Krishi
Utpadan Mandi Samiti & Ors Vs. Pilibhit Pantnagar Beej Ltd. & Anr
[2003] Insc 599 (28
November 2003)
Cji.
& Dr. Ar. Lakshmanan. Dr. Ar. Lakshmanan, J.
The
unsuccessful respondents 2,3 and 4 before the High Court of Allahabad are the
appellants in this appeal. The writ petition was filed by the first respondent
herein to quash the order dated 12.03.1999 (Annexure 17 to the writ petition)
and for mandamus restraining the appellants herein from interfering in the
business in certified seeds either before or after processing and further in
restraining the appellants from demanding and realising market fee on the
transaction of unprocessed or processed certified seeds.
A
Division Bench of the Allahabad High Court allowed the writ petition following
the decision of this Court in State of Rajasthan vs. Rajasthan Agriculture
Input Dealers Association reported in AIR 1996 SC 2179 which has also been
followed by the Division Bench of the said Court in Writ Petition No. 7262 of
1993 dated 18.12.1996. The High Court quashed the impugned order dated
12.03.1999 and also held that the respondents in the writ petition/appellants
herein cannot charge mandi fee on the seeds in which the first respondent
herein deals. Aggrieved by the judgment of the High Court in Civil (M) No.
17877 of 1999 dated 25.08.1999, a Special Leave Petition was filed under
Article 136 of the Constitution of India. When the Special Leave Petition came
up for hearing on 06.09.2001, leave was granted by this Court and considering
the importance of the questions involved, the matter was placed before Hon'ble
the Chief Justice for referring to a larger Bench.
The
facts giving rise to this appeal are stated below:- The U.P. Krishi Utpadan Mandi
Adhiniyam, 1964 (hereinafter referred to as "the Adhiniyam") was
enacted to regulate sale and purchase of agricultural produce and for
establishment, superintendence and control of market in U.P. Section 6 provides
for declaration of market area and Sections 9 and 10 prohibit business of
specified agricultural produce in such market areas without licence.
Specified
Agricultural produce is defined under Section 2 (a) of the Adhiniyam, as
follows:
"2(a)
`agricultural produce' means such items of produce of agriculture,
horticulture, viticulture, apiculture, sericulture, pisciculture, animal
husbandry or forest as are specified in the Schedule, and includes admixture of
two or more of such items, and also includes any such item in processed form,
and further includes gur, rab, shakkar, khandsari and jaggery." The schedule
appended to the Adhiniyam provides a list of agriculture produce.
Section
17(iii) of the Adhiniyam provides for imposition of market fee on the
transactions of such specified agricultural produce in the market area, on such
rates notified by the State. Wheat is specified in the Schedule at Serial No.1
under the heading of cereals. It was submitted that wherever seeds have been
intended to be notified, it has been specifically mentioned as seeds. In case
of wheat, however, it has not been notified for seed and thus the seeds of
wheat are not covered in the Schedule and are thus not covered by the
definition of Specified Agricultural Produce.
The
first respondent-company is a private limited company, engaged in production of
certified seeds since 1996-97 and holds valid registration certificate from the
District Agriculture Officer, Pilibhit under the Seeds Control Order 10983
valid upto 25.5.2000 and holds a certificate of registration from the U.P.
Seeds Certification Agency, Alam Bagh, Lucknow.
According
to the first respondent, the business of the company is to purchase `breeder
seeds' from Agricultural Research Institute and to produce `certified seeds'.
The
first step of production is to distribute this breeder seeds to the listed and
scheduled farmers. The breeder seeds are sown and are germinated under strict
supervision of the statutory Seeds Certification Agency, set up under the Seeds
Act, 1966 (hereinafter referred to as "the Act"). The harvest is
selected carefully under supervision of the Agency. The lots which do not
conform to specifications are rejected.
