Holding

The respondents are not producers within the meaning of the Act and therefore must obtain a licence under Section 4(3) and pay the market fee under Section 21.

Summary

The respondents, Shankar Trading Co. Pvt. Ltd. and others, bought khairwood (a forest agricultural produce) and processed it through a series of physical and chemical steps to produce katha, a catechu product listed in the schedule of the Himachal Pradesh Agricultural Produce Marketing Act. The Himachal Pradesh Marketing Board and the Marketing Committee directed the respondents to obtain a licence and pay a market fee under Sections 4(3) and 21 of the Act, contending that the respondents were dealers rather than exempt producers. The respondents challenged the demand in the Himachal Pradesh High Court, which held that Section 4(3) was not attracted and they were exempt from licence and fee. On appeal, the Supreme Court examined the definitions of "producer" (Sec. 2(h)) and "dealer" (Sec. 2(i)), the meaning of "process" and "manufacture", and the purpose of the Act to protect actual growers. The Court held that because the respondents did not grow the khairwood but merely purchased it and then manufactured katha, they could not claim the producer exemption and were liable to obtain a licence and pay the market fee. Consequently, the High Court's order was set aside and the appeal was allowed.

Issues considered

The respondents' status under the Himachal Pradesh Agricultural Produce Marketing Act: whether they are "producers" entitled to exemption from licence and market fee or "dealers" required to obtain a licence and pay fee.
Interpretation of the terms "process", "manufacture", "producer" and "dealer" in Sections 2(a), 2(h), 2(i) and 4(3) of the Act.
Whether Section 21 imposes a market fee on the sale of katha produced by the respondents.

Subjects

agricultural marketinglicencemarket feeproducer exemptiondealerprocessingmanufacturingkathakhairwoodHimachal Pradesh Marketing Act

Judgment

HIMACHAL PRADESH MARKETING BOARD AND OTHERS A
v.
SHANKAR TRADING COMPANY PVT. LTD. AND ORS.

SEPTEMBER 4, 1996

[G.N. RAY AND G.T. NANAVATI, JJ.] B

Himachal Pradesh Agricultural Produce Marketing Act-Sections 2(a),
2(4), (3), 21-0btaining licence and payment of market fe~Specified agricul-
tural produc~Subjected to physical and chemical processing-End product
distinct identity-Held fine distinction between simple processing fit for con- c
sumption and delicate manufacturing process completely separate end
product-Not entitled to exemption from obtaining licence and payment of
market fee.

The respondent a Private Limited Company purchased "Khainvood"
and processed it to convert the khainvood into "Katha". The appellant D
committee requested the respondents to obtain licence and pay the requi-
site market fee on ~he sale of "Katha" on the ground that the respondents
who produce "Katha" are manufacturers and those who act as dealers
under the marketing act were required to obtain licence and pay the
market fee for the trading activity. E

The respondents challenged the appellant's demand in the High
Court with the contention that the producers selling their manufactured
products which is also an agricultural produce are not required to obtain
a licence under the marketing act either for purpose of purchasing or for
selling. F

The High Court allowed the writ petition holding that Section 4(3)
of the Himachal Pradesh Agricultural Marketing Act, was not attracted
and the petitioners were not required to take any licence under the market-
ing Act. The High Court further held that the petitioners were not required G
to pay market fee under the Act.

In this appeal, it was contended by the appellant that the respon-
dents are not farmers or growers of agricultural products. The respon-
dents purchase khainvood which is an agricultural produce and then
subject the~ to manufacturing process to obtain the end product katha. H
515
516 SUPREME COURT REPORTS (1996] SUPP. 5 S.C.R.

A The respondents are therefore not entitled to be exempted from the obliga-
tion of obtaining licence for the purpose of selling or paying marketing fee
under the marketing Act.

The respondents submitted that the Marketing Act exempts
producer of the specified agricultural produce from the liability to obtain
B a licence an4 to pay market fee. Katha is a specified agricultural produce
which they are producing from khairwood. He further submitted that
manufacturing an item does not exclude the series of action contemplated
in processin·g the same item before it is used as a raw material in manufac-
turing, and that manufacture includes any process incidental or ancillary
c to completion of manufacturing a product.

