CONSOLIDATED COFFEE LTD. AND ANR. ETC. v. COFFEE BOARD, BANGALORE ETC. ETC

Citation: [1980] 3 S.C.R. 625

Court: Supreme Court of India

Bench: V.D. TULZAPURKAR, D.A. DESAI, A.P. SEN

Case summary

32 ofthe Constitution raise an important question of proper construction of 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...

Judgment text

CONSOLIDATED COFFEE LTD. AND ANR. ETC. v. COFFEE BOARD, BANGALORE ETC. ETC. April 15, 1980 [V. D. TULZAPURKAR, D. A. DESAI AND A. P. SEN, JJ. ] ' central Sales Tax Act, 1956, as amended by Amending Act 103 of1966, 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) ofthe Central Safes 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 agree111ent 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 ofthe sale ofGoods 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 hy the Co,,__'ffee Board pass:--Clauses 19, 26 and 31 ofthe Auction conditions. The Coffee Board, Bangalore is a statutory Corporation incorporated under 1 section 5 of the Coffee Act, I942, 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 eft'eCt 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 at these auctions, exporters have to get themselves registered with the Board. The Board maintains a 1ist of Registered Exporters and grants to each one of them a permit.

which authorises him to take part in the •export auctiQn', 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 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 internil 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 ~ . r\ 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 A.

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 themsev1es 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 th~ 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 belie. Ye 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 a. n over·riding pro· ' visions to the effect that the "property in the coffee sold shall not pass to the buyer until after he has paid the ful1 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 stipu· lated in the catalogue of lots or to any other foreign country outside India as may be approved by the Chief Coffee Marketing Offioer within three months or within such extended period as shall not exceed one year from the Notice ofTender 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 cexport auction" he sha11 be liable; (i) to be removed from the list of the Registered Ex,. porters, 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 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,?

, 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 i:egard 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 f\vo leading cases, namely, Coffee Board Bangalore v. Joint Commercial Tax Officer, Madras and Anr. , and Mohd. Serajuddli1 etc. v. State of Orissa, and a certain interpretation had been accorded by this Court to the ex,. pression "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 ofexport 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 Par· liarnent 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 o~ Coffee, by which it took the view that in order to avail of the benefit ' CONSOLIDATED COFFEE V. COFFEE BOARD 627 of section 5(3) of the Central Sales Tax as amended by Amendment Act 103of1976, 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 expoit 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 Circu1ar requires the . bidders to make a contingency deposit in cash equivalent to the sale tax liabiJity or furnish bank guarantee in lieu thereof, each of such deposit or guarantee being "required to be kept in force for a period offour years. In other words, even in cases where the Registered Exporters (auction bidders) shall have satified aJl 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 tenns ofthe 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 Ca. ch such sale. The petitioners, who are Registered Exporters of Coffee, therefore have filed under Art. 32 . of the Constitution raising an important question of proper construc- • tion 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 t976 is not ultra vires Article 286(2) of the Constitution and the T said provision neither creates any legal fiction nor is it beyond the po\ver or authority conferred on Parliament by Article 286(2) of the Constitution. [645A·DJ 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 ofinter·state trade or commerce or outside a State or in the course ofexport or import'', the heading ofChapter J[ on the face ofit 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 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 ofa 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 shaH 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 i. n sub~s. (3) • the same word should be construed as creating a fiction. Thirdly, suS~scction (3) of section 5 formulates a principle in as much as it Jays down a general guiding rule applicable to all penultimate sales that satisfy the two conditions specified therein and not any s~cific 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 pro~ vision is applicable only to the export auctions conducted by the Coffee Board and the terms and conditions governing them because it applies to v;triety 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, 647AJ St. Aubyn and Ors, v. Attorney Generel, [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 agreen1ent.

or order and it is , only then that such penultimate sale is deemed to be a sale in the course of export. [647DEJ 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 ofexport are : "Ifsuch last sale or purchase (meaning the penultimate sale or purchase) tgok place after, ~nd 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 agree.. ment 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 3greement with a local party containing a covenant to export. [~90, 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 s~nse, that is, in the sense in CONSOLIDATED COFFEE V. COFFEE BOARD 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 foi' two reasons : first, occurring in a sales tax statute the word must be given its commercial . B meaning and secondly, while enacting the provision Parliament could not be said • to have only statutory b,dies, 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 \\'ith a local party containing the CO"' venant to export; and (ii) Secondly and more importantly, the user of the definite artide "the" before the word .. agreement", is very significant. Parffament has. not said "an agreement" or "any agreement" for or in relation to !

lUch export and in the c:onte'tt the exPres! -ion "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 ofin the earlier part ofthe 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 ~asions the export~ The user ofthe definite article, "the", therefore, c·Jearly suggests that the agreement spoken of must be the agreement with a foreign buyer. As a matter of Pure construction, by necessan 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, 651A-EJ 3.

