Krishi Utpadan Mandi Samiti, Allahabad vs M/s Baidyanath Ayurved Bhawan (Pvt.) Ltd. & Anr.

Krishi Utpadan Mandi Samiti, Allahabad ... Appellant

Versus

M/s Baidyanath Ayurved Bhawan (Pvt.) Ltd. & Anr. ...Respondents

J U D G M E N T

Dr. B.S. CHAUHAN, J.

1. This appeal has been preferred against the judgment and order

dated 14.7.2003 passed by the High Court of Judicature at Allahabad in

C.M.W.P. No. 12372 of 2003 by which the High Court allowed the

writ petition holding that respondent no.1 was not required to take

licence under Section 9 of the Uttar Pradesh Krishi Utpadan Mandi

Adhiniyam, 1964 (hereinafter called `the Act 1964').

2. Facts and circumstances giving rise to present appeal are as

under:

A. Respondent no. 1 is a company registered under the Indian

Companies Act, 1956 and manufactures Ayurvedic medicines

including Chawanprash at Naini, Allahabad. For that purpose, the

respondent no. 1 has obtained a licence under the Drugs and Cosmetics

Act, 1940. For manufacturing Chawanprash the said respondent

purchases certain agricultural produce e.g. Gur, Amala and Ghee etc.

and use the same as raw material.

B. The appellants served a notice dated 17.3.1999 calling upon the

respondent no. 1 for taking a licence under section 9 of the Act 1964

as it was purchasing and processing the aforesaid agricultural produce

in its ordinary course of business. Respondent no. 1 submitted reply to

the said notice on 31.3.1999 pleading that it was not required to take

licence as the said respondent was not doing any business in the sale or

purchase of agricultural produce. The appellant found the explanation

furnished by respondent no. 1 unsatisfactory and, thus, sent another

notice dated 2.12.2000 calling upon respondent no.1 to take a licence

failing which legal proceedings could be initiated against it. Similar

notices were subsequently sent to respondent no. 1 on 3.12.2000 and

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16.12.2000 but respondent no. 1 did not pay any heed to the said

notices. The appellant issued notice dated 14.2.2001 to respondent no.

1 for personal appearance and furnishing the explanation as to why the

licence under Section 9 of the Act 1964 was not required. The

respondent no. 1 did not comply with the said notice, thus the appellant

filed complaint Case No. 480 of 2002 in the court of Special Judicial

Magistrate, Allahabad against the respondent no. 1, alleging violation

of the statutory provisions of the Act 1964.

C. Being aggrieved, the respondent no. 1 approached the High

Court by filing Writ Petition No. 12372 of 2003 for quashing of the

complaint Case No. 480 of 2002. The High Court vide impugned

judgment and order dated 14.7.2003 allowed the writ petition holding

that the said respondent had been using the agricultural produces after

buying for internal purpose i.e. for consumption in its factory for

manufacturing the end product and not for further transferring the

agricultural produces to someone else and thus, the respondent no. 1

was not required to take licence under Section 9 of the Act 1964.

Hence, this appeal.

3 3. Smt. Shobha Dikshit, learned senior counsel appearing for the

appellant, has submitted that respondent no. 1 is manufacturing

Ayurvedic medicines and purchases Amla, Gur and Ghee etc. from the

market area established under the Act 1964, which are admittedly

agricultural produce. Therefore, being a trader, the respondent no. 1 is

required to take a licence so far as the purchase of specified

agricultural produce from the market area is concerned and also pay

requisite market fee and any violation of the provisions of the Act 1964

would attract penal consequences i.e. prosecution under Section 37 of

the Act 1964. The use of the aforesaid agricultural produce for

manufacturing of the medicines cannot be termed as domestic

consumption. The word `domestic' means required for personal use of

the family and this term cannot be interpreted in such wide terms as to

include manufacturing of a different commodity at commercial level in

an industry. The High Court erred in defining the term `domestic'

giving a very wide interpretation i.e. meant for supplying the end

product in the country and not for export. Even otherwise, in view of

the fact that an adequate and efficacious remedy provided under the

Act 1964 was available to the respondent, the High Court ought not to

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have entertained the Writ Petition. Thus, the appeal deserves to be

allowed.

4. Per contra, Shri Subramonium Prasad, learned counsel appearing

for the respondents, has submitted that as per the statutory provisions

of the Act 1964, the respondent no. 1 cannot be held to be the buyer or

seller of the agricultural produce nor it is engaged in processing of

agricultural produce, therefore, the provisions of the Act 1964 are not

applicable. The respondent-company purchases agricultural produce

only as raw material for manufacturing of Chawanprash in its factory.

