Prabhu & Ors Vs. Agricultural Produce Market Committee  Insc 132 (2 March 2001)
Khare & S.N. Variava S. N. Variava, J.
Appeals are against a Judgment dated 2nd April, 1998.
stated the facts are as follows:
Appellants purchase raw cashew nut and after subjecting the same to process of
manufacture extract cashew kernel. The cashew kernel is then sold by them all
over India as well as in International markets.
Both cashew nut and cashew kernel are Notified Agricultural Produce under the
Schedule to the Karnataka Agricultural Produce Marketing (Regulation) Act, 1966
(hereinafter called the said Act).
Appellants have licences under the said Act as Importers, Traders, Exporters
and Producers from the Market Committee. The Appellants are paying market fee
as per the provisions of Section 65(2A) when they purchase cashew nut.
Market Committee issued Notices to the Appellants directing them to collect
market fee from their buyers and pay the same to the Committee in respect of
transactions of sales of cashew kernel. These Notices were issued under the
provisions of Section 65(2A)(iii) of the said Act.
Appellants filed a Writ Petition in the High Court of Kerala praying for
declaration that they were "Producers" of cashew kernel and,
therefore, were not liable to collect the market fee from their purchasers and
pay the same to the Committee. They also sought a declaration that as producers
of cashew kernel they did not even require a license. The Appellants sought
directions from the Court to quash the Notices issued by the Market Committee
and to restrain the Market Committee from recovering market fee from them. This
Writ Petition came to be dismissed by a single Judge of the High Court on 21st August, 1996. The Appellants then filed a Writ
Appeal which also came to be dismissed by the impugned Judgment dated 2nd April, 1998.
controversy in these Appeals is very limited. There is no dispute that the Appellants
are purchasing cashew nut and by a process of manufacture extracting cashew
is no controversy and no dispute that on the purchase transactions the
Appellants are paying market fee. There is also no dispute that on the sale
transactions, of cashew kernel, market fee is payable. The only dispute is
whether the Market Committee can insist that the Appellants realize the market
fee from their purchasers and pay it to the Market Committee or whether the
Market Committee has to collect the market fee directly from the purchasers of
understanding of this question certain provisions of the said Act require to be
looked at. The Preamble to the said Act lays down that it is an Act to provide
for the better regulation of marketing of agricultural produce and the
establishment and administration of markets for agricultural produce in the
State of Karnataka. Section 2(1) of the said Act
defines "Agricultural Produce" as follows:
"Agricultural Produce" means the produce or goods specified in the
Schedule." It is an admitted position that initially under Item 8 of the
Schedule only cashew nut was included as an Item.
fee was sought to be levied on cashew kernel. The Mangalore Cashew
Manufacturing Association challenged this levy in the High Court of Kerala. The
High Court held that cashew kernel was not included in the Schedule to the said
Act and it was thus not a Notified Agricultural Produce.
to this decision the State Government issued a Notification under Section 5
read with Section 3 of the Act and included cashew kernel also in the Schedule.
Thus, now both cashew nut and cashew kernel are two separate items in the
Schedule to the said Act. Sections 2(5), 2(13), 2(14), 2(14A), 2(18A), 2(21),
2(28), 2(32), 2(33), 2(34) and 2(48) of the said Act are relevant. They read as
"Buyer" or "purchaser" means a person who buys or agrees to
"Exporter" means a person other than a producer who exports goods or
causes goods to be exported on one's own account or as agent of another person,
from the market area outside such area for the purpose of selling, processing,
manufacturing or for any other purpose except for the purpose of one's own
domestic consumption, but shall not include a public carrier.
"Goods" means any kind of notified agricultural produce.
`"Importer" means a person who imports or causes goods to be imported
on his own account or as an agent for another person from outside the market
area into a market area for the purpose of selling, processing, manufacturing
or for any other purpose except for one's own domestic consumption, but shall
not include a public carrier.