It was
further submitted that the standardized seeds so obtained are called
`Foundation Seeds'. These foundation seeds are thereafter again supplied to the
listed farmers variety wise with intimation to the Agency. The farmers sow
these foundation seeds which are again supervised by the Agency. This crop is
again germinated under strict supervision of the agency and once again the lots
rejected are not taken back by farmers. After harvesting the approved standardised
certified seeds, these lots are fumigated for preservation under the samples of
each lot is tested in the laboratories of Seeds Certification Agency at Alam Bagh(Lucknow), Kanpur, Rudrapur (Udham Singh Nagar). The rejected lots and losses
at processing are returned to farmers only after the foundation seeds are
certified as conforming to specifications, the lots are subjected to treatment
with insecticides (Cell phose, Quick phose) and pesticides (thiram and barastin)
at the time of packing.
It is
the case of the first respondent that the bags are marked as poison and are
thereafter marketed. The entire production, operation is supervised by the Seed
Certification Agency. It was submitted that until the seeds are certified they
continue to be the property of the farmer, who agrees to such agreement on the
foundation seed distribution form. In the year 1988, the Market Committee
issued notices to the companies engaged in certified seeds. The notices were
challenged and that after contest, the High Court allowed the writ petition
holding that certified seeds are not specified agricultural produce and the
notices issued by the Mandi Samiti were quashed. The aforesaid judgment was
challenged by the Mandi Samiti in Civil Appeal Nos. 106-110 of 1990. This Court
relying upon the judgment in State of Rajasthan vs. Rajasthan Agriculrural Input Dealers Association, (supra) dismissed
the civil appeals. Based on the aforesaid judgment, all the pending writ
petitions were also decided in favour of the dealers in certified seeds.
However, by notice dated 15.10.1997, the Mandi Samiti directed the Ist
respondent to deposit the market fee on seeds. The first respondent submitted a
detailed reply annexing certificates issued by the Seeds Certification Agency
and the other relevant documents. The first respondent also submitted that they
are not dealing in sale and purchase of food grains or wheat but deals only in
certified seeds and that the stock stored by them were not of wheat but by the
certified seeds of wheat under the supervision of the U.P. Seeds Certification
Agency. The appellants rejected the representation of the first respondent and
directed them to pay market fee. The first respondent challenged the aforesaid
order by filing Writ Petition No.1090 of 1997. Again by Notification dated
11.8.1998, the first respondent was required to submit information regarding
sale and purchase of wheat for the year 1997-1998. A reply was submitted
protesting the demands against law laid down by this Court. Aggrieved by the
demands, the first respondent filed Writ Petition No. 32740 of 1998 against the
order dated 22.9.1998. The writ petition was disposed of with a direction to
the first respondent herein to file a fresh representation. In pursuance of the
aforesaid order, the first respondent filed a detailed representation dated
15.2.1999. The representation was rejected by the appellants on 12.3.1999 and a
demand has been made for payment of market fee which was again challenged by
the first respondent herein by filing the present Writ Petition No. 17877 of
1999 which was allowed by the High Court on 25.8.1999.
Against
the said judgment of the High Court, the above appeal by way of special leave
petition has been filed.
The
instant appeal raises the following questions of law:
(i)
What is the true scope and ambit of Section 2(a) and 17 iii (b) of the Krishi Utpadan
Mandi Samiti Adhiniyam, 1964?
(ii)
Whether the market fee can be levied on the purchases of wheat by the seed
processing unit to process and convert the same into certified seed by treating
it chemically?
(iii)
Whether there is any difference in wheat and wheat seed before it is chemically
treated and converted into certified seed and thus becomes unfit for human
consumption?
(iv)
Whether it is necessary, to notify seed of cereals which can itself be used as
seed when the object of the legislature was to notify only those seeds which
are different from produce itself?
On the
above pleadings, we heard Mr. Rakesh Dwivedi, learned senior counsel appearing
for the appellants and Mr. Dushyant A. Dave, learned senior counsel for the
contesting respondent.