Thus, in such a fact-situation, the respondent no. 1 is not required to

take a licence under Section 9(2) of the Act 1964 read with Rule 70 of

the U.P. Krishi Utpadan Mandi Niyamavali, 1965 (hereinafter called

the `Rules 1965'). The appeal lacks merit and is liable to be dismissed.

5. We have considered the rival submissions made by the learned

counsel for the parties and perused the record.

6. In Star Paper Mills Ltd. v. State of U.P. & Ors., (2006) 10

SCC 201, this Court while dealing with the same statutory provisions

accepted the submissions made on behalf of the State that in view of

the fact that adequate and efficacious statutory remedy was available to

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the person aggrieved, the High Court ought not to have entertained the

writ petition without the statutory remedy being exhausted. While

deciding the said case, this Court placed reliance upon large number of

earlier judgments of this Court under the Act 1964.

Be that as it may, as the matter has been dealt by the High Court

on merit and a period of more than 8 years has elapsed, it is not

desirable to entertain the issue of availability of alternative remedy or

exhaustion of statutory remedy. The matter requires to be considered

on merit.

7. The appeal raises the following substantial question of law:

Whether the specified agriculture produce purchased by

the Respondent No. 1 within the market area and used in

manufacturing a commercial product could be held to be

for domestic consumption and thereby would exempt it

from obtaining licence under Section 9(2) as also from

levy and payment of market fee under Section 17(iii)(b) of

the Act 1964?

8. The Act 1964 has been enacted with the object to regulate the

sale and purchase of the specified agricultural produce in market area

and to curb down the unfair trade practices prevalent in the old market

system within the State of Uttar Pradesh. The object of the Act has

been to reduce the multiple trade charges, levies and exactions charged

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from the producer-seller; to provide for the verification of accurate

weights and scales and to ensure that the producer-seller is not denied

his legitimate dues. Further to provide amenities to the producer-seller

in the market and for providing better storage facilities, to stop

inequalities and unauthorised charges and levies from the producer-

seller and to make adequate arrangements for market intelligence with

a view to posting the agricultural producer with the latest position in

respect of the markets dealing with a particular agricultural produce.

9. For adjudication of the aforesaid issue, it may be necessary to

refer to some of the statutory provisions of the Act 1964.

(a) Section 2(a) of the Act, 1964 defines "agricultural produce" as

under:

"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."

(b) "Trader" is defined under Clause (y) of the Section 2 as under:

"Trader" means a person who in the ordinary

course of business is engaged in buying or selling

agricultural produce as a principal or as a duly

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authorised agent of one or more principals and

includes a person, engaged in processing of

agricultural produce."

(c) Section 9 of the Act 1964 excludes the application of the Act on

purchase of agricultural produce for "domestic consumption":

"(1) As from the date of declaration of an area as

Market Area no local body or other person shall,

within the Market Area, set up, establish or

continue, or allow to be set up, established or

continued, any place for the sale purchase,

storage, weighment or processing of the specified

agricultural produce, except under and in

accordance with the conditions of a licence

granted by the Committee concerned, anything to

the contrary contained in any other law, custom

usage or agreement notwithstanding:

Provided that the provisions of this sub-section

shall not apply to a producer in respect of

agricultural produce produced, reared, caught or

processed by him or to any person who purchases

or stores any agricultural produce for his

domestic consumption.

(2) No person shall, in a Principal market Yard or

any Sub-Market Yard, carry on business or work

as a trader, broker, commission agent,

warehouseman, weighman, palledar or in such

other capacity as may be prescribed, in respect of

any specified agricultural produce except under

and in accordance with the conditions of a licence

obtained therefore from the Committee

concerned."

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(d) Section 17 of the Act 1964 empowers the Committee to issue,

renew, suspend or cancel a licence, and to levy and collect market fee.

However, the proviso thereto reads as under:

"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." (Emphasis added)

(e) Section 37 of the Act, 1964 further empowers the Committee to

impose penalty on a person who contravenes any of the provision

contained in Section 9 of the Act 1964 or the Rules 1965.

