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CASE NO.: Appeal (civil) 3982-3984  of  1999

PETITIONER: G. GIRIDHAR PRABHU & ORS.

       Vs.

RESPONDENT: AGRICULTURAL PRODUCE MARKET COMMITTEE

DATE OF JUDGMENT:       02/03/2001

BENCH: V.N. Khare & S.N. Variava

JUDGMENT:

S. N. VARIAVA, J.

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   These  Appeals  are against a Judgment dated 2nd  April, 1998.

   Briefly stated the facts are as follows:

   The  Appellants  purchase  raw   cashew  nut  and  after subjecting the same to process of manufacture extract cashew kernel.   The  cashew kernel is then sold by them  all  over India  as well as in International markets.  Both cashew nut and  cashew  kernel are Notified Agricultural Produce  under the Schedule to the Karnataka Agricultural Produce Marketing (Regulation)  Act,  1966 (hereinafter called the said  Act). The  Appellants  have  licences  under   the  said  Act   as Importers,  Traders, Exporters and Producers from the Market Committee.   The Appellants are paying market fee as per the provisions of Section 65(2A) when they purchase cashew nut.

   The  Market  Committee issued Notices to the  Appellants directing  them to collect market fee from their buyers  and pay  the same to the Committee in respect of transactions of sales of cashew kernel.  These Notices were issued under the provisions of Section 65(2A)(iii) of the said Act.

   The  Appellants filed a Writ Petition in the High  Court of Kerala praying for declaration that they were "Producers" of  cashew kernel and, therefore, were not liable to collect the market fee from their purchasers and pay the same to the Committee.  They also sought a declaration that as producers of  cashew kernel they did not even require a license.   The Appellants  sought  directions from the Court to  quash  the Notices  issued by the Market Committee and to restrain  the Market Committee from recovering market fee from them.  This Writ  Petition came to be dismissed by a single Judge of the High  Court on 21st August, 1996.  The Appellants then filed a  Writ  Appeal  which  also came to  be  dismissed  by  the impugned Judgment dated 2nd April, 1998.

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   The controversy in these Appeals is very limited.  There is  no dispute that the Appellants are purchasing cashew nut and  by  a process of manufacture extracting cashew  kernel. There  is no controversy and no dispute that on the purchase transactions the Appellants are paying market fee.  There is also  no  dispute that on the sale transactions,  of  cashew kernel,  market fee is payable.  The only dispute is whether the  Market Committee can insist that the Appellants realize the  market  fee  from their purchasers and pay  it  to  the Market  Committee  or  whether the Market Committee  has  to collect  the  market  fee directly from  the  purchasers  of cashew kernel.

   For an understanding of this question certain provisions of  the  said Act require to be looked at.  The Preamble  to the  said Act lays down that it is an Act to provide for the better  regulation of marketing of agricultural produce  and the   establishment  and  administration   of  markets   for agricultural  produce  in the State of  Karnataka.   Section 2(1)  of  the  said Act defines  "Agricultural  Produce"  as follows:

   "2(1).   "Agricultural  Produce"  means the  produce  or goods specified in the Schedule."

   It  is an admitted position that initially under Item  8 of  the  Schedule only cashew nut was included as  an  Item. Market  fee  was sought to be levied on cashew kernel.   The Mangalore  Cashew Manufacturing Association challenged  this levy  in the High Court of Kerala.  The High Court held that cashew  kernel was not included in the Schedule to the  said Act  and  it was thus not a Notified  Agricultural  Produce. Pursuant  to  this  decision the State Government  issued  a Notification  under Section 5 read with Section 3 of the Act and  included cashew kernel also in the Schedule.  Thus, now both  cashew nut and cashew kernel are two separate items in the  Schedule to the said Act.  Sections 2(5), 2(13), 2(14), 2(14A),  2(18A), 2(21), 2(28), 2(32), 2(33), 2(34) and 2(48) of the said Act are relevant.  They read as follows:

   "2(5).   "Buyer" or "purchaser" means a person who  buys or agrees to buy goods;

   2(13).   "Exporter" means a person other than a producer who  exports  goods or causes goods to be exported on  one’s own  account or as agent of another person, from the  market area  outside  such  area  for   the  purpose  of   selling, processing,  manufacturing  or for any other purpose  except for the purpose of one’s own domestic consumption, but shall not include a public carrier.

