Supreme Court of India
KESARWANI ZARDA BHANDARversusSTATE OF U.P. AND OTHERS
- Citation
- 2008 INSC 674
- Decided
- 14 May 2008
- Disposal
- Appeal(s) allowed
- Bench
- S B SINHA
Holding
Zafrani Zarda is a manufactured tobacco and therefore market fee is not leviable on it under the Act.
Summary
The appellants challenged the levy of market fee on Zafrani Zarda, a chewing tobacco product, under the Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964. The issue was whether Zafrani Zarda qualifies as a "specified agricultural produce" and, if so, whether it is a "processed" form of tobacco (liable to fee) or a "manufactured" product (exempt). The Supreme Court examined the statutory definition of agricultural produce, prior judgments on the manufactured‑vs‑processed distinction, and applied the "common parlance" test. It held that Zafrani Zarda is a manufactured tobacco, not a processed form, and therefore does not fall within the schedule of produce on which market fee can be levied. Consequently, the High Court's decision imposing the fee was set aside and the appeals were allowed.
Issues considered
- Whether Zafrani Zarda is a 'specified agricultural produce' under Section 2(a) of the Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964.
- Whether Zafrani Zarda is a 'processed' form of tobacco or a 'manufactured' product for the purpose of market fee liability.
- Whether market fee is leviable on manufactured tobacco.
Legislation cited
- Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964s. 11, s. 2(a), s. 2(d), s. 6, s. 8
Subjects
market feeagricultural producemanufactured vs processedUttar Pradesh Krishi Utpadan Mandi ActZafrani Zardatobaccolevycommon parlance test
Judgment
[2008] 8 S.C.R. 801
KESARWANI ZARDA BHANDAR A
V.
STATE OF U.P. AND OTHERS
(Civil Appeal Nos. 5760 & 5761 of 20"05)
May 14,2008
B
[S.B. SINHA AND LOKESHWAR SINGH PANTA, JJ.]
•
~ Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964
- s.2(a) and (d) - Market fee - Levibility of- On Zafrani
Zarda - Held: Zafrani Zarda being a manufactured tobacco c
and not processed tobacco, market fee is not /eviable on it.
The question for consideration is whether Zafrani
Zarda is subject to market fee under Uttar Pradesh Krishi
Utpadan Mandi Adhiniyam, 1964.
D
Allowing the appeals, the Court
HELD: 1. Market fee is leviable on specified agricul-
tural 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 E
be 'tobacco'. Zafrani Zarda, as an agricultural produce
for the purpose of market fee must answer the descrip-
tion of 'specified agricultural produce' as defined in Sec-
tion 2(a) of Uttar Pradesh Krishi Utpadan Mandi
l.
Adhiniyam, 1964. If it is held that Zafrani Zarda is merely a F
processed form of tobacoo, it would be subjected to levy
of market fee, but if it is manufactured, it would not. In this
case, Zafrani Zarda, must be held to be a manufactured
product.[Paras 15 & 16] [811-G,H, 812-A,B]
. State of Madras v: Swastik Tobacco Factory 1966 (3) ~CR IG
): 79; Agricultural Produce Market Committee v. Prabhat Zarda
• Factory, 1994 Supp (2) SCC 514; Dharampal Satyapal V.
CCE, 2005 (4) SCC 337 - relied on.
.. .
801 H
802 SUPREME COURT REPORTS [2008] 8 S.C.R.
A KUMS v. Ganga Dal Mills 1984 (4) SCC 616; Belsund 'r
Sugar Co. Ltd. v. State of Bihar and Ors. 1999 (9) SCC 620;
Krishi Utpadan Mandi Samiti and Ors. v. Pilibhi( Pantnagar
Beej Ltd. and Anr. 2004 (1) SCC 39; Park Leather{P) ltd. v.
State of U.P and Ors. 2001 (3) SCC 135 - referred to.:
B 2. The distinction between 'manufactured' and. 'pro-
cessed' may not in all situation depend upon the nature
of the statute involved. Jt must pass the rf.quisite test,
namely, as to whether it is a completely new'item. Raw
material of a manufactured product has to be distin-
C guished from the manufactured product. The distinction
between 'processing' and 'manufacturirig' 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. [Para 17) [812-8,C,D]
D
Commissioner of Central Excise, Tamil Nadu v.
Vinayaga Body Building Industries Ltd. :ZOOS (3) SCC 666 - ·~
referred to.
3. Zafrani Zarda being a 'manufactured tobacco'
E would not answer the description of processed tobacco.
ltis used by· a class of consumers. It is used fora 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 formJs not com-
F mercially known as Zarda. The common parlance test may
have to be applied for the purpose of findipg out as to
whether the product in question is manufactured goods
or not. [Para 18) [812-E,F]
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 5760
G ~2005 .
From the final Judgment and final Order dated 21.7.2003 "\
ot' the High Court of Judicature at Allahabad in C.M.W.P. No.
7756/1995
H Rakesh DWivedi, Anoop G. Chaudhary, \U,Jay Hansaria,
KESARWANI ZARDA BHANDAR v. STATE OF 803
U.P. AND OTHERS [S.B. SINHA, J.]
S.B. Sanyal, R.G. Padia, Mathai M. Paikeday, Shobha Dikshit, A
K.K. Mohan, Amit Kr. Singh, Shantanu Krishna, Mukti
Choudhary, Anant Prakash, Sneha Kalita, Sanjai K. Pathak,
Vivek Narayan, Ajit Kumar Pande, Sunil Roy, Madhurima Tatia,
Anil Katiyar, V.K. Verma, Shishir Pinaki, Amit Singh, P.I. Jose,
Pradeep Misra, Daleep Dhayani, Gopal Singh, Anukul Raj, B
. Manish Kr. and Chandan Kr. for the Appearing Parties.
