Holding

Oil cake is a finished good for the purpose of the Transport Subsidy Scheme and the appellant is entitled to the transport subsidy.

Summary

The appellant, JAI BHAGWAN OIL & FLOUR MILLS, operated an industrial unit in Assam crushing mustard seeds to produce mustard oil and oil cake. It claimed transport subsidy under the 1971 Transport Subsidy Scheme for exporting oil cake, arguing that oil cake is a "finished good" as defined by the scheme. The High Court rejected the claim, holding that oil cake was merely a by‑product and not a finished good, and that the appellant had not produced sufficient evidence of its marketability. The Supreme Court examined the purpose of the scheme, the statutory definitions of "finished goods," and the nature of oil cake as a distinct, marketable product separate from the raw material. Relying on trade practice and precedent, the Court held that oil cake qualifies as a finished good and is therefore eligible for the subsidy, directing the respondents to release the amount due. The appeal was allowed.

Issues considered

Whether oil cake qualifies as "finished goods" under the Transport Subsidy Scheme.
Whether the scheme's definition of finished goods includes secondary products or by‑products of a manufacturing process.
Whether the central government's 1997 clarification excluding oil cake from subsidy eligibility is legally effective.
Whether the appellant is entitled to transport subsidy for oil cake exported from a remote area.

Subjects

Transport Subsidy Schemefinished goodsoil cakemanufacturing processsubsidy eligibilityremote area industrial policyby‑product

Judgment

-<
[2009] 7 S.C.R. 409
i
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~ """,. '\-
JAi BHAGWAN OIL & FLOUR MILLS A
~
V.
UNION OF INDIA & ORS.
Civil Appeal No. 3169 of 2009
MAY 4, 2009
"" (R.V. RAVEENDRAN AND HARJIT SINGH BEDI, JJ.)
B
-4
.,
c.. 'I' Transport Subsidy Scheme • Clauses 4, 6 - Oil Cake
produced by an industrial unit in accordance with its
manufacturing programme approved by the State Government
,, c
- Whether fa/ls under 'finished goods' so as to be eligible for
transport subsidy - Held: Oil cake is 'finished goods' for the
•• purpose of grant of transport subsidy - Hence appellant
entitled_to the subsidy.
The question involved in the appeal was whether oil D
'Ir cake .can be said to be 'finished goods'· produced by an
industrial unit in accordance with its manufacturing
~
programme approved by the State Government, so as to
be eligible for transport subsidy under the Transport
Subsidy Scheme. •" -· \'-!
E
•· Allowing the appeal, the Court

- HELD: 1.1 The object of the Transport Subsidy
Scheme is not augmentation of revenue, by levy and
collecti9n of tax or duty. The object of the Scheme 'is to
improve trade and commerce between the remote parts
F
of the country with other parts, so as to bring about
economic development of remote backward regions. This
was sougtit to be achieved by the Scheme, by making it
feasible and attractive to industrial entrepreneurs to start
G
and run industries in remote parts, by giving them a level
~ --. ' playing field so that they could compete with their
counterparts in centraf (nonrremote) areas. The huge
transportation cost for getting the raw materials to the
409 H
410 SUPREME COURT REPORTS (2009] 7 S. C.R.

