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Shri Sajjan Mills Limited, Ratlam Vs. Krishi Upaj Mandi Samiti, Ratlam and ors. - Court Judgment

LegalCrystal Citation
SubjectOther Taxes
CourtMadhya Pradesh High Court
Decided On
Case NumberMisc. Petn. No. 272 of 1979
Judge
Reported inAIR1981MP30; 1981MPLJ117
ActsMadhya Pradesh Krishi Upaj Mandi Adhiniyam, 1973 - Sections 2(1), 6 and 32, 33; Constitution of India - Articles 226 and 265
AppellantShri Sajjan Mills Limited, Ratlam
RespondentKrishi Upaj Mandi Samiti, Ratlam and ors.
Appellant AdvocateA.K. Chitaley, Adv.
Respondent AdvocateY.S. Dharmadhikari, Adv. ;L.S. Baghel, Dy. Adv. General
DispositionPetition partly allowed
Cases ReferredRam Chandra Kailash Kumar and Co. v. State of U. P.
Excerpt:
.....substantial portion of the amount collected on account of fees, may be in the neighbourhood of two-thirds or three-fourths, must be shown with reasonable certainty as being spent for rendering services to the licensees (under the punjab act) in relation to the transactions of purchase or sale of agricultural produce. instead, it was held that utilising a good and substantial portion of the market fee collections for supply of pesticides and spray pumps on subsidized basis goes against the concept of quid pro quo which is very essential in case of fees. clearly, therefore, the respondent no......no. 1 and that no fee at all can be charged on the agricultural produce purchased outside the market area. the petitioner prays for quashing of the orders, annexures c and d, and for a further direction for refund of the fee paid. it is also prayed that the respondents be directed not to realise any market fee. the order, dated 30-1-1978, passed by the respondent no. 1 cancelling the petitioner's licence has also been questioned.3. we may first take up the questionof petitioner's liability to pay the marketfee levied under section 19 and also totake out a licence under section 32 of theact. the contention is that being amanufacturer, the petitioner cannot besaid to be a market functionary. evenotherwise, if the purchase is made fromthe producers for its 'own private consumption', it.....
Judgment:

B.C. Varma, J.

1. The petitioner is a company engaged in the business of sale and manufacture of textiles. It has textile mills at Dhamnod Road. Ratlam, within the market area of Krishi Upaj Mandi, Ratlam (respondent No. 1), established under the Madhya Pradesh Krishi Upaj Mandi Adhiniyam, 1972 (hereinafter called the Act), For the purpose of manufacture of textiles, the petitioner purchases unginned cotton from agriculturists. This cotton is then ginned, pressed and spinned and is then finally converted into finished product, viz., the cloth. All this process is undertaken by the petitioner in the Mills. The cloth is then marketed through dealers. 'Cotton' is one of the commodities included in the Schedule to the Act and is admittedly an 'agricultural produce' within the meaning of term as defined under Section 2(1)(a) as meaning all produce whether processed or not, of agriculture, horticulture, animal husbandry, apiculture, pisciculture, or forest. The petitioner has obtained a licence under Section 32 of the Act. The respondent No. 1 has levied and charged market fee for purchase of cotton from the petitioner. The rate of market fee so charged is at 0.50 per one hundred rupees of the price except for a period between 1-4-1976 to Sl-7-1977 when market fee was charged at Re. 1/- per one hundred rupees of the price. The petitioner objected to levy and recovery of the market fee and also protested against its liability to take a licence under Section 32. By order dated 9-5-1977 (Annexure-C), the respondent-Samiti rejected the objection. Appeal/reference against the order of the Samiti (respondent No. 1) was also rejected by the Joint Director of Agriculture (respondent No. 2) by order, dated 14-11-1977 (Annexure-D). This petition was then filed on 30-1-1978 the respondent No. 1 cancelled the petitioner's licence.

2. According to the petitioner, it is not a market functionary within the meaning of Section 2 (1) (j) of the Act as the petitioner's undertaking only consumes the argicultural produce (i. e., cotton) as a raw material and is, therefore, not within the mischief of the Act. The petitioner, therefore, asserts that it is not required to take any licence under section 32 nor is required to pay any market fee on the purchase of cotton for use in the manufacture of textiles. Further challenge in this petition under Article 226 of the Constitution is to the levy and recovery of market fee at more than 0.50 p. on the ground that the increase from 0.50 p. to Re. 1/- is not correlated to the services rendered by the respondent No. 1 and that no fee at all can be charged on the agricultural produce purchased outside the market area. The petitioner prays for quashing of the orders, Annexures C and D, and for a further direction for refund of the fee paid. It is also prayed that the respondents be directed not to realise any market fee. The order, dated 30-1-1978, passed by the respondent No. 1 cancelling the petitioner's licence has also been questioned.