It was
submitted by the appellants herein/respondents in the writ petition that after
the first respondent purchased wheat, they convert it into seed by applying
pesticides and other chemicals and then the sale was effected as wheat seed and
on this transaction, Mandi Samiti is not demanding market fee. It was also
submitted that the decision of this Court in State of Rajasthan vs. Rajasthan
Agricultural Input Dealers Association (supra) are not applicable in the case
of the first respondent and that what is purchased by the first respondent
herein is nothing but wheat and the entire transaction of wheat is within the
market area of Mandi Samiti, Pilibhit and hence subject to payment of market
fee. It was also submitted that the first respondent - Company is engaged in
producing certified seeds but for that purpose it purchases regularly wheat and
other commodities for preparing seeds and on these transactions, the first
respondent is liable to pay market fee. Before adverting to the respective
arguments, it is beneficial to reproduce sub-sections (a) & (b) of Section
17(iii) of the Adhiniyam, which reads as under:
"(iii)
levy and collect:
(a) such
fees as may be prescribed for the issue or renewal of licences; and
(b)
market fee, which shall be payable on transactions of sale of specified
agricultural produce in the market area at such rates, being not less than one percentum
and not more than two and a half percentum of the price of the agricultural
produce so sold as the State Government may specify by notification, and
development cess which shall be payable on such transactions of sale at the
rate of half percentum of the price of the agricultural produce so sold, and
such fee or development cess shall be realised in the following manner:-
(1) if
the produce is sold through a commission agent, the commission agent may realise
the market fee and the development cess from the purchaser and shall be liable
to pay the same to the Committee;
(2) if
the produce is purchased directly by a trader from the producer, the trader
shall be liable to pay the market fee and development cess to the Committee;
(3) if
the produce is purchased by a trader from another trader, the trader selling
the produce may realise it from the purchaser and shall be liable to pay the
market fee and development cess to the Committee:
Provided
that notwithstanding anything to the contrary contained in any judgement,
decree or order of any court, the trader selling the produce shall be liable
and be deemed always to have been liable with effect from June 12, 1973 to pay
the market fee to the Committee and shall not be absolved from such liability
on the ground that he has not realised it from the purchaser:
Provided
further that the trader selling the produce shall not be absolved from the
liability to pay the development cess on the ground that he has not realised it
from the purchaser;
(4) in
any other case of sale of such produce, the purchaser shall be liable to pay
the market fee and development cess to the Committee:
Provided
that no market fee or development cess shall be levied or collected on the
retail sale of any specified agricultural produce where such sale is made to
the consumer for his domestic consumption only:
Provided
further that notwithstanding anything contained in this Act, the Committee may
at the option of, as the case may be, the commission agent, trader or
purchaser, who has obtained the licence, accept a lump sum in lieu of the
amount of market fee or development cess that may be payable by him for an
agricultural year in respect of such specified agricultural produce, for such
period, or such terms and in such manner as the State Government may, by
notified order specify:
Provided
also that no market fee or development cess shall be levied on transactions of
sale of specified agricultural produce on which market fee or development cess
has been levied in any market area if the trader furnishes in the form and
manner prescribed, a declaration or certificate that on such specified
agricultural produce market fee or development cess has already been levied in
any other market area." It was submitted by Mr. Rakesh Dwivedi, learned
senior counsel appearing for the appellants that the first respondent being the
purchaser/trader is liable to pay market fee under Section 17(iii) of the Act
and that the contention of the respondent that they sell wheat and the entire
transaction is of wheat within the market area of Mandi Samiti cannot be
accepted.
Mr. Rakesh
Dwivedi, learned senior counsel for the appellants, submitted that at the time
of hearing in the case of State of Rajasthan vs. Mangi Lal Pindwal, 1996(5) SCC
60 by this Court, it could not be brought to the notice of this Court that the
intention of the legislature was to notify only those seeds which are different
from its produce and that the definition of agricultural produce being so wide
that seeds of the cereals are included in that entry and hence there was no
necessity to notify the same separately because there is no difference in Bazra
or seed of Bazra. It was also submitted that in the aforesaid judgment, this
Court has held that seeds which are manufactured after chemical treatment of Bazra
by adding insecticides the market fee cannot be levied on the sale and purchase
of the same because the same cannot be used for human consumption and ceases to
be a cereal. Therefore, it is clear that before chemical treatment Bazra
remains an agricultural produce and sale and purchase of the same attracts
imposition of market fee. Arguing further, learned senior counsel for the
appellants contended that the High Court failed to appreciate that the cereals
are seeds itself and hence the same have not been notified separately because
there is no difference between wheat and seed of wheat and that Wheat includes
its seed. Otherwise also the appellant is imposing market fee on wheat and not
its certified seed as manufactured by the first respondent. Concluding his
arguments, learned senior counsel, submitted that since the Wheat purchased by
the first respondent is neither chemically treated nor the same unfit for the
human consumption and hence market fee was rightly imposed.