A industrial unit and finished goods to the existing market J ·~

outside the State, was making it unviable for industries in
remote parts of the country to compete with industries in
central areas. Therefore, industrial units in remote areas
were extended the benefit of subsidized transportation.
B [Para 7] [416-8-E]
1.2 When the Scheme refers to finished goods
coming out of or being exported from the State (remote
area), it refers to any goods manufactured or produced "' •
by an industrJal unit in the State in accordance with the '
c manufacturing programme approved by the central
government and/or the state government. So long as the
goods coming out is something identifiable, something
which has undergone a process of manufacture,
something which is marketable and tradable as a
D commodity, something that is completely different and
distinct from raw material as a product, something that ...
was intended to be a definite product of manufacture by
the industrial unit, the product had to be considered a~ r
'finished goods' from the industrial unit. Any goods which
E goes in as a raw material required/used in the manu-
facturing programme of an industrial unit situated in a
notified remote area, or any finished goods that is·
produced in the industrial unit situated in such area and ..,,
exported out of the State, was eligible for the transport
F subsidy under the scheme. [Para 7] [416-F-H; 417-A-B]
2. It is well known that oil cake is the coarse solid
residue obtained when oil is extracted from various types
of oil seeds like peanuts, soyabeans, linseed, mustard,
sesame and sunflower seeds. Oil cake is produced not
G only in oil mills/industries, but also in village level Ghanis.
The standard preservation/detoxification procedure for oil ... '.
cakes is sun-drying, controlled mechanical heating or by
chemical processing. Oil 'cake is rich in proteins and
minerals and commonly used as cattle feed and poultry
H feed. Oil cake containing toxic elements (as for example.
•
JAi BHAGWAN OIL & FLOUR MILLS V. 411
UNION OF INDIA & ORS.
yo oil cake from castor beans) is used as fertilizer. Oil cake A
has a wide ready market. It is bulk-purchased by cattle/
poultry feed manufacturers who grind it and mix it with
"' other feed articles to make cattle/poultry feed. ·Farmers
and owners of cattle/poultry purchase it in retail, break it
or grind it and feed them to cattle/poultry, with or without B

.::._, . additives. It is also used as boiler fuel in some areas.
Serious research is in progress to make it fit for human
consumption. The name, method of manufacture, uses
and marketability are well known in trade, industrial,
agricultural and village circles. When any reference book c
can authenticate these facts within common knowledge,
the High Court was not justified in rejecting the claim on
the ground that special evidence in regard to these
aspects was not placed. [Para 9] [418-E-H; 419-A-B]
3. The true test to ascertain whether a process is a D
manufacturing process producing a new and distinct
article is whether the article produced is regarded in the
trade, by those who deal in it, as a marketable product
distinct in identity from the commodity/raw material
involved in the manufacture. When mustard oil and oil E
cake are produced from mustard seeds, it is a process of
manufacture. It is certainly not a mere process of cleaning,
repai-ring, reconditioning, recycling or assembling. A new
marketable article distinct from the raw material, emerges
when oil cake is produced from oil seeds. [Para 1O] F
[419-8-E]
Deputy Commissioner of Sales Tax (Law}, Ernakulam v.
Pio Food Packers 1980 Supp. (1) SCC 174; Sterling Foods v.
State of Karnataka· - 1986 (3) SCC 469 and Devi Das Gopal
Krishnan v. State of Punjab 1967 (3) SCR 557 - relied on. G
_, .. Dean Linseed Oil Co. v. United States 78 (1897) Federal
Reporter 467 - referred to.
4. There can be no doubt that when mustard seeds
are subjected to the process of extraction whereby H
\

412 SUPREME COURT REPORTS [2009] 7 S.C.R.

A mustard oil and oil cake are produced, the process
involves manufacture of mustard oil as also the
manufacture of oil cake. Oil cake is a distinct and different
. entity from mustard seeds and it has a separate name,
character and use different from mustard seed. Oil cake
8 is not a waste to be thrown away, but a valuable product
with a distinct name, character, use and marketability.
There can thus be no doubt that the oil cake was a finished
goods eligible f<?r transport subsidy, until it was
specifically excluded by the central government in the
C year 1997. [Para 11) [420-C-F]
5. It is declared that oil cake is 'finished goods' for
the purpose of transport subsidy scheme and conse-
quently the appellant was entitled to the subsidy.
Respondents are directed to verify and release the
D subsidy amount due to the appellant in regard to oil cake
exported out of the State. Compliance within six months.
[Para 12) [420-F-G]
Case Law Reference
1980 Supp.
E (1) sec 114 relied on Para 10
1986 (3) sec 469 relied on Para 10
78 (1897) Federal
Reporter 467 referred to Para 10
F
1967 (3) SCR 557 relied on Para 10
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 3169
of 2009
From the Judgement and Order dated 27.10.2006 of the
G High Court of Gauhati at Gauhati in Writ Appeal No. 696 of 2002
Raj Shekhar Rao, Senthil Jagadeesan, fortheAppellant(s).
S.K. Dubey, Rashmi Malhotra, D.S. Mahra, Anil Katiyar,
Avijit Roy, Ranjan Mazumdar (for M/s. Corporate Law Ground),
H
JAi BHAGWAN 01~ & FLOUR MILLS V. 413
UNION OF INDIA & ORS.