(f) Rule 70 of the Rules 1965 reads as under:

"Licensing by the Market Committee (Section

17(i) - (1) The Market Committee shall ......call

upon all Local Bodies and other persons wishing to

set up, establish or continue any place for the sale,

purchase, storage, weighment or processing of the

specified agricultural produce, in the Market Area,

and shall likewise call upon all Traders,

Commission Agents, Brokers, Warehouseman,

Weighmen, Measures, Palledars and other persons

handling or dealing in specified agricultural

produce, in the Market Yards, to apply for a

licence under sub Section (1) of Section 9 or Sub

Section (2) of Section 9 of the Act, as the case may

be, in such form as may be specified by the Market

Committee in its bye-laws, within a period of

fifteen days from the date of publication of the said

notice.

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Provided that the provisions of this sub-rule shall

not apply to a producer in respect of agricultural

produce produced, reared, caught or processed by

him and to any person who purchases or stores any

agricultural produce for his domestic

consumption."

10. The cumulative effect of combined reading of the aforesaid

statutory provisions comes to the effect that sale of the specified

agricultural produce from any place in the market area is prohibited

unless the person concerned has a licence. The statute provides for an

exception of having a licence or from paying the market fee if the sale

of an agricultural produce is made to a person for his "domestic

consumption" in "retail sale".

11. Indisputably, the aforesaid produce purchased by respondent

company are agricultural produce. In view of the circular dated

18.4.1988, issued by the appellant, a retail trader cannot sell any

specified agricultural produce to any person more than the prescribed

limit therein. The said circular fixed the maximum quantity of an

agricultural produce which the retail dealer can sell to an individual for

domestic consumption. The Circular issued under the Rules 1965

prescribes the limit of sale to an individual and storage of the

agricultural produces, by the retailer:

10 Retailer could sell to an Retailer can purchase

individual

Gur- 20 Kg. Gur- 10 Quintals

Amla- 5 Kg. Amla-1 Quintal

Ghee- 4 Kg. Ghee- 50 Kg.

12. In G. Giridhar Prabhu & Ors. v. Agricultural Produce

Market Committee, AIR 2001 SC 1363, this Court considered similar

provisions under the Karnataka Agricultural Produce Marketing

(Regulation) Act, 1966, wherein the Court was concerned with the

term "trader" contained therein. After considering earlier judgments of

this Court, particularly, in H.P. Marketing Board & Ors. v. Shankar

Trading Co. Pvt. Ltd. & Ors., (1997) 2 SCC 496; and Vijayalaxmi

Cashew Co. & Ors. v. Dy. CTO & Anr., (1996) 1 SCC 468 etc., the

Court held that transaction by a "trader" includes processing,

manufacturing and selling. Therefore, a trader who buys a particular

agricultural produce, subjects it to selling or manufacturing process

and brings into existence a different agricultural produce would

cease to be a trader. The Court held as under:

".........The definition of the term "trader" is not a

restrictive definition. It is not restricted to a

person who only buys. If a person buys for

domestic or personal consumption, then he

would not be a trader. It is only when a person

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buys for the purpose of selling or processing or

manufacturing that he would become a trader.

Thus a person may buy, process or manufacture

and then sell. When he processes or manufactures

notified agricultural produce which he had

bought, it may change its character and become

another notified agricultural produce. Thus, by

way of examples, a person may buy milk and

through processes make them into butter and/or

cheese or a person may buy hides and skins and by

a process make it into leather. However, merely

because a distinct and separate notified

agricultural produce comes into existence does

not mean that the person who bought, processed

and sold ceases to be a trader. The term "trader"

encumbrances (sic embraces) not just the

purchase transaction but the entire transaction of

purchase, processing, manufacturing and selling."

(Emphasis supplied)

13. In The State of A.P. v. M/s. H. Abdul Bakhi and Bros., AIR

1965 SC 531, while dealing with a similar issue, i.e. defining `Dealer'

under the provisions of Andhra Pradesh General Sales Tax Act, 1950,

held that a person who buys goods for consumption in a process of

manufacturing is also a dealer. The Court held that a person who

consumes a commodity purchased by him in the course of his trade, or

use in manufacturing another commodity for sale, could be regarded as a

`Dealer'.

12 14. In Krishi Upaj Mandi Samiti & Ors. v. Orient Paper &

Industries Ltd., (1995) 1 SCC 655, the similar provisions of M.P.