Allowing the appeal, this Court

HELD : 1. Respondent cannot claim exemption from obtaining
•,

licence for processing khainvood for production of katha. Under the
D scheme of Himachal Pradesh Marketing Act it is only the actual producer
of an agricultural produce indicated under Section 2(a) of the Act, who is
exempted fr~m the requirement of obtaining licence and to pay market fee.
The respondents even though were producing katha, a specified agricul-
tural produc~ by proce~sing khairwood, cannot claim exemption from the
requirement of obtaining a licence under Section 4(3) and payment under
E Section 21 because they themselves have not grown the khairwood but have
purchased the agricultural produce from others and then subjected such
khairwood to various physical and chemical process for obtaining the end
product Katha. [527-H; 528-C-D; 529-E-F; 527-E]

p 2. The Marketing Act is primarily intended to benefit the actual
growers of agricultural produce. The producer or grower even when
required to undertake some processing whether simple or otherwise of the
. '
natural agricultural produce to make it consumption worthy does not
cease to be a· producer of the agricultural produce beca.use the natural
produce even after proceeding remains agricultural produce within the
G meaning of Section 2(a) of the Marketing Act. That apart the definition of
producer under Section 2(h) has taken care of. such processing activity.
Even though katha is a specified agricultural produce but it can be
obtained by subjecting the natural produce khairwood to a series of
delicate physical and chemical p·rocessing and the end product katha has
H not only distinct identity but has also physical character and chemical
H.P.MKTG. BO. v. SHANKAR ·nrnG. co. PVT. LTD [G.N. RAY,J.] 517

composition different from. khairwood grown by the farmer. The fine A
distinction between simple processing to make natural agricultural
produce lit for consumption and ddicate manufacturing process required
for obtaining katha, a completely separate end product cannot be accepted
because of inclusion of katha in the schedule. (528-G-H; 529-A-D]

17ze Commissioner of Income Tax, Madhya Pradesh and Bhopal v. B

.
'
Sodra Devi, (1958] SCR 1 and State of M.P. v. Hardeo, AIR (1994) SC 2538,
were referred.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 11464 of
~- c
From the Judgment and Order dated 30.11.94 of the Himachal
Pradesh High Court in W.P. No. 238 of 1989.

E.C. Agarwala, Atul Sharma, A.V. Palli, A.Y. Goel, Mrs. Sheela
Goel and Mrs. P. Bhat Kak for the Appellants. D
P.P. Rao, R. Venkataramani and S. Sukumaian for the Respondents.

T. Sridharan, Rajiv Nanda Tufail and A. Khan for the State.

The Judgment of the Court was delivered by E
G.N. RAY, J. Leave granted. Heard learned counsel for the parties.

The questions raised for decision in the appeal are as to whether the
respondents Nos. 1 to 3 who purchased khairwood and processed the same
and manufactured 'katha' are 'producers' within the meaning of the F
Himachal Pradesh Agricultural Produce Marketing Act (hereinafter
referred to as marketing Act) and whether the said respondents are also
'dealers' within the meaning of the Marketing Act and therefore they are
required to obtain licence for their trading activities under the said Market-
ing Act.
G
The respondent No. 1 Shanker Trading Co. Pvt. Ltd., is a private
limited company which has established its sale depot at Una which is within
the jurisdiction of the Marketing Committee at Una within the State of
Himachal Pradesh. The respondents purchased khairwood and processed
the said khairwood by subjecting the wood to various physical and chemical H
518 SUPREME COURT REPORTS [1996) SUPP. 5 S.C.R.

A processes and converted the khairwood into 'katha'. The appellant No. 1,
Himachal Pradesh Marketing Board, and the appellant No. 2, Marketing
Committee, Una, constituted by the Himachal Pradesh Marketing Board
under the Marketing Act, required the respondent No. 1 Shankar Trading
Co. Pvt. Ltd., to obtain licence and pay the requisite market fee @ 1% on
the sale of katha which are processed by. the said respondent during the
B
marketing year. The said demand for obtaining licence and to pay the
requisite market fee was made on the footing that the respondents who
produce katha are 'manufacturers' and as they also act as dealers of 'katha'
under the Marketing Act, they were required to obtain licence for the
trading activities within the mdrket area and to pay the requisite fee for
c such trading activity.