... The Judgment of the Court was delivered by
S.B. SINHA, J. 1. Levy of market fee on Zafrani Zarda in
terms of the provisions of the U.P. Krishi Utpadan Mandi c
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 establish- D
ment, superintendence and control of markets therefor in Uttar
Pradesh.
3. Before embarking on the question, we may notice some
ofthe relevant provisions of the Act.
E
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 F
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; G
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 H
804 SUPREME COURT REPORTS (2008] 8 S. C.R.
A 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
B 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
c 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,
D
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,-
E (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 l
F Section 6; I
(c) divide a Market Area specified in the notification
under Section 6 into two or more separate Market
Areas;
G (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:
H
KESARWANI ZARDA BHANDAR v. STATE OF 805
U.P. AND OTHERS [S.B. SINHA, J.]
---;
Provided that before action under this sub-section is taken, A
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 B
..
)-
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:
c
(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 . D
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 E
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
.A
Committee having jurisdiction over that part.
F
(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 G
l.
• and its members shall vacate their offices as
such members ;
(b) the Principal Market Yard and Sub-Market Yards,
if any, establishec::I therein shall cease to be such ;
H
806 SUPREME COURT.REPORTS [2008]8 S.C.R.
'y
A (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
B ·not extend beyond the assets so vested.
11. Powers of the Committee.-A Committee shall, for
'../
...
the purposes of this Act, have the power to-
(i) & (ii) ....
c
(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
D
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
E
~e 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:-
J
F (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;
G (2) if the produce is purchased directly by a trader
from a producer, the trader shall be liable to .J,
pay the market fee and development cess to
the Committee;
(3) if the produce is purchased by a trader from
H
KESARWANI ZARDA BHANDAR v. STATE OF 807
U.P. AND OTHERS [S.B. SINHA, J.]
another trader, the trader selling the produce A
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 B
. ,,. 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 c
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
D
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 E
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 :
I
Provided further that notwithstanding anything contained F
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 su.m in lieu
of the amount of market fee or development cess that may
be payable by him for an agricultural year in respect of
G
A 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 H
808 SUPREME COURT REPORTS [2008] 8 S.C.R.
A 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
B in any other market area."
4. In the Schedule appended to the Act, tobacco is men- _.
tioned at Item No.V. "I
· The question which arises for consideration is as to
c 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:-
D
"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
E 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 1.
stage, this tobacco is known as "Chewing tobacco". Then, 1
F 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
G "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
1-1 the material mixed with it."
KESARWANI ZARDA BHANDAR v. STATE OF 809
U.P. AND OTHERS [S.B. SINHA, J.]
i
5. Mr. Rakesh Dwivedi, learned senior counsel appearing A
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 B
.. 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 c
the event Zafrani Zarda is held to be a processed form of to-
bacco 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 D
Section 5(1 )(1) 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. E
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 :- F
" '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 G
Amending Act of 1982 effective from April 30, 1982, the
English rendering of which is as under:
" 'Agricult 11ral produce' means all produce whether
processed or non-processed, manufactured or not,
H
,.
810 SUPREME COURT REPORTS [2008] 8 S.C.R.
A . product of agriculture, horticulture, plantation, animal
husbandry, forest, sericulture, pisdculture, livestock
or poultry, as specified in the Schedule."
~
10. This Court clearly affirmed the finding of the Patna High I
Court that.'Zarda' is a variety of manufactured tobacco and n'ot
8 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 ofcentral excise, it was held :-
c "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
D. licensed units at Okhla Industrial Estate, Phase II, New
Delhi, Noida (U.P.) and Barotiwala (H.P.), where Tulsi .. I
I
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
E their final product. That, the compound (kimam) prepared
by the assessee at 96, Okhla Industrial Estate, Phase Ill,
NewDelhi 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
F and used in the manufacture ofTulsiZafrani 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
G ~
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
H
KESARWANI ZARDA BHANDAR v. STATE OF 811
U.P. AND OTHERS [S.B. SINHA, J.)
Okhla Industrial Estate, Phase II, New Delhi, Neida (U.P.) A
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, s
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 c
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 speci-
fied one for the purpose of levy of market fee. [ See KUMS v.
Ganga Dal Mills, [(1984) 4 SCC 516 ; Belsund Sugar Co. D
Ltd. v. State of Bihar and others, [ (1999) 9 sec 620 ] and
Krishi Utpadan Mandi Samiti and others v. Pilibhit Pantnagar
Beej Ltd. and and another, [ (2004) 1 sec 391.
13. Ms. Shobha Dikshit, however, relied upon the deci-
sion of this Court in Park Leather (P) Ltd. v. State of U.P and E
others, [ (2001) 3 SCC 135 ] wherein a Division Bench opined
that leather is only a processed form of hides and skins. Pro-
cess undertaken for making leather from hides and skins has
been noticed therein.
F
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 pro- G
duce, 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 H
812 SUPREME COURT REPORTS [2008] 8 S.C.R.
A defined in Section 2(a) of the Act. If it is held that Zafrani Zarda
is merely a processed form of tobacco, 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 manu-
B factured product.
17. The distinction between 'manufactured' and 'pro-
cessed' may not in all situation depend upon the nature of the
Statute involved. It must pass the requisite test, namely, as to
c whether it is a completely new item. Raw material of a manu-
factured 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
D 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
E 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 per-
sons and in many ways. Tobacco in raw form or in any other
processed form is not commercially known as Zarda. The com-
F mon parlance test may have to be applied for the purpose of
finding out as to whether the product in question is manufac-
tured goods or not.
19. The High Court, unfortunately, had not considered this
G 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.
K.K.T. Appeals allowed.
H
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "market fee"Sign in to search