Board
    was entitled to make payment ofPurchase Tax out ofPool Fund maintained
C • u!s 30-Held, Yes.
         The appellants the growers of coffee filed writ petitions for
    injuncting the Coffee Board from making any payment under the head
    'Purchase Tax' out of the Pool Fund maintained u/s 30 of the Coffee
    Act, 1942. According to tht'\ appellants, the Board cannot discharge its
D   liability in respect of payment of 'Purchase Tax' to the State
    Government, under the provisions of the Karnataka Sales Act, 1957
    out of the Pool Fund.

         The High Court held that growers/producers were not liable u/s
    5(3) (9) of the Karnataka Sales Tax Act to pay the tax in respect of the
E   sales of coffee by them to the Coffee Board. It also held that the Board
    was liable to pay the 'Purchase Tax' u/s 6 of the Act and the Board was
    authorize"d in Jaw to pay the tax out of the Pool Fund. On that finding,
    the writ petitions, filed on behalf of the appellants, were dismissed.

        These appeals have been filed by the appellants against the finding
F ·of the High Court. According to the appellants, the action of the Board .
   in making payments of 'Purchase Tax' to the State Government.under
   the provisions of the Act, is without any authority in law and in
   contraventfon of the mandate 'of sub-section 2 of Section 32 of the
   Coffee Act. It was pointed out that the High Court was not justified in
G holding that any such payment of 'Purchase Tax' shall be part and
   parcel of marketing by the Board and as such covered by Section 32 (2)
   (b) of the Act. According to the appellant, the expression 'marketing'
   used in sub-section 32 (1) (b) refers to the process of marketing after
   the coffee has been delivered by the growers for inclusion in the
   Surplus Pool and is stored and cured by the Board; the expression
H 'marketing' shall not include the process or purchase from the growers
                                      632
            CONSOLIDATED COFFEE LTD. v. COFFEE BOARD                633

which precedes the delivery of coffee to the Board for inclusion in the A
surplus pool.

    On behalf of the Board, it was pointed out that the contention of
the appellants that the payment of the 'Purchase Tax' should be made
from the General Fund as maintained u/s 31, should not be accepted
because the General Fund does not have capacity to pay the 'Purchase B
Tax' after meeting the general expenses of the Board under different
heads.

    Disposing ofthe matter, this Court

     HELD 1.1 In such a case the appellants have to establish that in the
process of making payment from the Pool Fund any right or interest of C
the growers like appellants were being affected. Any balance left in the
Pool Fund should not be available to the growers like appellants. Sub-
section 6 of Section 25 of the Coffee Act specifically says that after the
coffee has been delivered for inclusion in the Surplus Pool, the
registered owner whose coffee has been so delivered shall have no right D
in respect of such coffee except his right to receive the payments
referred to in Section 34 of the Coffee Act. Proviso to sub-section 2 of
Section 32 also says that if after the requirements of clauses of that sub-
section have been met and there remains an excess in the Pool Fund,
the board may with previous sanction of the Central Government,
transfer the whole or any part of such excess to the credit of the E
General Fund. In the instant case, the appellants could not point out as
to how the growers have any say in the matter of application of the
Pool Fund including for payment of the 'Purchase Tax' by the Board,
except that in this .process the interest of the growers to receive the
payment in accordance with Section 34 of the Act is not affected. In
view of Section 34, the Board has to make payment to the registered F
owners who have delivered coffee for inclusion in the Surplus Pool. The
expression 'as it may think proper' obviously means that the payment
is made on reasonable basis to the growers in respect of coffee delivered
by them for inclusion in the Surplus Pool. A procedure has been
prescribed to determine the rate of payment to the registered owners·
who have delivered coffee for inclusion in the Surplus Pool. The G
appellants have not questioned that procedure. (640 D-G, 641 D)

     1.2 The registered owners who grow coffee and deliver the same
for inclusion in the Surplus Pool are entitled to the payment on some
reasonable basis and their interest cannot be defeated or put in
jeopardy by any act or omission on the part of the Board. A direction is H
    634                     SUPREME COURT REPORTS             [1994] SUPP. S S.C.R

A   made to the Board to perform its statutory duty in respect of payment
    for the coffee delivered to them by the registered owners in accordance
    with the provisions of the Coffee Act and to make payment to the
    growers at the rate which in the facts and circumstances prevailing in
    any particular year can be held to be just and reasonable and which
    should cover costs of production of the concerned coffee and reasonable
B   percentage of profit thereon. (642 C, E)

        CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1841-42 of
    1991.

