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PETITIONER: CONSOLIDATED COFFEE LTD. AND ANR. ETC.

       Vs.

RESPONDENT: COFFEE BOARD, BANGALORE ETC. ETC.

DATE OF JUDGMENT15/04/1980

BENCH: TULZAPURKAR, V.D. BENCH: TULZAPURKAR, V.D. DESAI, D.A. SEN, A.P. (J)

CITATION:  1980 AIR 1468            1980 SCR  (3) 625  1980 SCC  (3) 358  CITATOR INFO :  F          1987 SC1343  (1)  R          1988 SC1487  (47)

ACT:      Central Sales Tax Act, 1956, as amended by Amending Act 103 of  1966, Section  5(3) read with section 5(1) and 6(1), interpretation of-Whether  Section 5(3)  is beyond the power of authority  of Article  286(2)  of  the  Constitution  and therefore ultra vires.      Words and  Phrases-"the agreement  or order  for or  in relation to  such export,"  in Section  5(3) of  the Central Sales Tax  Act, meaning  and interpretation  of-Whether  the agreement referred  to  means  only  the  agreement  with  a foreign buyer  or would  include any  binding or enforceable agreement to  export even  with a  local party  to implement which penultimate sale should have taken place.      Sale-Whether the  word ’sale’  in the  phrase "if  such last sale  or purchase takes place after" in section 5(3) of Central Sales  Tax Act 1956, includes "agreement to sell" as defined in Section 4 of the sale of Goods Act 1930.      Sale of  Goods Act,  1930 sections  25, 64(2) scope of- Auction sales-When  does the  property in the Coffee sold at the export  auctions conducted  by the  Coffee  Board  pass- Clauses 19, 26 and 31 of the Auction conditions.

HEADNOTE:      The Coffee  Board, Bangalore is a statutory Corporation incorporated under  section 5  of the  Coffee Act,  1942, an enactment passed  to provide  for  the  development  of  the Coffee industry  under the  Control of the Union. The Coffee Board under  various sections  of the  Coffee Act, exercises complete control-almost  monopolistic-over the  coffee trade in exercises of its statutory powers.      Export  of   coffee  outside   India  is   particularly controlled under  the Act and the Rules by the Coffee Board. Coffee can  be exported  either by the Coffee Board directly to parties  outside India  or the  Coffee  Board  authorises other  exporters  to  effect  such  exports.  For  effecting exports   through   other   exporters   the   Coffee   Board periodically conducts  auctions known  as ’export  auctions’ and it follows a procedure in that behalf. To be able to bid

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at  these   auctions,  exporters   have  to  get  themselves registered with  the Board.  The Board  maintains a  list of Registered Exporters  and grants  to  each  one  of  them  a permit, which  authorises him  to take  part in  the ’export auction’, The  conditions which  are imposed  by the  permit require, inter  alia, a  security  deposit  and  a  standing deposit (which  may be  in cash  or  in  the  form  of  bank guarantee) from  the Registered  Exporters; such  permit  is liable to  be withdrawn  or cancelled  by the  Chief  Coffee Marketing Officer,  an executive  appointed by  the  Central Government on  the Board,  at any time if it is found that a permit-holder has  sold or  has  attempted  to  sell  coffee bought by  him at  the ’export  auction’ within the internal market without his written permission or if any of the other permit  conditions   are  contravened.  The  actual  ’export auctions’ are  conducted on  the basis of the "the Terms and Conditions of Sale of Coffee in the course of Export" framed by it  and the  Registered  Exporters  participate  in  such auctions on  those terms  and conditions.  Clause 3  of  the "Auction 626 Conditions"  declares  that  all  auctions  and  sales  made thereat are  subject to (i) the Auction conditions, (ii) the Permit conditions  and (iii)  such other rules or conditions as may  be prescribed by the Chief Coffee Marketing Officer. Under Cl.  4 only  dealers who have registered themselves as Exporters of  coffee with  the Coffee  Board and  who hold a permit from  the Chief  Coffee  Marketing  Officer  in  that behalf are  permitted to  participate in the auctions. Under Cl. 11  no one  is allowed  to retract his bid when once the same has  been entered  in the Register of Bids. The highest bid is  ordinarily accepted  but the Sale Conducting Officer may not accept such bid if he has reason to believe that the name is  not bona fide or genuine or the same is the outcome of concerted  action on the part of the dealers or a section of them  for the  purpose  of  controlling  or  manipulating prices. etc.  subject to  his recording the reasons for such rejection in  the Register  of Bids.  Clause 19  deals  with weighment, delivery  and payment  of price  and contains  an over-riding provisions  to the  effect that the "property in the coffee  sold shall  not pass to the buyer until after he has paid  the full  price and  the coffee  sold  to  him  is weighed and  set apart  for  delivery  to  him."  Clause  26 declares that  it is  an essential  condition of the auction that the  coffee sold  thereat  shall  be  exported  to  the destination stipulated  in the  catalogue of  lots or to any other foreign  country outside  India as  may be approved by the Chief  Coffee Marketing  Officer within  three months or within such  extended period  as shall  not exceed  one year from the  Notice of  Tender  issued  to  the  auction  buyer (Registered Exporter)  and that  under no  circumstances the coffee purchased  at such auction shall be diverted to other destinations or sold or be disposed of or otherwise released in India.  Clauses 30 and 31 provide for the consequences of default on  the part of the buyer to export the coffee or to produce evidence thereof; he is liable to pay penalty at the rates specified  in Cl.  30 and  under Cl.  31 Chief  Coffee Marketing Officer  is entitled  to seize and take possession of the  unexported coffee  and deal  with it as if were part and parcel  of the Board’s coffee in its surplus pool. Under Cl. 32  it is  provided that  in  the  event  of  the  buyer committing any  default in  respect of  any of the terms and conditions of  the ’export  auction" he shall be liable; (i) to be removed from the list of the Registered Exporters, the permit granted  to him  being cancelled; (ii) to forfeit the

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deposit made  by him at the time of obtaining the permit and (iii)  to   forfeit  the  deposit  of  any  covered  by  the conditions contained in Cl. 14 (ii).      Prior to  the enactment of sub section (3) of section 5 of the  Central Sales  Tax Act,  1956, which has inserted on September, 7,  1976 with  retrospective effect from April 1, 1976 by  the Amending  Act (103 of 1976), the exemption from liability to  tax under  the Act  in regard to a sale in the course of  the export was and continues to be governed by s. 5(1) of  the Act.  The said  provision was  examined by  the Supreme Court  in two  leading cases,  namely, Coffee  Board Bangalore v.  Joint Commercial  Tax Officer, Madras and Anr. and Mohd.  Serajuddin etc. v. State of Orissa, and a certain interpretation had  been  accorded  by  this  Court  to  the expression "in  the course  of export",  and,  according  to these decisions  the last  sale, immediately  preceding  the sale occasioning  the export  of goods  out of  India,  (the penultimate sale),  however closely  related  to  the  final export, was  held not to be in the course of export but only for export  and hence  liable to  tax, it was with a view to remove the  difficulties caused  by these  and other similar decisions that  the Parliament enacted the new sub-s. (3) of s. 5 and added a proviso to s. 6(1) by the Amending Act (103 of 1976).      The Coffee  Board issued  a circular  dated February 7, 1977 to the Registered Exporters of Coffee, by which it took the view that in order to avail of the benefit 627 of section  5(3) of  the Central  Sales Tax  as  amended  by Amendment Act  103 of 1976, in respect of the coffee sold by it at the export auctions the Registered Exporters (bidders) should satisfy  three conditions; (a) he must have an export contract (i.e.  either agreement  or order)  from a  foreign buyer, (b)  he must  have it  on hand  at the  time when  he participates in  the export  auction and  (c) he should give proof of  the export of the coffee purchased at the auction. By way  of compliance  with the conditions (a) and (b) above the said  Circular  requires  the  Registered  Exporters  to deposit with  the Board  before  the  commencement  of  each auction copies of the export orders or agreements from their foreign buyers.  As the Coffee Board could not be certain as to how the Sales Tax Authorities would treat the penultimate sales in  the matter of granting exemption the said Circular requires the  bidders to  make a contingency deposit in cash equivalent  to  the  sale  tax  liability  or  furnish  bank guarantee in lieu thereof, each of such deposit or guarantee being required  to be  kept in  force for  a period  of four years. In  other words,  even in  cases where the Registered Exporters (auction  bidders) shall  have satisfied  all  the aforesaid conditions,  the Coffee  Board has  insisted  upon such Exporters  making contingency  deposits or furnish bank guarantees for amount equivalent to the sales tax chargeable on such  sales inspite  of the enactment of s. 5(3) and this has been  done ostensibly  for the  protection of the Coffee Board in the event of Sale Tax Authorities holding that even in such cases the benefit of s. 5(3) would not be available. Since retrospective  effect  was  given  to  the  amendments introduced by Act 103 of 1976 the Coffee Board collected and the Petitioners  paid sales  tax on  these  export  auctions during the  period of the retrospectivity and for few months more and  thereafter the  Coffee Board  has, in terms of the said Circular, obtained from the petitioners bank guarantees to secure  payment of  sales tax which but for the enactment of sub-s.  (3) of  s. 5 might have been payable on each such sale.

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    The  petitioners,   who  are  Registered  Exporters  of Coffee,  therefore   have  filed   under   Art.32   of   the Constitution  raising   an  important   question  of  proper construction of  section 5(3),  of the Central Sales Tax Act as  amended   by  Amending   Act  (103  of  1976)  and  also challenging the  constitutional  validity  of  the  circular dated February  7, 1977, issued by the Coffee Board, whereby it required  the petitioners  and other Registered Exporters of Coffee to furnish contingency deposits or bank guarantees equal to  the amount of sales tax in respect of the exempted sales under  the said  section 5(3) of the Central Sales Tax and  praying   for  its   cancellation  or   withdrawal  and consequential reliefs.      Allowing the petitions in part, the Court ^      HELD 1.  Section 5(3)  of the  Central Sales Tax Act as amended by  the Amendment Act 103 of 1976 is not ultra vires Article 286(2)  of the  Constitution and  the said provision neither creates any legal fiction nor is it beyond the power or authority  conferred on  Parliament by  Article 286(2) of the Constitution. [645A-D]      It is  true that  the word  "deemed" has  been used  in Section 5(3)  but the  same word has been used not merely in s. 5(1)  but also  in the  other two  sections 3  and  4  of Chapter II  of the  Central Sales  Tax  Act  which  has  the heading "Formulations  of Principles  for determining when a sale or  purchase of  goods takes  place in  the  course  of inter-state trade  or commerce  or outside a State or in the course of  export or  import", the  heading of Chapter II on the face of it suggests that what is done under ss. 3, 4 and 5  including   sub-s.  (3)  is  formulation  of  principles. Secondly 628 the word "deemed" is used a great deal in modern legislation in different  senses and  it is not that a deeming provision is every  time made for the purpose of creating a fiction. A deeming provision  might be  made to include for the purpose of a  statute an artificial construction of a word or phrase that would  not otherwise  prevail but in each case it would be a  question as  to with  what object  the Legislature has made such  a deeming  provision. When sub-section (3) of the section  5   used  the  word  "deemed"  and  says  that  the penultimate sale  "shall also  be deemed to be in the course of export"  what is  intended to  be conveyed  is  that  the penultimate sale  shall also  be regarded  as being  in  the course of  such export.  In other words, no legal fiction is created. Moreover,  it was conceded by counsel that the word "deemed" in  sections  3,  4  and  5(1)  laid  down  general principles and did not create any fiction; if that be so, it is difficult to accept the contention that in sub-s. (3) the same  word  should  be  construed  as  creating  a  fiction. Thirdly, sub-section (3) of section 5 formulates a principle in as much as it lays down a general guiding rule applicable to all  penultimate sales  that satisfy  the two  conditions specified therein  and not  any specific direction governing any particular  or specific  transaction  of  a  penultimate sale. In other words the content of the provision shows that it lays down a principle. [645 EH, 646C-E, G-H]      On a  proper construction of section 5(3), it cannot be said that  the said  provision is  applicable  only  to  the export auctions  conducted by the Coffee Board and the terms and conditions  governing them because it applies to variety of parties  including the  small manufacturers  who  seek  a foreign market for their goods through private export houses or canalised agencies like State Trading Corporation. [646H,

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647A]      St. Aubyn  and Ors. v. Attorney General,[1952] A. C. 15 at p. 53; referred to.      2. Section  5(3) of  the Central Sales Tax Act has been enacted to extend the exemption from tax liability under the Act not  to any  kind of  penultimate sale  but only to such penultimate sale  as satisfies  the two conditions specified therein, namely,  (a) that  such penultimate  sale must take place (i.  e. become  complete) after the agreement or order under which  the goods are to be exported and (b) it must be for the  purpose of  complying with  such agreement or order and it  is only then that such penultimate sale is deemed to be a sale in the course of export. [647DE]      It is  true that  the language employed in section 5(3) is  a   little  ambiguous  or  equivocal  and  there  is  no indication  in   express  terms   whether  the   "agreement" mentioned therein necessarily refers to the agreement with a foreign buyer  or would  include any  biding or  enforceable agreement to  export with  a local party. The material words which prescribe  the two  conditions on satisfying which the penultimate sale  is to  be regarded as a sale in the course of export  are: "If  such last sale or purchase (meaning the penultimate sale  or purchase) took place after, and was for the purpose of complying with, the agreement or order for or in relation  to such export". It is true that Parliament has not said  "the agreement or order for or in relation to such sale occasioning  the export",  but has used the phrase "the agreement or  order for or in relation to such export". But, two aspects  emerge very clearly on a close scrutiny of this phrase which by implication show that the "agreement" spoken of there  refers to  the agreement  with a foreign buyer and not an agreement with a local party containing a covenant to export. [649G, 650B-D]      In the  first place, the concerned phrase speaks of two things  in  disjunctive:  "agreement"  or  order.  The  word "order" which  appears in  a statute  dealing with sales tax must be  understood in  a commercial  sense, that is, in the sense in 629 which traders  and commercial  men will  understand  it.  In commercial sense an order means a firm request for supply of definite goods  emanating from a buyer an indent placed by a purchaser and,  therefore, an  order for  or in  relation to export would  mean an  indent from a foreign buyer. The word "order" in  section 5(3) cannot mean or refer to an order or direction, mandate,  command or authorisation to export that may be  issued by a statutory body like the Coffee Board for two reasons:  first, occurring  in a  sales tax  statute the word must  be given  its commercial  meaning  and  secondly, while enacting the provision Parliament could not be said to have only  statutory bodies,  like Coffee board or S.T.C. in mind. If,  therefore, an  order for  export in the concerned phrase means  an indent  from a foreign buyer, the preceding word "agreement"  in the  phrase would  take colour from the word "order" and would on the principle of noscitur a sociie mean an agreement with a foreign buyer and not the agreement with a local party containing the covenant to export; and      (ii) Secondly  and more  importantly, the  user of  the definite article  "the" before the word "agreement", is very significant. Parliament  has not said "an agreement" or "any agreement" for  or in  relation to  such export  and in  the context the  expression "the  agreement" would refer to that agreement which  is implicit  in the  sale  occasioning  the export. Between  the two  sales  (the  penultimate  and  the final) spoken  of in  the earlier  part of  the sub  section