..- ' Raghenth Basant, Liz Mathew, V. Ramasubramaniari, with him, A
for the Respondent.
., The Judgement of the Court was delivered by
R.V. RAVEENDRAN, J.
1. Leave granted. Heard counsel. B

2. By notification dated 23.7.1971 the Government of India
. )' formulated a 'Transport Subsidy Scheme' for grant of subsidy
o_n the transport of raw materials and finished goods to and from
certain selected areas with a view to promote growth of c
industries in such areas. Clause 6 contains the details of the
·Scheme. Sub-clause (i) thereof provided that "a transport
subsidy will be given to the industrial units located in selected
areas in respect of raw materials which are brought into and
finished goods which are taken out of such areas." S_ub-clause
D
(iv) specified the north-eastern region including the State of
'f
Assam as one of the selected areas to which the scheme was
made applicable. Sub-clause (xii) required the State
Government to set up a Committee consisting of Director of
Industries, a representative of the State Industries Department,
a representative of the State Finance Department, and a
E
nominee of the Central Government (Ministry of Industrial
Development), to scrutinize and settle all claims for transport
~ subsidy arising in the State. The said Committee was required
to call upon the applicants for subsidy, to provide proof of raw
materials imported into the State and finished goods exported F
out of the State by their industrial units, to decide their eligibility
for transport subsidy. The Committee was also required to
scrutinize and settle the claims in the manner indicated in the
scheme. The words 'industrial unit', 'raw material' and 'finished
goods' were defined in sub-clauses (a), (h) and (i) of clause (4) G
__, ... of the scheme, as follows :-
\

• "(a) 'Industrial Unit' means an industrial unit where a
manufacturing programme is carried on.
H
'
414 SUPREME COURT REPORTS [2009] 7 S.C.R

A (h) 'Raw material' means any raw material actually ~ -...
required and used by an industrial unit in its manufacturing
programme as approved by the Government of India and/
or by the Government of State/Union Territory in which the
industrial unit is located."
B (i) 'Finished goods' means the goods actually produced
by an industrial unit in accordance with the manufacturing
programme approved by the Government of India and/or
the Government of the State/union Territory in which the " ~

industrial unit is located."
c
3. The appellant claimed that it has its industrial unit at
Tinsukia, Assam; that it was engaged in the manufacturing
activity of crushing mustard seeds and producing two distinct
products namely mustard oil and oil cake, as finished goods;
and that it was registered under the transport subsidy scheme,
D
after verification as provided in the Scheme. It was also claimed
that crushing of mustard seeds yielded 30-34% mustard oil and
60-64% oil cake, each product having a separate identity and
different markets.