Per
contra, Mr. Dushyant A. Dave, learned senior counsel appearing for the first
respondent, submitted that the respondent is not dealing in sale and purchase
of food grains or wheat but deals only in certified seeds and the stocks stored
by them were not of wheat but the certified seeds of wheat. It was further submitted
that the first respondent purchases breeder seeds from Agricultural
Universities and that seeds of Wheat is not included in the Schedule to the Adhiniyam.
It was further argued that the first respondent intakes only the standardised
and certified seeds from the farmers and the undersize, oversize and seeds
found unfit by Seed Certificate Agency are returned to the farmers and the
certified seeds so purchased are thereafter chemically treated at the
processing plant and, therefore, these certified seeds either before processing
with chemical or thereafter do not fall within the definition of term
"wheat" and its purchasers are not liable to market fee.
At the
time of hearing, our attention was drawn to a note on method and process of
seed production submitted by the first respondent. The principle and method of
production, as submitted in the note, is as under:-
"1.
Reasons for Seed Production:
All
high yielding seeds are made by scientists by changing the composition of genes
in the seeds so that the seed gives high yields.
However,
nature's force has a tendency to change the seeds over a period of time and,
therefore, it is necessary to produce pure seed year after year.
2.
Laws governing seeds business:
2.1
The seed industry for production and sale is regulated under the Seeds Act,
1966 and Rules and Seed Control Order, 1983. Under the seeds Act, the
Government has made State Seed Certification Agencies who are responsible to
certify seeds and monitor their production and sales.
2.2
"The Indian Minimum Seed Standards" lays down the minimum seed
standards required for each crop which can be certified.
3.
Method of Seed Production:
3.1
The company purchases breeder seed from the Agricultural Universities and then
produces the next stage i.e. foundation seeds. These foundation seeds are given
to contract farmers for further production to certified seed.
This
certified seed is sold to trade and subsequently to farmers. Foundation Seed is
the progeny of Breeder Seed and certified seed the progeny of Foundation Seed.
4.
Procedure of production:
4.1
Purchase of breeder seeds from universities.(Rule 14(a))
4.2
Classification of foundation seed from breeder seed.( Rule 14(a))
4.3
Giving foundation seed to contract farmers. (Rule 14(c)) 4.4. Registration of
the contract farmers with the State Seed Certification Agency and payment of
registration and inspection charges to the agency.(Rule 6(d) & Form I) 4.5
Sowing the foundation seed by the contract farmer in his field.
4.6
Inspection of the farmer's field by an inspector of all the State Seed
Certification Agency, at least two times during the growth of the crop.(Rule
6(k))
4.7
Submission of final field report by the State Seed Certification Agency,
inspector stating that the crop meets the standards or rejecting the crop if it
does not meet the standards. The final filed report also states the estimated
quantity of produce of every field and farmer which the Company can purchase(Rule
6(k) and 23(e))
4.8 If
the farmers seed crop has been found satisfactory and indicated as such in the
final field report prepared by the State Seed Certificate Agency inspector it
is purchased by the company and the seed stored in company godowns.
4.9
The seed is then processed under the supervision of an inspector of the State
Seed Certification Agency who takes samples and sends them to the Government
Seed Testing Laboratory. (Rule 6(g) & 6(e)) 4.10 After testing the
Government Seed Testing Laboratory gives a report which shows that either the
seed meets the "Minimum Seed Standards" or it does not.(Rule 21(3))
4.11 If the seed meets the "Minimum Seed Standards", the chemical
treatment and baging of the seeds is made under the supervision of an inspector
of the State Seed Certification Agency.(Rule 17A) 4.12 After the seed is put in
bag the inspector of the Seed Certification Agency will seal and tag each bag
and this seed and bag is called certified seed which goes to the market.(Rule
17 II) 4.13 The seed inspector will also give a certificate to the company
stating that the seed has been found above the "Minimum Seed
Standards" and has been certified as such by the State Seed Certification
Agency.(Rule17)" A letter under Reference No. 3374/12-5-2001-600(88)/93
dated 7th January, 2002 sent by the Secretary, U.P. Government to the Director,
Mandi Parishad, U.P.
