Introduction

The present case deals with the extent and scope of the expression ‘sale’.

Facts

• The appellant i.e., Coffee Board had filed an appeal against the decision of the Karnataka High Court.
• The appellant had brought in question Section 25(i) of the Coffee Act, 1942 (Act of 1942).
  • This Section provides a single channel for the sale of coffee grown in the registered estates.
  • Thus, as per the Act of 1942, there is an obligation on the coffee growers to deliver all its produce, except internal sale quota, to the Coffee Board. Similarly, the Board is under compulsion to purchase the coffee.
• The Coffee Board contended that according to the provision of the Act of 1942, ‘mandatory delivery’ of coffee does not constitute a sale transaction between the board and the coffee growers and thus they are not liable to pay purchase tax.
  • Purchase tax is a type of tax that is applied to the sale or purchase of certain goods or services.
  • It is also known by other names in different regions, such as sales tax or value-added tax (VAT).
• The appellant had further put up the argument that they are acting as an ‘agent’ or ‘trustee’ of the coffee growers and thus are not responsible to pay purchase tax.
• Also, they were immune under Article 286 of the Constitution of India, 1950 because all the sales were in the nature of export sales.
• On the other hand, the respondent, Commissioner of Commercial Taxes had invoked Section 6 of the Karnataka Sales Tax Act, 1957 (Act of 1957) and claimed that according to this provision the Coffee board is under the liability to pay tax.
• The respondents are of the opinion that ‘compulsory delivery’ of coffee according to Section 25(i) of the Act of 1942 is an act of sale and purchase only and thus it makes them liable to pay tax under relevant sales tax laws.
• Therefore, in this case the scope and extent of the expression ‘sale’ and its applicability for determining the rights, responsibility and duties of the appellant was in dispute.

Issues Involved

• Whether compulsory delivery of coffee to the appellant as per Section 25(i) of Act of 1942 is ‘sale’ or ‘purchase’ agreement?
• Whether the tax levied on the Coffee Board under Section 6 of the Act of 1957 valid?
• Whether the Coffee Board only a ‘trustee’ or ‘agent’ of growers and thus not liable to pay tax?
• Whether all the sales during export immune from paying purchase tax under Article 286 of the Constitution of India?

Observation

• It was held by the division bench of Karnataka HC that compulsory delivery of coffee by the board constitutes a component of consent.
  • And thus, there is an agreement of ‘sale’ or ‘purchase’ between the board and the coffee growers according to Sales of Goods Act, 1930 (SOGA).
• Since there is element of ‘sale’ or ‘purchase’, the board is not free from tax liabilities under relevant tax laws.
• Thereafter it was held by the HC that any sales thereafter were not ‘in the course of export’ or local sales within the State of Karnataka but ‘for export’.
• Thus, the appellant cannot attract Article 286 of the Constitution for exemption of tax liability.
• The SC upheld the decision of the HC and held that the imposition of tax on the appellant was correct.
• While dismissing the appeal of the Coffee Board, the SC also held that Coffee Board does not act as a trustee or an agent of the coffee growers.

Conclusion

The SC, after examining the meaning, nature and applicability of ‘sale’ in reference to Section 4 of SOGA, held that the transaction between the coffee growers and the Coffee board amounted to sale.

Notes

Section 4 of Sale of Goods Act,1930: Sale and agreement to sell —

(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another.

(2) A contract of sale may be absolute or conditional.

(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.

(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.

Article 286 of Constitution of India, 1950: Restrictions as to imposition of tax on the sale or purchase of goods — (1) No law of a State shall impose, or authorize the imposition of, a tax on the supply of goods or of services or both, where such supply takes place—

(a) outside the State; or

(b) in the course of the import of the goods or services or both into, or export of the goods or services or both out of, the territory of India.

(2) Parliament may by law formulate principles for determining when a supply of goods or of services or both in any of the ways mentioned in clause (1).