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ordinarily it is the final sale that would be connected with the export,  and, therefore,  the expression "the agreement" for export must refer to that agreement which is implicit in the sale that occasions the export. The user of the definite article,  "the",   therefore,  clearly   suggests  that  the agreement spoken  of must  be the  agreement with  a foreign buyer. As  a  matter  of  pure  construction,  by  necessary implication the  expression "the  agreement occurring in the relevant phrase  means or  refers to  the agreement  with  a foreign buyer  and not  an  agreement  with  a  local  party containing the covenant to export. [650E-H, 651 A-E]      3. Prior to the enactment of Section 5 (1) there was no legislative guidance  as to  what transactions  of  sale  or purchase could  be said  to be "in the course of export" and the said  expression occurring  in Art.  286 (1)  (b) of the Constitution was  construed by  this Court in what have come to be  known as  the first  and the second Travancore-Cochin cases, namely,  The State  of Travancore-Cochin  and Ors. v. The Bombay  Company Ltd.,(1952)  3 S.T.C. 434, and The State of Travancore-Cochin  and Ors. v. The Shanmugha Vilas Cashew Nut Factory and Ors., (1953) 4 STC 205; to include two types of sales  or purchases  (a) a  sale or purchase which itself occasions, the export and (b) a sale or purchase affected by a transfer  of documents  of title  to the  goods after  the goods are  put in  the export  stream (i. e. after they have crossed the  customs frontiers  of  India).  Then  came  the Constitution (Sixth  Amendment) Act,  1956 introducing a new clause being  cl. (2)  in Art.  286 whereby  Parliament  was empowered by  law to  formulate principles  for  determining when a  sale or  purchase took  place in  the course  of the export of  the goods  out of  the territory of India only if the sale  or purchase  either occasions  such export  or  is affected by a transfer of documents of title to the goods if the goods  have crossed  the customs frontiers of India". In other words,  this was  legislative recognition  of what was said by  this Court  in the  two Travancore  cases about the true meaning  of the  expression "in  the course  of export" occurring in Art. 286 (1) (b). [651G-H, 652A, D-F]      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  case,  Coffee  Board, Bangalore, v. Joint Com- 630 mercial Tax  Officer, Madras and Ors., [1970] 3 SCR 147; and Mohd. Serajuddin etc. v. State of Orissa, [1975] Supp S.C.R. 169. In  the former case, this Court laid down the test that there must  be a  single sale which itself caused the export and there  was no  room for  two or more sales being "in the course of  export".  In  other  words,  notwithstanding  the compulsion to  export arising  from clauses 26, 30 and 31 of the Auction  Conditions, the penultimate sale was held to be not in  the cause of exports. In the latter case, this court took the view that the crucial words in Section 5 (1) showed that only  if a  sale occasioned  the export, it would be in the course of export and that the two sets of contracts were separate and  independent and  Mohd. Serajuddin was under no contractual obligation  to the foreign buyer either directly or indirectly  and that his rights and obligations were only against the  S.T.C. Even when the S.T.C. had with it foreign buyers  contracts  and  Mohd.  Serajuddin’s  contracts  with S.T.C. had been entered into for the purpose of implementing such foreign  buyer’s contracts,  this Court  held that  the sales between  Mohd. Serajuddin and S.T.C. were not sales in the course  of export.  It was  at this stage i.e. when s. 5

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(1) was  interpreted so  by this  Court that  the Parliament felt the  necessity of  enacting s. 5 (3) for the purpose of giving  relief   in  respect   of  penultimate   sales  that immediately precede  the final  (export) sales  provided the former satisfy  the conditions  specified therein.  [652F-H, 653A-B, E-G]      4. Two  things  become  clear  from  the  Statement  of Objects and  Reasons in the Amendment Act 103 of 1966; first Mohd. Serajuddin’s  decision is  specifically referred to as necessitating the  amendment and  secondly penultimate sales made by  small and  medium scale manufacturers to an export, canalising agency  or private  export house  to  enable  the latter to  export these  goods in  compliance with  existing contracts or  orders are  regarded as inextricably connected with the  export  of  the  goods  and  hence  earmarked  for conferral of  the benefit  of exemption.  But  the  existing contract with  whom is  not clarified.  The Statement  being silent on  this crucial  point whether the existing contract should be  with a foreign buyer or will include an agreement with a  local party  containing a  covenant  to  export,  by necessary implication "the agreement" spoken of by section 5 (3) refers to the agreement with a foreign buyer. [654F-H]      It is  true that  the  benefit  of  the  exemption  was intended  to   be  extended   to  small   and  medium  scale manufacturers desirous  of exporting  their  goods  but  the requirement of  the new  provision is  not  that  they  must procure or have with them a foreign buyer’s contract but the requirement is  that before  they complete the sale of their goods to  the canalising  agency or the private export house there must  be in  existence a  foreign buyer’s  contract to implement which  they should  have sold  their goods to such agency or  export  house.  In  the  nature  of  things  such manufacturers who  have no expertise of export trade are not expected to have a foreign buyer’s contract with them and it would be  sufficient compliance  of  the  provision  of  the canalising agency  or the  export  house  has  with  it  the foreign buyer’s  contract. It would, therefore, be incorrect to say  that the  benefit of  the exemption depends upon the fortuitous circumstance  of a foreign buyer’s contract being available with  such manufacturer  when he sells his product to the  agency or  the export house. Neither any hardship is involved nor  would the  small or medium scale manufacturers be  deprived  of  the  benefit  of  the  exemption,  by  the construction of the expression as "the agreement" in Section 5 (3),  namely, that  it means  an agreement  with a foreign buyer and  not with  a local  party containing a covenant to export. In  fact it is in consonance with the trade practice obtaining in  export trade, namely, that normally the export activity commences with securing or 631 obtaining an  export contract or a firm order from a foreign buyer as  the first step towards the ultimate export. [655A- F]      State  of   Mysore   v.   The   Mysore   Spinning   and Manufacturing Co. Ltd. 9 S.T.C. 188@ 189 SC; followed.-      It is  difficult to say that the Parliament intended to prefer one  and sacrifice  the other,  among the  two public interests involved,  namely, promotion of the exports of the country and  augmentation of  the States’  revenues  through sales tax,  while  enacting  section  5  (3).  In  fact  the granting of  exemption to  penultimate sales  was  obviously with  a  view  to  promote  the  exports  but  limiting  the exemption to certain types of penultimate sales that satisfy the two  specified conditions  display  an  anxiety  not  to diminish the  States’ revenues  beyond a  certain limit. The

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section in  any case  not giving  any  indication  that  one public  interest  is  to  be  preferred  to  the  other,  by necessary implication  "the agreement"  occurring in section 5(3) refers to the agreement with a foreign buyer. [656A-C]      5. In Ben Gorm Nilgiri Plantations Company, Coonoor and Ors. v.  Sales Tax Officer, Special Circle Ernakulam. [1964] 7 S.C.R. 706 at p. 711-12, this Court held that, even in the case of  a single  sale which  ultimately  resulted  in  the export, the  sale was  not in  the course of export, because there  was  no  obligation  to  export  which  afforded  the inextricably link between the sale and the export. [657A-B]      It is  true that  if the obligation to export affording the inextricable  link between  the sale  and the  export is necessary in  the case  of a  single  sale  even  though  it results in export" then all the more such obligation will be necessary  in  the  case  of  a  penultimate  sale  if  such penultimate sale  is to  constitute a sale "in the course of export" but  even if  Ben Gorm Nilgiri Plantations Company’s case is  regarded as  laying down a general proposition that what  is   required  is  an  obligation  which  inextricably connects the  sale with  the export and that such obligation may, in the absence of legislative guidance, arise by reason of statute,  contract, mutual understanding or the nature of transaction which  links  the  sale  to  export,  still  the question would  be what  type of obligation and arising from what circumstances  would be necessary or enough in the case of a  penultimate sale  must depend upon the language of the statute concerned and, therefore, the question will again be what type  of obligation and arising from what circumstances has been  prescribed by  the Parliament by enacting s. 5 (3) and that  would depend  upon the  proper construction of the phrase "the  agreement or  order for  or in relation to such export" occurring  therein. Since on proper construction the expression "the agreement or order" means the agreement with or an  order from  a foreign  buyer, it  is clear  that  the Parliament intended  to prescribe  that  the  obligation  to export arising  only from such agreement or order that would afford  the  inextricable  link  so  as  to  constitute  the penultimate sale a sale in the course of export. [657B-F]      6. The  word ’sale’  occurring in  the phrase  "if such last sale  or purchase takes place after" in section 5(3) of the Central  Sale Tax  Act 1956 does not mean the "agreement to sell"  but only  sale in  the  sense  of  a  transfer  of property in the goods by one person to another. Section 5(3) cannot be  construed otherwise  for more than one reason. In the first  place the definitions of ’sale’ and "agreement to sell" in  the sale  of Goods Act 1930 would not apply to the expression ’sale’  occurring in  the Central  Sales Tax Act, 1956 wherein  the expression ’sale’ has been defined in s. 2 (g) for  the purpose  of that  Act and under s. 2 (g) of the Central Sales Tax Act ’sale’ means "any transfer of property in goods by one 632 person to  another for  cash or  for deferred payment or for any other valuable consideration, and includes a transfer of goods on  the hire-purchase  or other  system of  payment by instalments,  but   does   not   include   a   mortgage   or hypothecation of  or a  charge or pledge on goods". In other words, wherever  the word ’sale’ occurs in the Central Sales Tax Act,  1956 it  is this definition given in s. 2 (g) that will be  applicable and therefore the word ’sale’ in s. 5(3) must mean transfer of the goods by one person to another for cash or  for deferred  payment or  for  any  other  valuable considerations;  it   cannot  mean   "agreement  to   sell". Moreover, there  is nothing  in the  context of  s. 5 (3) to

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suggest that  the word  ’sale’ occurring  therein should  be understood  differently.   On  the   contrary,  the  context suggests that  the word  ’sale’ in  the phrase "if such last sale or  purchase takes  place after  "refer to  a completed sale i.e.  a sale  as defined  in section  2(g) of  the Act. [658E-H, 659A-C]      Balabhagas Hulaschand  v. State of Orissa, [1976] 2 SCR 939; distinguished.      7. Section  64(2) of the Sale of Goods Act, 1930, being in pari  materia with  Section 58(2)  of the English sale of Goods Act,  1893 does  not deal with the question of passing of the  property at  auction  sale  but  merely  deals  with completion of  the contract of sale which takes place at the fall of  the hammer  or at  the announcement of the close of the sale in other customary manner by the auctioneer. If the auction sale  of chattels is unconditional and is in respect of specific ascertained goods and nothing remains to be done to the  goods for  putting them  in a  condition  ready  for delivery, the  property  in  the  good  would  pass  to  the purchaser upon  the acceptance of the bid but that would not be because  of s. 64 (2) but because of s. 20 and such would not be  the case if the goods sold there at are non-specific or unascertained  goods or  the auction sale is conditional. And, Section  64(2) has nothing to do with the aspect of the passing of  the property  at an  auction sale  and it  is by virtue of  goods being  specific and  in a deliverable state that under  section 20  the property  in such good passes to the buyer  at the  completion of the contract at the fall of the hammer at such sale. [667F-H, 669C-D]      Mc Entire  & Anr. v. Crossley Bros Ltd., [1895-99] All. E.R. (Reprint)  829 @  832, Dennant  v. Skinner  and Collom, [1948] 2 All. E.R. 29; quoted with approval.      A. V.  Thomas &  Co. Ltd.  v.  Deputy  Commissioner  of Agricultural Income Tax, [1963] Supp. 3 SCR, 608; followed.      8. Section 64 of the Sale of Goods Act could be subject to a  contract to  the contrary  and  would  be  subject  to section 62.  In the first place section 64 occurs in Chapter VII which  contains "Miscellaneous"  provisions  and  s.  62 which occurs in the same Chapter clearly provides that where any right, duty or liability would arise under a contract of sale by implication of law, it may be negatived or varied by express agreement  or by  the course  of dealing between the parties or  by usage.  If the  usage is such as to bind both the parties  to the contract. Ordinarily, the rights, duties and  liabilities   arising  under  a  contract  of  sale  by implication of  law spoken  of in s. 62 refer to the rights, duties and obligations referred to in Chapter III containing provisions which  lay down  rules as to transfer of property as between  seller and buyer and transfer of title but there is no reason by s. 62 should not apply to rights, duties and obligations arising  under s.  64 in regard to auction sale. Sub section  (1) of section 64 provides that where goods are put up  for sale in lots then each lot is prima facie deemed to be  the subject  of a  separate contract  for sale, which means terms  between the parties may provide to the contrary or circumstances may indicate to the contrary. Again sub s. 633 provides that  the sale  may be  notified to be subject to a reserved or up set price which means that the auctioneer may not fix  a reserved  price; further, it is well settled that if such a reserved price has been fixed then notwithstanding the fact the highest bid has been accepted by the auctioneer and the  sale relates  to specific  or identifiable goods no concluded contract  comes into  existence if the highest bid so accepted  falls short  of  the  reserved  price  and  the

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property in  the goods  will not pass. Sub-ss (3) and (4) if carefully scrutinised  also indicate  that there  could be a contract to the contrary. Moreover, once it is accepted that auction sales  to which s. 64 applies could be unconditional or conditional and that the auctioneer can prescribe his own terms and  conditions on  the basis of which the property is exposed to  sale  by  auction  it  must  be  held  that  the acceptance of any bid as well as the passing of the property in the  goods sold  thereat would be governed by those terms and conditions. [669D-H, 670A-C]      9. In the instant case:      (a) The  export auctions  of Coffee  conducted  by  the Coffee  Board   are  admittedly   conducted  on   terms  and conditions prescribed  by it called "Auction Conditions". In the absence  of a  suggestion in  the case  that a statutory body like  the Coffee  Board while  prescribing the  auction conditions has  acted not  in good  faith or  that the  said terms and  conditions do  not truly  govern the  rights  and obligations of  the parties,  thereto it  is clear  that the question at  what point  of time  the property in the Coffee sold thereat  passes to  the auction  purchaser  (Registered Exporter) must  depend upon  the intention of the parties to be derived  from the  aforesaid terms  and  conditions.  The property in  coffee sold  thereat does not pass to the buyer at the fall of the hammer under section 64 (2) of the Indian Sale of Goods Act, 1930. All that happens it the fall of the hammer is  that a  completed contract  of  sale  comes  into existence creating  a relationship  of promisor and promisee between the  parties in an executory contract, which is very clear from clause 13 (a) of the Auction conditions. [670C-F]      (b)  Clause   19  principally  deals  with  aspects  of delivery, weighment  and payment  of price  an d towards the end it  contains an over-riding provision to the effect that not withstanding anything contained in these conditions, the property in  the Coffee  sold shall  not pass  to the  buyer until after  he has  paid the full price and the coffee sold to him  is weighed  and set  apart for  delivery to  him. In other words.  it is  clear that  parties intended  that  the passing of  the property  shall not take place till the full price is  paid and  the coffee sold is weighed and set apart for delivery.  Now there  is nothing  in any  of  the  other provisions of  these Auction Conditions which indicates that the property  in coffee  sold should pass either at the fall of the  hammer or  at any point of time prior to the payment of price  and weighment  and setting  apart  of  coffee  for delivery to the buyer. [670H, 671A-B]      Mc Entire  and Anr.  v. Crossley  Bros. Ltd., [1895-99] All. E.R. (Reprint) 829 @ 832; distinguished.      (c)It is  true that the over-riding provision contained in clause  19 is  negative in character, that is to say, the parties are  agreed that  the property shall not pass to the buyer until  after the  payment of  the price, weighment and setting apart  of the  coffee for delivery to the buyer. But there are  two provisions contained in clause 20 (d) and (f) which  show  that  positively  upon  payment  of  price  and weighment and  setting apart the coffee sold for delivery to the buyer,  the property  in the  coffee sold  passes to the buyer at  that point  of time.  Under clause  19, after  the payment of  full price  the buyer  has to apply for and take delivery within 634 a certain  time but  in case  he fails  to take delivery, as provided in  clause 20,  the coffee  is first  stored by the Pool Agent  in the Pool Warehouse pending its exportation by the buyer  by the 15th May and if it is not exported by that