The respondents Nos. 1 to 3 challenged the appellants demand for
levy of market. fee and also the direction of the appellants asking the
respondents to obtain licence under the Marketing Act in the High Court
D Court of Him'a~hal Pradesh by filing a Writ Petition being Writ Petition
No. 238 of 1989. The said respondents contended that they were manufac-
turers of katha khairwood. Accordingly, they were not producers. In any
event, the producers selling their manufactured products which is also an
agricultural produce are not required to obtain a licence under the Market-
ing Act either for the purpose of producing or for selling. The appellants
E contested the said Writ Petition by filing a counter to the Writ Petition. It
was contended inter alia by the appellants that Section 2(h) of the said
Marketing Act only protects actual producers like the farmers but such
protection was not extended to the companies like the respondent No. 1.
It was further contended that the purpose of exemption of the 'producers'
F within the meaning of Section 2(h) of the Marketing Act was that such
farmers who were producers of agricultural produce within the meaning of
the Marketing Act were not required to obtain any licence for the purpose
of selling their own agricultural produce but the persons who purchases
the raw materials from outside and produce end product from such raw
materials are not exempted from obtaining the licence under the Marketing
G Act. The Marketing Act only envisages exemption of the farmers who
manufacture their agricultural produce but no such exemption is available
to a non agriculturist engaged in the manufacture of end product from the
agricultural produce.

H The said Writ Petition was, however, allowed by the impugned
H.P. MKTG. BD. v. SHANKAR 1RDG. CO. PVT. LID [G.N. RAY,J.) 519

. judgment dated Nove1nber 30, 1994. The High Court inter alia has come A
to the fin~ing that the.Gianufacturing processes required to be undertaken
for obtaining the end product katha from the khairwood as alleged in the
writ petition should be accepted in the absence of indicating any other
process by the respondents in the Writ Petition (the appellants herein) for
obtaining the end product katha from the khairwood. The High Court has B
indicated that katha is not grown and produced in the farms or by any
agricultural process. Though it is obtained from khairwood grown in the
farms but without resorting to manufacturing processes, the end product
katha cannot be obtained from the khairwood. The High Court has held
that in view of such manufacturing process, the manufacturers of a forest
produce as defined in Section 2(h) of the Marketing Act a,e not dealers
c
of katha within the meaning of Section 2(i) of the Marketing Act.

The High Court has held that the distinction between the producer
and the dealer is that a producer grows, manufactures, rears or produces
or manufacture the agricultural produce besides disposing of the same but D
a dealer only sets up or establishes a place for such purchase or storage
or processing of agricultural produce. A dealer does not produce agricul-
tural produce. Accordingly, the writ petitioners cannot be held dealers
within the meaning of Section 2(i) of the Marketing Act. The High Court
has further held that the Writ Petitioners are not dealers out in fact E
producers of katha and Section 4(3) of the Marketing Act is not attracted.
Hence, they are not required to take any licence under the Marketing Act.
The High Court has further held that as the writ petitioners are not
required to obtain any licence. Section 21 of the Marketing Act is also not
attracted and the writ petitioners therefore are not required to pay market
F
fee under the provisions of Section 21 of the Marketing Act. The direction
of the respondents in the writ petition requiring the writ petitioners to
obtain a licence and to pay market fee, therefore, cannot be sustained. Such
directions were, therefore, quashed by the High Court. In the impugned
order, the High Court has restrained the appellants from requiring the writ
petitioners from taking licence or paying fee under the Marketing Act. The G
High Court has further directed that amount of fee, if collected, would be
refunded to the Writ Petitioners.

It will be appropriate at this stage to refer to some of the provisions
of the Marketing Act : H
520 SUPREME COURT REPORTS [1996) SUPP. 5 S.C.R. ..
•
A 2 (a) ''Agricultural produce" means all produce whether or not, of
agricultural, horticulture, animal husbandry or forest as specified
in the schedule to this Act :

2 (h) ''producer" means a person who, in his normal course of
avocation, grows, manufactures, rears or produces as the case may
B be, agricultural produce personally, through tenants or otherwise,
but does not include a person who works as a dealer or a broker
or who is a partner of a firm of dealers or brokers or is otherwise
engaged in the business of disposal or storage of agricultural
produce other than that grown, manufactured, reared, or produced
c by himself, through his tenants or otherwise. If a question arises
as to whether any person is a producer or not for the purposes of
this' Act, the decision of the Deputy Commissioner of the district
in w~ich the person carries on his business or profession shall be
final:

D Provided that no person shall be disqualified from being a_
producer merely on the ground that he is a member of a co-opera-
tive society;

2(i) "dealer" means any person who, within the notified market area,
sets up, establishes or continues or allows to be continued any
E
place for the purchase, sale, storage or processing of agricultural
prodp~e notified under sub-section (i) of the Section 4 or pur-
chases, sells, stores or processes such agricultural produce;

4(3) After the date of issue of such notification or from such later
F date ~s may be specified therein, no person, unless exempted by
rules framed under this Act, shall, either for himself or on behalf
of another person, or of the Government within the notified market
area, set up, establish or continue or allow to be set up, established
' ~
or continued any place for the purchase, sale, storage and process-
'I

ing of the agricultural produce so notified, or purchase, sell, store
G or process such agricultural produce except under a licence
granted in accordance with the provisions of this Act, the rules
and bye-laws made thereunder and the conditions specified in the
licence :
I
•
H Provided that a licence shall not be required by a producer who

I;
H.P.MKTG.BD.v.SHANKAR1RDG.CO.PVf.LTo[G.N.RAY,J.) 521

sells himself or through a bonafide agent, not being a commission A
agent, his own agricultural produce or the agricultural produce of
his tenants on their behalf or by a person who purchases any
agricultural produce for his private use.

21. The market committee shall levy, on ad-valorem basis, fees on
agricultural produce brought or sold by licensees in the notified B
market area at the rate not exceeding one rupee for every one
hundred rupees as may be fixed by the Board :

Provided that :
(a) no fee shall be Ieviable in respect of any transaction in which C
delivery of the agricultural produce bought or sold is not actually
made; and

(b) a fee shall be leviable only on the parties to a transactfon in
which delivery is actually made.
D
Mr. E.C. Aggarwala, learned counsel appearing for the appellants,
namely, Himachal Pradesh Marketing Board and the Marketing Commit-
tee. Una, has contended that the writ petitioners- respondents cannot claim
exemption from obtaining a licence under the said Marketing Act or from
paying levy for trading in katha within the market area, Una, as notified
under the Marketing Act. Mr. Aggarwala has contended that the writ E
petitioners-respondents are not admittedly farmers or growers of agricul-
tural produce. It is not the case of the said respondents that they sell within
the market area their own agricultural produce which as farmer they grow.
Admittedly, the said respondents purchase khairwood which are agricul-
tural produce within the meaning of the Marketing Act and then subject F
such agricultural produce to the manufacturing processes for obtaining the
end product 'katha'. According to Mr. Aggarwala, the producer' as defined
in Section 2(h) of the Marketing Act means a person who manufacture
agriculture agricultural produce personally but it does not include a farm
or a company or other persons engaged in the business of disposal of such
agricultural produce after processing, when they do not grow the agricul- G
tural produce subjected to manufacturing process for obtaining the end
product. It has been submitted by Mr. Aggarwala that the Marketing Act
has been enacted to ensure that the actual growers of agricultural produce
as defined in the Act get a fair price of such agricultural produce without
being exploited by the middleman or traders by selling such agricultural H
522 SUPREME COURT REPORTS (1996] SUPP. 5/S.C.R.

A proou""' in the regulated market constituted under the Marketing Act. The
said Marketing Act is not intended to give exemption to the dealer~ of
agricultural produce or the manufacturers of end products obtained from ·
the agricultural produce not grown by the farmers.

Mr. Aggarwala has also contended that, in any event, the said writ
B petitioners must be held to be as 'dealers' within the meaning of Section
2(i) of the Marketing Act because they have established or set up a place
or business within the market area as notified under the Marketing Act
where the said writ petitioners purchase, sale, store and process agricul-
tural produce and also the end products obtained from such agricultural
C produce. Mr. Aggarwala has submitted that 'katha' is admittedly processed
from the'1khairwood. The said 'katha' is therefore an agricultural produce
within the meaning of Section 2(a) as specified in the Schedule I of the
Marketing Act. Mr. Aggarwala has further submitted that the expression
process has been used in the definition of agricultural produce and also in
the definition of 'dealer', but such expression as process of agricultural
D produce has not been used in the definition of 'produce'. Processing of
goods has not also been brought within the purview of proviso to Section
4(3) of the Marketing Act although in Section 4(3) the word process has
been used.