   2(14).   "Goods" means any kind of notified agricultural produce.

   2(14A)  ‘"Importer" means a person who imports or causes goods  to be imported on his own account or as an agent  for another  person  from outside the market area into a  market area  for the purpose of selling, processing,  manufacturing or  for  any  other purpose except for  one’s  own  domestic consumption, but shall not include a public carrier.

   2(18A)   "Marketing  means  buying   and   selling   of agricultural  produce  and   includes  grading,  processing, storage,   transport,  packaging,   market  information  and channels of distribution.

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   2(21).  "Market functionary" or "functionary" includes a broker,  a  commission  agent,  an exporter,  a  ginner,  an importer,  a presser, a processor, a stockist, a trader, and such  other person as may be declared under the rules or the bye-laws to be a market functionary.

   2(28).    "Notified  agricultural   produce"  means  any agricultural  produce  which  the State  Government  has  by notification  issued  under Sections 4 and 5 declared as  an agricultural  produce  the  marketing  of  which  shall   be regulated in the market area.

   2(32).   "Process"  means  any  one of  the  serious  of treatments to which raw agricultural produce is subjected to make it fir to use or consumption.

   2(33).    "Processor"  means  a  person  who   processes notified agricultural produce by mechanical means.

   2(34)  "Producer"  means a person who produces  notified agricultural produce on one’s own account.-

(i) by one’s own labour; or

(ii) by the labour of any member of one’s family;  or

(iii) under the personal supervision of oneself or any m ember  of  one’s  family by hired labour or by  servants  on wages  payable  in  cash  or kind but not in  share  of  the produce.

   2(48).   "Trader"  means  a  person  who  buys  notified agricultural  produce either for himself or as agent of  one or  more  persons  for the purpose of  selling,  processing, manufacturing  or  for  any other purpose,  except  for  the purpose of domestic consumption."

   The levy is under Section 65(1) of the Act.  The mode of collection  is  provided under Section 65(2-A) of  the  said Act.  It reads as follows:

   "65(2-A).   The  market fee payable under  this  section shall be realised as follows, namely.-

   (i)  if the produce is sold through a commission  agent, the  commission agent shall realise the market fee from  the purchaser  and  shall  be  liable to pay  the  same  to  the committee;

   (ia)  if  the  produce  is sold by an  importer  to  the purchaser,  the  importer shall realise the market fee  from the  purchaser  and shall be liable to pay the same  to  the committee;

   (ii)  if  the produce is purchased directly by a  trader from  a  producer,  the trader shall be liable  to  pay  the market fee to the committee;

   (iii)  if  the  produce is purchased by  a  trader  from another trader, the trader selling the produce shall realise it  from the purchaser and shall be liable to pay the market fee to the committee;  and

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   (iv)  in  any  other case of sale of such  produce,  the purchaser  shall  be  liable to pay the market  fee  to  the committee."

   The  Market  Committee  called upon  the  Appellants  to collect  and  pay  the market fee on the  footing  that  the Appellants are traders who were selling the produce to other traders.   The  Appellants claim that they are producers  of cashew  kernel and, therefore, sub-clause (ii) would  apply. The Appellants claim that if sub- clause (ii) does not apply then sub-clause (iv) would apply.  The question therefore is whether  the  Appellants are producers or whether  they  are traders.

   As  is  seen from the definition under Section  2(48)  a trader  is  any person, who (a) buys  Notified  Agricultural Produce,  (b) either for himself or as agent of one or  more persons,  (c)  for  the   purpose  of  selling,  processing, manufacturing  or  any other purpose and (d) except for  the purpose  of domestic consumption.  There is no dispute  that the  Appellants  are traders when they purchase cashew  nut, which  is a Notified Agricultural Produce.  In such purchase transaction  they  are also importers.  As such traders  and importers they have obtained a licence and are paying market fee.  It is, however, submitted that even though they may be traders/importers in the purchase transactions, they are not traders  or  exporters when they sell cashew kernel.  It  is submitted  that they are Producers of cashew kernel.  It  is submitted  that  in the Schedule to the said Act cashew  nut and  cashew  kernel are shown as two separate  and  distinct commodities.   It  is  submitted that the  State  Government accepted the Judgment of the High Court of Kerala as correct and  implemented  the  Judgment by  incorporating  the  term "cashew  kernel" as a separate items in the Schedule.  It is submitted  that  the Appellants are Producers under  Section 2(34)  as  the  Appellants produce a  Notified  Agricultural Produce,  i.e.   cashew kernel on their own  account,  under their  personal supervision and by hired labour or  servants on  wages  paid  in cash.  It is submitted  that  they  fall within  the  definition  of  the term  "Producer"  and  are, therefore,  governed by sub-clause (ii) of Section  65(2-A). It  is  submitted  that in any event their  sale  of  cashew kernel would not be a sale from a trader to a trader.  It is submitted  that if sub-clause (ii) did not apply, they would fall under sub-clause (iv) of Section 65(2-A).