E 4. The appellant made several claims for grant of transport
subsidy in respect of raw materials, oil cake and oil, from time
to time. According to appellant, after giving credit to Rs.5,88,421 /
- released as subsidy, the amount due towards subsidy claim
till August, 1993, was Rs.58,44,531/-. As there was inordinate
F delay in settling the claims, the appellant filed a writ petition in
the year 1996, seeking a direction for release of the said
transport subsidy amount. The said writ petition was disposed
of on 15.5.1996 with a direction to scrutinize appellant's claim
and if found eligible, disburse the amount. The State Government
scrutinized and recommended to the Government of India, the
G
release of Rs.58,44,531 as transport subsidy to the appellant.
On 18.6.1997, the Government of India sanctioned and released ... "'·
Rs.44, 14,922 as transport subsidy as against the recommended
claim of Rs.58,44,531. On 14. 7.1997 the Government of India
issued a clarification that the transport subsidy under the said
H
JAi BHAGWAN OIL & FLOUR MILLS V 415

,,,- . UNION OF INDIA & ORS. [RV RAVEENDRAN, J]

scheme would not be applicable in regard to oil cake as it was A
only a by product. Aggrieved by the disallowance of transport
subsidy for oil cake, appellant filed another writ petition (C.R.
No.376/1997) for release of subsidy in respect of oil cake, as
sanctioned by the State Level Committee. A learned Single
Judge of the Guwahati High Court by order dated 4.10.1982 B
rejected the writ petition: The writ appeal filed by the appellant
A .... was also dismissed on 27.10.2008. The said order is challenged
1

in this appeal.
5. The learned Single Judge and the Division Bench have
held that the term 'finished goods' used in the Scheme would c
not include oil cake, which was only a by-product or waste
produced while manufacturing mustard oil; and transport subside
was available only in regard to the finished product intended to
be produced by the process of manufacture, which in this case
was mustard oil. The High Court held that 'finished goods' refers D
to goods produced in an industrial unit by a process of
manufacture and "manufacture" means production of an item
distinct and different from the raw material, having a separate
identity; and that the appellant had failed to place before the
court necessary material to explain (i) the process and E
technology in the manufacture of oil cake; (ii) the composition
of the oil cake; (iii) the purpose and use of oil cake; and (iv) the
product name in the market and the marketability of oil cake as
a finished goods. The High Court held that in the absence of
such material, it will not be possible to decide whether 'oil cake' F
was a 'finished goods' for the purpose of the Scheme, or merely
the residuary waste generated as a by-product while producing
mustard oil as the finished goods.
6. We are of the considered view that the learned single
Judge and the Division Bench missed the real issue. The G
' ""
-
. question was not whether oil cake was a by-product or not. There
are several manufacturing processes which yield or produce
more than one finished product or manufactured item. When
considering whether the 'finished goods' is a marketable product,.
distinct and different from the raw material from which it is H
416 SUPREME COURT REPORTS [2009j7 S.C.R.

, ...
A produced, the fact that the finished goods is the main product,
or is a parallel main product or is a by-product of the
manufacturing process, may not make any difference. The
question to be considered is whether oil cake can be said to be
a 'finished goods' produced by an industrial unit in accordance
B with its manufacturing programme approved by the state
government.

7. The object of the Transport Subsidy Scheme is not .,. •
augmentation of revenue, by levy and collection of tax or duty
The object of the Scheme is to improve trade and commerce
c between the remote parts of the country with other parts, so as
to bring about economic development of remote backward
regions. This was sought to be achieved by the Scheme, by
making it feasible and attractive to industrial entrepreneurs to
start and run industries in remote parts, by giving them a level
D playing field so that they could compete with their counterparts
in central (non-remote) areas. The huge transportation cost for
getting the raw materials to the industrial unit and finished goods
to the existing market outside the state, was making it unviable
for industries in, remote parts of the country to compete with
E industries in central areas. Therefore, industrial units ii') remote
areas were extended the benefit of subsidized transportation.
For industrial units in Assam and other north-eastern States,
the benefit was given in the form of a subsidy in respect of a
percentage of the cost of transportation between a point in
F central area (Siliguri in West Bengal) and the actual location of
the industrial unit in the remote area, so that the industry could
become competitive and economicaliy viable. So when the
Scheme refers to finished goods coming out of or being exported
from the State (remote area), it refers to any goods manufactured
or produced by an industrial unit in the State in accordance with
G
the manufacturing programme approved by the central lr '
government and/or the state government. So long as the goods ._
coming out is something identifiable, something which has
undergone a process of manufacture, something which is
marketable and tradable as a commodity, something that is
H
JAi BHAGWAN OIL & FLOUR MILLS V 417
UNION OF INDIA & ORS. [RV RAVEENDRAN, J.]
,,,.. ~
completely different and distinct from raw material as a product, A
something that was intended to be a definite product of
manufacture by the industrial unit, the product had to be
considered as 'finished goods' from the industrial unit. Any goods
which goes in as a raw material required/used in the
manufacturing programme of an industrial unit situated in a B
notified remote area, or any finished goods that is produced in
the industrial unit situated in such area and exported out of the
• f State, was eligible for the transport subsidy under the scheme .