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date the  Curer or  Depot Manager  removes it  from the West Coast to  inland  countries  for  safe  storage  during  the monsoon season but at the risk and cost of the buyer. Having regard to  clauses 19  and 20  of  the  Auction  conditions, therefore, it is clear that in these penultimate sales i. e. sales of  coffee at  the export  auctions conducted  by  the Coffee Board,  to property  in coffee sold thereat passes to the buyer  upon payments  of price,  weighment  and  setting apart of the coffee sold for delivery to the buyer. [671C-F, 672C-D]      (d) Passing  of the  property in  such coffee cannot be said to  be further postponed till actual shipment by reason of clause  31 of  the Auction  conditions, for, if the title has already  passed under  clauses 19  and 20 of the Auction Conditions immediately  upon payment of price, weighment and setting apart  of the  coffee for  delivery to the buyer, it cannot pass again. [672D-F]      (e)It is not correct to say that in view of clause 31 a reservation of  the right  of disposal  over  the  goods  in favour of  the Coffee Board within the meaning of section 25 of the  Sale of  Goods Act  is made. Section 25 (1) provides that where there is a contract for sale of specific goods or where goods  are subsequently  appropriated to the contract, the seller  may by  terms of  the contract or appropriation, reserve the  right of  disposal of  the goods  until certain conditions are  fulfilled and  if  he  does  so,  the  legal consequence mentioned  in the section flows, namely, that in such case  notwithstanding the  delivery of goods to a buyer or to  a carrier or bailee for transaction to the buyer, the property in  the goods  does not pass to the buyer until the conditions imposed  by the  seller are fulfilled. It is true that Cl.  26 declares  that it  is an essential condition of the auction  that coffee  sold thereat  shall be exported to stipulated destinations  or to  any  other  foreign  country outside India  as  may  be  approved  by  the  Chief  Coffee Marketing Officer  within 3  months or  within the  extended period but such essential condition is applied to the coffee which has  already become  the property  of the  buyer under Cls. 19 and 20 of the Auction Conditions and all that Cl. 34 provides is  that if  default is  made by buyer in exporting coffee within  the prescribed time or extended time it shall be lawful  for the  Coffee Board  without reference  to  the buyer to  seize the  unexported coffee  and take  possession thereof and  deal with  it as if it were the part and parcel of the  Board’s Coffee held by them in their Pool Stock. Far from amounting  to a  reservation of  the right  of disposal over the unexported coffee to the Coffee Board, Cl. 31 is in the nature  of a defeasance clause in the sense that what is vested in  the buyer  under the earlier conditions, the same shall revert back to the Coffee Board if the buyer commits a default  in  fulfilling  the  essential  condition.  Such  a reading of  Cl.  31  would  be  consistent  with  a  further provision which is to be found in the latter portion of that clause. The  latter part  of Cl.  31 provides that after the coffee is  seized and  it becomes part and parcel of Board’s Coffee held by it in its pool stock, the Board shall re-sell the same  but after  such re-sale the Chief Coffee Marketing Officer shall  pay to  the defaulting buyer only the balance of  the   sale  proceeds  after  deducting  godown  charges, insurance premium,  selling commission payable to agents and all other  expenses of  sale together  with the  penalty due under Cl.  30. In  other words  the proviso clearly suggests that the  seized coffee  becomes Coffee Board’s property and is resold  as such,  otherwise the  surplus should go to the buyer (Registered  Exporter). The  fact that  the payment to

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the defaulting buyer is limited to the actual sale 635 price paid by him and that the surplus if any reverts to the Coffee Board  clearly shows  that under  Cl. 31 upon seizure the property  reverts back  to the  Coffee Board.  Clause 31 properly read  amounts to  a defeasance  clause and  nothing more, especially  when it  is clear  that  property  in  the coffee sold at auction passes to the buyer under Cls. 19 and 20 immediately  upon payment of price, weighment and setting apart of  the coffee  for delivery  to the  buyer. Once  the property has  passed there would be no question of reserving any right  of disposal  over the  same to  the Coffee  Board within the  meaning of  s. 25  (1) of the Sale of Goods Act. [662F-H, 673A-H]      (g) In  the penultimate sales (sales of coffee effected to 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 coffee  for delivery to the buyer under  Cls. 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 buyer must be available or produced in order to attract s. 5 (3) of the Central Sales Tax Act, 1956. [674C-D]

JUDGMENT:      ORIGINAL JURISDICTION  : Writ  Petition  Nos.  3130/78, 4238-4239/78, 8/79 and 1458/79.            (Under Article 32 of the Constitution)      Mr. F. S. Nariman, C. N. Murthy, K P. Kumar, H. K Dutt, T. Subba  Rao and  D. N. Gupta for the petitioners in WP No. 3130/78.      A.K Sen, Dr. Y.S. Chitale, K P. Kumar, R. Vasudevan, C. N. Murthy,  Ajay Mehta  and T. Subba Rao for the petitioners in W. P. Nos. 4238-4239/78.      F.S. Nariman,  K. P. Kumar, R. Vasudevan, C. N. Murthy, Ajay Mehta and T. Subba Rao for the petitioner in WP 8/79.      Dr. Y.S.  Chitale, K.  P.  Kumar,  R.  Vasudevan,  C.N. Murthy, Ajay Mehta and T. Subba Rao for the petitioner in WP No. 1458/79.      L. M. Sinha, Att. Genl. K J. Chandran, J.B. Dadachanji, K. J.  John and  Sri Narain  for the  Respondent in  WP  No. 3130/78.      P. G. Nair, K. J. Chandran, J. B. Dadachanji, K J. John and Sri Narain for RR. 1 in WP Nos. 4238-4239/78.      N. Nettar, for RR. 2 in WP 4238-39/78.      S.T. Desai and A.V. Rangam for RR 3 in WP 4238-39/78.      P. A.  Francis, &  V. J.  Francis for RR 4 in WPs 4238- 39/78.      K. K  Venugopal. Addl. Sol. Genl. and N. Nettar for RR. 1 in WP No. 8/79.      S.T. Desai and A. V. Rangam for the RR 2 in WP 8/79. 636      V.J. Francis for RR 3 in WP No. 8/79.      K J.  Chandran, J.  B. Dadachanji,  K. J.  John and Sri Narain for RR 4 in WP No. 8/79.      N.Nettar for RR in WP No. 1458/79.      V.J. Francis for the RR in WP No. 1458/79.      K.J. Chandran,  J. B. Dadachanji K. J. John, Sri Narain for the RR in WP No. 1458/79.      The Judgment of the Court was delivered by      TULZAPURKAR,  J.   These  writ   petitions   filed   by Registered  Exporters   of  coffee  under  Art.  32  of  the

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Constitution  raise   an  important   question   of   proper construction of  s. 5(3),  a provision newly inserted in the Central Sales  Tax Act 1956 by an Amending Act (103 of 1976) and   the   petitioners   also   seek   to   challenge   the constitutional validity of a Circular dated February 7, 1977 issued  by   the  Coffee  Board,  whereby  it  requires  the Registered  Exporters   of  coffee  to  furnish  contingency deposits or bank guarantees equal to the amount of sales tax in respect  of the exempted sales under the said s. 5(3) and pray for  its cancellation  or withdrawal  and consequential reliefs.      The facts  giving rise  to  the  writ  petitions  being common and almost identical may be stated. The Coffee Board, Bangalore is a statutory corporation incorporated under s. 5 of the  Coffee Act, 1942, an enactment passed to provide for the development  of the Coffee Industry under the control of the Union. Sections 4 to 10 of the Act deal with the setting up  of   the  coffee   Board  on  which  all  interests  are represented and  some Members  of Parliament  and Government officers are  nominated.  The  Board  exercises  powers  and discharges functions  assigned to  it under  the Act and the Coffee  Rules   framed  thereunder.   The  Act  compels  the registration of  all owners  of coffee estates and licensing of curers  and dealers  and it  also imposes  control on the sale, export  and re-import  of coffee into India. In regard to sale  it fixes prices for sale of coffee either wholesale or retail  by registered  owners and licensed curers for the purpose of  sale in  the Indian  Market and the Coffee Board fixes internal  sale quota  for each  estate owner  and  the owner has  to observe  this quota  and also  the price fixed under s.  25 all  coffee produced  by a registered estate in excess of  the quantities  specified in  the  internal  sale quota allotted  to that  estate, or  when no  internal  sale quotas have  been allotted  to the  estates, all  the coffee produced by  the estate has to be delivered to the Board for inclusion in  the surplus pool by the owner of the estate or by the curing 637 establishment receiving the coffee from the estate and under subs. (6) in respect of coffee so delivered for inclusion in the surplus  pool the  registered  owner  retains  no  right except his  right to  receive payments referred to in s. 34. Section 26(1)  enjoins upon  the Coffee  Board to  take  all practical measures  to market  the coffee  included  in  the surplus pool  and all  sales thereof have to be conducted by or through  the Board. These sales include internal sales in India and outside India. We are concerned in these petitions with sales  outside India.  Under s. 20 of the Act no coffee (barring certain exceptions specified in the proviso) can be exported from India otherwise than by the Board or otherwise than under  an authorisation  granted by  the Board  in  the prescribed manner  and in  the prescribed cases, while under s. 21  no coffee which has been exported from India shall be re-imported into India except under and in accordance with a permit granted  by the  Board. Section  47 provides that all contracts for  the sale  of coffee  in so far as they are at variance with  the provisions  of this Act shall be void. It will thus  appear clear  that  the  Coffee  Board  exercises complete control-almost  monopolistic-over the  coffee trade in exercise of its statutory powers.      Export  of   coffee  outside   India  is   particularly controlled under  the Act and the Rules by the Coffee Board. As stated  earlier coffee  can be  exported  either  by  the Coffee Board directly to parties outside India or the Coffee Board authorises other exporters to effect such exports. For

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effecting exports  through other  exporters the Coffee Board periodically conducts  auctions known  as "export  auctions" and it follows a procedure in that behalf. To be able to bid at  these   auctions,  exporters   have  to  get  themselves registered with  the Board.  The Board  maintains a  list of Registered Exporters  and grants  to  each  one  of  them  a permit, which  authorises him  to take  part in  the "export auction". The  conditions which  are imposed  by the  permit (hereinafter called  the permit  conditions’) require, inter alia, a  security deposit  and a standing deposit (which may be in  cash or  in the  form of  bank  guarantee)  from  the Registered Exporters;  such permit is liable to be withdrawn or cancelled  by the  Chief  Coffee  Marketing  Officer,  an executive appointed  by the Central Government on the Board, at any  time if it is found that a permit-holder has sold or has attempted  to sell  coffee bought  by him at the "export auction" within  the internal  market  without  his  written permission or  if any  of the  other permit  conditions  are contravened). A  specimen of  the permit  together with  the conditions  attaching   to  it  has  been  annexed  to  each petition. (The actual "export auctions" are conducted on the basis of "the Term and Conditions of Sale 638 of Coffee  in the  course of  Export" framed  by it  and the Registered Exporters  participate in  such auctions on those terms and  conditions.) A  specimen copy  of  these  Auction Conditions has  been annexed  to  each  petition.  Clause  3 thereof declares  that all  auctions and  sales made thereat are subject  to (i)  the Auction conditions, (ii) the Permit conditions and  (iii) such  other rules or conditions as may be prescribed  by the  Chief Coffee Marketing Officer. Under Cl.  4  only  dealers  who  have  registered  themselves  as Exporters of  coffee with  the Coffee  Board and  who hold a permit from  the Chief  Coffee  Marketing  Officer  in  that behalf are  permitted to  participate in the auctions. Under Cl. 11  no one  is allowed  to retract his bid when once the same has  been entered  in the Register of Bids. The highest bid is  ordinarily accepted  but the sale Conducting Officer may not accept such bid if he has reason to believe that the same is not bona fide or genuine or the same is that outcome of concerted  action on the part of the dealers or a section of them  for the  purpose  of  controlling  or  manipulating prices, etc.  subject to  his recording the reasons for such rejection in  the Register  of Bids.  Clause 19  deals  with weighment, delivery  and payment  of price  and contains  an over-riding provision  the effect  that the "property in the coffee sold  shall not  pass to the buyer until after he has paid the  full price  and the  coffee sold to him is weighed and set  apart for delivery to him". Clause 26 declares that it is  an essential condition of the auction that the coffee sold thereat shall be exported to the destination stipulated in the  catalogue of  lots or  to any  other foreign country outside India  as  may  be  approved  by  the  Chief  Coffee Marketing  Officer   within  three  months  or  within  such extended period as shall not exceed one year from the Notice of Tender  issued to the auction buyer (Registered Exporter) and that under no circumstances the coffee purchased at such auction shall  be diverted  to other destinations or sold or be disposed  of or  otherwise released  in India. Clauses 30 and 31  provide for  the consequences of default on the part of the  buyer to  export the  coffee or  to produce evidence thereof; he is liable to pay a penalty at the rate specified in Cl.  30 and  what is  more  under  Cl.  31  Chief  Coffee Marketing Officer  is entitled  to seize and take possession of the  unexported coffee  and deal  with it as it were part

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and parcel  of the  Board’s coffee in it surplus pool. Under Cl. 32  it is  provided that  in  the  event  of  the  buyer committing any  default in  respect of  any of the terms and conditions of the "export auction" he shall be liable (i) to be removed  from the  list of  the Registered Exporters, the permit granted  to him  being cancelled; (ii) to forfeit the deposit made  by him at the time of obtaining the permit and (iii)  to   forfeit  the  deposit  if  any  covered  by  the conditions contained in Cl. 14(ii). 639      According to  the petitioners prior to the enactment of sub-s(3) of  s. 5  of the Central Sales Tax Act, 1956, which was inserted  on September 7, 1976 with retrospective effect from April  1, 1976  by the  Amending Act (103 of 1976), the exemption from liability to tax under the Act in regard to a sale in  the course  of the  export was  and continues to be governed by s. 5(1) of the Act which runs thus           "5(1) A  sale or purchase of goods shall be deemed      to take  place in the course of the export of the goods      out of  the territory  of India  only if  the  sale  or      purchase either occasions such export or is effected by      a transfer of documents of title to the goods after the      goods have crossed the customs frontiers of India".      The aforesaid  provision was  examined by this Court in two leading  cases, namely,  Coffee Board Bangalore v. Joint Commercial Tax  Officer, Madras  & Anr. and Mohd. Serajuddin etc. v.  State of  Orissa and  a certain  interpretation had been accorded by this Court to the expression "in the course of export"  and according  to these decisions the last sale, immediately preceding  the sale  occasioning the  export  of goods out  of India  (hereinafter  called  the  "penultimate sale"), however  closely related  to the  final export,  was held not  to be the course of export but only for export and hence liable  to tax and according to the petitioners it was with a  view to  remove the difficulties caused by these and other similar  decisions that the Parliament enacted the new sub-s. (3)  of s.5  and added  a proviso  to s.6(1)  by  the Amending Act (103 of 1976). The newly enacted provisions run thus           "5(3) Notwithstanding  anything contained  in sub-      section (1),  the last  sale or  purchase of  any goods      preceding the  sale or  purchase occasioning the export      of those goods out of the territory of India shall also      be deemed  to be  in the course of such export, if such      last sale or purchase took place after, and was for the      purpose of  complying with,  the agreement or order for      or in relation to such export."      6"(1)......................................           Provided that  a dealer shall not be liable to pay      tax under  this Act  on any  sale of  goods  which,  in      accordance with  the provisions  of sub-section  (3) of      section 5,  is a  sale in the course of export of these      goods out of the territory of India."      The petitioners have strongly relied upon the Statement of Objects and Reasons appended to the relevant Bill in this behalf. In  other words,  according to the petitioners under sub-section (3)  of s.5 even the ’penultimate sale’ is to be regarded as a sale ’in the course of ex- 640 port’ and  will under  the proviso  to s.6(1) be entitled to claim exemption  from the  liability to  tax under  the  Act provided such  penultimate sale-(i)  took place  after,  and (ii) was for the purpose of complying with, the agreement or order for  or in  relation to  such export. According to the petitioners the  sales of  coffee  made  to  the  Registered

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Exporters at  the export  auctions conducted  by the  Coffee Board constitute  ’penultimate sales’  falling within s.5(3) and qualify  for the  exemption from the tax liability under the Act  in as  much as  both the conditions mentioned above are satisfied.      The  petitioners’  case  is  that  notwithstanding  the aforesaid position  the Coffee  Board by  its Circular dated February 7,  1977 issued  to  the  Registered  Exporters  of coffee has  taken the  view that  in order  to avail  of the benefit of sec. 5(3) (in respect of the coffee sold by it at the  export  auctions  the  Registered  Exporters  (bidders) should satisfy  three conditions  (a) he must have an export contract (i.  e. either  agreement or  order) from a foreign buyer, (b)  he must  have it  on hand  at the  time when  he participates in  the export  auction and  (c) he should give proof of  the export of the coffee purchased at the auction. By way  of compliance  with the conditions (a) and (b) above the said  Circular  requires  the  Registered  Exporters  to deposit with  the Board  before  the  commencement  of  each auction copies of the export orders or agreements from their foreign buyers).  Obviously the Coffee Board proceeds on the basis that  s. 5(3)  requires an  agreement with or an order from a  foreign buyer and that too it must exist at the time of participation  in the auction inasmuch as in its view the property in  the coffee  sold at such auction passes and the penultimate sale takes place at the fall of the hammer under s.64(2) of  the Sale  of Goods  Act. Further  as the  Coffee Board  could  not  be  certain  as  to  how  the  Sales  Tax Authorities would  treat the penultimate sales in the matter of granting exemption the said Circular requires the bidders to make  a contingency  deposit in  cash equivalent  to  the sales tax  liability  or  furnish  bank  guarantee  in  lieu thereof, each of such deposit or guarantee being required to be kept in force for a period of four years. In other words, according  to  the  petitioners  even  in  cases  where  the Registered Exporters  (auction bidders) shall have satisfied all the  aforesaid conditions, the Coffee Board has insisted upon such  Exporters making  contingency deposits or furnish bank guarantees  for amounts  equivalent to  the  sales  tax chargeable on  such sales inspite of the enactment of s.5(3) and this  has been done ostensibly for the protection of the Coffee Board  in the  event of Sales Tax Authorities holding that even  in such cases the benefit of s. 5(3) would not be available.      The petitioners  contend that the words "the agreement" for or  "in relation  to such  export" in  s.  5(3)  do  not necessarily refer to the agree 641 ment with  a foreign  buyer but would include any binding or enforceable agreement  to export  even with a local party to implement which  the penultimate  sale must have taken place and since  here the  penultimate sales  (sales of  coffee to Registered Exporters  by the Coffee Board) take place on the express and  essential condition  that the said coffee shall be exported  and the same shall not be diverted to any other destination or  sold or  disposed of  or released  in  India (vide Clause  26) and which condition is enforced on pain of imposition of  penalty and  seizure of the unexported coffee (vide: Clauses  30 and  31) these must be regarded as having been made for the purpose of complying with agreement for or in relation  to export and secondly, these penultimate sales invariably  take  place  (i.e.  become  complete  after  the agreement to  export is  entered into inasmuch as the latter comes into  existence invariably  before the property in the coffee  passes   to  the   Registered   Exporters   (auction