Lucknow,
was placed before us for our perusal with an english translation and Hindi
version. The english translation of the letter reads thus:
"No.3374/12-5-2001-600(88)/93
From : Dr. Naseem Jedi, Secretary, U.P. Government To Director Mandi Parishad
U.P. Lucknow.
Krishi
Anubhag - 5 Lucknow: Dated 07 January, 2002 Sub:- Exemption of certified seeds
by Trade Tax Department and accordingly exemption of certified seeds by Mandi Parishad
from Mandi Tax.
Sir,
Regarding your letter dated 13.08.2001, in relation to the above subject
No.V.P/M.SH/760/T.C.II Khand/86-2001-1220, I have been ordered to inform you
that the production of certified seeds of various crops is taken through
farmers and then this seed is procured by the corporation in uncertified form,
after which it goes through the certification procedures and chemical
treatment, and finally certified seed is produced. Therefore, please note that
for production of certified seeds, on the purchase of raw uncertified seeds
there will be no Mandi Tax Liability. Please ensure immediately and appropriate
action to enforce this decision. (Emphasis supplied) Yours faithfully' Sd/- (Dr.Naseem
Jedi) Secretary" A reading of the said letter would also show that the
production of certified seeds, on the purchase of raw uncertified seeds there
will be no Mandi Tax Liability.
Learned
senior counsel appearing for the parties also drew our attention to the
relevant provisions of the Seeds Act, 1966 (Act No. 54 of 1966) and the Seeds
Rules, 1968 (hereinafter referred to as "the Rules"). We have also
perused the Schedule (Sections 2(a) and 4-A) to the Addhiniyam in which under
the Heading A-Agriculture, Wheat is included as Item No.1 in the sub-heading
Cereals. In the Statement of Objects and Reasons, it is stated that in the
interest of increased agricultural production in the country, it is considered
necessary to regulate the quality of certain seeds, such as seeds of food
crops, cotton seeds, etc. to be sold for purposes of agriculture including horticulture.
Section
2 of the Act deals with definition of "Agricultural produce" ,
"Certification Agency" and the "Seed" etc. Section 2(11)
defines Seed which means any of the following classes of seeds used for sowing
or planting -'
(i) seeds
of food crops including edible oil seeds and seeds of fruits and vegetables;
(ii) cotton
seeds;
(iii) seeds
of cattle fodder;
(iv)
jute seeds, and includes seedlings, and tubers, bulbs, rhizomes, roots,
cuttings, all types of grafts and other vegetatively propagated material, of
food crops or cattle fodder;
Under
Section 3 of the Act, the Central Government has the authority to constitute a
Committee called the Central Seed Committee to advice the Central Government
and the State Governments on matters arising out of the administration of this
Act and to carry out the other functions assigned to it by or under this Act.
Section 4 deals with the authority of the Central Government to establish a
Central Seed Laboratory or declare any seed laboratory as the Central Seed Laboratory
to carry out the functions entrusted to the Central Seed Laboratory by or under
this Act. Section 5 of the Act deals with power to notify kinds or varieties of
seeds by the Central Government. Section 6 of the Act deals with the power of
the Central Government to specify minimum limits of germination and purity,
etc. Section 8 of the Act deals with Certification Agency which authorises the
State Government or the Central Government to establish a Certification Agency
for the State to carry out the functions entrusted to the Certification Agency
by or under this Act. Section 9 provides the procedure for grant of certificate
by Certification Agency. Section 25 deals with power of the Central Government
to make Rules.
Rule
2(e) of the Rules defines "certified seed". Under Rule 2(f) of the
Rules "Certified seed producer" has been defined. Rule 2(j) defines
"processing" and 2(m) defines "treated". The functions of
the Central Seed Laboratory has been dealt with under Rule 5 of the Rules. The functions
of the Certification Agency has been specified under Rule 6 of the Rules. Rule
15 deals with the procedure for making application for the grant of certificate
under sub-section(1) of Rule 9. Form I is prescribed for application for Seed
production under the Seeds Certification programme. We are not now concerned
with the other Rules.
We
have already reproduced Section 2(a) and Section 17(iii) of the Adhiniyam.