        From the Judgment and Order dated the 16th September, 1988 of the
c   High Court of Karnataka at Bangalore in writ petition of 960 I and 9602 of
    1988.
                                    WITH

          Writ Petition (C) No. 899/90 and 66/91.

        Dr. Debiprasad Pal, G.B. Rai, P.P. Boppanna, Ms. Priya Hingorani and
D
    N. Ganapathy for the Appellants.

        M.L. Verma, (For Union of India) A.K. Ganguli (Attorney General)
    Santosh Hegde, A. Subba Rao, Dalip Tandon, Ms. Sushma Suri, Dr. A.M.
    Sanghvi, Chandran, R.N. Karanjawala, Bhaskar Pradhan, Ms. Vidula, Ms.
    Manik Karanjawala, Kh. Nobin Singh, M. Veerappa, Bharat Sangal (N.P.),
E
    Mrs. Lalita Kaushik (N.P.) and Ashok Mathur (N.P.) for the Respondents.

          The Judgment of the Court was delivered by

         N.P. SINGH, J. The appellants are the growers of coffee. They filed
    writ petitions for injuncting the Coffee Board respondent no. I (hereinafter
F   referred to as 'the Board') from making any payment under the head
    'Purchase Tax' out of the Pool Fund maintained under Section 30 of the
    Coffee Act, 1942. According to the appellants, the Board cannot discharge
    its liability in respect of payment of 'Purchase Tax' to the State
    Government, under the provisions of the Kamataka Sales Tax Act, 1957
G   (hereinafter referred to as 'the Act') out of the Pool Fund.

        The High Court held that growers/producers were not liable under
    Section 5 (3) (a) of the Act to pay the tax in respect of the sale of coffee b1fo
    them to the Coffee Board. It also held that the Board was liable to pay th;[ti
    'Purchase Tax' under Section 6 of the Act. But according to the Hig~
H   Court, the Board was authorized in law to pay the tax which it is liable to
  CONSOLIDATED COFFEE LTD. v. COFFEE BOARD. [N.P. SINGH. J.]            635

pay to the State Government, out of the Pool Fund. On that finding, the writ A
petitions, filed on behalf of the appellants, were dismissed.

     Section 5 (3) (a) of th!! Act provides that the tax under the Act shall be
levied in the case of sale of goods mentioned in Column No.2 of the Second
Schedule to that Act by the firs! or the earliest of the successive dealers in
the State who is liable to tax under the said Section, on the taxable turnover B
of sale of such dealer in each year relating to such goods. The coffee is
included in Entry 43 of the Second Schedule in the Act. The expression
'dealer' has been defined in Section 2 (k) of the Act. The relevant portion
of the definition along with exception is as follows:-

               "2 (k) 'dealer' means any person who carries on the             C
               business of buying, selling, supplying or distributing goods,
               directly or otherwise, whether for cash or for deferred
               payment, or for commission, remuneration or other valuable
               consideration and includes.-

               xx                  xx                          xx              D
               Exception:- An agriculturist who sells exclusively agricul-
               tural produce grown -0n land cultivated by him personally
               shall not be deemed to be a dealer within the meaning of
               this clause".
                                                                               E
     It need not be pointed out that in view of the exception aforesaid, as the
growers of the coffee are statutorily required to sell the coffee to the Board,
they shall not be liable to pay the Sales Tax as prescribed under Section 5
(3) (a) of the Act. However, the purchasers which in the present case, shall
include the Board, are made liable to pay the tax under Section 6 of the Act. F
The relevant part of Section 6 says:-

               "6. Levy of purchase tax under certain circumstances:-
               Subject to the provisions of sub-section (5) of Section 5,
               every dealer who in the course of his business purchases
               any taxable goods in circumstances in which no tax under G
               Section 5 is leviable on the sale price of such goods, and

               (i) either consumes such goods in the manufacture of other
               goods for sale or otherwise (or. consumes otherwise) or
               disposes of such goods in any manner other than by way of
               sale in the State, or                                           H
    636                    SUPREME COURT REPORTS             (1994] SUPP. S S.C.R

A                  (ii) despatches them to a place outside the state except as a
                   direct result of sale or purchase in the coµrse of inter-state
                   trade or commerce,

                   shall be liable to pay tax on the purchase price of such
                   goods at the same rate at which it would have been leviable
B                  on the sale price of such goods unde~ Section 5."

         There was a controversy as to whether the Board shall be liable to pay
    the Purchase Tax Under Section 6 of the said Act. However, that was
    settled by this Court in the case of Coffee Board v. Commissioner of
    Commercial Taxes, Karnataka, AIR (1988) SC 1487 = [1988] 3 SCC 263.
c   It was held by this Court that Section 6 was applicable to the transactions
    entered into between th.e Board and the growers of the coffee and the Board
    was liable to pay the 'Purchase Tax'.