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purchasers). Alternatively the petitioners contend that even if the  words "the  agreement for  or in  relation  to  such export" mean  only the  agreement with  a foreign  buyer all that is  required is  that such  agreement with  the foreign buyer  must   exist  before  the  penultimate  sale  becomes complete, i.e.  before  the  property  in  the  coffee  sold thereat passes to the auction purchaser and according to the petitioners  the   property  in  the  coffee  sold  at  such penultimate sales  passes to the auction purchaser after the same is  shipped or  sent to the custom station for shipment because till  then the  Coffee Board has a right of disposal over the  same within  the meaning  of s.25  of the  Sale of Goods Act  under Cl.  31 and in any event not until the same is weighed  and set  apart and price paid therefor under Cl. 19 and  hence if  the agreement  with the  foreign buyer  is available before  that it  would be sufficient compliance of s.5(3). The  Board’s view  that the  property in  the coffee sold at  the auctions  passes to  the bidders at the fall of hammer  is   clearly  unsustainable.  The  petitioners  thus contend that  the aforesaid action on the part of the Coffee Board  in   forcing  the  Registered  Exporters  of  coffee, including the  petitioners, to  make contingency deposits or to furnish bank guarantees to secure payment of sales tax on transactions which  have  been  specifically  exempted  from sales tax  by s.  5(3) and  the proviso  to s.  6(1) of  the Central Sales  Tax Act,  1956 read  with Art.  286(1) of the Constitution of  India is  without authority  of law and the Board’s Circular  dated February  7, 1977  is  unreasonable, arbitrary, illegal,  without authority  of law and violative of their fundamental rights under Arts. 14, 19 and 31 of the Constitution.      The petitioners,  therefore, seek  issuance of writs of certiorari and  prohibition quashing  the said  circular and restraining further  action thereunder  in future.  It seems that since retrospective effect was given 642 to the  amendments introduced  by Act 103 of 1976 the Coffee Board collected  and the petitioners paid sales tax on these export auctions during the period of the retrospectivity and for few  months more and thereafter the Coffee Board has, in terms of  the said  Circular, obtained  from the petitioners bank guarantees to secure payment of sales tax which but for the enactment  of sub-s. (3) of s. 5 might have been payable on each  such sale.  To obtain  appropriate reliefs  in this behalf in  two of  the three writ petitions, the petitioners therein have  also impleaded  the concerned  States, namely, State of  Karnataka, State  of Tamil  Nadu and  the State of Kerala  as   party  respondents   to  their  petitions.  The petitioners have  sought appropriate  orders  or  directions against these  State  Governments  directing  them  to  make refunds to the Coffee Board of the amounts collected by them from the Coffee Board as and by way of sales tax and further restraining them  from collecting  or threatening to collect from the  Coffee Board any amount as and by way of sales tax on  the   transactions  in   question  or   subjecting  such transactions to  sales tax. The petitioners have also sought the consequential  reliefs of  directing the Coffee Board to pay over to the petitioners the refunds which it may receive from the State Governments pursuant to the Court’s order and further directing  the Coffee  Board  to  release  the  bank guarantees or  contingency deposits obtained by it under the impugned Circular.      In the  returns filed  on behalf of the Coffee Board by way of  reply to the writ petitions two or three contentions have been  raised. First, by way of preliminary objection it

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is contended  that no  writ would lie against it challenging its Circular  dated February  7, 1977 inasmuch as though the Coffee Board  is constituted  under a  Central enactment and has monopolistic  control over  the coffee  trade,  when  it exposes coffee  in export auctions it is merely engaged in a commercial  activity  in  exercise  of  its  power  to  make contracts and  while so  engaged it  cannot  be  denied  its legitimate right,  like any  other trader  to lay  down  the terms and  conditions for  such sales and the Circular dated February 7,  1977 is one such communication addressed to the Registered  Exporters   containing   additional   terms   or conditions concerning  sales  tax  in  the  matter  of  such auctions and neither the auction conditions nor the Circular stem from  any statute  but are  matters falling  within the realm of contract and therefore no writ petition challenging the Circular  is maintainable. Secondly, the Coffee Board is entitled to  protect  its  interest  and  since  it  has  an apprehension that  exemption provided  for by  s.5(3) of the Central Sales Tax Act, 1956 may not be made available by the Assessing Authorities  under the  sales Tax  Law, the Coffee Board  decided   to  safeguard   its  interest   by   taking contingency deposits or bank guarantees equivalent to the 643 amount of  sales tax that would be payable in respect of the export auctions.  It is  pointed out in this behalf that all kinds of penultimate sales or purchases are not exempt under s.5(3) but  the  exemption  is  hedged  in  with  conditions specified therein  and only when those conditions are proved to the satisfaction of the Assessing Authority the exemption will arise  and until  then there  is a  risk of  the Coffee Board being  visited with  the sales  tax and  so to protect itself against  any possible levy of sales tax it is obliged to insist  upon furnishing  of contingency  deposits or bank guarantees. By doing it the Coffee Board is not exacting any sales tax as such and, therefor, a protective measure of the type  adopted  by  it  cannot  be  said  to  be  illegal  or unconstitutional or  violative of  any of  the  Petitioners’ fundamental rights.  Thirdly, on merits it is contended that its interpretation  of section  5(3) that  what is  required thereunder is  an agreement  with or an order from a foreign buyer is  correct as  also its conclusion that in the export auctions conducted by it property in the coffee sold thereat passes to  the Registered  Exporter (bidder)  at the fall of hammer  and,   therefore,  the  conditions  imposed  by  the Circular on  the Registered  Exporters before they can claim exemption from  the tax  liability are justified. The States of Karnataka,  Tamil Nadu  and Kerala  in  their  respective counter-affidavits have  supported the  stand taken  by  the Coffee Board  on both the points. It may, however, be stated that  all  the  three  States  are  desirous  of  having  an authoritative pronouncement  from this Court on the question of proper  construction of the words "the agreement or order for or  in relation  to such export" occurring in s. 5(3) of the Central  Sales Tax  Act 1956  but on  the  second  point counsel for  States of  Karnataka and  Tamil Nadu have urged that since  the question  of passing  of property  does  not depend  merely  upon  proper  construction  of  the  auction conditions read in the context of the relevant provisions of the Sale  of Goods  Act but will need investigation into all the relevant  facts and  circumstances of  each auction sale including the conduct of the parties as also the correctness and true  nature of the dealings between them any expression of opinion  by this  Court on  that question  would  not  be proper and  may bar such investigation into all the relevant facts at  the hands  of their  Sales Tax  Authorities as and

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when exemption is claimed in assessment proceedings. Counsel for the  State of Kerala was, however, not in agreement with this submission  and stated  that even  that question  was a pure question  of law depending upon the proper construction of the  auction conditions read with the relevant provisions of the  Sale of  Goods Act  on the  basis that  the  auction conditions truly  govern the  rights and  obligations of the parties to such sale. We may also state that during 644 the hearing  counsel for the State of Tamil Nadu also raised the question  of the  vires  of  s.  5(3),  apart  from  its construction; he  contended that  the provision  itself  was ultra vires  Art. 286(2)  on  the  ground  that  instead  of formulating any  principle for  determining when  a sale  or purchase of  goods takes  place  in  the  course  of  export outside the territory of India-for which alone power to make law has  been conferred  on  Parliament-the  Parliament  has created a  legal fiction  to the  effect that  a penultimate sale of  purchase, in  certain circumstances shall be deemed to be  in the  course of export when in truth and reality it is not  and the creation of such legal fiction is beyond the power or outside the authority conferred by Art. 286(2).      From the  rival contentions  which have been summarised above it  will appear  clear that Principally four questions arise for our decision in these Petitions. The first relates to the  maintainability of  the writ  petitions against  the Coffee Board; the second is whether the amendment introduced by insertion  of sub-s. (3) in s. 5 of the Central Sales Tax Act is  ultra vires  Art. 286(2)  of the  Constitution,  the third relates  to the  proper construction of s. 5(3) of the said Act  and the  fourth is  at  what  point  of  time  the property in  the coffee sold at export auctions conducted by the Coffee Board passes to the Registered Exporters (auction purchasers). We  may, however,  state that during the course of the  hearing the  learned Attorney  General appearing  on behalf of  the Coffee  Board fairly  stated that  since  the question of  proper construction  of s.  5(3) would affect a large number  of dealers  in  export  trade,  including  the Coffee Board  (which was  concerned  with  export  trade  in coffee), the Board was interested in having an authoritative decision of this Court on the point, that such authoritative decision would  also facilitate  the issuance  of  a  proper Circular  in   regard  to   its  future   transactions  and, therefore, he  was not pressing the preliminary objection to the maintainability of the writ petitions against the Coffee Board. We  would, therefore,  deal with  the remaining three questions one after the other.      Dealing first  with the question whether s. 5(3) of the Act which  has been  introduced by  the Amending  Act 103 of 1976 is  ultra vires  Art. 286(2)  of the  Constitution, the precise contention  of Mr.  S. T.  Desai appearing  for  the State of  Tamil Nadu has been that the said provision merely enacts an  artificial rule  or fiction  that  a  penultimate sale, which  in fact  is not  in the course of the export of goods out  of the territory of India, shall be "deemed to be in the course of such export’ if it satisfies the conditions specified therein, it does not lay down or 645 formulate any  principle for  determining when  a sale takes place in  the course  of export  of the  goods  out  of  the territory of India and, therefore, it is beyond the power or authority conferred on Parliament by Art. 286(2). We pointed out that  prior to  the Constitution  (Sixth Amendment)  Act 1956 this  Court in  its decisions  while  interpreting  the expression "sale  in the course of export" occurring in Art.

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286 (1) (b) laid down two principles as to when a sale could be said  to be  a sale  in the  course of export and it held that two  types of  sales, viz. (a) sale which occasions the export and  (b) sale  which is  effected by  a  transfer  of documents of title to the goods after the goods have crossed customs frontiers  of India, would be sales in the course of export. Section  5(1) which was enacted in Central Sales Tax Act 1956  pursuant to  the power  conferred on Parliament by Art. 286(2)  which was introduced by the Constitution (Sixth Amendment) Act  1956 merely  gave legislative recognition to the aforesaid  two principles  which had  been formulated by this Court  while interpreting  Art. 286(2)  (b)  but  while adding sub-s.  (3) to s. 5 of the Act Parliament had created a legal  fiction to  the  effect  that  a  penultimate  sale satisfying certain specified conditions shall also be deemed to be  a sale  in the  course of  export when  in truth  and reality it  is not.  According  to  him,  creation  of  such fiction is  not formulation of any principle and as such the provision is  beyond the  power or  authority  conferred  on Parliament by Art. 286(2).      It is  not possible  to accept the aforesaid contention for the reasons we shall presently indicate. It is true that the word "deemed" has been used in s. 5(3) but the same word has been used not merely in s.5(1) but also in the other two sections 3  and 4 of Chapter II of the Central Sales Tax Act which  has  the  heading  "Formulations  of  Principles  for determining when  a sale or purchase of goods takes place in the course  of inter-State  trade or  commerce or  outside a State or  in the course of export or import", the heading of Chapter II  on the  face of  it suggests  that what  is done under ss.  3, 4  and 5 including sub-s (3) is formulation of principles. Secondly, the word "deemed" is used a great deal in modern legislation, different senses and it is not that a deeming provision  is every  time made  for the  purpose  of creating a  fiction. A  deeming provision  might be  made to include what  is obvious  or what  is uncertain or to impose for the purpose of a statute an artificial construction of a word or phrase that would not otherwise prevail, but in each case it  would be  a question  as to  with what  object  the Legislature has  made such a deeming provision. In St. Aubyn and Ors. v. Attorney General, Lord Radcliffe observed thus: 646           "The word  ’deemed’ is used a great deal in modern      legislation. Sometimes  it is  used to  impose for  the      purposes of  a statute  an artificial construction of a      word  or  phrase  that  would  not  otherwise  prevail.      Sometimes it  is used  to put beyond doubt a particular      construction  that   might  otherwise   be   uncertain.      Sometimes  it   is  used   to  give   a   comprehensive      description that  includes what  is  obvious,  what  is      uncertain  and   what  is   in   the   ordinary   sense      impossible."      After making  these observations  the learned  Law Lord went on  to hold  that it  was in the last of the three ways (indicated in  the observations)  that the deeming provision was made  in s.  58(2) of  the Finance Act, 1940, which came for interpretation  before the  House of Lords. Similarly in Words &  Phrases, Permanent Edition, Vol. 11A at page 181 it is explained  that the  word "deemed"  is also  used to mean "regarded as  being", it is equivalent to "shall be taken to be" (at  page 185). In our view when sub-s. (3) of s. 5 uses the word  "deemed" and says that the penultimate sale "shall also be  deemed to  be in  the course  of  export"  what  is intended to  be conveyed  is that the penultimate sale shall also be  regarded as  being in the course of such export. In

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other words,  no legal  fiction is created. Moreover, it was conceded by  counsel that the word "deemed" in sections 3, 4 and 5(1) laid down general principles and did not create any fiction; if  that be  so, it  is  difficult  to  accept  the contention that  in sub-s.  (3)  the  same  word  should  be construed as  creating a  fiction. Thirdly,  a principle has been explained  in Butterworths’  Words and  Phrases, Second Edition, Vol. 4 at page 177 thus:           "A ’principle’  means a  general guiding rule, and      does  not   include  specific  directions,  which  vary      according to  the subject matter." (per Shearman J., in      M’ Creagh v. Frearson 1922 W.N. 37)      Similarly in Words and Phrases, Permanent Edition, Vol. 33A at  page 327  it is  explained that  "principle means  a general law  or rule  adopted or  professed as  a  guide  to action".  In   other  words,  as  opposed  to  any  specific direction governing  any particular  or  specific  instance, transaction or situation a principle would be a guiding rule applicable generally  to cases  or class or cases. Looked at from this  angle it  will be  clear that  sub-s. (3) of s. 5 formulates a  principle inasmuch  as it  lays down a general guiding  rule  applicable  to  all  penultimate  sales  that satisfy the  two conditions  specified therein  and not  any specific direction  governing  any  particular  or  specific transaction of  a  penultimate  sale.  In  other  words  the content  of   the  provision  shows  that  it  lays  down  a principle. In  fact, while  addressing arguments  on  proper construction of  the s.  5(3) counsel  for the  three States strenuously 647 contended that the said provision should not be construed as being applicable  only to  the export  auctions conducted by the Coffee Board and the terms and conditions governing them because it applies to variety of parties including the small manufacturers who  seek a  foreign market  for  their  goods through private  export houses  or canalised  agencies  like State Trading  Corporation. It  is thus  clear to us that s. 5(3) formulates  a principle  of  general  applicability  in regard to  all penultimate  sales provided  they satisfy the specified conditions  mentioned  therein  and  there  is  no question of  the said  provision creating a legal fiction as has  been   contended  for   by  counsel.   The  contention, therefore, that  s. 5(3) is beyond the power or authority of Art. 286(2) and, therefore, ultra vires, must be rejected.      Turning next  to the  main issue  regarding the  proper construction to  be placed  on the  words "the  agreement or order for  or in  relation to  such export"  occurring in s. 5(3) of  the Act,  the question  is  whether  the  agreement referred to  therein means only the agreement with a foreign buyer or  would include any binding or enforceable agreement to export  even  with  a  local  party  to  implement  which penultimate sale  should have  taken  place.  Section  5(3), quoted above  in extenso,  has  obviously  been  enacted  to extend the exemption from tax liability under the Act not to any kind  of penultimate  sale but  only to such penultimate sale as  satisfies the  two  conditions  specified  therein, namely, (a)  that such  penultimate sale must take place (i. e. become complete) after the agreement or order under which the goods  are to  be exported  and (b)  it must  be for the purpose of  complying with such agreement or order and it is only then  that such penultimate sale is deemed to be a sale in  the  course  of  export.  Counsel  for  the  petitioners contended that  all that the section requires is that before the penultimate sale becomes complete by passing of property in the goods, there must be in existence an agreement for or