Section
17(iii) of the Adhiniyam provides for imposition of market fee on the
transactions of sale of specified agricultural produce in the market area at
such rates notified by the State. As already noticed, Wheat is specified in the
Schedule at S.No.1 under the Heading 'Cereals'. A perusal of the Schedule would
show that wherever seeds have been intended to be notified, it has been
specifically mentioned as Seeds.
In
case of Wheat, however, Schedule does not provide or notify seed of wheat and
thus the seeds of wheat are not specified in the Schedule and are thus not
covered by the definition of Agricultural produce. We have also referred to the
Objects and Reasons for enacting the Seeds Act, 1966 and the Seeds Rules, 1968.
As already seen, Seeds Rules, 1968 have made detailed provisions of production
, processing and certification of seeds under the Seed Certification Agency.
The Central Government in order to exempt the movement of seeds and in exercise
of its powers under the Essential Commodities Act, has enacted Foodgrains
Movement Restriction (Exemption of Seeds) Orders, 1970 and the Seeds Control
Order, 1983. The seeds are also exempted from Sales Tax under an exemption
Notification dated 19.8.1970 issued under Section 4(1)(a) of the Act (Annexure
CA 3).
We
have already referred to the essential conditions incorporated in the
Certificate of Registration. One of the essential conditions incorporated in
the Certificate of Registration is that the certificate holder shall not carry
on any business such as dealing in food grains, other than the business of sale
of certified seeds.
Under
the terms and conditions of such certificate, the first respondent is not
carrying any other business except the business of certified seeds and it is
also not in dispute that the respondent does not hold any other licence for
dealing in food grains including wheat.
It was
also argued by Mr. Dushyant A. Dave that the Market Committee has completely
failed to appreciate the declaration of law in the case of State of Rajasthan vs. Rajasthan Agriculture Input
Dealer Dealers Association (supra) affirmed by this Court on 21.8.1996. In
these orders, two reasonings were adopted to hold that the transaction of seeds
do not attract market fee namely
(a)
that the definition of agricultural produce includes items specified in
Schedule and that wherever it was intended to separately cerealised seeds, they
have been distinctly found mentioned in the Schedule and that wherever the
Schedule does not include seeds specifically in the serialised item such seeds
are not specified agricultural produce and
(b) on
the process of coating and applying insecticides, other chemicals and poisonous
substances the basic character i.e. its consumption as food by human being or
animals is irretrievably lost and that such commodity is distinct from food
grains.
The
decision of the State Government does not take into account the first reasoning
and treats only that commodity as seeds which is treated with chemicals and
that the action, in our view, is apparently and palpably wrong. It is to be
noticed that the farmers are paid prices on the certified seed only after its
certification and that the entire quantity of such seeds is chemically treated
and is thus a distinct commodity as certified seeds. It was denied that the
first respondent purchased wheat from farmers and the seeds purchased from the
farmers are of very high quality specified standardised seeds each of which
price is very high as compare to wheat. It is not sold in the market and cannot
be so sold as wheat and the entire quantity is taken for processing with
chemicals at processing plant. The High Court has, in our view, correctly
appreciated and accepted the contention of the respondent-Company and has
rightly relied upon the judgment of this Court in State of Rajasthan vs. Agricultural Input Dealers
Association (supra).
Learned
senior counsel appearing for the first respondent dew our attention to Annexure
CA 11 which is the representation in pursuance to the judgment of the High
Court in Writ Petition No.3274 of 1998. The relevant portion of the
representation reads as under:
"Thus
our business procedure makes it clear that by the time we purchase seeds from
farmers it remain no longer simple unprocessed seed but it comes into the
category of certified seed after chemical treatment. At the time of purchase,
this wheat is necessary to be determined is the nature of commodity at the time
of purchase. As per the specific view taken by Hon'ble Supreme Court in M/s
State of Rajasthan Agriculture Input Dealer Association ( AIR 1996 2179) seed
undergone chemical and pesticide treatment is an entirely different commodity
and the same is not subject to market fee on account of its non inclusion on
the Schedule of Mandi Act.
Under
provisions of Section 17(iii)(b)(2) of the Mandi Act if agricultural produce is
purchased directly by a trader from a producer, the trader shall be liable to
pay the market fee but in the present circumstances it is clear that we have
purchased only certified seeds from the farmers and certified seed not being
scheduled produced the same is not liable to fee at our level.