         The controversy, with which, we are concerned"is as to whether ihe
    Board was entitled to make payment of the 'Purchase Tax' out of the Pool
D   Fund required to be maintained under Section 30 of the Coffee Act. The
    relevant part of Section 25 is as under:-

                   "25. (l) All coffee produced by a registered estate in excess
                   of the amount specified in the internal sale quota allotted to
                   that estate (or when no internal sale quotas have been
E                  allotted to estates, all coffee produced by the estate) shall be
                   delivered to the Board for inclusion in the surplus pool by
                   the owner of the estate or by the curing establishment
                   receiving the coffee from the estate.

                   Provided that where no internal sale quotas have been allot-
F                  ted to estates, the Chairman may allow the owner of any
                   estate to retain with himself for purpose of consumption by
                   his family and for purpose of seed, such quantity of coffee
                   as the Chairman may think reasonable;

                   Provided further that where the Central Government is
G
                   satisfied that it is not practicable for any class of owners
                   producing coffee in any specified area to comply with the
                   provisions of this sub-section on account of the small
                   quantity of coffee produced by them or on account of their
                   estates being situated in a remote locality, the Central
H                  Government may, in notification in the Official Gazette
  CONSOLIDATED COFFEE LTD. v. COFFEE BOARD. [N.P. SINGH. J.)            637

               exempt such class of owners from the provisions of this A
               sub-section.

               (2) Delivery shall be made to the Board in such places (at
               such times) and in such manner as the Board may direct,
               and such directions may provide for partial delivery to the
               surplus pool at any time whether or not at that time the B
               internal sale quota has been exceeded and the coffee
               delivered shall be such as to represent fairly in kind and
               quality the produce of the estate. The Board may reject any
               consignment offered for delivery which does not satisfy this
               requirement; but shall not reject any consignment merely
               for a defect in curing.                                      C
               (3) Coffee delivered for inclusion in the Surplus Pool shall
               upon delivery to the Board remain under the control of the
               Board which shall be responsible for storages, curing where
               necessary, and marketing of the Coffee.
                                                                              D

               (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 shall
               retain no rights in respect of such coffee except his right to ·E
               receive the payments referred to in Section 34.

    Section 26 says:-

               "26. (I) The Board shall take all practical measures to
               market the coffee included in the surplus pool, and all sales F
               thereof shall be conducted by or through the Board.

               (2) The Board may purchase for inclusion in the Surplus
               Pool coffee not delivered for inclusion in it."

     In view of Section 25 all coffee produced by a registered estate in G
excess of the amount specified in the internal sale quota allotted to that
estate shall be delivered to the Board of inclusion in the surplus pool by the
owner of the Estate. After the coffee is delivered, it is to remain under the
control of the Board, which shall be responsible for storages, curing where
necessary and marketing of the coffee. In the view of sub-section 6 of
Section 25, when the coffee has been delivered for inclusion in the Surplus . H
    638                      SUPREME COURT REPORTS            ·[1994] SUPP. 5 S.C.R

A   Pool, the registered owner shall retain to rights in respect of such coffee
    except his right to receive the payments referred to in Section 34. Section
    26 enjoins the Board to take all practical measure to market the coffee
    included in the Surplus Pool and all sales thereafter shall be conducted by
    or through the Board. Section 30 says:-

B                    "The Board shall maintain two separate funds, General
                     Fund and a Pool Fund."

          Section 31 is as follows:-

                       "31. ( 1) To all General Fund shall be credited:
c                    (a) all amount paid to the Board by the Central Government
                     under Sub- Section (1) of Section 13; and

                     (b) any sums transferred to the General Fund under the
                     provision of Sub-Section (2) of (Section 32; and)
D
                     (c) all fees levied and collected by the Board under this Act.

                     (2) The General Fund shall be applied;

                     (a) to meet the expenses of the Board;
E                    (b) to meet the cost of such measures as the Board may
                     consider advisable to undertake for promoting agricultural
                     and technological research in the interest. of the coffee
                     industry in India;

                     (c) for making such grants to the coffee estates or for
F                    meeting the cost of such other assistance to coffee estates as
                     the Board may think necessary for the development of such
                     estates;

                     (d) to meet the cost of such measures as the Board considers
G                    advisable to undertake for promoting the sale and
                     increasing the consumption in India and elsewhere of coffee
                     produced in India; and

                     (e) to meet the expenses for securing better working
                     conditions and the provision and improvement of amenities
H                    and incentives for workers."
  CONSOLIDATED COFFEE LTD. v. COFFEE BOARD. [N.P. SINGH. J.]             639

    Section 32 is as follows:-                                                 A
               "32. (I) To the Pool Fund shall be created all sums realized
               by sales by the Board of coffee from the Surplus Pool.