   Initially,  Mr.   Sarangan  submitted   that  the   term "Trader"  under Section 2(48) can only refer to a person who buys.   He initially submitted that the term "Trader" cannot apply  to a person who sells a Notified Agriculture Produce. However  to  be noted that under the definition mere  buying was  not  enough.  The buying had to be for the  purpose  of selling  or  processing  or manufacturing or for  any  other purpose.   The  buying  had to be for a purpose  other  than domestic  consumption.  When this was pointed out to him the answer  sought  to be given was that if a person bought  and sold  the same Notified Agricultural Produce, then he may be a trader, but if he bought one Notified Agricultural Produce and  sold another Notified Agricultural Produce, then in the sale transaction he would not be a trader.  It was submitted that  cashew  nut  and cashew kernel were two  separate  and distinct  Notified  Agricultural Produce.  It was  submitted that  the  Appellants bought cashew nut.  It  was  submitted that  they  produced  cashew kernel and  were  only  selling

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cashew  kernel.   It  was submitted that as  they  were  not selling  the  Notified Agricultural Produce which  had  been bought they could not be termed as a "Trader".

   In  support of the submission that cashew nut and cashew kernel  are two separate and distinct commodities,  reliance was  placed  upon the case of Vijayalaxmi Cashew Company  v. Dy.   Commercial  Tax Officer reported in (1996) 1 SCC  468. In  this  case, the Appellant therein was purchasing  cashew nut, extracting cashew kernel and exporting cashew kernel to foreign  countries.   The  question was  whether  they  were liable  to sales tax under Section 5(3) of the Central Sales Tax  Act,  1956.  This Court negatived an argument that  the purchase  was  of the same goods which were exported.   This Court  held  that  cashew  nut and cashew  kernel  were  two separate and distinct commodities.

   Reliance  was also placed upon the case of Sita Devi  v. State of Bihar reported in 1995 Supp.  (1) SCC 670.  In this case  the  question  was whether cattle could be  termed  as Agricultural  Produce.  This Court held that even though  in common  parlance  cattle  may  not be considered  to  be  an agricultural  produce  but  as it had been included  in  the Schedule, under "Animal Husbandry", for the purposes of this Act  it  became  an agricultural produce.  This  Court  held that, therefore, market fee could be levied on cattle bought and  sold  in an market area.  Relying on this authority  it was  submitted  that to ascertain what was  an  agricultural produce  one  had  to  look to the items  specified  in  the Schedule  to the Act.  It was submitted that if two separate items  were specified in the Schedule to the Act, then those two  had  to be treated as two separate and distinct  items. However,  it may be noted that this case also lays down that if an item, after it is taxed, is subjected to a process and changes  its form, then it can again be subjected to  market fee  in the different form.  The examples given in this case are  that  even  though  market fee  is  levied  on  cattle, subsequently  milk, Ghee, butter which are obtained from the cattle  could also be exigible to levy of market fee.   This case,  therefore, shows that by means of a process the  very nature of the item may change.

   Reliance was also placed upon the case of State of Tamil Nadu  v.  Nellai Cotton Mills Ltd.  reported in (1990) 2 SCC 518.   In  this case it has been held that when an  Act  has been judicially interpreted, Courts may study the subsequent action  or  inaction  of  the legislature for  clues  as  to legislative    approval   or     disapproval   of   judicial interpretation.  It has been held that if the legislature by taking note of the Judgment amends the statute appropriately by  not giving any different meaning from the view taken  by the  Court, with some justification, it can be said that the legislature  had  accepted expressly or by  implication  the judicial  interpretation.  It was submitted that by amending the  Schedule to include cashew kernel the State  Government had accepted the fact that cashew nut and cashew kernel were two  separate and distinct commodities and now they would be precluded  from contending that these were not two  separate and distinct commodities.