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in relation  to the  export of those goods outside India and the language  does not  suggest  that  such  agreement  must necessarily be  with a  foreign buyer.  In other  words, the phrase "the  agreement for or in relation to such export" is wide enough  to include any binding or enforceable agreement to export  even with  a local  party to  implement which the penultimate sale  should  have  taken  place.  According  to counsel the  words "such export" occurring at the end of the sub-section mean  the physical  export of  the goods outside India and  it is significant that Parliament has linked "the agreement or order" with "such export" (meaning the physical export outside India) and not with "the sale occasioning the export" The  argument is  had Parliament  intended that  the agreement with  or order  from a  foreigner was essential it would have said "the 648 agreement  or   order  for  or  in  relation  to  such  sale occasioning the export." Further, relying upon the Statement of Objects  and Reasons  appended to the relevant Bill it is contended  that  the  benefit  of  this  new  provision  was intended to  be extended  to even  small  manufacturers  who produce goods  for a  foreign market but have to depend upon private export  houses possessing the requisite expertise of export trade or a statutory canalising agency like the State Trading Corporation  for the  export of  their goods  and if while selling his product to such export house or canalising agency the small manufacturer enters into a binding covenant or agreement  with the  export house  or the agency that the latter shall  export the  product that  should be  enough to satisfy the  condition mentioned  in the sub-section and the exemption from tax liability under the Act cannot be made to depend upon the fortuitous circumstance of a foreign buyer’s contract or  foreign buyer’s  order being available with him when he sells his product to the export house or the agency. Moreover, counsel  contended that according to the decisions of this  Court what  is required to constitute a sale in the course of  export is that the sale should be so inextricably bound with the ultimate export that the link between the two cannot be  voluntarily interrupted  without a  breach of the contract. In other words, an inextricable bond or obligation must subsist  between sale  on the  one hand  and the  final export on  the other and such obligation can arise by reason of statute,  contract or  mutual understanding  between  the parties arising  from the  nature of  the transaction and in this behalf  strong reliance  was placed  by counsel for the petitioners on the following observations of Justice Shah in the case  of Ben  Gorm Nilgiri  Plantations Company, Coonoor and Ors. v. Sales Tax Officer, Special Circle, Ernakulam and Ors.           "A sale  in the  course  of  export  predicates  a      connection  between   the  sale  and  export,  the  two      activities being  so  integrated  that  the  connection      between the  two  cannot  be  voluntarily  interrupted,      without a  breach of  the contract  or  the  compulsion      arising from  the nature  of the  transaction. In  this      sense to  constitute a  sale in the course of export it      may be said that there must be an intention on the part      of both  the buyer and the seller to export, there must      be obligation  to export,  and there  must be an actual      export. The  obligation may arise by reason of statute,      contract  between   the   parties,   or   from   mutual      understanding or  agreement between  them, or even from      the nature  of the  transaction which links the sale to      export.. In  general where  the sale is effected by the      seller, and  he is  not connected with the export which

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    actually takes 649      place, it is a sale for export. Where the export is the      result of sale, the export being inextricably linked up      with the  sale so  that the  bond cannot be dissociated      without a  breach of the obligation arising by statute,      contract or  mutual understanding  between the  parties      arising from the nature of the transaction, the sale is      in the course of export."      Counsel urged  that securing a foreign buyer’s contract or a foreign buyer’s order is not the only mode in which the requisite obligation  to export,  affording the inextricable link between the sale and export, can arise; such obligation can arise  by reason of a binding or enforceable covenant to export being incorporated in the contract of the penultimate sale entered  into with  a local party as is the case in the export auctions  conducted by  the Coffee  Board where under Cl. 26  it is  obligatory on  the  part  of  the  Registered Exporters to export the coffee sold to them and perhaps with the Coffee  Board possessing statutory powers to enforce the condition on pain of imposition of penalty and seizure of an exported coffee  the obligation  to export will have greater sanctity that  the obligation arising from a foreign buyer’s contract or  a foreign  buyer’s order.  Counsel,  therefore, contended that  the penultimate  sales herein,  namely,  the export auctions  conducted by  the Coffee  Board since  they satisfy the  two conditions  specified in  s. 5(3)  must  be regarded as  sales in the course of export and insistence on production of  an agreement  with or  order from  a  foreign buyer in  terms of the impugned Circular is clearly uncalled for. It  may be  stated that  though initially  the  learned Attorney General  appearing for  the  Coffee  supported  the construction that  the words  "the agreement or order for or in relation to such export" occurring in s.5 (3) necessarily referred to  the agreement  with or  an order from a foreign buyer, at a later stage during the course of his submissions he did  not stick  to that  stand  but  submitted  that  the construction sought  to be  placed on those words by counsel for the  petitioners would be proper as it would promote the export trade  in coffee by making Indian coffee available at competitive rates in the inter national market, an objective sought to  be achieved by enacting the new provision in s. 5 of the Act.      It is  true that  the language employed in s.5 (3) is a little ambiguous  or equivocal and there is no indication in express terms  whether  the  "agreement"  mentioned  therein necessarily refers  to the agreement with a foreign buyer or would include any binding or enforceable agreement to export with a  local party  and that  is why counsel on either side have heavily  relied  upon  the  Statement  of  Objects  and Reasons appended  to the  relevant Bill to show what was the legal po- 650 sition under  s. 5(1)  as interpreted  by this  Court in the Coffee Board’s  case and  Mohd.  Serajuddin’s  case  (supra) before the  proposed amendment  and what  was the  lacuna or mischief that  was sought  to be remedied as also the object with which  this provision  came  to  be  enacted.  However, before applying  the mischief  rule initially  enunciated in Heydon’s case  for arriving  at  the  true  construction  we propose to  examine the  new provision rather closely with a view to see whether by implication any indication one way or the other  is  available  from  the  language  thereof.  The material  words   which  prescribe  the  two  conditions  on satisfying which the penultimate sale is to be regarded as a

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sale in  the course  of export  are: "If  such last  sale or purchase (meaning  the penultimate  sale or  purchase)  took place after,  and was for the purpose of complying with, the agreement or order for or in relation to such export." It is true that  Parliament has  not said  "the agreement or order for or in relation to such sale occasioning the export", but has used  the phrase  "the agreement  or  order  for  or  in relation to such export." But in our view two aspects emerge very clearly  on a  close scrutiny  of this  phrase which by implication show that the "agreement" spoken of there refers to the  agreement with  a foreign buyer and not an agreement with a local party containing a covenant to export.      In the  first place  the concerned phrase speaks of two things in  disjunctive: ’agreement’  or  ’order’.  The  word ’order’ which  appears in  a statute  dealing with sales tax must be  understood in  a commercial  sense, that is, in the sense in  which traders  and commercial  men will understand it. In  commercial sense  an order  means a firm request for supply of  definite goods  emanating from a buyer, an indent placed by  a purchaser  and, therefore,  an order  for or in relation to  export would  mean an  indent  from  a  foreign buyer. It  is not possible to accept the contention urged by counsel for  the petitioners  that the  word ’order’ in this phrase can  mean or  refer to  an order, direction, mandate, command or  authorisation to  export that may be issued by a statutory body like the Coffee Board for two reasons; first, occurring in  a sales tax statute the word must be given its commercial  meaning   and,  secondly,   while  enacting  the provision  Parliament   could  not  be  said  to  have  only statutory bodies  like Coffee Board or S. T. C. in mind. If, therefore, an order for export in the concerned phrase means an  indent   from  a   foreign  buyer,  the  preceding  word "agreement" in  the phrase  would take  colour from the word "order" and would on the principle of noscitur a sociis mean an agreement  with  a  foreign  buyer.  In  Maxwell  on  the Interpretation of Statutes (at p. 289 12th Edn.) the rule 651 of noscitur  a sociis  is explained thus: "where two or more words, which  are  susceptible  of  analogous  meaning,  are coupled together  they are  understood to  be used  in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous  to that of the less general." Applying this rule of  construction it  becomes clear that "the agreement" occurring in  the phrase  must mean  the  agreement  with  a foreign buyer  and not  the agreement  with  a  local  party containing  a   covenant  to   export.  Secondly   and  more importantly, the  user of  the definite article "the" before the word  "agreement" is,  in our  view,  very  significant. Parliament has  not said  ’an agreement’  or ’any agreement’ for or  in relation  to such  export and  in the context the expression "the  agreement" would  refer to  that  agreement which is  implicit  in  the  sale  occasioning  the  export. Between the two sales (the penultimate and the final) spoken of in  the earlier  part of the sub-section ordinarily it is the final sale that would be connected with the export, and, therefore, the  expression "the  agreement" for  export must refer to  that agreement  which is implicit in the sale that occasions the  export. The  user  of  the  definite  article "the", therefore, clearly suggests that the agreement spoken of must  be the  agreement with a foreign buyer. As a matter of pure construction it appears to us clear, therefore, that by necessary  implication  the  expression  "the  agreement" occurring in  the relevant  phrase means  or refers  to  the agreement with  a foreign  buyer and not an agreement or any

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agreement with  a local  party containing  the  covenant  to export.      Coming to  the mischief  rule, in  Re Mayfair  Property Co., Lindley M. R. re-enunciated it thus: "In order properly to interpret any statute it is necessary to consider how the law stood  when the statute to be construed was passed, what the mischief  was for which the old law did not provide, and the remedy  provided by  the statute to cure that mischief." Looked at  from this  angle it will be desirable to indicate in brief  the position  that obtained prior to the enactment of s.  5(1) of  the Central  Sales Tax Act 1956, how s. 5(1) after its  enactment had  been interpreted by this Court and why the  enactment of the new provision contained in s. 5(3) was felt  necessary. Prior to the enactment of s. 5(1) there was no  legislative guidance as to what transactions of sale or purchase  could be  said to  be "in the course of export" and the  said expression occurring in Art. 286(1) (b) of the Constitution was  construed by  this Court in what have come to be  known as  the first  and the second Travancore-Cochin cases, namely,  The State  of Travancore-Cochin  and Ors. v. The Bombay Company Ltd. and The 652 State of  Travancore-Cochin and  Ors. v. The Shanmugha Vilas Cashew-nut Factory and Ors. to include two types of sales or purchases (a)  a sale of purchase which itself occasions the export and  (b) a sale or purchase effected by a transfer of documents of  title to  the goods after the goods are put in the export  stream (i.e. after they have crossed the customs frontiers of  India). Patanjali Sastri, C.J. Observed in the first case  that "a  sale by  export involved  a  series  of integrated activities  commencing from the agreement of sale with a  foreign buyer  and ending  with the  delivery of the goods to  a common  carrier for transport out of the country by land  or sea.  Such a sale cannot be dissociated from the export without  which it cannot be effectuated, and the sale and resultant export form parts of a single transaction". In the second  case this Court held that a sale or purchase for the purpose  of export,  like production  or manufacture for export, being  merely an act preparatory to export could not be regarded  as an  act done "in the course of the export of the  goods   out  of   the  territory   of  India"   because etymologically the  expression "in  the  course  of  export" denoted an  integral  relation  between  the  sale  and  the export. Then  came the  Constitution (Sixth  Amendment) Act, 1956 introducing  a new  clause being  cl. (2)  in Art.  286 whereby  Parliament   was  empowered  by  law  to  formulate principles for  determining when  a sale  or  purchase  took place in  the course  of export  and pursuant  to this power Parliament enacted  s. 5(1) in the Act which provides that a "sale or  purchase of goods shall be deemed to take place in the course  of the  export of the goods out of the territory of India  only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods if the goods have crossed the customs frontiers of India". In  other words, this was legislative recognition of what was  said by  this Court  in the  two Travancore  cases (supra) about  the true  meaning of  the expression  "in the course of export" occurring in Art. 286 (1) (b).      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  two cases,  namely,  the  Coffee  Board’s  case (supra) and  Mohd. Serajuddin’s  case (supra). In the former case in  regard to the very export auctions conducted by the Coffee Board  for the avowed purpose of exporting the coffee

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through 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 s. 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 653 "in the  course of  export" for  the export  began from  the intermediary and  ended  with  the  importer  and  that  the introduction  of   the  intermediary  (Registered  Exporter) between the  seller (Coffee  Board) and  the importing buyer broke the  link. This  Court laid  down the  test that there must be  a single  sale which  itself caused  the export and there was no room for two or more sales being "in the course of export".  In other  words, notwithstanding the compulsion to export  arising from  Cls. 26,  30 and  31 of the Auction Conditions the  penultimate sale  was held  to be not in the course of  export. The  latter case (Mohd. Serajuddin’s case (supra)  was  stronger  than  Coffee  Board’s  case  (supra) inasmuch as the penultimate sales (two contracts for sale of mineral ore  entered into  by Mohd.  Serajuddin  with  State Trading Corporation) were so inextricably connected with the final sales  (two corresponding  contracts for  sale of  the identical goods  entered into by S.T.C. with foreign buyers) that the  former were  to stand  cancelled if the latter for any reason  fell through  and vice  versa  and  further  the penultimate sales  were effected  to implement the contracts with the foreign buyers and even then following the ratio of Coffee  Board’s  case  (supra)  this  Court  held  that  the penultimate sales (Mohd. Serajuddin’s contracts with S.T.C.) were not  sales in  the course  of  export.  Negativing  the contention that  the contracts  between Mohd. Serajuddin and the S.  T. C. and the contracts between the S. T. C. and the foreign buyer  formed integrated activities in the course of export, this  Court took  the view that the crucial words in s. 5(1) showed that only if a sale occasioned the export, it would be  in the  course of  export and that the two sets of contracts were separate and independent and Mohd. Serajuddin was under  no contractual  obligation to  the foreign  buyer either directly  or  indirectly  and  that  his  rights  and obligations were only against the S.T.C. It will thus appear clear that  even when  the S.  T. C.  had  with  it  foreign buyer’s contracts  and Mohd.  Serajuddin’s contracts with S. T. C.  had been entered into for the purpose of implementing such foreign  buyer’s contracts,  this Court  held that  the sales between  Mohd. Serajuddin  and S. T. C. were not sales in the  course of export. It was at this stage i. e. when s. 5(1) was  interpreted by  this Court in the aforesaid manner that the  Parliament felt  the necessity of enacting s. 5(3) for the  purpose of  giving 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  of 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      docu- 654      ments of  title to  the goods  after goods have crossed      the customs  frontiers of  India. The Supreme Court has      held (vide: Mohd. Serajuddin v. State of Orissa, 36 STC