               (2) Subject to the provisions of Sub-Section (4) of 13, the
               Pool Fund shall be applied only to-                             B
               (a) the making to registered owners of estates of payments
               proportionate to the value of the coffee delivered by them
               for inclusion in the Surplus Pool;

               (b) the cost of storing, curing and marketing coffee C
               deposited in·and of administering the Surplus Pool;

               (c) the Purchase of coffee not delivered for inclusion in the
               Surplus Pool;

               Provided that where, after the requirements, of the clauses D
               of the Sub-Section have been met there remains any excess
               in the Pool Fund, the Board may, with previous sanction of
               the Central Government, transfer the whole or any part of
               such excess to the credit of the General Fund."

     According to the appellants, all sums realized from sales by the Board E
from the Surplus Pool is credited to the Pool Fund which can be applied
only for the objects mentioned clauses (a), (b) and (c) of Sub-Section 2 of
Section 32. As none of the aforesaid Clauses authorises or vests power in
the Board to incur or to apply any amount out of the Pool Fund for payment
of 'Purchase Tax', the action of the Board in making payment of' Purchase
Tax' to the State Government under the provisions of the Act aforesaid is F
without any authority in law and in contravention of the mandate of Sub-
section 2 of Section 32. On their behalf, it was pointed out, that the High
Court, was not justified in holding that any such payment of 'Purchase Tax'
shall be part and parcel of marketing by the Board and as such covered by
Section 32(2) (b) of the Act. Reading Section 32(2) (b), in its proper
context, it obviously means ma~keting of coffee, which has been deposited G
in, after curing. reference was also made to Sub-Section 3 of Section 25
where also it has been said in clear and unambiguous words that coffee
delivered for inclusion in the Surplus Pool shall be delivered to the Board
and shall remain under the control of the Board, which shall be responsible
for storages, curing where necessary and marketing of the coffee. In other
words, according to appellants, the expression "marketing" used in Sub- H
    640                    SUPREME COURT REPORTS             [1994] SUPP. 5 S.C.R

A   Section 3 of Section 25 or in Section 32(1) (b) refers to the process of
    marketing after the coffee has been delivered by the growers for inclusion
    in the Surplus Pool and is stored and cured by the Board; the expression
    "marketing" shall not include the process of purchase ·from the growers
    which precedes the delivery 6f coffee to the Board for inclusion in the
    Surplus Pool.
B
         On behalf of the Board, it was pointed out that the contention of the
    appellants that the payment of the 'Purchase Tax' should be made from the
    General Fund, as maintained under Section 31 of the Act should not be
    accepted because the said General Fund does not have capacity to pay the
    'Purchase Tax' after meeting the general expenses of the Board under
C   different heads mentioned in sub-section 2 of Section 31. In this
    connection, Dr. Shinghvi, appearing for the said Board, referred to the
    different amounts received· under General Fund in different years and the
    amounts paid as 'Purchase Tax' during those years.

         But before this aspect is examined in detail, the appellants have to
D   establish that in the process of making payment from the Pool Fund any
    right or interest of the growers like appellants were being affected. We fail
    to appreciate as to ho~ the appellants are concerned with the Pool Fund.
    Any balance amount left in the Pool Fund shall not be available to the
    growers like appellants. Sub-section 6 of Section 25 specifically says that
    after the coffee has been delivered for inclusion in the Surplus Pool, the
E
    registere~ owner whose coffee has been so delivered shall have no right in
    respect of such coffee except his right to receive the payments referred to in
    Section 34. Proviso to Sub-Section 2 of Section 32 also says that if after the
    requirements of Clauses of that sub-section have been met and there
    remains any excess in the Pool Fund, the Board may with previous sanction
F   of the Central Government, transfer the whole or any part of such excess to
    the credit of the General Fund. Inspite of repeated querries, the learned
    co~n~el appearing for the appellants, could not point out as to how the
    growers have any say in the matter of application of the Pool Fund
     includin~ for payment of the 'Purchase Tax' by the Board, except that in
    this process the interest of the growers to receive the payment in accordance    ' ri
G
     with Section 34 of the Act i.s not affected. Section 34 Says:-

