2008 (5) TMI 398 - SC - VAT and Sales Tax

Whether Zafrani zarda is a processed form or manufactured form prepared from the raw material tobacco? Held that - Appeal allowed. 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. 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. The High Court, unfortunately, had not considered this aspect of the matter. The impugned judgment cannot, thus, be sustained & is set aside accordingly.

Issues Involved:
1. Levy of market fee on Zafrani zarda under the U.P. Krishi Utpadan Mandi Adhiniyam, 1964.
2. Definition and classification of "agricultural produce" and whether Zafrani zarda qualifies as such under the Act.
3. Distinction between "processed" and "manufactured" agricultural produce.

Issue-wise Detailed Analysis:

1. Levy of Market Fee on Zafrani Zarda:
The primary issue in these appeals is the levy of market fee on Zafrani zarda under the U.P. Krishi Utpadan Mandi Adhiniyam, 1964. The Act regulates the sale and purchase of agricultural produce and establishes markets in Uttar Pradesh. The relevant provisions of the Act, including Sections 2(a), 2(d), 6, 8, and 17(iii)(b), were examined to determine the applicability of the market fee on Zafrani zarda.

2. Definition and Classification of "Agricultural Produce":
The Act defines "agricultural produce" under Section 2(a) as items of agriculture, horticulture, and other specified categories, including processed forms. The question was whether Zafrani zarda, made from raw tobacco, qualifies as a processed or manufactured form of agricultural produce. The process of manufacturing Zafrani zarda involves purchasing raw tobacco, sprinkling jaggery juice, cutting, drying, adding flavoring essence, and mixing with menthol, geru, lime, and spices. This process changes the tobacco's physical and chemical properties, making it a different commodity in the commercial world.

3. Distinction Between "Processed" and "Manufactured" Agricultural Produce:
The court examined whether Zafrani zarda is a processed or manufactured form of tobacco. Previous judgments, including State of Madras v. Swasthik Tobacco Factory and Agricultural Produce Market Committee v. Prabhat Zarda Factory, were considered. These cases established that Zafrani zarda is a manufactured form of tobacco. The court also referred to Dharampal Satyapal v. Commissioner of Central Excise, which held that blending raw materials with other substances to create a distinct, identifiable product constitutes manufacturing.

The court emphasized that an agricultural produce must be specified for the purpose of levying a market fee. Zafrani zarda is not a specified agricultural produce under the Act. It can only be subjected to market fee if it is considered "tobacco" in a processed form. However, based on the definition and previous judgments, Zafrani zarda is a manufactured product, not merely processed tobacco.

The distinction between "processing" and "manufacturing" depends on whether a new product emerges. The court concluded that Zafrani zarda, being a manufactured tobacco, does not qualify as processed tobacco and is not subject to market fee under the Act.

Conclusion:
The High Court's judgment was set aside, and the appeals were allowed. The court ruled that Zafrani zarda is a manufactured product and not subject to market fee under the U.P. Krishi Utpadan Mandi Adhiniyam, 1964. The appeals were allowed without any order as to costs.

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