3. We may first take up the questionof petitioner's liability to pay the marketfee levied under Section 19 and also totake out a licence under Section 32 of theAct. The contention is that being amanufacturer, the petitioner cannot besaid to be a market functionary. Evenotherwise, if the purchase is made fromthe producers for its 'own private consumption', it can use any place in themarket area for marketing of cotton whichis a notified agricultural produce. Furthercontention is that since the petitioner isneither a trader nor the owner or occupierof any processing or pressing factory orsuch other market functionary, it is notrequired to obtain a licence to operate inthe market area of Krishi Upaj MandiSamiti, Ratlam. In order to appreciatethis contention, certain provisions of theAct have to be noted. Section 2 (1) (j)defines 'market functionary' to include abroker, a commission agent, an exporter, aginner, an importer, a presser, a processor, a stockist, a trader, a weighman,warehouseman, hammal, surveyor andsuch other person as may be declaredunder the rules or the bye-laws to be amarket functionary. According to Section 2 (1)(p), 'trader' means a person who in hisnormal course of business buys or sellsany notified agricultural produce and includes a person engaged in processing of agricultural produce. Section 6 provides for control of marketingof notified agricultural produce. According to Sub-section (b) of Section 6, no person shall, except in accordance with the provisions of the Act and the rules and bye-laws made thereunder -- (i) use any place in the market area for the marketing of the notified agricultural produce; or (ii) operate in the market area as a market functionary. To this sub-section is added a proviso which runs thus;

'Provided that nothing herein shall apply to --

(a) the sale or purchase of such agricultural produce--

(i) the producer whereof is himself its seller and such sale is made to a person who purchases it for his own private consumption;

(ii) which is brought by head loads;

(iii) which is sold through retail;

(b) the transfer of such agricultural produce to a Co-operative Society for the purpose of securing an advance therefrom'.

Chapter VI of the Act provides for regulation of trading. Section 31, which falls in that Chapter, is as follows:

'31. Regulation of persons operating in market area. No person shall, in respect of any notified agricultural produce, operate in the market area as commission agent, trader, broker, weighman, hammal, surveyor, warehouseman, owner or occupier of processing or pressing factories or such other market functionary except in accordance with the provisions of this Act and the rules and bye-laws made thereunder.'

According to Sub-section (1) of Section 32, every person specified in Section 31, who desires to operate in the market area, shall apply to the market committee for grant of a licence or renewal thereof. Section 33 contains powers of a marketing committee to suspend or cancel a licence. In terms of that section, the market committee is required to record its reasons for suspending or cancelling a licence and, according to Sub-section (4), is required to give an opportunity to show cause against such suspension or cancellation.

4. While supporting his contention, the learned counsel for the petitioner drew our attention to the conspicuous absence of the word 'manufacturer' in the inclusive definition of the term 'market functionary' and the definition of the term 'trader'. He also pointed out that the market committee constituted under Section 1] (1) of the Act provides for no representation of either a manufacturer or an industrialist. Similar non-inclusion of persons doing business in textiles in Section 31 was also adverted to. It was stressed that since manufacturer is not included in the class of persons enumerated in Section 31, the petitioner is not required to take any licence. We, however, find ourselves unable to accede to the petitioners contention in this behalf. It is true that the definition of market functionary in Section 2 (1) (j) of the Act does not in term include a manufacturer. All the same, it includes a 'trader', which according to Section 2 (1) (p) means a person who in his normal course of business buys or sells any notified agricultural produce. The petitioner's business is admittedly manufacture of textiles. It is the case of the petitioner itself that cotton, which is a notified agricultural produce, is bought by it in the normal course of business. The petitioner thus is a person who in the normal course of business buys a notified agricultural produce, namely, cotton. That being so, the petitioner is a trader and as such a market functionary. Since the petitioner operates in the market area of the respondent-Committee as a trader in respect of notified agricultural produce namely cotton, it is bound to take a licence in terms of Section 32 before it can be permitted to so operate in the market area.