Mr. Aggarwala has submitted that the expression processing used in
E
the proviso to sub-section (3) does not envisage that the person who
processes the goods for getting and product like the writ petitioners are
exempted from the obligation of obtaining licence under the Marketing
Act. Mr. Aggarwala has also submitted that the writ petitioners after,
manufacturing katha from the khairwood, sell such manufactured product
F in the market area. Accordingly, the said writ petitioners must be held to
be dealers of the said end product katha even if the said end product has
been manufactured by the said dealers from khairwood.

Mr. Aggarwala has also submitted that if an agriculturist is engaged
G in the business of disposing of his own agricultural produce, he ceases to
be an agricultural producer. In support of such contention, Mr. Aggarwala
has referred to a decision of this Court in Ramesh Chandra v. State of U.P.,
[1980] 3 SCR 104.

Mr. ·Aggarwala has lastly contended that the writ petitioners are not (
H exempted from the obligation of obtaining licence for the purpose of selling
H.P.MKTG.BD.v.SHANKAR1RDG.CO.PVf.L1D[G.N.RAY,J.] 523

the said katha in the market area because company or association of A
persons are not exempted under the Marketing Act; only the individual
agricultural producer gets such exemption if he sells his own produce. Mr.
Aggarwala has, therefore, submitted that the impugned decision of the
High Court is not sustainable and should be set aside.

Mr. P.P. Rao, learned counsel appearing for the respondents Nos. 1
B
to 3, has disputed the contentions made by Mr. Aggarwala. It has been
contended by Mr. Rao that the Marketing Act exempts producer of the
specified agricultural produce from the liability to obtain a licence and to
pay market fee in respect of the transactions effected pertaining to such
produce. Katha is a specified agricultural produce. It is made out of C
Khairwood. The respondents manufacture katha and sell the same outside
the State of Himachal Pradesh. The said respondents are also not storing
katha so as to render such producers liable to be treated as dealers. Mr.
Rao has submitted that the High Court, in the facts of the case, has
considered this aspect and has held that the respondents are not dealers. D

Mr. Rao has also submitted that the definitions of producer and
dealer make it quite clear that a dealer is one who do not carry on the
manufacturing activities and whose incidental activity of processing is fu a
minimal sense of rendering the article fit for sale or use or consumption.
Such activity does not amount to or is equated with the activities of a E
producer. Manufacturing of katha is a complete process involving several
stages. The respondents do more than mere processing of khairwood and
they do not purchase katha, as such, from the markets situated in the
Himachal Pradesh from out of khairwood. Hence, the said respondents are
not dealers. F

Mr. Rao has also contended that the appellants are attempting to
treat the respondent No. 1 Company as processor of katha. Such attempt
is made on the assumpt.ion that the said company processes katha which is
an agricultural produce and accordingly they fall within the definition of
dealer because the respondents are alleged to have set up a place for sale G
and storage of katha. Mr. Rao has submitted that such approach as made
by the appellants, is clearly contrary to and not supported by the express
terms of various provisions of the marketing Act and the Rules framed
thereunder. In this connection, attention of the Court was drawn to the
definition of 'Agricultural Produce' (Section 2(a), 'Dealer' (Section 2(i), H
524 SUPREME COURT REPORTS [1996] SUPP. 5 S.C.R.

A 'Producer' (Section 2(h), 'Commission Agent' (Rule 2(iv) of the Rules
framed under the marketing Act), 'Seller' (Rule 2(xiu), and the provision
relating to exemption (Section 4(3), 'Market fee' to be levied (Section 21)
and Rule 80(7) dealing with the meaning of terms 'bought and sold'. Mr.
Rao has submitted that the harmonious reading of the said provisions
B indicates that the definition of producer relates to and include all those
who manufacture or process any of the specified agricultural produce. The
proviso to sub-section (3) of Section 4 of the Marketing Act exempts the
producer who sells his own agricultural produce which includes an agricul-
tural produce as such or in the processed form. It has been contended by
Mr. Rao that by no stretch of reasoning, a manufacturer or producer of
C agricultural produce (a scheduled item) can be treated as a mere proces-
sor of an agricultural produce since the definition of producer includes
those who manufacture the produce which covers all activities of process-
ing, Any other interpretation of manufacturer of producer of agricultural
produce will amount to re-writing the provisions of the Marketing Act and
D . such re-writing is not permissible.