Prior to the enactment of Section 5 (1) there was no Jegisiative guidance as to what transactions ofsale or purchase could be said to be "in the c0urse of export" and· the said exPression occurring in Art. 286 (1) (b) of the Constitution was conScrued by this Court in what have come to be known as the first and the second Travancore-Cochin cases, namely, The State ofTravancore-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 J1lut 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 ofdo· euments 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 Amendtrtent) Act, 1956 introducing a new clause being cJ. (2) in Art.

286 whereby Parliament was empowered by Jaw to fonnulate principles for determining when a sale or purchase took pJace in the course ofthe export ofthe goods out of the territory of India only if the sale or purchase either occasions such export or is affected by a transfer ofdocuments oftitle to the goods ifthe 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 exprt:Ssion "in the course of export" occurring in Art. 286 (1) (b). [651G-H, 65~,D-F] Section 5 (1) was construed by this Court in the context oftwo sales (though both were closely connected with the ultimate expol'tation of the goods out of India) rather very strictly in the two case, Coffee Board, Bangalore,, v. Joint Com- ) ' mercia/ Tax Officer, Madras and Ors. , [1970] 3 SCR 147; and Mohd. Serajt«kl/n 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 •m the course ofexPort". In other words , notwithstanding the compulsion to export arising from clauses 26, 30 and 31 Qf the Auction Conditions, the Penultimate sale was held to be not in the cause of ex. Ports. In the latter case. this court took the view that the crucial wards in Section 5 (I) 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 indepit • and Mohd. Serajuddin was under no contractual obligation to the foreign yer either directly 0r indirectly and that his rights and obligations were only aga st 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, thIB Court hcld that the sales between Mohd. Serajuddin and S. T. C. were not sales in the c.. ;,. e of exPort. It was at this stage i. e. when s. 5 (l) 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 mannfacturers 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 conferal of the benefit of exemption. But the existing contract with whom is not clarified. The Statement being silent on this crucial point whether the existiog contract should be with a foreign buyer or will include an agreement with a local party containing a covenant to export, by n~ irrplication "the agreentent" spoken of·by section 5 (3) refers to the agreement with a foreign buyer.

[654F-H] I 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 require- , ment 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 oftheir goods to the canalising agency or the private export house there must be in existence a foreign buyer's contract to implement which Ibey 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 mannfacturer when he sells his product to the agency or the export house. Neither any hardship is involved nor would the small or medium >Cale mannfacturers be depriv FFEil V. COFFEE BOARD 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 baa 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 bigb. est bid so accepted falls short of the reserved price and the ProPer! Y in the goods will not pass. Sub-ss (3) and (4) if carefully scrutinised also indicate that there cduld 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 tho auctioneer can prescribe his own terms and conditions on the basis of which the Property is ex. Posed to sale by auction it must be held that the acceptance of any bid as well as the passing of the Proper! Y 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 ad· mittedly conducted on terms and conditions prescribed by it called "Auction Conditions". [n 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 coriditions do not tru1y 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) mu&t depend upon the intention of the partiCs 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) ofthe Indian Sale of Goods Act. 1930. All that happens 't the fall of the hammer is that completed contract of sale comes into existence creating a relationship of promiser and promisee between the pilrties 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 and to\vards the end it 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 ofthe 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 privisiolls Of these Auction Con. ditions wliich indicates that ihe property in coffee sold. should pass either at the fall ofthe hammer or at any point of time prior to the payment ofprice and weighment and setting apart of coffee for delivery to the buyer. [670R, 67lA-B] 'Mc Entire and Anr. v. Crossley Bros. Ltd. , [1895-99) All. E. R. (Reprint) 829 @ 832; distinguished. 4.

(c) It is true that the over-riding prov1s1on contained in clause 19 is negative in character, that is to say, the parties are agreed that the property'ShaII 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 (0 which show that positively upon payment ofprice 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 2-463 SCI/80 a certain time but in case h.

e 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 date the Curer or Depot Manager removes it from the West Coast to inland countries for safe· storage during the ~onsoon season but at the risk and cost ofthe 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, weighn1ent 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 post- • poned 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 res~rvation 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 (I) provides that where there is a contract for sale •of specific goods or where goods are subsequently l> appropriated to the contract, the seller may by terms of the contract or appropriation, reserve the riSht of disposal of the goods until certain conditions are ful· filled and if he does so, the legal consequence Inentioned 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 .