5. The proviso to Sub-section (b) of Section 6 of the Act also does not help the petitioner. It is the that the raw material, that is, cotton, purchased by the petitioner is used by itself and is ultimately turned into textiles. In that sense, the cotton so purchased as raw material can loosely be said to have been consumed by it. By consumption is meant the act of consuming. To consume means to destroy or use up, to eat or drink up. In its economic sense, consumption may mean just the use which a purchaser chooses to make of the goods purchased for his own purpose. He does not have to destroy them nor does he have to diminish their value or utility. It may thus mean the usual use made of an article for purposes of trade and commerce. In our opinion, however, in the context in which the phrase 'who purchases it for his own private consumption', is used in clause (a) (1) of the proviso to Section 6 (b), it cannot be said that the petitioner purchases cotton for its own private consumption. The words 'own private consumption' as used in the proviso to Section 6 (b) can only mean complete disappearance by use by an individual such as eating away of a food article. The term does not seem to have been used to include the use of an agricultural produce in a commercial activity for production or conversion into a different commodity. This is also made clear by the subsequent amendment made in that proviso by the Madhya Pradesh Krishi Upaj Mandi (Dwitiya Sanshodhan) Adhiniyam, 1979. By this amendment, the applicability of item (a) of the first proviso to Clause (b) of Section 6 is limited to the purchase not exceeding four quintals at a time to a person who purchases it for his own domestic consumption. This limitation put upon the quantity clearly shows that what is covered by that clause is sale or purchase of agricultural produce for being used up by an individual as opposed to sale or purchase for purposes of trade and commerce.

6. It is then urged on behalf of the petitioner that the increase of licence fee from 0.50 to Re. 1.00 per one hundred rupees of the price of agricultural produce purchased between 1-4-1976 to 31-7-1977 is illegal. The argument is that although the fee has been enhanced, the respondent No. 1 has not rendered nor contemplated to render services to the traders in the notified market area, nor any substantial portion of the fee so realised by enhancement is shown to be spent for that purpose. This argument has substance and must be accepted. In paragraph 13 of the petition, the petitioner has specifically alleged that the respondent No. 1 has made no provision for the market fee which may be collected to be earmarked to meet the expenses of rendering any service. It is alleged that there is no correlation between the fee imposed by the respondent No. 1 and the expenses incurred by it for rendering services to the sellers and purchasers of agricultural produce within the market area. The increase in levy is, therefore, said to be mechanical. In answer to this averment, the respondent No. 1 has filed an additional return showing the expenditure incurred out of the additional fees so recovered. Out of the total realisation of Rs. 3,36,845.27 from 1-4-1976 to June 1978, Rs. 2,20,651.46 are shown as spent on plant protection pesticides and equipments and other items like publicity etc. Only Rs. 2,000/- are said to have been spent on electric fittings of godowns in the market yard and approximately R.s. 79,646/- are shown as spent on construction of auction platform and shops. At the time of hearing, the learned counsel for the respondents also placed before us a copy of Notification dated 19-3-1976, issued from the Directorate ofAgriculture, Madhya Pradesh, whereunder the market fee in Ratlam Krishi Upaj Mandi was increased from 0.50 to Re. 1/-per one hundred rupees of the purchase price. The said Notification directs that accounts of the additional fees so recovered shall be separately maintained by the Market Committee and that the amount should only be spent on instructions issued by the State Government. The Notification thus clearly shows that the additional fees so recovered was not meant for any service to be rendered by the respondent No. 1 within its market area, but was to be kept as a reserve to be spent on the directions of the State Government. Similarly, the additional return filed by respondent No. 1 shows that more than 60 per cent of the additional fees so recovered was spent for purchase of plant protection pesticides etc. and only a very small portion of it was spent for services towards the purchasers and sellers of agricultural produce within the market area.

7. Section 19 of the Act, which empowers the levy of market fee, is as follows:

'19. Power to levy market fees.-- (1) Every market committee shall levy market fees on notified agricultural produce brought for sale or bought or sold in the market area at such rates as may be fixed by the Director from time to time subject to the minimum rate of fifty paise or maximum rate of one rupee for every one hundred rupees of the price in the manner prescribed.

(2) The market fees shall be payable by the buyer of the notified agricultural produce and shall not be deducted from the price payable to the seller;

Provided that where the buyer of a notified agricultural produce cannot be identified, all the fees shall be payable by the person who may have bought the produce for sale in the market area.

