M/S. Kesarwani Zarda Bhandar Vs. State of U.P. & Ors. [2008] INSC
922 (14 May
2008)
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 5760 & 5761 of 2005
Kesarwani Zarda Bhandar .... Appellant Versus State of U.P. and others ....
Respondents
S.B. SINHA, J.
1. Levy of market fee on Zafrani
Zarda in terms of the provisions of the U.P. Krishi Utpadan Mandi Adhiniyam,
1964 (for short, `the Act') is in question in these appeals which arise out of
a common judgment and order dated 21st July, 2003.
2. The Act was enacted to provide
for the regulation of sale and purchase of agricultural produce and for the
establishment, superintendence and control of markets therefor in Uttar
Pradesh.
2
3. Before embarking on the
question, we may notice some of the relevant provisions of the Act.
Section 2(a), 2(d), 6, 8,
17(iii)(b) read as under:
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;
2(a-1) "Board" means the
State Agricultural Produce Markets Board constituted under Section 26-A;
2(d) "Central Warehousing
Corporation"
means the Central Warehousing
Corporation established or deemed to be established under the Warehousing
Corporations Act, 1962;
2(d-1)"Collector", in
relation to a Committee for a Market area means the Collector of the District
where the principal Market Yard of that Market Area is situated, and includes
such other officer as may be authorized by him in that behalf;
6. Declaration of Market Area.- On
the expiry of the period referred to in Section 5, the State Government shall
consider the objections received within the said period and may thereupon
declare, by notification in the Gazette, and in such other manner as may be
prescribed, that the whole or any specified portion of the area mentioned in
the notification under Section 5 shall be the Market Area in 3 respect of such
agricultural produce, and with effect from such date as may be specified in the
declaration.
8.
Alteration of Market Area and Modifications of the List of Agricultural produce.
-
(1) The
State Government, where it considers necessary or expedient in the public
interest so to do, may, by notification in the Gazette, and in such other manner
as may be prescribed and with effect from the date specified in the
notification,--
-
include any
agricultural produce in, or exclude any agricultural produce from, the list of
agricultural produce specified in the notification under Section 6 ;
-
include any
area in, or exclude any area from, the Market Area specified in the notification
under Section 6 ;
-
divide a
Market Area specified in the notification under Section 6 into two or more
separate Market Areas ;
-
amalgamate
two or more Market Areas specified in the notification under Section 6 into one
Market Area ; or (e) declare that a Market Area specified in the notification
under Section 6 shall cease to be such area :
Provided that before action under
this sub- section is taken, the State Government shall invite and consider, in
the prescribed manner, objections, if any, against the proposed action.
(2) When during the term of a
Market Committee the limits of the Market Area for which it is established are
altered under clause 4 (b), clause (c) or clause (d) of sub-section (1), the
following consequences shall, with effect from the date specified in the
notification, follow :
(a) the Market Committee shall
stand dissolved and its members shall vacate their offices as such members ;
(b) a new Market Committee shall
be constituted for the modified or newly created Market Area in accordance with
the provisions of Section 13 ;
(c) all property and assets, all
rights, liabilities and obligations of the dissolved Market Committee in
respect of civil or criminal proceedings, contracts, agreements or other matter
or thing arising in relation to any part of the Market Area of a dissolved
Market Committee shall be vested in and stand transferred to the new Market
Committee having jurisdiction over that part.
(3) Where a Market Area ceases to
be such area under clause (e) of sub-section (1), the following consequences
shall, with effect from the date specified in the notification, follow :
(a) the Market Committee shall
stand dissolved and its members shall vacate their offices as such members ;
(b) the Principal Market Yard and
Sub- Market Yards, if any, established therein shall cease to be such ;
(c) the unspent balances of the
Market Committee Fund and other assets and liabilities of the Market Committee
shall vest in the State Government :
5 Provided that the liability of
the State Government shall not extend beyond the assets so vested.
17. Powers of the Committee.--A
Committee shall, for the purposes of this Act, have the power to-- (i) &
(ii) ....
(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 specific 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 realized in the following manner :- (1) If the
produce is sold through a commission agent, the commission agent may realize
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 a producer, the trader shall be liable to pay the
market fee and development cess to the Committee;
6 (3) if the produce is purchased
by a trader from another trader, the trader selling the produce may realize 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 judgment, 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
realized 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 realized 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
opition 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 7 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 no such specified agricultural produce market
fee or development cess has already been levied in any other market area."