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    136) 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   Corporations.    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  made  to  an  export      canalising agency such as the State Trading Corporation      or to  an export  house to enable such agency or export      house to  export those  goods  in  compliance  with  an      existing contract  or order  is inextricably  connected      with the export of the goods. Further, if such sales do      not qualify  as sales  in the  course of  export,  they      would be liable to State sales tax and there would be a      corresponding increase  in the price of the goods. This      would make  our exports  uncompetitive in  the fiercely      competitive international  markets. It  is,  therefore,      proposed to  amend, with  effect from  the beginning of      the current  financial year,  Section 5  of the Central      Sales Tax Act to provide that the last sale or purchase      of any goods preceding the sale or purchase occasioning      export of  those goods  out of  the territory  of India      shall also be deemed to be in the course of such export      if such last sale or purchase took place after, and was      for the  purpose of  complying with,  the agreement  or      order, for,  or in relation to, such export." (Emphasis      supplied).      Two things  become clear  from this  Statement;  first, Mohd. Serajuddin’s decision (supra) is specifically referred to as  necessitating the amendment and secondly, penultimate sales made  by small  and medium  scale manufacturers  to an export canalising  agency or  private export house to enable the latter to export those goods in compliance with existing contracts or  orders are  regarded as inextricably connected with the  export of  the  goods  and  hence  ear-marked  for conferral of  the benefit  of the exemption. But here again, ’existing contract’  with whom  is not  clarified. In  other words, on  this crucial  point the  Statement is  silent and does not throw light on whether the existing contract should be with a foreign buyer or will include any agreement with a local party  containing a covenant to export. Therefore, the question will  again depend upon proper construction and, as we have  said above,  in the  matter of construction the two aspects discussed earlier show that by necessary implication ’the agreement’ spoken of by s. 5(3) refers to the agreement with a foreign buyer. 655      However, in support of his construction counsel for the petitioners pressed  into service  two aspects  arising from the Statement  of Objects  and Reasons, namely, (a) that the exemption was  intended to  be extended  even to  small  and medium scale manufacturers who manufacture goods for foreign market but  have to  depend  upon  a  canalising  agency  or private export  house for  the export of their goods and (b) that the object of granting the exemption was to promote our exports in  fiercely competitive  international markets and, according  to   counsel,  both  these  objectives  would  be frustrated if  the narrow  construction was  placed  on  the expression ’the  agreement as  meaning the  agreement with a foreign buyer  and that  the construction  suggested by  him would carry  out the objectives. It is true that the benefit

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of the  exemption was  intended to  be extended to small and medium scale manufacturers desirous of exporting their goods but the  requirement of  the new  provision is not that they must procure  or have  with them  a foreign buyer’s contract but the requirement is that before they complete the sale of their goods  to the  canalising agency of the private export house there  must be in existence a foreign buyer’s contract to implement which they should have sold their goods to such agency or  export  house.  In  the  nature  of  things  such manufacturers who  have no expertise of export trade are not expected to have a foreign buyer’s contract with them and it would be  sufficient compliance  of  the  provision  if  the canalising agency  or the  export  house  has  with  it  the foreign buyer’s  contract. It would, therefore, be incorrect to say  that the  benefit of  the exemption depends upon the fortuitous circumstance  of a foreign buyer’s contract being available with  such manufacturer  when he sells his product to the  agency or the export house. No hardship as is sought to be  suggested is involved and we do not agree that by the construction  which   we  are   inclined  to  place  on  the expression ’the agreement’ occurring in s. 5(3) the small or medium scale  manufacturers would be deprived of the benefit of the  exemption. In  fact, the  construction which  we are inclined to  accept would  be in  consonance with  the trade practice obtaining  in export  trade, namely,  that normally the export  activity commences with securing or obtaining an export contract  or a firm order from a foreign buyer as the first step  towards the  ultimate export [vide: observations of this Court in State of Mysore v. The Mysore Spg. and Mfg. Co. Ltd. where obtaining a firm order from overseas buyer is described the  first out  of nine  steps enumerated  in  the entire procedure for export]. As regards the other aspect it is clear  to us  that two  public  interests  are  involved; promotion of  the exports  of  the  country  is  one  public interest while  augmentation of the States’ revenues through sales tax is the other and it is obvious 656 that if  the  liberal  construction,  as  suggested  by  the counsel for  the petitioner,  is accepted  the former public interest will  undoubtedly be  served while  the latter will greatly suffer  and if  the narrow  construction is accepted the latter  public interest  will be  served and  the former will suffer.  It is  difficult to  say that  the  Parliament intended to  prefer one and sacrifice the other. In fact the granting of  exemption to  penultimate sales  was  obviously with  a  view  to  promote  the  exports  but  limiting  the exemption to certain types of penultimate sales that satisfy the two  specified conditions  displays an  anxiety  not  to diminish the  States’ revenues  beyond a  certain limit. The section in  any case  gives no  indication that  one  public interest is  to be  preferred to the other and therefore, in our view,  the matter  must again  depend  upon  the  proper construction of  the language  employed. On  construction we are of  the view  that by  implication the  expression  ’the agreement’ occurring in s. 5(3) refers to the agreement with a foreign buyer.      Counsel for  the  petitioners  lastly  urged  that  the penultimate sales  by the  Coffee Board  to  the  Registered Exporters include  in them  a covenant  to export and having regard to  Cls. 26,  30 and  31 there is a compulsion on the Registered  Exporters  to  export  the  coffee  on  pain  of imposition of a penalty and seizure of unexported coffee and reliance in  that behalf was placed upon the observations of Shah, J.,  in Ben  Gorm Nilgiri  Plantations Company’s  case (supra). In our view, the observations (quoted in extenso in

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the earlier  part of  the judgment)  will have to be read in the context of the facts which obtained in that case. It has a case of only one sale which had resulted in the export and the question  was whether transactions of sale of tea chests by the  manufacturer at  public auctions held at Port Cochin to the  local agents of foreign buyers were exempt from levy of sales  tax under  Art. 286(1)(b) and though it was common ground that  the purchases  by the  local agents  of foreign buyers were  with a  view  to  export  the  goods  to  their principals abroad  and that  the goods were in fact exported out of  India this  Court found  nothing in the transactions from which  a bond  or obligation  could be  said to  spring between the  sale and  the intended  export linking  them as part  of   the  same   transaction  and  though  the  seller (manufacturer) could  be said to have knowledge that the tea sold to the local agents of foreign buyers was meant for the export and would be exported, the seller had no concern with the export,  that the sale imposed or involved no obligation to export  and there was possibility that the goods might be diverted for  internal consumption.  It was  in that context that Shah,  J., observed  in that case that there must be an intention on  the part  of both  the buyer and the seller to export, that  there must  be obligation  to export, and that there must  be  an  actual  export,  and  further  that  the obligation may arise by reason 657 of  statute,   contract  between   the  parties,  or  mutual understanding or  agreement between  them or  even from  the nature of the transaction which links the sale to export. In other words,  even in  the  case  of  a  single  sale  which ultimately resulted  in the export it was held that the sale was not  in the  course  of  export  because  there  was  no obligation to  export which  afforded the  inextricable link between the  sale and  the export.  It is  true that  if the obligation to export affording the inextricable link between the sale and the export is necessary in the case of a single sale even  though it  results in  export, then  all the more such  obligation   will  be  necessary  in  the  case  of  a penultimate sale if such penultimate sale is to constitute a sale "in  the course of export" but even if Ben Gorm Nilgiri Plantations Company’s  case (supra)  is regarded  as  laying down a  general proposition  that what  is  required  is  an obligation which  inextricably connects  the sale  with  the export and  that such  obligation may,  in  the  absence  of legislative guidance,  arise by reason of statute, contract, mutual understanding,  or the  nature of  transaction  which links the  sale to  export, still the question would be what type of obligation and arising from what circumstances would be necessary  or enough  in the  case of  a penultimate sale must depend  upon the language of the statute concerned and, therefore,  the   question  will   again  be  what  type  of obligation and  arising from  what  circumstances  has  been prescribed by  the Parliament  by enacting  s.5 (3) and that would depend upon the proper construction of the phrase "the agreement or  order for  or  in  relation  to  such  export" occurring therein  and, as  we have  said  above,  since  on proper construction  the expression "the agreement or order" means the agreement with or an order from a foreign buyer it must be  held that the Parliament intended to prescribe that the obligation to export arising only from such agreement or order that  would afford  the inextricable  link  so  as  to constitute the  penultimate sale  a sale  in the  course  of export.      Having  come   to  the   conclusion  that   on   proper construction the expression "the agreement" occurring in s.5

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(3) refers  to the  agreement with  a foreign buyer and does not include  any agreement  with a  local party containing a covenant 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 by the Coffee Board to  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. We have indicated earlier 658 the rival  contentions of  the parties  on this  issue.  But before addressing  ourselves to  these rival  contentions we shall dispose  of a small contention that was put forward by Mr. Venugopal  counsel for  the State  of Karnataka that the word ’sale’  occurring in  the phrase  "if such last sale or purchase takes  place after"  in s.5 (3) means the agreement to sell  and not sale in the sense of a transfer of property in goods  by one person to another and the argument has been that since  the word ’sale’ in the aforesaid phrase means an agreement to  sell such  agreement to  sell in  the case  of export auctions conducted by the Coffee Board takes place or becomes complete  at the  fall of the hammer when the bid of the highest  bidder gets  accepted and  the regular contract containing the covenant to export is invariably entered into by the  Registered Exporter with the Coffee Board at a later stage and,  therefore, even  the covenant  to export  to  be found in  the contract  with the  Coffee Board  can never be regarded as  having come into existence before the agreement to sell  becomes complete  and consequently  the penultimate sale to  the Registered  Exporter would  not qualify for the exemption. In support of the contention that the word ’sale’ means an  agreement to  sell counsel  relied upon s.4 of the Sale of  Goods Act, 1930 wherein a contract of sale of goods is defined  as contract  wherein the seller either transfers or agrees to transfer the property in goods to the buyer for a price and also upon a decision of this Court in Balabhagas Hulaschand v.  State of  Orissa, a  case under Central Sales Tax Act,  1956, where this Court has taken the view that for purposes of s. 3,(a) and s. 4(2) (a) and (b) the word ’sale’ includes an  agreement to  sell and,  therefore, in  s. 5(3) also the  word ’sale’  should be  construed as  agreement to sell. It  is not possible to accept this contention for more than one  reason. In  the first  place  the  definitions  of ’sale’ and "agreement to sell’ in the Sale of Goods Act 1930 would not  apply to  the expression  ’sale’ occurring in the Central Sales  Tax Act,  1956 wherein  the expression ’sale’ has been  defined in s. 2(g) for the purpose of that Act and under s.  2 (g)  of the  Central Sales  Tax Act ’sale’ means "any transfer  of property in goods by one person to another for cash  or for  deferred payment or for any other valuable consideration, and includes a transfer of goods on the hire- purchase or other system of payment by instalments, but does not include  a mortgage  or hypothecation  of or a charge or pledge on  goods." In  other words, wherever the word ’sale’ occurs in  the Central  Sales  Tax  Act,  1956  it  is  this definition given  in s.  2(g) that  will be  applicable  and therefore the  word ’sale’  in s. 5(3) must mean transfer of the goods  by one person to another for cash or for deferred payment or  for any other valuable considerations; it cannot mean "agreement to sell".

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659 Moreover, there  is nothing  in the  context of  s. 5(3)  to suggest that  the word  ’sale’ occurring  therein should  be understood  differently.  In  Balabhagas  Hulaschand’s  case (supra) this Court in the context of the question as to when a sale  could be  said to  take place in the course of inter State trade or commerce gave an extended meaning to the word ’sale’ as  defined in  s. 2(g)  and as  used in ss. 3(a) and 4(2) and  (b) of  Central Sales  Tax Act,  1956 and what was said by  this Court was that the word ’sale’ as used in s. 3 (a) and  s. 4 (2) (a) and (b) was wide enough to include not only a  concluded contract  of sale but also an agreement of sale provided  that the  latter stipulated  that there was a transfer of property or movement of goods; the ratio of that decision will  be inapplicable  to s.  5(3) which deals with the question  as to  when a  penultimate sale  shall also be deemed to  be in  the course  of export and there is nothing therein to suggest that the word ’sale’ should have any such extended meaning; on the contrary, the context suggests that the word ’sale’ in the phrase "if such last sale or purchase takes place  after" refers  to a completed sale i. e. a sale as defined  in s.  2(g) of  the Act. The contention urged by counsel must, therefore, be rejected.      Dealing  next  with  the  three  stages  at  which  the property in the coffee sold at the export auctions conducted by the  Coffee Board  is said  to pass to the highest bidder (Registered Exporter)  three questions  arise that  need our close examination.  Does it  pass at  the fall of the hammer when his  bid is  entered in  the Register of Bids under his signature under  s. 64(2)  of the Sale of Goods Act, 1930 as contended for  by counsel for the States of Karnataka, Tamil Nadu and  Kerala ?  Does it  pass after  the coffee  sold is weighed and  set  apart  for  delivery  and  price  is  paid therefor  by  the  auction  purchaser  in  view  of  Cl.  19 (particularly the  over-riding provision  contained therein) and other  clauses of  Auction Conditions  (this  being  the alternative plea  of the petitioners) ? or Does it pass only after the  coffee sold  is shipped or is sent to the customs station for  shipment because till then the Coffee Board has a right  of disposal under Cls. 26 and 31 read with s. 25 of the Sale  of Goods Act (this being the principal plea of the petitioners) ? It will be desirable to set out the concerned provisions  in   order  to  appreciate  properly  the  rival submissions of counsel based thereon. Sub-s. (2) of s. 64 of the Sale  of Goods Act, which deals with auction sales, runs thus:      "64. In the case of a sale by auction:-      (1)  x         x        x        x       x       x      (2)  the sale is complete when the auctioneer announces      its completion  by the  fall of  the hammer or in other      customary manner; 660      and, until  such announcement  is made,  any bidder may      retract his bid."      Clause 19  of the  Auction Conditions  which deals with weighment, delivery  and payment  of price contains an over- riding provision to this effect:           "Notwithstanding  anything   contained  in   these      conditions, the  property in  the coffee sold shall not      pass to  the buyer  until after  he has  paid the  full      price and  the coffee  sold to  him is  weighed and set      apart for delivery to him."      Cause 26 declares that it is an essential conditions of the Auction  that the  coffee sold thereat shall be exported to stipulated  destinations in  the catalogue  of lots or to

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such foreign  country as may be approved by the Chief Coffee Marketing Officer  within three months or such extended time as may  be allowed  (which extension  shall not  exceed  one year) and  the same  shall not,  under any circumstances, be diverted to any other destination or sold or be disposed of, or otherwise  released in  India, while  this  condition  is enforced by  seizure of  the unexported  coffee under Cl. 31 which runs thus:           "31. On  default by the Buyer to export the coffee      aforesaid within the prescribed time or such extension,      thereof as  may be  granted, it shall be lawful for the      Chief Coffee  Marketing Officer,  without reference  to      the Buyer,  to seize the unexported coffee and for that      purpose to  make entry  into any  building, godown,  or      warehouse where the said coffee may be stored, and take      possession of  the same and deal with it as if, it were      part and parcel of Board’s coffee held by them in their      Pool Stock.           Out of  the net  sale proceeds of such coffee sold      in pursuance of conditions prescribed in Clause 15, the      Chief  Coffee   Marketing  Officer  shall  pay  to  the      defaulting  Buyer   only  the  balance  of  the  amount      remaining over after deducting therefrom godown charges      and Insurance premia, and selling commission payable to      the Agents,  and all  other expenses  of sale, together      with the penalty due under Clause 30.           Provided however that if such balance is in excess      of the  sale price  by the  Buyer, the payment shall be      limited to the actual sale price.           Provided  further  that  such  payment  shall  not      affect or  prejudice the right of the Board to levy the      penalties under clause 32 hereunder." 661      According to  counsel for  the three  States s. 64 is a special provision  in the sale of Goods Act which deals with Auction Sales  and  under  sub-s.(2)  thereof  the  sale  is complete no  sooner the  auctioneer makes an announcement in that behalf  either by  fall  of  the  hammer  or  in  other customary manner  and, therefore,  the property in the goods sold thereat passes at the fall of the hammer or immediately after the  announcement  of  completion  is  made  in  other customary manner  and since  in the  instant case the Coffee Board conducts  export auctions  of coffee in lots which are specified in  catalogues supplied  to the auction purchasers before-hand, the property in the coffee sold thereat must be regarded as  having passed  to the  buyer at the fall of the hammer when the successful bid is entered in the Register of Bids under the signature of the bidder as per Cls. 10 and 11 of Auction Conditions. As regards Cl. 19 a two-fold argument was urged: in the first place it was contended that s. 64 is not subject  to any contract to the contrary and, therefore, s. 64(2)  must prevail under which the property will pass at the fall  of the  hammer or  at the close of the sale in the customary manner;  secondly, Cl.  19  containing  the  over- riding provision  may bind  the parties  to the contract but will not  have the  effect of creating an estoppel against a third party  like  a  State  Government  or  its  Sales  Tax Authorities from  contending or showing that the property at such auctions  passes at the fall of the hammer and if under the other terms of the auction it is clear that the property has passed or does pass to the auction purchaser at the fall of the  hammer a  mere declaration  of the  intention on the part of  the contracting parties deferring or postponing the passing of  the property will not affect the question and in that behalf  reliance was  placed upon  observations of Lord