Mr. Rao has also submitted that the definition of dealer means those
persons who merely undertaked or engage in the activities of purchase,
storage and'sale within the market area. The respondent No. 1 Company
manufacture katha from khairwood and the end product so obtained being
E the scheduled item i.e. agricultural produce is disposed of by the company
itself. It is not the case that the respondent No. 1 Company purchases katha
for storage and then sells the same within the market area. It is also not
the case that'. the respondent No. 1 Company purchases katha for re-
processing for its storage and sale. Mr. Rao has submitted that in the
F aforesaid facts, it is quite evident that respondents are outside the purview
of the Marketing Act like any other agriculturist.

It has been contended by Mr. Rao that at legislation which imposes
tax or levy must be construed strictly. Mr. Rao has also submitted that the
stand taken by the appellants that the katha is not produce>I by the
G respondent company out· is obtained only by processing khairwood, is also
not factually·correct. Mr. Rao has submitted that katha is obtained from
khairwood as a result of series of manufacturing activities. It is not merely
a matter of processing of khairwood. 'Khairwood' and 'Katha' are not only
distinct commercial commodities but they are different in physical and
H chemical properties as well as their respective end use. The manufacturing
H.P.MKTG.BD.v.SHANKAR1RDG.CO.PVT.LID[G.N.RAY,J.] 525

process leading to the end product katha has been clearly indicated in A ·
paragraph 8 of the Writ Petition to the following effect :

Para 8 : katha (Catechu) is extracted from wood of trees known
as khair (Acacia Catechu/Acacia Sundra). Khair trees are grown
in forest and in fact these trees and their wood can be termed as
agriculture produce for the purpose of the definition of the Act. B
Standing khair trees in the form of wood become the essential and
basic raw material for the manufacture of katha (Catechu). The
said wood is not used in manufacturing of katha alone but is also
used and utilised for the manufacturing of forest medicines. In
order to obtain katha (Catechu), khair wood is processed into C
various physical and chemical processes to obtain the end product
katha.

Para 9 : The method of manufacturing process for the manufacture
of katha (Catechu) is as follows :
D
(a) Long logs of khairwood are converted into small logs in saw
mills.

(b) In order to remove the park and sao wood either manual
process is adopted or khair logs are pealed through pealing
machine. E

(c) The khair wood so pealed/debarked is known as heart wood.

(d) Heart wood is again converted in small pieces in saw-mill.

(e) Small pieces of wood are converted into small chips in chipping F
machine.

(f) Standard size chips are removed/separated from odd size chips.

(g) odd size chips are converted into standard chips in Disin-
tegrator machine. G
(h) Standard size chips are dolled in closed vats.

(i) mother liquor so obtained is concentrated in Pan with steam.
•
G) Tick liquor obtained is allowed for fermentation with treatment H
526 SUPREME COURT REPORTS (1996] SUPP. 5 S.C.R.

A with chemicals.

(k) The fermentation material is allowed to cool in cold storage.
Cold storage are operated with the help of Compressor and other
allied machinery. This process is known as crystallization.
'
B (I) The crystalized material is allowed to filter through Hydraulic
Press and/or vacuum filter press to obtain paste and also remove
the cutch (Tannin).

(m) Filtered product is converted into small blocks with help of
machine or manually. ·
c
(n) Small blocks are converted into tablets of different sizes. These
tablets so obtained are allowed to dry in Drying Chamber. Drying
Chamber is operated with humidifier and other machinery.

D (o) Dry product is known as katha.