8. The scheme itself specifically defines 'finish~d goods'
as goods actually produced by an industrial unit in accordance c
with the manufacturing programme as approved by the C~ntral
Government and/or the Government of the State where the
industrial unit is located. Two certificates issued by the State
Government (District Industries Centre, Dibrugarh) dated
13.11.1987 and 28.8.1992 clearly state that oil cake was D
produced by the appellant's industrial unit in accordance with
its manufacturing programme from 1984 and the appellant's
industrial unit was engaged in the production of two products -
mustard oil and oil cake. It was further certified that the appellant
was capable of manufacturing, with its existing machinery, 1440 E
MT of mustard oil and 2880 MT of oil cake. Further, the State
Level Committee formed under the scheme and the State
~
Government have consistently opined that oil cake was finished
goods, entitled to transport subsidy. Until the Central Government
gave a clarification on 14. 7 .1997 stating that oil cake should F
not be treated as a finished goods for the purpose of subsidy,
the State Level Committee, State Government as also the
Central Government had proceeded on the basis that oil cake
was finished goods eligible for transport subsidy. It is not
disputed that the transport subsidy had been sanctioned and
G
disbursed in regard to oil cake produced by other industrial units
.-' ~
in the notified remote areas. The position was explained in the
....
following communication dated 7.2.2005 from the Government
of Assam (Directorate of Industries & Commerce) to the Ministry
of Commerce and Industry, Government of India:
H
418 SUPREME COURT REPORTS [2009] 7 S.C.R.

A "Government of Assam agrees to the fact that in crushing
of mustard seeds oil cake-is a finished product as it
/' ""
constitutes 64% whereas mustard oil percentage is 32%
(4% loss in manufacturing process). If oil cake is not
considered eligible for transport subsidy the oil mills/
8 mustard seed crushing units will not be economically
viable and the purpose of the transport subsidy scheme
will be defeated as the units located in Assam will not be
able to compete with similar units located outside north ~ ... -
eastern region. Accordingly State Level Committees at
c different dates/meetings approved the claims for import
of Mustard Seeds (RM) and export of oil cake as finished
product as eligible for transport subsidy."

(emphasis supplied)
9. In spite of the above, the High Court denied the benefit
D
on the ground that the appellant had failed to place relevant
material to establish the process/technology of manufacture, the
composition and product name, and purpose, use and
marketability of the oil cake, so as to recognize it as a 'finished
goods'. What is contained in reference works/technical Journals,
E or well known in trade/industrial circles, need not be established
by independent 'evidence'. It is well known that oil cake is the
coarse solid residue obtained when oil is extracted from various
types of oil seeds like peanuts, soyabeans, linseed, mustard, _..
sesame and sunflower seeds. Oil cake is produced not only in ,~