"Marketing means buying and selling of agricultural produce and includes
grading, processing, storage, transport, packaging, market information and
channels of distribution.
"Market functionary" or "functionary" includes a broker, a
commission agent, an exporter, a ginner, an importer, a presser, a processor, a
stockist, a trader, and such other person as may be declared under the rules or
the bye-laws to be a market functionary.
"Notified agricultural produce" means any agricultural produce which
the State Government has by notification issued under Sections 4 and 5 declared
as an agricultural produce the marketing of which shall be regulated in the
"Process" means any one of the serious of treatments to which raw
agricultural produce is subjected to make it fir to use or consumption.
"Processor" means a person who processes notified agricultural
produce by mechanical means.
"Producer" means a person who produces notified agricultural produce
on one's own account.- (i) by one's own labour; or (ii) by the labour of any
member of one's family; or (iii) under the personal supervision of oneself or
any m ember of one's family by hired labour or by servants on wages payable in
cash or kind but not in share of the produce.
"Trader" means a person who buys notified agricultural produce either
for himself or as agent of one or more persons for the purpose of selling,
processing, manufacturing or for any other purpose, except for the purpose of
domestic consumption." The levy is under Section 65(1) of the Act. The
mode of collection is provided under Section 65(2-A) of the said Act. It reads
The market fee payable under this section shall be realised as follows, namely.-
(i) if the produce is sold through a commission agent, the commission agent
shall realise the market fee from the purchaser and shall be liable to pay the
same to the committee;
if the produce is sold by an importer to the purchaser, the importer shall realise
the market fee from the purchaser and shall be liable to pay the same to the
the produce is purchased directly by a trader from a producer, the trader shall
be liable to pay the market fee to the committee;
the produce is purchased by a trader from another trader, the trader selling
the produce shall realise it from the purchaser and shall be liable to pay the
market fee to the committee; and
any other case of sale of such produce, the purchaser shall be liable to pay
the market fee to the committee."
Market Committee called upon the Appellants to collect and pay the market fee
on the footing that the Appellants are traders who were selling the produce to
other traders. The Appellants claim that they are producers of cashew kernel
and, therefore, sub-clause (ii) would apply.
Appellants claim that if sub- clause (ii) does not apply then sub-clause (iv)
would apply. The question therefore is whether the Appellants are producers or
whether they are traders.
seen from the definition under Section 2(48) a trader is any person, who (a)
buys Notified Agricultural Produce, (b) either for himself or as agent of one
or more persons, (c) for the purpose of selling, processing, manufacturing or
any other purpose and (d) except for the purpose of domestic consumption. There
is no dispute that the Appellants are traders when they purchase cashew nut,
which is a Notified Agricultural Produce. In such purchase transaction they are
also importers. As such traders and importers they have obtained a licence and
are paying market fee. It is, however, submitted that even though they may be
traders/importers in the purchase transactions, they are not traders or
exporters when they sell cashew kernel. It is submitted that they are Producers
of cashew kernel. It is submitted that in the Schedule to the said Act cashew
nut and cashew kernel are shown as two separate and distinct commodities. It is
submitted that the State Government accepted the Judgment of the High Court of Kerala
as correct and implemented the Judgment by incorporating the term "cashew
kernel" as a separate items in the Schedule. It is submitted that the
Appellants are Producers under Section 2(34) as the Appellants produce a
Notified Agricultural Produce, i.e. cashew kernel on their own account, under
their personal supervision and by hired labour or servants on wages paid in
cash. It is submitted that they fall within the definition of the term
"Producer" and are, therefore, governed by sub-clause (ii) of Section
submitted that in any event their sale of cashew kernel would not be a sale
from a trader to a trader. It is submitted that if sub-clause (ii) did not
apply, they would fall under sub-clause (iv) of Section 65(2-A).