beexported to stipulated destinations orto 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 s_uch essential condition is applied to the~coffee which has already become the property of the buyer under Cls. 19 and 20 oftbe 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 11 to seize the unexported coffee and take possession thereof and deal with it as ifit were the part and parcel bf 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 ess_ential condition. Such a reading of Cl. 31 would be consistent with a further provision which is to be found in the latter portion ofthat clause. The latter part of CI. 31 provides that after the coffee is seized and it becomes part and parcel ofBoard's Coffee beld by it in its pool stock, the Board shall re-sell the same but after such re-sale the CWef Coffee Marketing Oflioor 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 the defaulting buyer is limited to the actualsal• CONSOLIDATED COFFEE V. COFFEE BOARD 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 ofreserving any right ofdisposal over the same to the Coffee Board within the meaning of s. 25 (I) of the Sale of Goods Act.

··B • [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 produc.. ed in order to attracts. 5 (3) of the Central Sales Tax Act, 1956. [674C-D] 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. . E Nos. 4238-4239/78. F.

S. Nariman, K. P. Kumar, R. Vasudevan, C. N. MurthJ·, Ajay Mehta and T. Subba Rao for the petitioner in WP 8/79. Dr. Y. S. Chita/e, 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. r 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 ~·ri Narain for RR. 1 in WP Nos. 4238-4239/78. N. Nettar, fo~ 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. Addi. Sol. Genl. and N. Nettar for RR. 1in WP No. 8/79. S. T. Desaiand A. V. Rangam for the RR 2 in WP 8/79. 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 • Tur. zAPURKAR, J. These writ petitions filed by Registered Exporters ofco. ffee under Art. 32 ofthe 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 (103of1976) and the petitioners also seek to challenge the constitutio· nal validity ofa Circular dated February 7, 1977 issued by the Coffee Board, whereby it requires the Register~d Exporters of coffee to fur· . 1> nish 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 μp of the coffee Board on which all interests are represented and some Members Of Parliament and Go· verriment 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 iiuposes cciht'rol on the sate, export and re-import of coffee into India. In regard to sale it fixes prices for sale of coffee either whole· sale or retail by regist€red 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 aregistered estate in excess of the quantities specified in the internal sale quota allotteed to that estate, or when no internal sale quotas have been allotted to the estates, all the coffee proii duced 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 cilring CONSOLIDATED COFFEE v. COFFEE BO. '). llD (Tulzapurkar, !. ) 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 suplus 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- Q 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 out- E, side 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 at these auctions, exporters have to get themselves registered with the Board. 1'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 th.

e 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 r 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 ' . ' of Coffee in the course of Export" framed by it and the Registered Exporters participate in such auctions on those terms aud 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 pemitted 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 Offi~ cer 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 uo 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 aud 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 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 ofobtaining the permit and (iii) to forfeit the deposit if any covered by the conditions contained in Cl. 14(ii), CONSOLIDATED COFFEE v. COFFEE BOARD (Tulzap_urkar, /. ) 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 I, 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 oflndia". 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 ofOrissa (2) 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 oflndia (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 temove 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- R ' (I) [1970] 3 SCR 147=25 STC 258. (2) [1975] Suppl. S. C. R. 169 =36 S. T. C. 136. 640 SUPREME COURT Rl! PORTS [1980] 3 S. C. R. 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 ofcomplying with, the agreement or order for or in relation to such export. According to the petitioners the. sales of coffee made to the Registered 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 au~on and (c) he should give proof of the export of the coffee purcha~d 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 ofeach auction copies ofthe export orders or agreements from their foreign buyers). Obviously the Coffee Board proceeds op. the basis thats. 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 conld 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 equiva- ~ lep. t 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 availal;>le. 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 11gree CONSOLIDATED COFFEE ¥· qJFFEE BOARD (T11lzapurkar, !. ) 641 ment with a foreign buyer but would include any binding or enforce.

· able agreement to export even with a local party to implement which the penultimate sale must have taken place and;since here:the penulti· mate sales (sales of coffee to Reigistered 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 desti~ nation 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 penul- . tim. ate sales invariably take place (i. e. become complete after the c 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 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 ~omplete, 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 imeaning 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. I9 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 aucti~ns 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 transactfons 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 G 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 ff prohibition quashing the said circular and restraining further action thereunder in future.

It seems that since retrospective effect was given • A.. m 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 Nadn 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 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 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 rjght, like any other trader• to lay down the terms and conditions for snch sales a. nd 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 eatitled 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 , CONSOLIDATED COFFEE v. COFFEE BOARD (Tulzapurkar, !. ) 643 amount of sales tax th&t would be payable in re~pect 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 con· ditions 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 itsel(against any possible levy of sales tax it is obliged to insist upon furnishing of con· tingency deposits or bank guarantees. By doing it the Coffee Board is • not exacting any sales tax as such and, therefore, 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 the.

