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                                                               REPORTABLE

                 IN THE SUPREME COURT OF INDIA

                  CIVIL APPELLATE JURISDICTION

                CIVIL APPEAL NOS. 5760 & 5761 of 2005

Kesarwani Zarda Bhandar                                  .... Appellant

            Versus

State of U.P. and others                                .... Respondents

                                JUDGMENT

S.B. SINHA, J.

1.    Levy of market fee on Zafrani Zarda in terms of the provisions of

the U.P. Krishi Utpadan Mandi 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   establishment,

superintendence and control of markets therefor in Uttar Pradesh.

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3.    Before embarking on the question, we may notice some of the

relevant provisions of the Act.

     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 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;              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 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 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 the notification              under Section 5 shall be the Market Area in

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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, 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,-- (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 Section 6 ; (c)   divide a Market Area specified in the       notification under Section 6 into two or       more separate Market Areas ; (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 : Provided that before action under this sub- section is taken, 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 are altered under clause

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(b), clause (c) or clause (d) 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 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 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 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 Committee       having jurisdiction over that part. (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 and its members shall vacate       their offices as such members ; (b)   the Principal Market Yard and Sub-       Market Yards, if any, established therein       shall cease to be such ; (c)   the unspent balances of the Market       Committee Fund and other assets and       liabilities of the Market Committee shall       vest in the State Government :

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Provided that the liability of the State Government shall not extend beyond the assets so vested.

17. Powers of the Committee.--A Committee shall, for the purposes of this Act, have the power to-- (i) & (ii)    .... (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 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 be         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 :-         (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;         (2) if the produce is purchased directly             by a trader from a producer, the             trader shall be liable to pay the             market fee and development cess to             the Committee;

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     (3) if the produce is purchased by a           trader from another trader, the trader           selling the produce 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 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 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 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 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 : Provided further that notwithstanding anything contained 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 sum in lieu of the amount of market fee or development cess that may be payable by him for an agricultural year in respect of such specified agricultural

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               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 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 in                 any other market area."

4.      In the Schedule appended to the Act, tobacco is mentioned at Item

       No.V.

       The question which arises for consideration is as to 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:-

               "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

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            tobacco. The Jaggery Juice is sprinkled on the              raw 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 stage, this tobacco is known as              "Chewing tobacco". Then, 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 "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 the material mixed with              it."

5.    Mr. Rakesh Dwivedi, learned senior counsel appearing 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 Zafrani Zarda is a

processed form of tobacco.

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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 the event

Zafrani Zarda is held to be a processed form of tobacco 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 Section 5(1)(i) 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. 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 :-

            ‘‘ ‘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 Amending Act of 1982

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            effective from April 30, 1982, the English              rendering of which is as under:

                   ‘‘ ‘Agricultural produce’ means all                     produce whether processed or non-                     processed, manufactured or not, product                     of agriculture, horticulture, plantation,                     animal husbandry, forest, sericulture,                     pisciculture, livestock or poultry, as                     specified in the Schedule.’’

10.   This Court clearly affirmed the finding of the Patna High Court

that ‘Zarda’ is a variety of manufactured tobacco and not 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 of

central excise, it was held :-

            "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 licensed              units at Okhla Industrial Estate, Phase II, New              Delhi, Noida (U.P.) and Barotiwala (H.P.), where              Tulsi 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 their final              product. That, the compound (kimam) prepared              by the assessee at 96, Okhla Industrial Estate,

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           Phase III, New Delhi 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 and used             in the manufacture of Tulsi Zafrani 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 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 Okhla Industrial Estate, Phase II,             New Delhi, Noida (U.P.) 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, 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 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 specified one for

the purpose of levy of market fee. [ See KUMS v. Ganga Dal Mills,

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[(1984) 4 SCC 516 ; Belsund Sugar Co. Ltd. v. State of Bihar and

others, [ (1999) 9 SCC 620 ] and Krishi Utpadan Mandi Samiti and

others v. Pilibhit Pantnagar Beej Ltd. and and another, [ (2004) 1 SCC

391.

13.    Ms. Shobha Dikshit, however, relied upon the decision of this

Court in Park Leather (P) Ltd. v. State of U.P. and others, [ (2001) 3

SCC 135 ] wherein a Division Bench opined that leather is only a

processed form of hides and skins. Process undertaken for making leather

from hides and skins has been noticed therein.

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 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 be ‘tobacco’. Zafrani Zarda, as an agricultural produce for the purpose

of market fee must answer the description of ‘specified agricultural

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

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Zarda is merely a processed form of tobacoo, 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 manufactured product.

17.   The distinction between ‘manufactured’ and ‘processed’ may not

in all situation depend upon the nature of the Statute involved. It must

pass the requisite test, namely, as to whether it is a completely new item.

Raw material of a manufactured 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 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 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 persons and in many ways. Tobacco in raw

form or in any other processed form is not commercially known as Zarda.

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The common parlance test may have to be applied for the purpose of

finding out as to whether the product in question is manufactured goods

or not.

19.   The High Court, unfortunately, had not considered this 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.

                                        .......................................J.                                         (S.B. SINHA)

                                        ..........................................                                                                                 J.                                         (LOKESHWAR SINGH PANTA) New Delhi May 14, 2008