F oil mills/industries, but also in village level Ghanis. The standard
preservation/detoxification procedure for oil cakes is sun-drying,
controlled mechanical heating or by chemical processing. Oil
cake is rich in proteins and minerals and commonly used as
cattle feed and poultry feed. Oi[ .cake containing toxic elements
G (as for example oil cake from castor beans) is used as fertilizer.
Oil cake has a wide ready market. It is bulk-purchased by cattle/ ........
poultry feed manufacturers who grind it and mix it with other
feed articles to make cattle/poultry feed. Farmers and owners
of cattle/poultry purchase it in retail, break it or grind it and feed
H them to cattle/poultry, with or without additives. It is also used as
JAi BHAGWAN OIL & FLOUR MILLS V. 419
UNION OF INDIA & ORS. [R.V. RAVEENDRAN, J.]
~
boiler fuel in some areas. Serious research is in progress to A
make it fit for human consumption. The name, method of
manufacture, uses and marketability are well known in trade,
industrial, agricultural and village circles. When any reference
book can authenticate these facts within common knowledge,
the High Court was not justified in rejecting the claim on the B
ground that special evidence in regard to these aspects was
not placed.
r
10. The true test to ascertain whether a process is a
manufacturing process producing a new and distinct article is
whether the article produced is regarded in the trade, by those c
who deal in it, as a marketable product distinct in identity from
the commodity/raw material involved in the manufacture. (See
Deputy Commissioner of Sales Tax (Law), Emakulam v. Pio
Food Packers - 1980 Supp. (1) SCC 174 and Sterling Foods
v. State of Kamataka - 1986 (3) SCC 469). When mustard oil D
and oil cake are produced from mustard seeds, it is a process
of manufacture. It is certainly not a mere process of cleaning,
repairing, reconditioning, recycling or assembling. A new
marketable article distinct from the raw material, emerges when
oil cake is produced from oil seeds. In this context, we may E
refer to the century old decision in Dean Linseed Oil Co. v.
United States [78 (1897) Federal Reporter 467] relating to
availment of customs duty drawback. A provision of a Tariff Act
• provided that where imported materials, on which duties have
been paid, are used in the manufacture or production of articles F
in the United States, there shall be allowed on the exportation of
such articles, a drawback equal in amount to the duties paid on
the material used, less one per centum of such duties. The issue
before the American court was whether production of oil cake
from linseed, by separation of linseed into linseed oil and oil
G
cake, was manufacture entitled to the benefit of duty drawback.
The court answered the question by the following brief but classic
analysis:
". : ... the linseed was not oil cake, and did not contain oil
cake, as such. The linseed had to be treated, and from H
420 SUPREME COURT REPORTS [2009] 7 S.C.R.

A this treatment the linseed oil was produced as one thing, .•
and this oil cake as another thing . The oil cake was made
from the linseed, and was a new article of manufacture."
We may also refer to the decision in Devi Das Gopal
Krishnan v. State of Punjab (1967 (3) SCR 557], where this
B Court negatived the contention that when oil is extracted from
oil seeds, oil was produced and not manufactured. This Court
held that 'when oil is produced out of the seeds, the process ..,
certainly transforms raw material into a different article for use".
What is stated about oil produced from oil seeds, will apply
c equally to the other product of the manufacturing process, namely
oil cake.

11 . There can therefore be no doubt that when mustard
seeds are subjected to the process of extraction whereby
mustard oil and oil cake are produced, the process involves
D
manufacture of mustard oil as also the manufacture of oil cake.
Oil cake is a distinct and different entity from mustard seeds
and it has a separate name, character and use different from
mustard seed. Oil cake is not a waste to be thrown away, but a
valuable product with a distinct name, character, use and
E marketability. There can thus be no doubt that the oil cake was
a finished goods eligible for transport subsidy, until it was
specifically excluded by the central government in the year 1997.
We are not however concerned with the validity or correctness ...
of such exclusion from 1997, in this case.
F
12. We therefore allow this appeal, set aside the orders of
the Division Bench and single judge of the ~igh Court and allow
the writ petition before the High Court by declaring that oil cake
is 'finished goods' for the purpose of transport subsidy scheme
and consequently the appellant was entitled to the subsidy.
G
Respondents are directed to verify and release the subsidy
amount due to the appellant in regard to oil cake exported out
of the State. Compliance within six months.

G.N. Appeal allowed.