Mr. Rao has also submitted that there is a clear distinction between
the producer and dealer. There is also the distinction between the activity
of manufactiiring and the activity of processing. The Marketing Act does .
not define process, processing and processor. Mr. Rao has submitted that
E the fundamental principle of interpretation to statutes is that the statute is
to be expounded according to the intention that make the statute mean-
ingful and purposeful. In support of this contention, Mr. Rao has relied on
the decision of this Court made in The Commissioner of income Tax,
Madhya Pradesh and Bhopal v. Sodra Devi, [1958] SCR 1. Mr. Rao has
F submitted that if the meaning of manufacture or manufacturing is taken as
excluding process or processing, it would lead to repugnancy with a con-
sequence result that the construction of word manufacture as processing
would be arbitrary and mischievous. Mr. Rao has also submitted that the
High Court, in the impugned decision, has rightly held that the necessary
distinction between the producer and the dealer is that a producer also
G grows, manufacturers, rears or produces the notified agricultural produce
besides disposing of the same but the dealer only sets or establishes a place
for purchase, sale or storage or processing of agricultural produce. Mr.
Rao has submitted that a dealer does not produce agricultural produce. In
this connection, he has referred to a decision of this Court in State of M.P. •
H v. Hardeo, AIR (1994) SC 2538. Mr. Rao has further submitted that the
H.P. MKTG. BD. v. SHANKAR TRDG. CO. PVT.LTD [G.N. RAY, J.] 527

words "processed or otherwise" used in Section 2(a) dealing with the A
definition of agricultural produce has not been used in the context as being
projected by the appellants. He has submitted that series of action con-
templated in manufacturing an item does not exclude the series of action
contemplated in processing the same item before it is used as a raw
material in manufacturing. Manufacture includes any process incidental or
B
ancillary t6 completion of manufacturing a product. Mr. Rao has also
submitted that the word "process" used in Section 2(a) has to be interpreted
in the light of Section 2(h) in "the context in which the said word appears
in Section 3(a). Mr. Rao has also submitted that the word process has to
be assigned its natural meaning i.e. an item subjected to such han-
dling/treatment to make it fit for use or consumption of an item as it is. c
The dictionary meaning of the word "storage" is to keep goods in
godown/Warehouse for charges. It cannot be held that a person by keeping
a manufactured item on completion of manufacturing process undertaken
by him in the business premises till its sale is effected is indulging in activity
of carrying on an independent business of storage. The Marketing Act does D
not deal with charging the market fee on storage of scheduled item by a
manufacturer of such scheduled item. The word "storage" appearing in
Section 2(i) dealing with definition of dealer must be construed in the
context of definition of "Godown keeper". According to Section 2(f),
godown keeper 'is a person other than a producer who stores the scheduled
item in lieu of charges for sale. The storage of a scheduled item is an E
independent business activity and only a person who indulges in such
activity per se is liable to obtain a licence under Section 11(2) read with
Rules 45, 46, 63 and 83 of Rules framed under the Marketing Act. Any
other Storage activity of a producer of agricultural produce which is
incidental to manufacturing/processing of the said agricultural produce F
does not attract Section 4 of the Act.

Mr. Rao has therefore submitted that the impugned judgment of the
High Court does not require any interference by this Court and the appeal
should be dismissed.
G
After giving our careful consideration to the facts of the case and the
contentions raised by the learned counsel for the parties, it appears to us
that the writ petitioners-respondents cannot claim exemption from the
requirement of obtaining licence for processing khairwood for production
of katha within the specified 'market' under the Marketing Act, which are H
528 SUPREME COURT REPORTS [1996) SUPP. 5 S.C.R.

A ultimately sold by them.
'
'Katha' has been included as an 'agricultural produce' by the amend-
ment of the Schedule to the Marketing Act on March 2, 1987. If a farmer
growing 'knairwood' in his farm undertakes the manufacturing processes
as indicat~d by the writ petitioners and obtains the end product 'katha' and
B then stores the same for selling within the specified market under the
Marketing Act and ultimately sells the katha, there would have been no
necessity for such farmer to obtain licence for such storing and selling
katha.