   Reliance  was next placed upon the case of  Commissioner of  Income Tax v.  N.C.  Budharaja & Co.  reported in (1993) 204  ITR  413.  It was submitted that the word  "production" has  a  wider connotation than the word  "manufacture".   In this  case  it  is  held that  every  manufacture  would  be

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characterised  as production but every production would  not amount  to  manufacture.   It  is held that  when  the  word "production" or "produce" are used in juxtaposition with the word  "manufacture",  they may bringing into  existence  new goods  by  a  process  which  may   or  may  not  amount  to manufacture.   It is held that these words also take in  all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods.

   Respondents  do  not dispute that cashew nut and  cashew kernel are two separate and distinct items/commodities.  The Respondent’s  submission is that the Appellants continue  to be  a  trader  even  in the sale  transaction  as  they  had bought/imported  for purpose of processing and then selling. Respondents  contend that merely because, by a process or by manufacture, a different item comes into being does not make the  processor or manufacturer a Producer.  The contend that a  "Producer"  is  one  who produces  the  initial  Notified Agricultural  Produce.   We  are unable to  agree  with  the submissions  of  Mr.   Sarangan.  As can be  seen  from  the Preamble  the  Act  is to provide for better  regulation  of marketing  of  agricultural  produce.  In  the  Act  certain exemptions have been given to Producer which exemptions have not  been  given  either  to Importer or an  Exporter  or  a Trader.   These  exemptions, therefore, have been  given  to Producer because the Producer is the person who produces the main  agricultural produce.  The main agricultural  produce, which  may be a Notified Agricultural Produce, could then be converted into various other Notified Agricultural Produce/s by  subjecting  the same to a process or  manufacture.   The person who so processes or manufactures a different Notified Agricultural  Produce would not be a Producer.  To be  noted that an importer imports or causes goods to be imported into the  market  area  for the purpose of  selling,  processing, manufacturing or for any other purpose, except for one’s own domestic  consumption.  Thus, it is clear that a person, who imports  would  not be a Producer.  The import would be  for purpose of selling or processing or manufacturing or for any other  purpose  except for one’s own  domestic  consumption. Similarly,  the  term  "Exporter"  makes it  clear  that  an exporter  is  not a Producer.  A trader is also is a  person who  buys  Notified Agricultural Produce for the purpose  of selling  or  processing  or manufacturing or for  any  other purpose except for the purpose of domestic consumption.  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 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 makes  it  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  not  just  the purchase  transaction  but  the entire  transaction  of purchase, processing,  manufacturing and selling.

   In  this  behalf the case of Himachal pradesh  Marketing

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Board v.  Shankar Trading Co.  Pvt.  Ltd.  reported in 1997) 2  SCC  496,  is  relevant.    Under  the  Himachal  Pradesh Agricultural  Produce  Markets  Act,   1969,  licences  were required  to  be  taken  for   purchase,  sale,  storage  or processing  of agricultural produce and market fee was  also payable.   Producers  or growers however did not  require  a licence and did not have to pay market fees.  The Respondent Company  (therein)  was  producing   "katha",  a   specified agricultural   produce.   They  did   this   by   processing Khairwood.   They claimed (like the Appellants in this case) that  as  producers they did not need a licence  and  market fees  were  not payable by them.  This Court negatived  this contention  by  holding that a person producing a  specified agricultural  produce  by processing a natural product  does not fulfil the requirement of being producer/grower.  It was held  that the clause of the Act made it clear that only the actual  grower/producer of the natural agricultural  produce were  to be befitted.  Of course the definition of the terms in  that  Act are different.  However in our view the  basic principle is the same.  It applies to this case also.

   We  also  see  no substance in the  submission  that  if Section  65(2-A)(ii) did not apply, then Section 65(2-A)(iv) would  apply.  Section 65(2-A)(iv) is residuary clause.   It would  only apply if none of the other clauses applies.   As it  is  clear that the Appellants are Traders they  squarely fall  within  Section 65(2-A)(iii).  In fact, they may  also fall within Section 65(2- A)(ia).  As they fall within these two  clauses  there is no question of the  residuary  clause applying.

   Under  these  circumstances, we see no infirmity in  the Judgment  of the High Court.  We see no reason to interfere. The  Appeals  stand dismissed.  There will, however,  be  no Order as to costs.