(3) The market fees referred to in subsection (1) shall not be levied more than once on a notified agricultural produce in a market area if it is resold in the market area but outside the market yard in the course of commercial transactions between the licenced traders or to consumers....' It was not disputed before us, and in our opinion very rightly, that the levy permitted under Section 19 of the Act is in the nature of a fee. The levy is not on the agricultural produce in the sense of imposing any kind of tax or duty on the agricultural produce. It is also not a tax on the transaction of purchase or sale. It is an impost on the buyer of the agricultural produce in the market in relation to transactions of his purchase. Generally speaking, the fee is defined to he a charge for special service rendered to individuals by some Government agency. The element of quid pro quo must be established between the payer of the lee and the party charging it. By and large, the party collecting the fee must show that the service which they are rendering in lieu of fee is for some special benefit to the payer of the fee. It must be shown with some amount of certainty, reasonableness Of preponderance of probability that quite a substantial portion of the amount of fee so realised is spent for the special benefit of its payers; See Kewal Krishan v. State of Punjab. AIR 1980 SC 1008, Para 8. In that case, their Lordships cited with approval the following passage from an earlier decision of the Supreme Court in Indian Mica and Micanite Industries Ltd. v. State of Bihar, AIR 1971 SC 1182:

'From the above discussion it is clear that before any levy can be upheld as a fee, it must be shown that the levy has reasonable correlationship with the services rendered by the Government. In other words, the levy must be proved to be a quid pro quo for the services rendered. But in these matters it will be impossible to have an exact correlationship. The correlationship expected is one of a general character and not as of arithmeti-cal exactitude'.

In Kewal Krishnan's case (supra), the Supreme Court was concerned with the provisions of the Punjab Agricultural Produce Markets Act which also contains similar provisions for levying and charging of market fee on agricultural produce bought or sold in the notified market area. After discussing the law on the subject at length, their Lordships pointed out that at least a good and Substantial portion of the amount collected on account of fees, may be in the neighbourhood of two-thirds or three-fourths, must be shown with reasonable certainty as being spent for rendering services to the licensees (under the Punjab Act) in relation to the transactions of purchase or sale of agricultural produce. Not all the benefits must be conferred on them, but some special benefits must be shown to have been conferred. It was particularly pointed out that spending the amount of market fees for the purpose of augmenting the agricultural produce, its facility of transport in villages and to provide other facilities meant mainly or exclusively for the benefit of the agriculturists is not permissible on the ground that such services in the long run go to increase the volume of transactions in the market ultimately benefitting the traders also. Such an indirect and remote beneft to the traders is in no sense a special benefit to them. Spending of fee on development of agriculture by providing all sorts of facilities to the agriculturists including the facilities of link roads to the markets was held not permissible. Similarly, the expenditure on propaganda in favour of the agricultural improvement and expenditure for production and betterment of agricultural produce have also been held to be unjustified. Similarly imparting education in agriculture in general has been held to be not correlated with the market fee. The Supreme Court rejected the contention upheld by the High Court that the use of the funds created by recovery of market fee for supply of pesticides and spray pumps on subsidized basis as also the electrification of villages was permissible expenditure. Instead, it was held that utilising a good and substantial portion of the market fee collections for supply of pesticides and spray pumps on subsidized basis goes against the concept of quid pro quo which is very essential in case of fees. From the aforesaid decision in Kewal Krishnan's case, (AIR 1980 SC 1008) (supra), the raising of market fee from 0.50 to Re. 1.00 cannot be held to be justified when according to the return more than 60 per cent of it is shown to have been utilised for the purchase of plant protection pesticides and when the Notification by which the fee was raised specifically directed that the amounts so raised must be kept separate and should be spent only after issuance of directions by the State Government in that behalf. In Nagar Mahapa-lika, Varanasi v. Durga Das Bhattacharya, (1968) 3 SCR 374 : (AIR 1968 SC 1119) the expenditure incurred by the Municipal Board for the benefit of the licensees constituted 44 per cent of the total income of the Municipal Board and it was held that there was no sufficient quid pro quo established in the circumstances of me case. However, in another decision in Delhi Cloth and General Mills Co. Ltd. v. Chief Commissioner Delhi, (1970) 2 SCR 348 : (AIR 1971 SC 344) where 60 per cent of the amount of licence fees charged from the mills was actually spent on services rendered to the factory owners, the impost was upheld. In Kewal Krishnan's case (supra), the Supreme Court added that the rule of 60 per cent cannot be of universal application and that such a rule is not static. It was observed that in case of licence fees, a substantial element of regulatory measure is involved and that a food portion of the fee in the neighbour-ood of 66 per cent or more must be correlated to the service rendered to the person from whom the fee is charged. Two-thirds or three-fourths of such collection must be shown with reasonable certainty as being spent for rendering services to its payers. We have earlier shown that in the present case the major amount of market fee collected was spent on the purchase of plant protection pesticides, and that being not a purpose correlated with the service to the buyers of agricul-tural produce the imposition must be held to be invalid. We therefore, hold that the levying and charging of market fee at more man 0.50 per one hundred rupees of the price by the respondent No. 1 was il-legal.

