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PETITIONER: CONSOLIDATED COFFEE LIMITED & ANR.

       Vs.

RESPONDENT: THE COFFEE BOARD & ANR.

DATE OF JUDGMENT22/11/1994

BENCH: SINGH N.P. (J) BENCH: SINGH N.P. (J) JEEVAN REDDY, B.P. (J) MAJMUDAR S.B. (J)

CITATION:  1995 SCC  (1) 312        JT 1995 (1)     1  1994 SCALE  (4)1025

ACT:

HEADNOTE:

JUDGMENT: N.P. SINGH, J.: 1.     The appellants are the growers of coffee. They  filed Writ  Petitions for injuncting the Coffee  Board  respondent No.  1 (hereinafter 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  Karnataka Sales  Tax Act, 1957 (hereinafter referred to as ’the  Act’) out of the Pool Fund.  2.     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 by them to the Coffee Board. It  also  held  that  the Board  was    liable  to  pay  the ’Purchase Tax’ under Section 6 of the Act.  But according to ’the High Court, the Board was authorised in law to pay  the tax  which it is liable to pay to the State Government,  out of the Pool Fund. On that finding, the writ petitions, filed on behalf of the appellants, were dismissed. 3.      Section  5(3)(a) of the 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 first or the earliest of the successive  dealers  in the  State who is Liable to tax under the said  Section,  on the  taxable  turnover 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 business of  buying,  selling,               supplying or distributing goods, directly   or

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             otherwise,  whether for cash or  for  deferred               payment,  or for commission,  remuneration  or               other valuable consideration   and includes-                   Exception:  An  agriculturist  who   sells               exclusively agricultural produce grown on land               cultivated  by  him personally  shall  not  be               deemed  to be a dealer within the  meaning  of               this clause""’ 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, arc made  liable  to pay the tax under Section 6 of the Act. 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 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                     (ii) despatches them to a place  outside               the State except as a direct result of sale or               purchase in the course of interState 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 on the sale  price               of such  goods  under 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 It was held by this Court that Section 6 was applicable to  the transactions entered into 4 between  the  Board and the growers of the  coffee  and  the Board was liable to pay the ’Purchase Tax’. 4.      The controversy, with which, we are concerned is  as to  whether  the Board was entitled to make payment  of  the ’Purchase  Tax’  out  of  the  Pool  Fund  required  to   be maintained under Section 30 of the Coffee Act. The  relevant part of Section 25 is as under:-                   "25.   (1)  All  coffee  produced  by   a,               registered  estate  in excess  of  the  amount               specified in the internal sale quota  allotted               to  that  estate ( or when 110  internal  sale               quotas  have  been 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  bee. allotted  to  estates.  the               Chairman may allow the owner of any estate  to               retain   with   himself   for   purposes    of

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             consumption by his  family and for purposes of               seed  such quantity of coffee as the  Chairman               may think reasonable                   Provided  further that where  the  Central               Government   is  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               Government   may,  in  notification   in   the               Official  Gazette exempt such class of  owners               from the provisions of this 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 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.                   (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.                   (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  receive  the  payments               referred to in Section 34.               Section 26 says:-                   "26.(1) The Board shall take all practical               measures to market the coffee included in  the               surplus  pool, and all sales thereof shall  be               conducted by o: 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  excess of the amount specified in  the  internal sale  quota allotted. to that estate shall be  delivered  to the Board for inclusion in the Surplus Pool by the owner  of the Estate. After the 5 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  view  of sub-section  6  of  Section 25, when  the  coffee  has  been delivered  for inclusion in the Surplus Pool, the registered owner  shall  retain  no 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:-                   "The  Board  shall maintain  two  separate

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             funds, General Fund and a Pool Fund               Section 31 is as follows:-                   "31.  (1)  To all General  fund  shall  be               credited:                   (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 to Sub-Section (2) of               (Section 32; and)                   (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;                   (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 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 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  and  incentives               for workers."               Section 32 is as follows:-                   "32.  (1)  To  the  Pool  Fund  shall   be               credited  all  sums realised by sales  by  the               Board of coffee from the surplus pool.                   (2)   Subject   to   the   provisions   of               SubSection  (4) of 13, the Pool Fund shall  be               applied only to-                   (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  marketing               coffee  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  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. ’ ’               6 According to the appellants, all sums realised from sales by the Board from the surplus pool is credited to the Pool Fund which  can  be  applied only for the  objects  mentioned  in 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

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under  the  Provisions of the Act aforesaid is  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 marketing of coffee, which  has been deposited 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-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 of coffee to the Board for  inclusion in the surplus pool. 5.      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 different heads  mentioned  in sub-section  2  of  Section  31.  In  this  connection,  Dr. Singhvi,  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. 6.     But  before this aspect is examined  in  detail,  the appellants  have to 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 how 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 registered  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 of the Central Government,  transfer the  whole or any part of such excess to the credit  of  the General  Fund.   Inspite of repeated  queries,  the  learned counsel appearing for the appellants, could not pointed  out as to how the 7 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. 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

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             Fund as it may think proper.                   (2)  The  sum of all payments  made  under               Sub-Section  (1) to 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 years’s’ crop to the surplus pool bears to               the  value  of  all coffee  delivered  to  the               surplus pool out of that year’s crop.                   Provided  that in calculating the  sum  of               all  payments made under Sub-Section  (1)  and               the  value of coffee delivered to the  surplus               pool  out of the years’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  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  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 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 Cost Accounts Branch of the               Ministry  of Finance and/or by the Board.  The               reserve   price  fixed  for  the  "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               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 (100 points = 50 kgs.  of  Fair               Average  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." 7.    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 payment of  the  ’Purchase Tax’  out  of the Pool Fund and the, Board shall  then  make payment to the registered own-

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8 ers 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 be impressed that 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 payments- 8.      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 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 N0S. 899 OF 1990 AND 66 9.      Dr. Devi Pal, senior Advocate, after some  arguments sought   permission   to  withdraw   the   Writ   Petitions. Accordingly,  the  Writ  Petitions’,  arc  permitted  to  be withdrawn.  There shall  be no orders as to cost. 9