REPORTABLE
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
JUDGMENT
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. 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 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,-- (a) include any agricultural produce in, or
exclude any agricultural produce from,
the list of agricultural produce specified
in the notification under Section 6 ; (b) include any area in, or exclude any area
from, the Market Area specified in the
notification under Section 6 ; (c) divide a Market Area specified in the
notification under Section 6 into two or
more separate Market Areas ; (d) 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 subsection 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 (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 : 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;
(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
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
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. 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
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,
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, [(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 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. 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.
(LOKESHWAR SINGH PANTA) New Delhi May 14, 2008