In the
same reference, the decision taken in the meeting dated 16.5.1998 presided by
Secretary Agriculture is also important. In the abovesaid meeting, it has been
decided that if trader purchases unprocessed seed before chemical treatment in
that case the trader is liable to pay market fee on such purchase of
unprocessed seeds. However, in the present case, the trader has not purchased
unprocessed seed before chemical treatment, therefore, trader is not liable to
pay fee on such purchases. Thus direction issued by Secretary Agriculture in
meeting dated 16.5.1998 also support trader's stand." I.A.No.3 of 2001 is
filed by the first respondent for seeking permission to place on record a
letter dated 19.1.2000 annexed as Annexure A which is very important for the
final adjudication of the case. The said I.A. be taken on record. By the said
I.A., the first respondent sought to place on record a letter dated 19.1.2000
addressed by the Principal Secretary, Government of Uttar Pradesh to the
Commissioner, Trade Tax Department, Government of Uttar Pradesh directing that
instructions be issued to the taxation officers that when the growers or the
distributors, seed certification machinery sell the seeds in sealed containers
after producing themselves after certification along with the tag of the Uttar
Pradesh Certification Agency affixed as under the Central Seed Act, 1966 then
in such circumstances, no liability of purchase tax is attracted under Section
3 AAAA(4). We have perused the communication dated 19.01.2000 marked as Annexure
A.
The
judgment in the case of State of Rajasthan vs. Rajasthan Agriculture Iinput Dealers Association (supra) was
heavily relied on by the learned senior appearing for the first respondent. In
the said case, the respondent therein claimed themselves to be engaged in the
business of purchasing and selling seeds and , in particular, Bazra seeds.
According to them, seeds can not be termed to be agricultural Produce for the
purposes of the Rajasthan Agricultural Produce Market Act, 1961 and its
Schedule, as amended from time to time by the State Government in exercise of
powers under Section 40 enabling it to add, amend or cancel any of the items of
agricultural produce specified in the Schedule. It is maintained that seeds are
a processed item and coated by insecticides, chemicals and other poisonous
substances whereby the grains employed lose their use and utility as foodgrains
and become unfit for human or animal consumption or for extraction therefrom
for such consumption.
The
challenge posed by the respondents before the High Court was answered by the
appellants (State of Rajasthan) maintaining that foodgrains of all sorts, as
mentioned in the Schedule, were seeds, per se, the only exception carved out
from the items mentioned in the Schedule being those relating to blue tagged
certified seeds and white tagged certified foundation seeds; such exceptions
have been notified by way of amendment to the Schedule in exercise of the power
of the State Government under Section 40 of the Act. The High Court took the
view that when foodgrains of particular varieties were treated and subjected to
chemical process for preservation, those grains become commercially known as
"seeds". It was ordered that no licence under the Act was required
for sale of such seeds. On appeal, this Court held as under:
"It
is undoubtedly true that foodgrains per se could be used as seeds for being
sown and achieving germination, but in that form they retain the dual utility
of being foodgrains as well as seeds. By process of coating and applying
insecticides, other chemicals and poisonous substances to the foodgrain meant
to be utilised as seeds, one of its basic character, i.e., its consumption as
food by human beings or animals or for extraction for the like purpose, gets
irretrievably lost and such processed seeds become a commodity distinct from foodgrains
as commonly understood. That distinction was borne in mind by the High Court in
allowing the writ petition of the respondents, and in our view rightly."
The other decisions cited by the counsel for the appellants will not be of any
assistance in deciding the factual disputes involved in the instant case.
In our
view, the High Court has correctly applied the above judgment. This Court held
that no market fee could be levied by the State of Rajasthan on seeds on the ground that a seed
was distinct from foodgrains inasmuch as they were not fit for human
consumption. The ratio decidendi of the above decision is squarely applicable
to this case wherein the appellant seeks to give a wide connotation to the
words in the Schedule. In our opinion, that giving a wide interpretation is not
possible and as Wheat Seed is not included in the Schedule, the Mandi Samiti is
not allowed to levy a market fee on purchase. As the Mandi Samiti plays no role
in the trade of the respondent's seeds, it may not be allowed to levy the
market fee. It is also not in dispute that the Breeder Seeds are allocated by
the Ministry of Agriculture or by the Universities to the various seed
producing agencies and companies who multiply the breeder seeds into
foundations seeds.