8. Learned counsel for respondent No. 1 sought to justify the increase on the ground that it was being charged throughout the State of Madhya Pradesh by all the Market Committees. Reliance was placed on the decision in Ram Chandra Kailash Kumar and Co. v. State of U. P., AIR 1980 SC 1124. In that case the fee levied at 1 per cent was upheld as it did not go beyond the quid pro quo theory discussed in Kewal Krishnan's case (AIR 1980 SC 1008) (supra) where also the levy was upheld oa the basis of the services rendered. In Kewal krishnan's case, the Court upheld the levy of minimum of 1 per cent as the farts placed before the Court were too meagre to indicate that the services to the extent of the fee levied were not being rendered. In the present case, we have shown from the return exhibited by the respondent No. 1 itself that the major portion of the fee so realised was spent for no service to the buyers. In our opinion, the observations made in Ramchandra Kailash Kumar and Co.'s case (supra) lead no support to the respondents.

9. It does not need much argument to say that the respondent No. 1 is not entitled to charge any market fee on the agricultural produce purchased outside the market area and then brought in within that area. This is clear from the language used in Section 19 of the Act itself. Before a buyer of any notified agricultural produce is subjected to payment of market fee, it has to be established that the notified agricultural produce was brought for sale or bought or sold in the market area. When the petitioner purchased notified agricultural produce (cotton) outside the market area and then brought it within the market area for its use in the Mills, it cannot he said that the agricultural produce (cotton in the present case) was brought for sale or bought and sold in the market area of the Krishi Upaj Mandi, Ratlam. Clearly, therefore, the respondent No. 1 could not recover any fee for such agricultural produce. We hold the petitioner not liable to pay any market fee for the cotton or any other agricultural produce specified in the Schedule to the Act which was purchased by it outside the market area and which was not brought for sale or bought or sold in the market area. We further hold that the levy and recovery of market fee on such agricultural produce by the respondent No. 1 is invalid.

10. It was lastly urged that the cancellation of the petitioner's licence, vide Aunexure-F, dated 30-1-1978 by the respondent No. 1 was illegal and unwarranted. The power to suspend or cancel licence is contained in Section 33 of the Act. According to Sub-section (1) of Section 33, a licence can be cancelled or suspended by the market committee which is required to record its reasons in writing for such suspension or cancellation. The licence can be cancelled or suspended on one or more of the grounds specified in Clauses (a) to (f) of Sub-section (1) of Section 33. The licence in the present case has been cancelled by the Officer-in-charge of the respondent No. 1. The impugned order (Annexure-F) does not show that opportunity to show cause against the cancellation was given to the petitioner. It appears that on rejection of the petitioner's appeal by the State Government against the imposition and enhancement of the market fee, the order directing cancellation of its licence followed as a matter of course. The order also does not exhibit any reason why the licence was being cancelled. In our opinion, the cancellation of the petitioners licence was in contravention of the provisions of Section 33 of the Act. We, therefore, quash the order (Annexure-F).

11. The petition succeeds and is partly allowed. The petitioner is held liable to obtain a licence to act as a market functionary within the market area of the Krishi Upaj Mandi, Ratlam. The petitioner is also held liable to pay market fee. The levy and recovery of market fee for a period from 1-4-1976 to 31-7-1977 in excess of 0.50 per one hundred rupees of the price paid by the petitioner for purchase of the notified agricultural produce (cotton) is hereby quashed and the petitioner is held entitled to refund of any market fee paid in excess of 0.50 per one hundred rupees of the price. The order, dated 30-1-1978 (Annexure-F), passed by the Officer-in-charge of respondent No. 1 is hereby quashed. The petitioner shall get its costs from respondent No. 1. Hearing fee Rs. 200/-. The security deposit shall be refunded to the petitioner.


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