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Chancellor Herschell  in Mc  Entire And  Another v. Crossley Bros., Ltd. where observations run thus:           "Upon an  agreement to  sell, it  depends upon the      intention of the parties whether the property passes or      does not pass. Here the parties have in terms expressed      their intention,  and said  that the property shall not      pass until  the full  purchase money is paid. I know no      reason  to   prevent  that  being  a  perfectly  lawful      agreement. If  that was  really the  intention  of  the      parties, I  know of  no rule  or principle of law which      prevents it  from being  given effect to. I quite agree      that if, although the parties have inserted a provision      to that  effect, they  have shown in other parts of the      agreement, by the language which they have used, or the      provisions which they have made, that they intended the      property to pass, one must look at the transaction as a      whole, and it might be 662      necessary  to   hold  that  the  property  has  passed,      although the parties have said that their intention was      that it  should not, because they have provided that it      shall. No  doubt any provisions which were inconsistent      with the  intention that  the property  should not pass      would be  given effect  to  in  preference  to  a  mere      expression of intention in words." As regards  Cl. 31 Counsel contended that it does not amount to any  reservation of  the right of disposal over the goods to the  Coffee Board within the meaning of s. 25 of the Sale of Goods Act.      On the other hand counsel for the petitioners contended that s.  64(2) of  the Sale  of Goods Act does not deal with the question  of passing of the property at auction sale but merely deals  with the  completion of  the contract of sale, that is  to say,  upon the fall of hammer or announcement of the close of sale in other customary manner the agreement to sell becomes  complete; in other words an executory contract comes into  existence between  a promisor  and  a  promisee. Secondly, even  if the  said provision  is regarded  as  one relating to  completion of  sale in  the sense of passing of property from  one hand  to the other such result will occur only if  the auction  sale is  in  respect  of  specific  or ascertained and  identifiable goods  and  unconditional;  in other words,  it is only in an unconditional sale by auction the property  in the  goods passes  on the  fall of  hammer. Thirdly, s.  64 is subject to a contract to the contrary and the auctioneer  holding the  auction could fix the terms and conditions on  the basis  of which he would be accepting the bids and  in the  terms and conditions so setforth by him he could provide for passing of the property at a point of time later than  the fall  of the  hammer or  the closure  of the auction in  the customary manner or on fulfilment of certain conditions (like  Cl. 19 in the instant case) and such terms would bind  the  parties  and  the  property  will  pass  in accordance with  those terms.  As far as the instant case is concerned counsel  for the  petitioners urged  that s. 64(2) was not  attracted for  two reasons: (a) the export auctions conducted by  the Coffee  Board are  not  unconditional  but subject  to   certain  conditions,   particularly  condition expressly relating  to the  passing of property as contained in Cl.  19 and (b) factually the sale is never in respect of lots of  specific or  ascertained goods  inasmuch as  it  is abundantly  clear   from  the   affidavit  of  Shri  Meenaxi Sunderam, the  Chief Coffee  Marketing Officer of the Coffee Board dated  20th February,  1980 that  every lot put up for auction invariably  contains 5%  of  coffee  more  than  the

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quantity indicated  in the  catalogues and  the coffee  sold from only  particular lot  is required to be weighed and set apart and appropriated 663 to the  contract before  delivery is  given. Apart  from the factual ground,  counsel urged that the position in law that s. 64 is subject to a contract to the contrary is very clear and under  Cl.19 the  passing of property in the coffee sold at the  Export Auctions  has been  deferred until  after the coffee sold  is weighed, set apart for delivery and price is paid  therefor   and  according   to  him   Lord  Chancellor Herschell’s  observations   cannot  avail   the  States   of Karnataka, Tamil  Nadu and Kerala for the simple reason that there is  nothing contra  indicated in  other conditions  so that the declared intention in Cl. 19 should not prevail. He urged that  a statutory  body like  the Coffee Board must be presumed to  act in  a bona  fide manner  and has prescribed terms and  conditions of  auction genuinely intended to bind the parties  to the  auction and  those terms and conditions must  be   regarded  as   truly  governing  the  rights  and obligations of  the parties  and a  third party like a State Government or  its Sales  Tax Authorities  must apply  their taxing  measures   by  having  regard  to  those  terms  and conditions. He,  therefore, pointed  out that  if the  Court would be  inclined to take the view that the property passes to the auction purchaser under Cl.19 then the agreement with or order from a foreign buyer must be available or come into existence just before such passing of the property. However, he contended that Cl. 19 makes a negative provision, namely, that the property shall not pass until after the coffee sold is weighed,  set  apart  for  delivery  and  price  is  paid therefor which  would mean  it passes not till then but some time later  and, therefore,  strong reliance  has placed  by counsel on  Cl. 31  which empowers the Coffee Board to seize the unexported  coffee and  deal with  it as if it were part and parcel of Board’s coffee held by it in its pool stock if default is  committed by  the buyer  to  export  the  coffee within the  prescribed time or such extension thereof as may be granted  and such  provision constitutes a reservation of the right of disposal to the Coffee Board within the meaning of s. 25 of the Sale of Goods Act. He, therefore, urged that under Cls.  26 and  31 read  with s. 25 of the Sale of Goods Act the  property would  pass after the coffee is shipped or sent to  the customs  station for  shipment by  the  auction purchaser and production of the agreement with or order from a foreign  buyer before such shipment or despatch to customs station would  satisfy the  requirement of  s. 5(3)  of  the Central Sales Tax Act, 1956.      In  view   of  the   aforesaid  rival  submissions  two questions arise  for determination:  what is the true import of s.  64(2) and  whether s.  64 is subject to a contract to the contrary?  On both  these we  find considerable force in the  submissions   made  by  counsel  for  the  petitioners. Regarding s. 64(2) of the Sale of Goods Act it seems to us 664 that provision does not deal with question of the passing of the property  in the  goods sold at auction sale but instead it deals  with the completion of the contract of sale. It is true that  sub-s.(2) says  that "the  sale is complete" when the auctioneer  announces its  completion  by  the  fall  of hammer or in other customary manner, but, the next following provision which  says: "and  until such announcement is made any bidder  may retract  his  bid"  suggests  that  what  is complete at  the fall  of the  hammer or the announcement of closure in  other customary  manner is that the contract for

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sale is  complete. It  is well  known that our Sale of Goods Act 1930  is based upon and is largely a reproduction of the English Sale  of Goods  Act 1893 and in principle as well as in most  details the  law of  sale  of  goods  in  both  the countries  is   now  the   same  and,   therefore,   English authorities  on   interpretation  of   different   sections, although not  technically binding in India, would have great persuasive value.  It will  be pertinent to observe that our s. 64  is based  upon s. 58 of the English Act, though it is somewhat differently  arranged; but  sub-s. (2)  of s. 64 is particularly in  identical terms  as s. 58(2) of the English Act. Section 58(2) of the English Act runs as follows:           "58. In the case of a sale by auction-           (1) x        x       x       x        x       x           (2)  A  sale  by  auction  is  complete  when  the      auctioneer announces  its completion by the fall of the      hammer,  or  in  other  customary  manner.  Until  such      announcement is made any bidder may retract his bid." In Halsbury’s Laws of England (4th Edn., Vol. 2) at page 380 Para 742 runs thus:           "742. Bidding.  The  method  of  bidding  and  the      amount  of  the  bids  are  usually  regulated  by  the      conditions of  sale (1). Until the property is actually      knocked down  there is  no complete contract of sale. A      bid is a mere offer, and can be retracted by the bidder      at  any   time  before  the  auctioneer  announces  the      completion of  the sale  by the fall of the hammer, for      in other customary manner (2)" (Emphasis supplied). At foot-note  (2), s. 58(2) of the Sale of Goods Act 1893 is the  provision   indicated  in   support  of  the  aforesaid statement  of   law  and   it  is  further  stated:  "In  an unconditional sale  the property  in the goods passes on the fall of  the hammer"  Sale of  Goods Act  1893, s.  18 r.  1 [Dennant v.  Skinner and  Collom. This would show that under s. 58(2) of 665 the English  Sale of  Goods Act  1893 normally in an auction sale at  the fall of the hammer a completion of the contract of sale  takes place  and until  such time  the  bidder  may retract his  bid but  if the  auction sale  happens to be an unconditional sale  in respect  of specific  and ascertained goods, the  title to  the property  passes simultaneously at the fall  of the  hammer not  by virtue  of s.  58(2) but by reason of  the operation  of s.  18 r.  1 of the English Act which is equivalent to s. 20 of our Act].      In  Dennant  v.  Skinner  and  Collom  (supra)  D,  the auctioneer knocked  down five  vehicles including a Standard motor car  to King  After the sales, king said that he would like to  pay by  cheque, but  D replied  that it was not his practice to accept cheques from people he did not know. King represented that he was the son of the proprietors of King’s Motors  of   Oxford,  a   well-known   firm   and   produced counterfoils in  his cheque books, according to which he had been paying  large amounts to well-known auctioneers. D thus accepted the  cheque King  signing a  form which  stated: "I hereby  certify   that  my  cheque  No...  will  be  met  on presentation at  my bank.  Furthermore,  I  agree  that  the ownership of  the vehicles  will not  pass to  me until such time as  the proceeds  of my  cheques have  been credited to South London Motor Auction account at Lloyds Bank." King was permitted to  remove the  vehicles and  he sold the Standard Car to a third party C, who sold it to the defendant, S. The cheque was  dishonoured on  presentation and  it  transpired that King  had no  connections with  King’s Motors. D sought from S  return of the car or payment of it value. Negativing

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the claim,  the Court  held that  the contract  for sale was unconditional and, therefore, the property in the car passed on the fall of the hammer under the Sale of Goods Act, 1893, s. 18(1)  and D’s  right under  s. 39(1)  (b) of that Act to retain the  car until payment was made was relinquished when he gave  possession to  King. On the question of the passing of the property the Court at page 34 observed thus:           "The second point on which the plaintiff relies is      that the property in the circumstances of this case did      not pass  until the  price was paid by the cheque being      in order or cash substituted for it. A contract of sale      is concluded  in an  auction sale  on the  fall of  the      hammer, and  indeed, the  Sale of  Goods Act,  1893, s.      58(2), so provides. Section 18 provides:-Rule 1: "Where      there is  an unconditional  contract for  the  sale  or      specific goods, in a deliverable state, the property in      the goods  passes to  the buyer  when the  contract  is      made, and  it is immaterial whether the time of payment      or 666      the time  of delivery or both be postponed. Accordingly      on the  fall of  the hammer  the property  of this  car      passed  to   King....."  As   regards  the  undertaking      obtained from  King  the  Court  observed.  "Since  the      property had  already passed  a  document  subsequently      executed by the bidder acknowledging that the ownership      of the  vehicle would  not pass  to him till the cheque      was encashed  could not  have any  effect on  what  had      already taken place." It will  thus appear clear that because the auction sale was unconditional and  it related  to specific goods that it was held that  the property in the car had passed to King at the completion of the contract which occurred at the fall of the hammer under  s. 58(2)  but the property had passed under s. 18(1). This case also shows that to an auction sale normally governed by s. 58 the implied rule pertaining to the passing of property  contained in s. 18(1) applied; if so, it stands to reason  that the  auctioneer could incorporate an express term pertaining  to the  passing of property, different from the implied  rule, in  his auction conditions and if he were to do so it will be operative.      In American  Jurisprudence 2d,  Vol. 7, it is clarified that sale by auction may be conditional or unconditional and what happens  when a bid is accepted is explained in Para 20 under the  heading "Offer  and Acceptance:  Bidding" at page 237 thus:           "20. Generally.           A sale  at auction,  like every  other sale,  must      have the assent, express or implied, of both seller and      buyer. An  announcement of  an auction  or the  act  of      putting  property   up  for   sale  thereat   does  not      constitute an  offer to  sell capable  of acceptance by      the making  of a  bid....It is mere invitation to those      attending the sale to make offers by bids. The contract      becomes complete  only when  the bid  is accepted, this      being ordinarily  denoted by  the fall  of the  hammer.      These common-law  principles are  adopted by  both  the      Uniform Sales Act and the Uniform Commercial Code.           Where the  seller reserves  the right to refuse to      accept any  bid made, a binding sale is not consummated      between the  seller and  the bidder  until  the  seller      accepts the bid....           Once a  bid has  been accepted  the parties occupy      the same  relation towards each other as exists between      promisor and  promise in  an executory contract of sale

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    conventionally made. 667 Again in  Para 48  at page 260 on the question of passing of title the following statement of law occurs:           "48. Passing of title; risk of loss of property.           The acceptance  of the  bid upon  the fall  of the      hammer gives  rise to  contract  rights  which  may  be      enforced, but  does not  necessarily convey or transfer      the title  to  the  property.  As  in  the  case  sales      generally, the  intention of  the parties  derived from      the terms  of the contract and the circumstances of the      case primarily determines the question as to when title      passes.           Many  cases  hold  that  in  an  auction  sale  of      chattels, when  the sale is without condition and where      nothing remains  to be  done to the property before its      delivery, either  to separate it from other property or      to put  it in  condition ready for delivery, the title,      as between  the parties,  passes to  the purchaser upon      the acceptance  of his  bid,  without  payment  of  the      price, even  though the  right to  possession does  not      pass until  the price  is paid  or arranged  for to the      satisfaction of  the seller.  Under  this  view,  title      ordinarily passes  to the  successful bidder  when  the      auctioneer announces the completion of the sale."                                         (Emphasis supplied). Two things appear very clear from what we have stated above. At an auction sale all that happens at the fall of hammer or at the  announcement of  the closure  of the  sale in  other customary manner  is that  a contract  of  sale  comes  into existence  and  parties  get  into  the  relationship  of  a promisor and  a promisee in an executory contract. Secondly, auction sales  could be  conditional or unconditional and if it is  latter then by virtue of the goods being specific and in a  deliverable state  the property  in the  goods knocked down passes at the fall of hammer by reason of the concerned provision relating to the passing of the property.      Section 64(2)  of our  Sale of Goods Act, being in pari materia with s. 58(2) of the English Sale of Goods Act 1893, will have  to be  interpreted in  the same manner and we are therefore, of  the view  that it  does  not  deal  with  the question of  passing of  the property  at auction  sale  but merely deals  with completion  of the contract of sale which takes place at the fall of the hammer or at the announcement of the  close of  the sale  in other customary manner by the auctioneer. It  would also  be correct  to say  that if  the auction sale  of chattels is unconditional and is in respect of specific ascertained goods and nothing remains to be done to the  goods for  putting them  in a  condition  ready  for delivery, the  property in  the  goods  would  pass  to  the purchaser 668 upon the acceptance of the bid but that would not be because of s.  64(2) but  because of s. 20 and such would not be the case  if   the  goods   sold  thereat  are  non-specific  or unascertained goods  or the  auction sale is conditional. In this context  it will  be useful  to refer  to a decision of this Court  in A.V. Thomas & Co. Ltd. v. Deputy Commissioner of Agricultural  Income Tax  where this  Court recognised  a distinction between  auction sales pertaining to specific or identifiable  goods   and  auction   sales  in   regard   to unascertained goods  and held  that in  regard to the former the property  in the  goods passed  when  the  contract  was accepted at  the fall  of hammer and not in the latter case. That was a case where the teas were stored in the godowns in