1eunder is an agreement with or an order from a foreign buyeF 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 counteraffidavits have supported the stand taken by the CoffeeBoard 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 bf the auction conditions read in the context of the relevent 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 when exemption is claimed in assessment proceedings. Counsel for the State of Kerala was, however, not in agreement with this submission and statfd that even that question was a pure question of fa'N dtprnding upon the pre per constn1cticn of the auction conditicns nr.

d with the rel~vant provisicns cf the Sale of Gccds 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 SUPREME COURT jlJlP9RTS [1980] 3 S. C. R. the hearing counsel for the State of Tami. I Nadu also raised the question of the vires of s. 5(3), apart from its construction; he contended that the provision itself was u/tra 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 realit 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 dedision in these Petitions. The first relates to the maintainability cf 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 Cnetral 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 expo_rt 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 peti! lons 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 u! tra 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 'H ' 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 CONSoLIDAtED COFFEil v. ciJFFEE BOARD (Tu/zapurkar, !. ) 645 formulate any principle for determining when a sale takes place in the course of export of the gocds out of the territory of India and, therefore, it is beyond the power or authority conferred on Parliament by Art. 286(2J. 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. 286 (! ) (b) laid down two principles as to when a sale could be said to be sale in the course of export and it held that two types of sales, viz.

(a) sale which occasions the expert ai:d (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 Amer. dment) Act 1956 mP. rely gave legislative recognition to the aforesaid two principles which had been formulated by this Court while interpretir. g Art. 286(2) (b) hut while adding sub-s. (3) to f. 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, C:reation of such fiction is ~ot formulaticn cf any principle and as such the provision is beyord the pcwer 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" hits been used in s. 5(3) buuhe same word has been used not merly 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 Cha:Pter II on the face of it suggests that what is done under ss. 3, 4 and 5 inchidirtg sub-s (3) is formulation of. principles. Secondly, the wotd "deemed" is used great deal in modern legislation, different senSes and it is not that 'r deeming provision is every time made for the purpose of. creatirtll fiction.

A deeming provision might be made to ihclude what is obvioUs or what is uncertain or to impose for the purpose of astat11te art 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. Aub)'n ATED COFFEE v. COFFEE BOARD (Tulzapurkar, !. ) 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 cons- • truction 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 international 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- 3-46JSCl/80 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 • 1Jy 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 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 ;igreement 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 Max- \;eilon:the Interpretation of Statutes (at p. 289 12th Edn. ) the rule (I) [1584]3 Co. Rep. 79. : CONSoLmATED COFFEE v. COFFEE BOARD (Tulzapurkar, !. ) 6 51 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~s implicit in the sale occasioning the export. Between thetwo 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 agreement with a local party containing the covenant to export. Coming to the mischief rule, in ReMayfairProperty Co. ,(I) 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, hows. 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 ofTravancore-Cochin and;Ors. )'v. The:Bombay,Company_Ltd. (2) and The (I) [1898] 2 Ch. 28 at p. 35. (2) [I952J 2 STC 434. State of Travancore-Cochin and Ors. v. The Shanmugha Vilas Cashewnut Factory and Ors. ,(1) 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 seriet of integrated activities com- > mencing from the agreement of sale with a foreign buyer and ending with the delivery of the goods. to a commor, carrier for transport out of the country by land or sea. Such a 3ale 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 clone "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 documents1of 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 (! ) (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 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 n by the intermediary to the importer and that the first sale was not (1) [19531 4 S. T. C. 205. CONSOLIDATED COFFEE v. COFFEE BOARD (Tulzapurkar, !.

) 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". 'B 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 'Jbr 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 fbrmed 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 :r contracts with S. T C. had been entered into for the purpose of implementing rnch 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. whens. 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- ments of title to the goods after goods have crossed the customs frontiers ofindia. The Supreme Court has held (vide: Mohd. Sera· juddin v. State of Orissa, 36 STC 136) that the sale by an Indian exporter from India to the foreign importer alone qualifies as a sale which bas 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 Cor· porations.

In other cases also, manufacturers of goods, particular· ly 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 correspond· ing 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 preced· ing 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.

Sera· juddin's decision (supra) is specifically referred to as necessitating the amendment and secondly, penultimate sales made by small and me· dium 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 con· nected with the export of the goods and hence ear-marked for conferal 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 pr0per 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. CONSOLIDATED COFFEE v. COFFEE BOARD (Tulzapurkar, !. ) 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 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 t