C Under the scheme of the Marketing Act, it is only the actual
producer of an 'agricultural produce', obtained by various activities of
agriculture, h6rticulture etc. as indicated in Section 2( a) of the Marketing
Act, who is exempted from the requirement of obtaining a licence for
processing or storing his 'agricultural produce in a place within the
specified market. Such producer is also not liable to pay levy under Section
D 21 of the Marketing Act if he sells the 'agricultural produce' since grown
or reared by him after processing. Although 'katha' has been specified as
an 'agricultural produce' after the amendment of the Schedule to the
Marketing Act, the writ petitioners are not producing the said agricultural
produce namely katha by processing the agricultural produce grown by
E them in their farm. They, in fact, are purchasing khairwood an agricultural
produce grown by others a.nd then subject such khairwood to various
physical and chemical processes for obtaining an end product 'katha'.

Some 'agricultural produce' which is obtained in its natural form
requires processing for being used as an item for consumption. Such
F processing may, in some case, be quite simple e.g. pulses from the grains.
In some case, a delicate processing is required entailing some physical and
chemical processing e.g. hide from the raw skin of an animal.

Under the scheme of the Marketing Act, which is primarily intended
to benefit the actual growers of 'agricultural produce', the producer or
G grower of 'agricultural produce', even when required to undertake some
processing whether simple or otherwise, of the natural 'agricultural
produce' to make it consumption worthy, does not cease to be a producer
of the agricultural produce because the natural produce even after being
subjected to processing, remains 'agricultural produce' within the meaning
H of Section 2(a) of the Marketing Act. That apart, the definition of
H.P.MKTG.BD.v.SHANKAR TRDG.CO.PVT.LTD[G.N.RAY,J.] 529

'producer' under Section 2(h) has taken care of such processing activity. A
So far as katha is concerned, it is a scheduled agricultural produce. It will,
therefore, be immaterial if for obtaining katha from natural agricultural
produce as grown in the farm namely khairwood, some detailed and
delicate manufacturing processes are to be undertaken. In our view, in view
of inclusion of 'katha' as a specified agricultural produce, there is no scope B
to contend that katha is not such an agricultural produce which may be
obtained from the khairwood after some processing as commonly under-
stood, but katha can be obtained by subjecting the natural produce khair-
wood to a series of delicate physical and chemical processing and the end
product 'khata' has not only a distinct identity but has also physical
characteristic and chemical composition, different from khairwood so that C
a farmer producing katha from khairwood grown by him does not get the
benefit which a farmer or grower would have otherwise got under the
Marketing Act. The fine distinction between simple processing to make
natural agricultural produce fit for consumption and delicate manufactur-
ing process require for obtaining katha, a completely separate end product D
as sought to be made by the writ petitioners cannot be accepted because
of inclusion of katha in the schedule.

The writ petitioners even though are producing katha a specified
agricultural produce by processing khairwood, a natural product grown in E
the farm, in our view, cannot claim exemption from the requirement of
obtaining a licence under Section 4(3) and payment of levy under Section
21 because they themselves have not grown the khairwood but have pur-
chased the agricultural produce khairwood grown by others and then
processed the same to obtain katha even though katha itself is a specified
agricultural produce. F

Under the Scheme of the the Act, primary agricultural produce as
obtained in the natural process of agriculture, horticulture pisciculture
poultry, cattle breeding etc. when processed by growers of such agricultural G
produce to make it consumption worthy and for such processing of growers
own produce, it is stored within a specified market and processed in such
area and ultimately the processed item is sold by the grower of such
produce, the grower is entitled to exemption from the requirement of
obtaining licence for storing and processing and selling such produce, and
paying levy for such activities taken within the specified market. H
530 SUPREME COURT REPORTS (1996) SUPP. 5 S.C.R.

A Despite "the niceties of arguments made on behalf of the writ
petitioners-respondents, it appears to us that as the writ petitioners do not
fulfil the basic requirement of being growers of khairwood, an agricultural
produce, to be grown in the farm by the agricultural activity contemplated
under Section 2(a) of the Marketing Act, they cannot claim exemption
from the requirement of obtaining licence under Section 4(3) of the
B Marketing Act for bringing or storing khairwood within the specified
market for subjecting such khairwood to processing for obtaining the end
product katha for the purpose of selling such katha. For the same reason,
the writ petitioners cannot ~scape the liability of levy for selling katha after
processing khairwood within the specified market. The. appeal is, therefore,
C allowed. The impugned judgment of the High Court is set aside. There will
be no order as to ·cost.

S.V.K.I. Appeal allowed.