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the Willingdon  Island which  was in the State of Travancore Cochin and  samples of  those teas were taken to Fort Cochin which at  the relevant  time was  in the State of Madras. At Fort Cochin  by the  samples the  teas were  sold by  public auction in  lots, some  of the  lots were purchased in their entirety and  others in  parts and  after the  consideration money was  paid at Fort Cochin delivery orders were given to the buyers  addressed to  the godown  keepers at  Willingdon Islands and  actual delivery  of tea  was taken there. These teas were then sent out from willingdon Island in Travancore Cochin for  consumption either  in other  parts of  India or were exported  out of  India. The taxability of the sales of teas in  the manner  mentioned above  under  the  Travancore Cochin General Sales Tax Act depended upon whether the sales could be  held to  have taken  place at  Willingdon  Island. i.e., within  the territory  of Travancore  Cochin State and were liable  to sales tax under the Act or whether the sales were ’outside  sales’ and,  therefore, not  subject to sales tax in  the State  of Travancore  Cochin in  view of Article 286(1) (a)  read with  the  Explanation.  This  Court  after referring to s. 64(2) and the definition of ’specific goods’ in s.  2(14) of our Sale of Goods Act, took the view that on the fall  of the  hammer the offer would get accepted and if the goods  were specific  goods the  title would pass to the buyer. The  distinction that  was  made  by  the  Sales  Tax Appellate Tribunal  between goods  which were  sold in "full lots" and  those which  were sold "in portions" and its view that in regard to the former title had passed as soon as the hammer fall  and not in regard to the latter was referred to by this Court with approval. At page 612 this Court observed thus:           "In the  present case  as soon  as the hammer fall      the title in the goods passed to the buyer as the goods      were specific  goods i.e. goods which were auctioned in      full lots  and this  event took  place at  Fort  Cochin      which was in the State of Madras. But in the 669      case of unascertained goods the title in the goods does      not pass  to the  buyer unless  and until the goods are      ascertained. It  was for this reason that a distinction      was drawn  by the  Sales Tax Appellate Tribunal between      goods which were sold in full lots and those which were      sold in  portions. In  regard to the former it was held      that the  title passed  as soon  as the hammer fell but      not so  in regard  to the latter and therefore the sale      of ’full lots’ was held to have taken place outside the      State of  Travancore Cochin  and of  portions  of  lots      inside that State." Approving the  distinction this  Court ultimately  held that the sales of ’full lots’ being outside sales were not liable to the  levy of  sales tax.  Thus s. 64(2) has nothing to do with the aspect of the passing of the property at an auction sale and  it is  by virtue  of goods being specific and in a deliverable state  that under  s. 20  the property  in  such goods passes  to the buyer at the completion of the contract at the fall of hammer at such sale.      On the  other question there is no difficulty in coming to the conclusion that s. 64 is subject to a contract to the contrary, especially  in light  of the  above discussion. In the first  place s.  64 occurs in Chapter VII which contains "Miscellaneous" provisions  and s.  62 which  occurs in  the same Chapter  clearly provides that where any right, duty or liability  would   arise  under   a  contract   of  sale  by implication of law, it may be negatived or varied by express agreement or by the course of dealing between the parties or

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by usage,  if the  usage is such as to bind both the parties to  the   contract.  Ordinarily,   the  rights,  duties  and liabilities arising  under a contract of sale by implication of law  spoken of  in s.  62 refer to the rights, duties and obligations referred to in Chapter III containing provisions which lay  down rules  as to transfer of property as between seller and  buyer and  transfer of  title but  there  is  no reason why  s. 62  should not  apply to  rights, duties  and obligations arising  under s. 64 in regard to auction sales. In other  words, s.  64 would be subject to s. 62. Moreover, there is intrinsic material in s. 64 itself which shows that the provisions thereof could be subject to a contract to the contrary. For  instance, sub-s.  (1) thereof  provides  that where goods  are put  up for  sale in  lots than each lot is prima facie  deemed to be the subject of a separate contract for sale,  which means terms between the parties may provide to  the  contrary  or  circumstances  may  indicate  to  the contrary. Again,  sub-s. (5)  provides that  the sale may be notified to  be subject  to a reserved or up set price which means that  the auctioneer  may not  fix a  reserved  price; further, it  is well  settled that  if such a reserved price has been  fixed  than  notwithstanding  the  fact  that  the highest bid has 670 been accepted by the auctioneer and that the sale relates to specific or  identifiable goods  no concluded contract comes into existence  if the  highest, bid so accepted falls short of the  reserve price and the property in the goods will not pass. Sub-ss.  (3) and  (4), if  carefully scrutinised, also indicate that  there could  be a  contract to  the contrary. Moreover, once it is accepted that auction sales to which s. 64 applies  could be  unconditional or  conditional and that the auctioneer can prescribe his own terms and conditions on the basis  of which  the property  is  exposed  to  sale  by auction it  must be  held that  the acceptance of any bid as well as  the passing  of the  property  in  the  goods  sold thereat would be governed by those terms and conditions.      Having clarified  the legal  position as above we shall now deal with the export auctions of coffee conducted by the Coffee Board  in the  instant case.  Such auction  sales are admittedly conducted  by  the  Coffee  Board  on  terms  and conditions prescribed  by it  called  ’Auction  Conditions’. Further, there is no suggestion in the case that a statutory body like  the Coffee  Board while  prescribing the  Auction Conditions has  acted not  in good  faith or  that the  said terms and  conditions do  not truly  govern the  rights  and obligations of  the parties  thereto. It will, therefore, be clear that  the question  at what point of time the property in the  coffee sold  thereat passes to the auction purchaser (Registered Exporter)  must depend upon the intention of the parties  to   be  derived   from  the  aforesaid  terms  and conditions. The  contention that the property in coffee sold thereat passes  to the buyer at the fall of the hammer under s. 64(2) of our Sale of Goods Act has simply to be rejected, for, as  we have  indicated above,  all that  happens at the fall of  the hammer  is that  a completed  contract of  sale comes into existence creating a relationship of promisor and promisee between  the parties in an executory contract. This is also  made clear  expressly by  Cl. 13(a)  of the Auction Conditions which runs thus:           "13(a) After  the bidding  has come  to a close on      each lot, the Sale Conducting Officer shall declare the      bid accepted  by him  and make entry accordingly in the      Register of  Bids. Thereupon  the Contract  between the      Registered Dealer  by or  on whose  behalf the  bid was

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    tendered and the Coffee Board becomes complete." The aforesaid  clause  suggests  that  the  parties  to  the auction sale  also understood  s. 64(2) of the Sale of Goods Act in  the manner  in which  we have interpreted it. On the question  of  the  passing  of  the  property  the  specific provision  is   to  be  found  in  Cl.  19  of  the  Auction Conditions. As  stated earlier Cl. 19 principally deals with aspects of  delivery, weighment  and payment  of  price  and towards the end it 671 contains  an   over-riding  provision  to  the  effect  that notwithstanding anything  contained in these conditions, the property in  the coffee  sold shall  not pass  to the  buyer until after  he has  paid the full price and the coffee sold to him  is weighed  and set  apart for  delivery to  him. In other words,  it is  clear that  parties intended  that  the passing of  the property  shall not take place till the full price is  paid and  the coffee sold is weighed and set apart for delivery.  Now there  is nothing  in any  of  the  other provisions of  these Auction Conditions which indicates that the property  in coffee  sold should pass either at the fall of the  hammer or  at any point of time prior to the payment of price  and weighment  and setting  apart  of  coffee  for delivery to  the buyer.  Therefore, the observations of Lord Chancellor Herschell  in Mc  Entire And  Another v. Crossley Bros. Ltd.  (supra) relied  upon by  counsel of three States cannot avail  them. Further,  it is true that the overriding provision contained  at the  end of  Cl. 19  is negative  in character, that  is to  say, the parties are agreed that the property shall not pass to the buyer until after the payment of the  price, weighment and setting apart of the coffee for delivery to  the buyer.  But, does it positively follow that upon payment  of price  and weighment  and setting apart the coffee sold  for delivery  to the buyer, the property passes to the  buyer? On  this aspect,  in our  view, there are two provisions contained  in Cl.  20(d) and  (f) which show that positively the  property in  the coffee  sold passes  to the buyer at  that point of time. Under Cl. 19 after the payment of full  price the  buyer has to apply for and take delivery within a  certain time but in case he fails to take delivery what shall  happen to the coffee sold is provided for in Cl. 20. On  the buyer’s  failure to take delivery, the coffee is first stored by the Pool Agent in the Pool Warehouse pending its exportation  by the  buyer by  the 15th May and if it is not exported by that date the Curer or Depot Manager removes it from  the West  Coast to  inland centres for safe storage during the  monsoon season  but at  the risk and cost of the buyer. Clause  20(d)  provides:  "During  the  interval  the coffee so remains with the Board or the Pool Agent, it shall be held  at the  risk and  on account  of the Buyer" and Cl. 20(e) provides:  "Gain or  loss in  weight of Coffee, as the case may  be, during  the  period  when  the  coffee  (sold, weighed and  paid for)  remains in  the godown  of the  Pool Agent as  above, shall be to the benefit of detriment of the Buyer himself  and he  shall be  at liberty  to  export  the quantity  gained   in  weight."   The  aforesaid  provisions contained in  Cl. 20  clearly go to show that after price is fully paid  and the coffee sold is weighed and set apart for delivery to the buyer the same lies with the Coffee Board at the risk of the buyer and if during the interval if there be any gain  or loss  in weight  the same  will be credited and debited to  his account. This provision clearly indicates in positive terms that the property 672 in coffee sold at the export auction passes to the buyer not

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before payment  of full  price, weighment  and setting apart thereof for delivery to the buyer but immediately after such payment, weighment  and setting apart for delivery. We might refer to  another clause,  namely,  Cl.  23  which  contains another special  over-riding provision  providing  for  non- liability of  the Coffee  Board in case damage to the coffee sold or  to the  warehouse wherein  the  coffee  was  stored occurs by  fire, flood,  strike, riot, civil commotion, etc. etc.  and  it  is  provided  that  notwithstanding  anything contained in the Auction Conditions in regard to the payment of prices,  insurance/warehouse charges,  delivery or  other conditions and notwithstanding the provisions of the Sale of Goods Act in regard to passing of property, the Board or its Agents shall  not be liable to deliver the coffee in specie, in the  event of loss or damage caused to the coffee sold by any of  the aforesaid causes. But this clause has no bearing on the question of passing of the property. Having regard to Cls. 19  and 20  of the Auction Conditions, therefore, it is clear to  us that  in these penultimate sales (i.e. sales of coffee at the export auctions conducted by the Coffee Board) the property  in coffee  sold there  at passes  to the buyer upon payment  of price,  weighment and  setting apart of the coffee sold for delivery to the buyer.      If once  it is held that the property in coffee sold at such export  auctions passes  under Cls.  19 and  20 of  the Auction  Conditions   immediately  upon  payment  of  price, weighment and  setting apart  of the  coffee for delivery to the buyer,  it will  be difficult to accept the petitioners’ contention that  passing of  the property  in such Coffee is further postponed  till actual  shipment by reason of Cl. 31 of the  Auction Conditions,  for, if  the title  has already passed it  cannot pass  again, Counsel  for the  petitioners contended that  in view of cl. 31 a reservation of the right of disposal  over the  goods in  favour of  the Coffee Board within the  meaning of  s. 25  of the  Sale of  Goods Act is made. It  is difficult  to accept  this contention.  Section 25(1) which  deals with  the reservation  of  the  right  of disposal provides that where there is a contract for sale of specific goods  or where goods are subsequently appropriated to the  contract, the seller may by terms of the contract or appropriation, reserve  the right  of disposal  of the goods until certain  conditions are  fulfilled and  if he does so, the  legal  consequence  mentioned  in  the  section  flows, namely, that  in such  case notwithstanding  the delivery of goods to  a buyer  or to a carrier or bailee for transaction to the buyer, the property in the goods does not pass to the buyer  until  the  conditions  imposed  by  the  seller  are fulfilled. In  the instant  case it  is  true  that  Cl.  26 declares that  it is  an essential  condition of the auction that the coffee sold thereat shall 673 be exported  to stipulated  destinations  or  to  any  other foreign country   outside  India as  may be  approved by the Chief Coffee Marketing officer within 3 months or within the extended period  but such  essential condition is applied to the coffee  which has  already become  the property  of  the buyer under Cls. 19 and 20 of the Auction Conditions and all that Cl.  31 provides is that if default is made by Buyer in exporting coffee within the prescribed time or extended time it shall be lawful for the Coffee Board without reference to the buyer to seize the unexported coffee and take possession thereof and  deal with  it as if it were the part and parcel of the  Board’s Coffee held by them in their Pool Stock. Far from amounting  to a  reservation of  the right  of disposal over the unexported coffee to the Coffee Board, Cl. 31 is in

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the nature  of a defeasance clause in the sense that what is vested in  the buyer  under the earlier conditions, the same shall revert back to the Coffee Board if the buyer commits a default  in  fulfilling  the  essential  condition.  Such  a reading of  Cl.  31  would  be  consistent  with  a  further provision which is to be found in the latter portion of that clause. The  latter part  of Cl.  31 provides that after the coffee is  seized and  it becomes part and parcel of Board’s coffee held by it in its pool stock, the Board shall re-sell the same  but after  such re-sale the Chief Coffee Marketing officer shall  pay to  the defaulting buyer only the balance of  the   sale  proceeds  after  deducting  godown  charges, insurance premium,  selling commission payable to agents and all other  expenses of  sale together  with the  penalty due under Cl. 30. But under the proviso it is provided thus:           "Provided, however,  that if  such balance  is  in      excess of the sale price paid by the buyer, the payment      shall be limited to the actual sale price." In other  words the proviso clearly suggests that the seized coffee becomes  Coffee Board’s  property and  is re-sold  as such,  otherwise   the  surplus   should  go  to  the  buyer (Registered Exporter).  The fact  that the  payment  to  the defaulting buyer is limited to the actual sale price paid by him and  that the surplus if any reverts to the Coffee Board clearly shows  that under  Cl. 31  upon seizure the property reverts back  to the  Coffee Board.  In  our  view,  Cl.  31 properly read  amounts to  a defeasance  clause and  nothing more, especially  when it  is clear  that  property  in  the coffee sold at auction passes to the buyer under Cls. 19 and 20 immediately  upon payment of price, weighment and setting apart of  the coffee  for delivery  to the  buyer. Once  the property has  passed there would be no question of reserving any right  of disposal  over the  same to  the Coffee  Board within the meaning of s. 25(1) of the Sale of Goods Act. 674      It will  be noticed  that though on the question of the passing of  the property  factual material  in the  form  of affidavit of  the Chief  Coffee Marketing  Officer  (on  the point whether  the lots exposed at the auctions are specific and ascertained goods or not) and several documents executed by the  Registered Exporters  in favour  of their bankers to obtain packing and other credit facilities was placed before us we  have not  gone into the factual aspects at all and we have reached our conclusion on the point purely on the basis of construction  of the  relevant  Auction  Conditions  from which primarily  the intention  of  the  parties  is  to  be gathered. It  is only  when a clear intention in that behalf is not  deducible from  the terms  and conditions that other factors such  as the  course of  dealings and the conduct of the parties assume relevance.      Having regard to the above discussion it is clear to us that in  the penultimate  sales (sales of coffee effected to 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 coffee  for delivery to the buyer under  Cls. 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 buyer must  be available  or produced in order to attract s. 5(3) of the Central Sales Tax Act, 1956.      In the  result the  writ petitions  are partly allowed. The impugned Circular dated 7th February, 1977 to the extent to which it insists on production of an agreement with or an order from  a foreign  buyer from  the Registered  Exporters

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before participating  in export  auctions is  quashed; it is also quashed  hereafter to  the extent  to which it requires Registered Exporters to make contingency deposits or furnish bank guarantees  out of  abundant caution  inasmuch as  such requirement  would   be   unnecessary   in   view   of   our authoritative pronouncement.  The Coffee  Board may,  if  so advised,  modify   its  Circular  or  issue  an  appropriate Circular requiring the production of an agreement with or an order from  a foreign  buyer from  the Registered  Exporters just before the property in the Coffee sold at such auctions passes under Cls. 19 and 20 of the Auction Conditions.      As  regards   past  dealings  and  transactions,  final assessment, if  any, made  by the Taxing Authorities as well as recoveries  if  made  thereunder  contrary  to  the  view expressed  by   us  above   deserve  to  be  set  aside  and reassessments made  and the concerned State Governments will direct their  Taxing  Authorities  to  do  the  needful  and further direct  the refund  of recoveries made to the Coffee Board which  in  its  turn  will  refund  the  same  to  the concerned Registered 675 Exporters. Assessments  or recoveries  if made in conformity with  our   judgment  need   not  be   disturbed.  Similarly contingency deposits  or bank guarantees already obtained by the Coffee  Board from the Registered Exporters, if they are contrary to our judgment, these will be refunded or released forthwith, as the case may be, by the Coffee Board.      In the circumstances of the case there will be no order as to costs.           WRIT PETITION NO. 1458 OF 1979 TULZAPURKAR, J.-In  view of  our Judgment  just delivered in W.P Nos.  3130/78, 4238-39/78  and 8/79,  this Writ Petition will have also to be allowed partly and the same order would follow. S.R.                              Petitions allowed in part. 676