Mr. Sarangan submitted that the term "Trader" under Section 2(48) can
only refer to a person who buys. He initially submitted that the term
"Trader" cannot apply to a person who sells a Notified Agriculture
to be noted that under the definition mere buying was not enough. The buying
had to be for the purpose of selling or processing or manufacturing or for any
other purpose. The buying had to be for a purpose other than domestic
consumption. When this was pointed out to him the answer sought to be given was
that if a person bought and sold the same Notified Agricultural Produce, then
he may be a trader, but if he bought one Notified Agricultural Produce and sold
another Notified Agricultural Produce, then in the sale transaction he would
not be a trader. It was submitted that cashew nut and cashew kernel were two
separate and distinct Notified Agricultural Produce. It was submitted that the
Appellants bought cashew nut. It was submitted that they produced cashew kernel
and were only selling cashew kernel. It was submitted that as they were not
selling the Notified Agricultural Produce which had been bought they could not
be termed as a "Trader".
support of the submission that cashew nut and cashew kernel are two separate
and distinct commodities, reliance was placed upon the case of Vijayalaxmi
Cashew Company v. Dy. Commercial Tax Officer reported in (1996) 1 SCC 468.
this case, the Appellant therein was purchasing cashew nut, extracting cashew
kernel and exporting cashew kernel to foreign countries. The question was
whether they were liable to sales tax under Section 5(3) of the Central Sales
Tax Act, 1956. This Court negatived an argument that the purchase was of the
same goods which were exported. This Court held that cashew nut and cashew
kernel were two separate and distinct commodities.
was also placed upon the case of Sita Devi v. State of Bihar reported in 1995
Supp. (1) SCC 670. In this case the question was whether cattle could be termed
as Agricultural Produce. This Court held that even though in common parlance
cattle may not be considered to be an agricultural produce but as it had been
included in the Schedule, under "Animal Husbandry", for the purposes
of this Act it became an agricultural produce. This Court held that, therefore,
market fee could be levied on cattle bought and sold in an market area. Relying
on this authority it was submitted that to ascertain what was an agricultural
produce one had to look to the items specified in the Schedule to the Act. It
was submitted that if two separate items were specified in the Schedule to the
Act, then those two had to be treated as two separate and distinct items.
it may be noted that this case also lays down that if an item, after it is
taxed, is subjected to a process and changes its form, then it can again be
subjected to market fee in the different form. The examples given in this case
are that even though market fee is levied on cattle, subsequently milk, Ghee,
butter which are obtained from the cattle could also be exigible to levy of
market fee. This case, therefore, shows that by means of a process the very
nature of the item may change.
was also placed upon the case of State of Tamil Nadu v. Nellai Cotton Mills
Ltd. reported in (1990) 2 SCC 518. In this case it has been held that when an
Act has been judicially interpreted, Courts may study the subsequent action or
inaction of the legislature for clues as to legislative approval or disapproval
of judicial interpretation. It has been held that if the legislature by taking
note of the Judgment amends the statute appropriately by not giving any
different meaning from the view taken by the Court, with some justification, it
can be said that the legislature had accepted expressly or by implication the
judicial interpretation. It was submitted that by amending the Schedule to
include cashew kernel the State Government had accepted the fact that cashew
nut and cashew kernel were two separate and distinct commodities and now they
would be precluded from contending that these were not two separate and
was next placed upon the case of Commissioner of Income Tax v. N.C. Budharaja
& Co. reported in (1993) 204 ITR 413. It was submitted that the word
"production" has a wider connotation than the word
"manufacture". In this case it is held that every manufacture would
be characterised as production but every production would not amount to
manufacture. It is held that when the word "production" or
"produce" are used in juxtaposition with the word
"manufacture", they may bringing into existence new goods by a
process which may or may not amount to manufacture. It is held that these words
also take in all the by-products, intermediate products and residual products
which emerge in the course of manufacture of goods.
do not dispute that cashew nut and cashew kernel are two separate and distinct items/commodities.
