2003 (11) TMI 591 - SC - VAT and Sales Tax

What is the true scope and ambit of Section 2(a) and 17 iii (b) of the Krishi Utpadan Mandi Samiti Adhiniyam, 1964? Whether the market fee can be levied on the purchases of wheat by the seed processing unit to process and convert the same into certified seed by treating it chemically? Whether there is any difference in wheat and wheat seed before it is chemically treated and converted into certified seed and thus becomes unfit for human consumption? Whether it is necessary, to notify seed of cereals which can itself be used as seed when the object of the legislature was to notify only those seeds which are different from produce itself?

Issues Involved:
1. True scope and ambit of Section 2(a) and 17(iii)(b) of the Krishi Utpadan Mandi Samiti Adhiniyam, 1964.
2. Levy of market fee on the purchase of wheat by the seed processing unit.
3. Difference between wheat and wheat seed before and after chemical treatment.
4. Necessity to notify seeds of cereals separately when the produce itself can be used as seeds.

Detailed Analysis:

Issue 1: True Scope and Ambit of Section 2(a) and 17(iii)(b) of the Krishi Utpadan Mandi Samiti Adhiniyam, 1964
The U.P. Krishi Utpadan Mandi Adhiniyam, 1964, regulates the sale and purchase of agricultural produce and the establishment of markets in U.P. Section 2(a) defines "agricultural produce" and includes items in processed form. Section 17(iii) allows the imposition of market fees on transactions of specified agricultural produce. Wheat is listed in the Schedule under cereals, but wheat seeds are not specifically mentioned. Therefore, seeds of wheat are not covered by the definition of specified agricultural produce.

Issue 2: Levy of Market Fee on the Purchase of Wheat by the Seed Processing Unit
The appellants argued that the first respondent, who purchases wheat and converts it into seeds by applying chemicals, should pay market fees on these transactions. However, the High Court and the Supreme Court found that certified seeds are not included in the Schedule of the Adhiniyam and are thus not subject to market fees. The process of converting wheat into certified seeds involves chemical treatment, making them unfit for human consumption and a distinct commodity from wheat. Therefore, the market fee cannot be levied on the purchase of wheat by the seed processing unit.

Issue 3: Difference Between Wheat and Wheat Seed Before and After Chemical Treatment
The court noted that before chemical treatment, wheat remains an agricultural produce, and its sale and purchase attract market fees. However, once treated with chemicals, the wheat seeds lose their basic characteristics as cereals and become unfit for human consumption. Therefore, the treated seeds are distinct from food grains and are not subject to market fees.

Issue 4: Necessity to Notify Seeds of Cereals Separately
The appellants contended that the intention of the legislature was to notify only those seeds different from the produce itself. The court found that wherever seeds were intended to be notified, they were specifically mentioned in the Schedule. Since wheat seeds are not separately listed, they are not covered by the definition of specified agricultural produce. The object of the legislature was to notify only those seeds which are different from the produce itself.

Conclusion:
The Supreme Court upheld the High Court's decision, ruling that the appellants have no authority to levy market fees on the purchase of wheat by the seed processing unit. The court reiterated that wheat seeds converted into certified seeds are unfit for human consumption, and thus, market fees cannot be imposed. The appeal was dismissed, and the questions of law were answered in favor of the first respondent. The court emphasized that certified seeds are not specified agricultural produce under the Adhiniyam, and the business of purchasing and selling certified seeds is not subject to market fees.

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