Krishi Upaj Mandi Adhiniyam, 1973, were considered by this Court. In

the said case, the question arose as to whether the market fee can be

levied on agricultural produce brought for sale or sold in the market area

in case the mill did not produce the agricultural produce for sale but

produce them for use as its raw material for manufacturing the end

product. That was a case where the bamboos were purchased for

manufacturing of paper. The Court held that once the agricultural

produce is brought in the market area and sold therein, it becomes liable

to be levied with market fee, as no person can be permitted for sale or

purchase of the agricultural produce within the market area without a

licence even a raw material for manufacturing some other product. The

Court further held as under:

".....It is immaterial for this purpose whether the

bamboos are purchased by the respondent-Mills

for selling them or for using them as their raw

material in the manufacture of paper. The

liability of the respondent-Mills to pay the market

fees is in no way negated on that account...."

(Emphasis added)

15. This case stands squarely covered by the judgment of

Constitution Bench of this Court in Ram Chandra Kailash Kumar &

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Co. & Ors. v. State of U.P. & Anr., AIR 1980 SC 1124, wherein the

provision of the Act 1964, which is involved in the instant case was

considered and the Court held as under:

"If paddy is purchased in a particular market

area by a rice miller and the same paddy is

converted into rice and sold then the rice miller

will be liable to pay market fee on his purchase of

paddy from the agriculturist-producer under sub-

clause (2) of Section 17 (iii) (b). He cannot be

asked to pay market fee over again under sub-

clause (3) in relation to the transaction of rice.

Nor will it be open to the Market Committee to

choose between either of the two n the example

just given. Market fee has to be levied and

collected in relation to the transaction of paddy

alone."

16. In Virendra Kumar & Ors. v. Krishi Utpadan Mandi Samiti

& Ors., (1987) 4 SCC 454, this Court considered a case where it was

claimed that petitioners had been producers in respect of agricultural

produce (khandsari), and thus they were not required to take out any

license under Section 9(1) of the Act 1964. This court rejected the

argument observing that Section 9(1) would not be applicable to a

producer of agricultural produce only in case the producer processed,

reared, or caught for domestic consumption. In case the agricultural

produce is not for domestic consumption, but for sale thereafter in the

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market area, such a producer will not come within the exception of

Section 9(1) of the Act 1964.

17. In view of the above, we are of the considered opinion that as

the retail trader cannot sell the agricultural produce in quantity more

than prescribed in the circular and also such retailer himself cannot

purchase and store more than prescribed in the circular, therefore, the

meaning of "domestic consumption" has to be understood in such

restricted sense. Thus, meaning thereby for personal use i.e. for the use

of family members of the purchaser and not for any production activity,

otherwise prescribing the limits of purchase and storage by the retail

trader becomes redundant. The parties could not bring to the notice of

the High Court the relevant provisions of the Act 1964 which were

necessary to be considered to adjudicate upon the issue in controversy.

Purchase of agricultural produce in bulk cannot be termed to have been

made for "domestic consumption." The Court cannot travel beyond the

pleadings. The meaning of "domestic trade" and "foreign trade", had not

been in issue in the instant case. The "domestic consumption" under the

Act 1964 has to be given a very restricted and limited meaning i.e. for

personal use of the purchaser, i.e. for the consumption by the family and

not for commercial and industrial activities.

15 18. Shri Subramonium Prasad, learned counsel appearing for the

respondents, has placed very heavy reliance upon the judgment of this

Court in M/s. Kesarwani Zarda Bhandar v. State of Uttar Pradesh &

Ors., AIR 2008 SC 2733, wherein it has been held that market fee is

leviable on specified agricultural produce and not on agricultural

produce simplicitor. Zarda, the end product of the manufacturing

process is not a specified agricultural produce and it can be subjected to

payment of market fee provided it is held to be "Tobacco". Zafrani

Zarda, does not answer the description of specified agricultural

produce as defined under Section 2(a) of the Act. If it is held that

Zafrani Zarda is merely a processed form of "Tobacco", it could be

subjected to levy of market fee, but if it is manufactured it would not.

The aforesaid judgment has no application in the instant case

for the reason that issue involved in this case is relating to requirement

of having a license under Section 9(2) of the Act 1964 for the purchase

of a specified agricultural produce from the market area. The appellants

have never asked the respondent company to pay market fee on the end

product Chawanprash.

19. In view of the above, we are of the considered opinion that as the

respondent-company buys specified agricultural produce from the

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market area and it is not meant for domestic consumption, the company

is required to take license under Section 9(2) of the Act 1964.

20. In such a fact-situation, appeal is allowed. The impugned

judgment and order dated 14.7.2003 passed by the High Court of

Allahabad in Writ Petition No.12372 of 2003 is hereby set aside. No

costs.

...................................J.

(P. SATHASIVAM)

....................................J.

(Dr. B.S. CHAUHAN)

New Delhi,

August 11, 2011

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