4. In the Schedule appended to the
Act, tobacco is mentioned at Item No.V.
The question which arises for
consideration is as to whether Zafrani Zarda is a processed form or
manufactured form prepared from the raw material tobacco.
The process undertaken to manufacture
Zafrani Zarda is admitted. It was stated by the appellant in their writ
petition to be as under:- "7. That the petitioner used to purchase the raw
tobacco/processed tobacco out side the Mandi Samiti Allahabad. However, it is
stated that the Zafrani Zarda or Zafrani Patti is used for chewing which is
prepared from the raw 8 tobacco. The Jaggery Juice is sprinkled on the raw
Tobacco and then it is cut into small pieces by shearing machine. The resulting
tobacco is called as "nice tobacco'. The `Nice Tobacco"
is allowed to dry for few days and
then flavouring essence are being sprinkled on it and at this stage, this
tobacco is known as "Chewing tobacco". Then, thereafter, menthol,
Geru, Lime and spices etc. are being homogeneously mixed with the same, either
from electric machine or by the manually operated machine. These items get un-
separately mixed with the processed tobacco and the resulting tobacco is called
as "Zafrani Zarda" and "Zafrani patti" In this way, the raw
tobacco looses its original identity and its physical and chemical properties
are changed.
It is a different commodity in the
commercial world as well as amongst the consumers. The quality, cost and liking
amongst the consumers are vary according to the material mixed with it."
5. Mr. Rakesh Dwivedi, learned
senior counsel appearing on behalf of the appellant, would submit that the
question, i.e., it is a manufactured form as agricultural produce, is no longer
res integra in view of several decisions of this Court.
6. On the other hand, Ms. Shobha
Dikshit, learned senior counsel appearing on behalf of the respondents, submits
that Zafrani Zarda is a processed form of tobacco.
9
7. It is not in dispute that
having regard to the definition of `agricultural produce' as contained in Section
2(a) of the Act as also Section 2(d) therein, market fee would be leviable only
in the event Zafrani Zarda is held to be a processed form of tobacco and not
the manufactured form.
8. The question came up for
consideration before this Court in State of Madras v. Swastik Tobacco Factory,
[ (1966) 3 SCR 79 ] wherein, upon taking into consideration the provisions of
Section 5(1)(i) of the Madras General Sales Tax (Turnover and Assessment)
Rules, 1939, it was held that Zafrani Zarda is a manufactured form of tobacco.
9. The issue apparently is
directly covered by a decision of this Court in Agricultural Produce Market
Committee v. Prabhat Zarda Factory, [ 1994 Supp (2) SCC 514 ], in relation to
the definition of `agricultural produce' as contained in Bihar Agricultural
Produce Markets Act, 1960, which is pari materia with the definition of
`agricultural produce' under 2 (a) of the Act, which reads :- `` `Agricultural
produce' includes all produce, whether processed or non-processed of
agriculture, horticulture, animal husbandry, and forest specified in the
Schedule.'' Later, however, the said definition was amended by the Amending Act
of 1982 10 effective from April 30, 1982, the English rendering of which is as
under:
`` `Agricultural produce' means
all produce whether processed or non- processed, manufactured or not, product
of agriculture, horticulture, plantation, animal husbandry, forest,
sericulture, pisciculture, livestock or poultry, as specified in the
Schedule.''
10. This Court clearly affirmed
the finding of the Patna High Court that `Zarda' is a variety of manufactured
tobacco and not in its processed or non-processed form.
11. Similar reasonings have been
adopted by this Court in Dharampal Satyapal v. CCE, [ (2005) 4 SCC 337 ]
wherein in relation to levy of central excise, it was held :- "19.