                     "34. (1) The Board shall at such times as it thinks fit make
                   · to registered owners who have delivered coffee for
                     inclusion in the surplus pool'such payments out of the Pool
H                    Fund as it may think proper.
        CONSOLIDATED COFFEE LTD. v. COFFEE BOARD. [N.P. SINGH. J.]          641

                     (2) The sum of all payments made under Sub-Section (1) to A
                     any one registered owner shall bear to the sum of the
                     payments made to all registered owners the same proportion
                     as the value of coffee delivered by him out of the year's ·
                     crop to the surplus pool bears to the value of all coffee
                     delivered to the surplus pool out of that year's crop.
                                                                                  B
                     Provided that in calculating the sum of all payments made
                     under Sub-Section (l).and the value of coffee delivered to
                     the surplus pool out of the year's crop, respectively, any
                     payment accepted by a registered owner as final payment in
                     immediate settlement for coffee delivered by him for
                     inclusion in the surplus pool and the value of any such      C
                     coffee shall be excluded."

           In view of Section 34, the Board has to make payment to the registered
      owners who have delivered coffee for inclusion in the surplus pool. The
      expression 'as it may think proper' obviously means that the payment is
      made on reasonable basis to the growers in respect of coffee delivered by D
      them for inclusion in the Surplus Pool. We are informed that a procedure
      has been prescribed to determine the rate of payment to the registered
      owners who have delivered coffee for inclusion in the Surplus Pool. The
      appellants have not questioned that procedure. On behalf of the Board, our
      attention was drawn to the stand taken on behalf of the Board, in para 47 of
      the Counter Affidavit, filed on behalf of the Board, in the connected Writ E
      Petition (Civil) No. 899 of 1990. It says:-

                    "47. The payments made to the growers for their coffees is
                    always above the cost of production with a reasonable
                    margin of profit as determined by Cost Studies regularly
                    carried-out by the S:ost Accounts Branch of the Ministry of
                    Finance and/or by the Board. The reserve price fixed for the F
__t
                    "Pool Open Auction" is based on this Minimum Release
                    Price. For the Export Auctions the reserve price is based
                    upon the prevailing international price as the export of
                    coffee from the country has to be competitive in the
                    international market and it cannot be made to depend only
                    on the domestic cost of production. For over 20 years, the G
                    international price of coffee has been very much above the
                    domestic cost of production although for the last about a
                    year and half the price of several varieties of coffee in the
                    international market have been less than the domestic cost
                    of production. Pool payments declared by the Board is on
                    the basis of per point ( l 00 points = 50 Kgs. of Fair Average H
    642                     SUPREME COURT REPORTS            [1994) SUPP. 5 S.C.R

A                   Quality Plantation 'A' Coffee). The value per point so
                    declared has always been above the cost of production - in
                    many years almost twice the cost of production."

         During the hearing of the appeals an apprehension was expressed on
    behalf of the appellants that the Board while discharging its liability
    towards payment of 'Purchase Tax' may first deduct the amount for
B
    payment of the 'Purchase Tax' out of the Pool Fund and the Board shall
    then make payment to the registered owners as required by Section 34 of
    the Coffee Act and in any particular year sufficient funds may not be left in
    the Pool Fund, to enable the Board to make payment of reasonable amount
    to the registered owners which shall affect and jeopardize the interest of the
    appellants and other growers of the coffee. It need not to be impressed that
c   the registered owners who grow coffee and deliver the same for inclusion in
    the Surplus Pool are entitled to the payment on some reasonable basis and
    their interest cannot be defeated or put in jeopardy by any act or omission
    on the part of the Board. But in view of the stand taken by the Board itself
    in the para 47 of the counter affidavit filed in the connected writ petition
    before this Court, the appellants, need not be apprehensive about their
D   payments.

         Accordingly, the appeals are disposed of with a direction to the
    respondent - Board to perform its statutory duty in respect of payment for
    the coffee delivered to them by the registered owners in accordance with
    the provisions of the Act and to make payment to the growers at a rate.
E   which in the facts and circumstances prevailing in any particular year can
    be held to be just and reasonable and which should cover cost of production
    of the concerned coffee and reasonable percentage of profit thereon. In the
    facts and circumstances of the case, there shall be no orders as to cost.

          WRIT PETITION NOS. 899 OF 1990 AND 66 OF 1991.
F
        Dr. Devi Pal, Senior Advocate, after some arguments sought per-
    mission to withdraw the Writ Petitions. Accordingly, the Writ Petitions are
    permitted to be withdrawn. There shall be no orders as to cost.

    A.G.                                      Appeals and Petitions disposed of.