It is
also very useful to refer hereunder the process by which the seed is
manufactured under the Seeds Act and the Seeds Rules:
"
(i) Seeds developed in laboratories are classified as Breeder Seeds and are
sold through the Ministry of Agriculture or notified Agriculture Universities
to producing agencies, Companies and farmers. Foundation Seeds (Stage I and II)
are developed as progenies of Breeder Seeds and are required to obtain a
Certificate from the Seed Certification Agency.
(ii)
The production of Foundation Seeds is supervised and approved by the
Certification Agency to maintain specific genetic identity and genetic purity
and are required to conform to certification standards specified for the crop/variety
being certified.
(iii)
The Foundation Seed is then grown by the farmer in a land earmarked
specifically for the sowing of the Foundation Seed. The offsprings of these
Seeds are terms as Certified Seeds, which too are required to meet the minimum
standards of genetic purity and genetic identity.
(iv)
It is only if the Seeds meet the minimum standards are they subsequently categorised
as Certified Seeds and can be purchased by the respondent for further
processing.
(v)
The processing done by the respondent is done under the aegis of an Inspector
of the State Seed Certification Agency and thereafter the samples are taken for
testing to notified Government Seed Testing laboratories.
(vi)
It is only after meeting the minimum standards of genetic purity and genetic
identity that the Seed is put in a bag that is sealed and tagged by the
Inspector of the Seed Certification Agency. It is this seed which is allowed to
be sold in the market and a certificate is issued by the Agency stating the
standards of the Seed and other particulars." It was submitted by the
first respondent that all the above mentioned stages of Certification are as
per the provisions of the Rules and that right from the inception to the time
when the Seed is sold in the market, it is done under regulation issued to
govern each and every stage of seed production and certificates are only issued
after the seed is found to achieve the minimum standards of genetic identity
and genetic purity. It was also pointed out that no such certification
standards exist for food grains sold by farmers to the Mandi Samiti. Thus the
production of seeds is an integrated process and needs to be regulated at every
stage, right from the inception, in order to maintain genetic identity and
genetic purity.
There
is no nexus whether the seed has been chemically treated or not and the levy of
market fees. Since the seed is a separate commodity from grain, the same is not
covered under Schedule I of the Adhiniyam and as such no market fee is leviable
over the sale and/or purchase of the same.
We
are, therefore, of the view that the seeds are not specified agricultural
produce under the provisions of the Act and, therefore, the business of
purchase and sale of seeds under the supervision of Seed Certification Agency established
under the Act is not a business of sale and purchase of specified agricultural
produce and as such the first respondent is not required to pay the market fee
or to take out a licence.
We are
also of the view that the respondents have grossly erred in ignoring the law
settled by this Court in the case of State of Rajasthan vs. Rajasthan Agricultural Input Dealers Association
(supra) under Article 141 of the Constitution in demanding market fee on seeds.
Since the processing of wheat resulting in loss of its basic characteristics of
being cereal, it cannot be subjected to levy as agricultural produce since the
purchase by the respondent is for the purpose of growing seeds, no levy is
permissible and, therefore, market fee cannot be imposed on seeds which are
unfit for human consumption.
Question
No.i Thus, the true scope and ambit of Section 2 (a) and 17 (iii) (b) of the
Act has been explained in paras supra.
Question
No. ii The appellant has no authority to levy market fee on the purchase of
wheat by the seed processing unit. This question is answered in the negative.
Question
No. iii Wheat seed converted into certified seed is unfit for human consumption
and, therefore, market fee levy is impermissible.
Question
No. iv The object of legislature was to notify only those seeds which are
different from the produce itself.
Thus
all the questions are answered as above.
The
argument of the counsel for the first respondent is well merited and founded on
sound legal principles and on practical and factual aspects of the matter.
For
the foregoing reasons, we hold that the appeal has no merit and is liable to be
rejected. Accordingly, we do so. However, there will be no order as to costs.
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