Applying the above tests to the facts of this case, we find that sada kimam was
bought by the assessee as a raw material which was then blended with saffron,
perfumes, menthol, etc. to form a compound which was then packed in
"balties" and cleared to the above three licensed units at Okhla
Industrial Estate, Phase II, New Delhi, Noida (U.P.) and Barotiwala (H.P.),
where Tulsi Zafrani Zarda was manufactured. That, the assessee used to buy a
similar compound (Lucknowi kimam) from the market from time to time and use it
in the manufacture of their final product. That, the compound (kimam) prepared
by the assessee at 96, Okhla Industrial Estate, 11 Phase III, New Delhi and at
E-1, Maharani Bagh, New Delhi, in the highly concentrated form, was cleared
therefrom and taken to the above three licensed factories where it was diluted
and used in the manufacture of Tulsi Zafrani Zarda. In their reply to the
show-cause notice, the assessee admitted that the said "compound" was
not capable of being used for any purpose, other than for manufacture of
branded chewing tobacco. (underline* supplied by us) This statement of the
assessee in reply to the show- cause notice establishes that the said compound
(kimam) was not edible, it was not capable of consumption as such, however, it
was used as preparation in the manufacture of Tulsi Zafrani Zarda which was a
branded chewing tobacco manufactured in the licensed factories of the assessee
at Okhla Industrial Estate, Phase II, New Delhi, Noida (U.P.) and Barotiwala
(H.P.).
Further, from time to time, the
assessee herein bought from the market a similar compound (Lucknowi kimam) and
used it in the manufacture of the final product which indicated that on
blending of sada kimam with saffron, spices, menthol, etc., the compound in
question (kimam) which emerged was a distinct, identifiable product, known to
the market as kimam. Hence, we do not find any infirmity in the impugned
judgment of the Tribunal which has held that the said compound (kimam) was
marketable and classifiable as chewing tobacco or a preparation for chewing
tobacco under Chapter Sub-Headings 2404.49/2404.40."
12. Indisputably an agricultural
produce has to be a specified one for the purpose of levy of market fee. [ See
KUMS v. Ganga Dal Mills, 12 [(1984) 4 SCC 516 ; Belsund Sugar Co. Ltd. v. State
of Bihar and others, [ (1999) 9 SCC 620 ] and Krishi Utpadan Mandi Samiti and
others v. Pilibhit Pantnagar Beej Ltd. and and another, [ (2004) 1 SCC 391.
13. Ms. Shobha Dikshit, however,
relied upon the decision of this Court in Park Leather (P) Ltd. v. State of
U.P. and others, [ (2001) 3 SCC 135 ] wherein a Division Bench opined that
leather is only a processed form of hides and skins. Process undertaken for
making leather from hides and skins has been noticed therein.
14. It is not in dispute that when
a new form comes into being and in the market parlance it is considered to be a
new product; the same would be deemed to be manufactured goods as
contradistinguished from processed goods.
15. Market fee is leviable on
specified agricultural produce, not on agricultural produce simplicitor. Zarda
is not a specified agricultural produce. It can be subjected to payment of
market fee provided it is held to be `tobacco'. Zafrani Zarda, as an
agricultural produce for the purpose of market fee must answer the description
of `specified agricultural produce' as defined in Section 2(a) of the Act. If
it is held that Zafrani 13 Zarda is merely a processed form of tobacoo, it
would be subjected to levy of market fee, but if it is manufactured, it would
not.
16. In this case, Zafrani Zarda,
in view of the decision of this Court in Prabhat Zarda (supra), must be held to
be a manufactured product.
17. The distinction between
`manufactured' and `processed' may not in all situation depend upon the nature
of the Statute involved. It must pass the requisite test, namely, as to whether
it is a completely new item.
Raw material of a manufactured
product has to be distinguished from the manufactured product.
The distinction between
`processing' and `manufacturing' is well known. When a new thing comes into
being, the steps which are taken for manufacture may be relevant but may not be
decisive. {[See Commissioner of Central Excise, Tamil Nadu v. Vinayaga Body
Building Industries Ltd. [(2008) 3 SCC 666]}.
18. Zafrani Zarda being a
`manufactured tobacco' would not answer the description of processed tobacco.
It is used by a class of consumers.
It is used for a specific purpose.
Tobacco as a processed form is used for many purposes, by many persons and in
many ways. Tobacco in raw form or in any other processed form is not
commercially known as Zarda.
14 The common parlance test may
have to be applied for the purpose of finding out as to whether the product in
question is manufactured goods or not.
19. The High Court, unfortunately,
had not considered this aspect of the matter. The impugned judgment cannot,
thus, be sustained. It is set aside accordingly. The appeals are allowed. In
the facts and circumstances of the case, there shall be no order as to costs.
.......................................J.
(S.B. SINHA)
..........................................
J.
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