The Respondent's submission is that the Appellants continue to be a trader even
in the sale transaction as they had bought/imported for purpose of processing
and then selling.
contend that merely because, by a process or by manufacture, a different item
comes into being does not make the processor or manufacturer a Producer. The
contend that a "Producer" is one who produces the initial Notified
Agricultural Produce. We are unable to agree with the submissions of Mr. Sarangan.
As can be seen from the Preamble the Act is to provide for better regulation of
marketing of agricultural produce. In the Act certain exemptions have been
given to Producer which exemptions have not been given either to Importer or an
Exporter or a Trader. These exemptions, therefore, have been given to Producer
because the Producer is the person who produces the main agricultural produce.
The main agricultural produce, which may be a Notified Agricultural Produce,
could then be converted into various other Notified Agricultural Produce/s by
subjecting the same to a process or manufacture. The person who so processes or
manufactures a different Notified Agricultural Produce would not be a Producer.
To be noted that an importer imports or causes goods to be imported into the
market area for the purpose of selling, processing, manufacturing or for any
other purpose, except for one's own domestic consumption. Thus, it is clear
that a person, who imports would not be a Producer. The import would be for
purpose of selling or processing or manufacturing or for any other purpose
except for one's own domestic consumption.
the term "Exporter" makes it clear that an exporter is not a
Producer. A trader is also is a person who buys Notified Agricultural Produce
for the purpose of selling or processing or manufacturing or for any other
purpose except for the purpose of domestic consumption. The definition of the
term "Trader" is not a restrictive definition. It is not restricted
to a person who only buys.
If a person
buys for domestic or personal consumption, then he would not be a trader. It is
only when a person buys for the purpose of selling or processing or
manufacturing that he would become a trader. Thus a person may buy, process or
manufacture and then sell. When he processes or manufactures Notified
Agricultural Produce which he had bought, it may change its character and
become another Notified Agricultural Produce. Thus, by way of examples, a
person may buy milk and through processes makes it into butter and/or cheese or
a person may buy hides and skins and by a process make it into leather.
However, merely because a distinct and separate Notified Agricultural Produce
comes into existence does not mean that the person who bought, processed and
sold ceases to be a Trader. The term "Trader" encumbrances not just
the purchase transaction but the entire transaction of purchase, processing,
manufacturing and selling.
this behalf the case of Himachal pradesh Marketing Board v. Shankar Trading Co.
Pvt. Ltd. reported in 1997) 2 SCC 496, is relevant. Under the Himachal Pradesh
Agricultural Produce Markets Act, 1969, licences were required to be taken for
purchase, sale, storage or processing of agricultural produce and market fee
was also payable. Producers or growers however did not require a licence and
did not have to pay market fees. The Respondent Company (therein) was producing
"katha", a specified agricultural produce. They did this by
processing Khairwood. They claimed (like the Appellants in this case) that as
producers they did not need a licence and market fees were not payable by them.
This Court negatived this contention by holding that a person producing a
specified agricultural produce by processing a natural product does not fulfil
the requirement of being producer/grower. It was held that the clause of the
Act made it clear that only the actual grower/producer of the natural
agricultural produce were to be befitted. Of course the definition of the terms
in that Act are different. However in our view the basic principle is the same.
It applies to this case also.
also see no substance in the submission that if Section 65(2-A)(ii) did not
apply, then Section 65(2-A)(iv) would apply. Section 65(2-A)(iv) is residuary
clause. It would only apply if none of the other clauses applies. As it is
clear that the Appellants are Traders they squarely fall within Section 65(2-A)(iii).
In fact, they may also fall within Section 65(2- A)(ia). As they fall within
these two clauses there is no question of the residuary clause applying.
these circumstances, we see no infirmity in the Judgment of the High Court. We
see no reason to interfere.
Appeals stand dismissed. There will, however, be no Order as to costs.