Supreme Court Upholds Market Fee on Processed Goods from Outside State: APMC Yashwanthapura vs. Selva Foods (2021)

Date of the Judgment: 14 December 2021

Citation: 2021 INSC 749

Judges: R. Subhash Reddy, J. and Sanjiv Khanna, J.

Can a trader who imports agricultural produce from outside the state, process it, and then sell it within a market area be exempted from paying market fees? The Supreme Court of India addressed this question in a recent judgment. This case clarifies the applicability of market fees on processed agricultural goods that have been imported from outside the state and sold within the market area. The judgment was delivered by a two-judge bench comprising Justice R. Subhash Reddy and Justice Sanjiv Khanna, with the opinion authored by Justice R. Subhash Reddy.

Case Background

M/s. Selva Foods, the respondent, is a trader that buys spices such as turmeric, chilli, coriander, methi, and mustard seeds from various Agricultural Market Committees within Karnataka, as well as importing them from outside the state. They clean and process these spices before selling the processed items within the market area of APMC Yashwanthapura, the appellant.

In 2008, the Market Committee authorities inspected the respondent’s records and found that they had purchased methi and mustard seeds from outside Karnataka. After importing these, they sold the processed goods within the appellant’s market area without paying the required market fee. Initially, on 12.08.2008, APMC cancelled the respondent’s license for non-payment of Rs. 28,422 in market fees and penalties. The High Court quashed this order on the ground that the respondent was not given proper opportunity and remitted the matter back for fresh consideration, to the appellant. The amount of Rs.28,422/- which was paid pursuant to interim order would be subject to decision of the authority. Subsequently, after giving opportunity, on 24.03.2009, APMC confirmed the earlier demand and directed payment of Rs. 85,266 out of a total demand of Rs. 1,13,688. The respondent then filed a writ petition in the High Court, which was allowed by the learned Single Judge, and this order was upheld by the Division Bench.

Timeline:

Course of Proceedings

The initial order by APMC cancelling the license of M/s. Selva Foods was challenged in Writ Petition No. 11211 of 2008. The High Court allowed the petition on the ground that the respondent was not given proper opportunity and remitted the matter back for fresh consideration, to the appellant. After providing an opportunity, APMC confirmed the demand for market fees. This order was challenged in W.P. No. 11816 of 2009, which was allowed by the learned Single Judge. The intra-court appeal filed by APMC in Writ Appeal No. 18000 of 2011 was dismissed by the Division Bench of the High Court. APMC then appealed to the Supreme Court.

Legal Framework

The case primarily revolves around the interpretation of Section 65 of the Karnataka Agricultural Produce Marketing (Regulation and Development) Act of 1966. This section deals with the levy of market fees.

Section 65(2) of the Act states:

“The market committee shall levy and collect market fees from every buyer in respect of agricultural produce bought by such buyer in the market area, at such rate as may be specified in the bye-laws…”

The second proviso to Section 65(2) provides an exemption:

“Provided further that, if on any agricultural produce market fee has already been levied and collected under sub-section (2) in any market area within the State and such agricultural produce is processed and sold in any other market area within the State or exported outside the State it shall be exempted from the levy of market fee:”

However, this exemption has an explanation:

“Explanation. – Nothing in this proviso shall apply to –
(i) any processed agricultural produce imported from outside the State and sold in any market area within the State; or
(ii) any agricultural produce imported or caused to be imported by any person either on his own account or as an agent for another person, from outside the State into any market area within the State for the purpose of processing or manufacturing except for one’s own domestic consumption.”

Section 65(2-A)(ia) states:

“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;”

These provisions outline the conditions under which market fees are to be levied and collected, and the specific circumstances under which exemptions are not applicable.

Arguments

Appellant’s Arguments (APMC Yashwanthapura):

• The appellant argued that Section 65(2) and 65(2-A) of the Karnataka Agricultural Produce Marketing (Regulation and Development) Act, 1966, mandate that market fees are payable on agricultural produce purchased from outside the state and sold as processed goods within the market area.

• They contended that the second proviso to Section 65(2), which provides an exemption for produce already taxed within the state, does not apply to goods imported from outside the state and then processed and sold within the market area, due to the explanation to the proviso.

• The appellant emphasized that Section 65(2-A)(ia) makes it clear that the importer is responsible for collecting the market fee from the purchaser and paying it to the Market Committee.

• The appellant relied on the judgment of the Supreme Court in *G. Giridhar Prabhu and others v. Agricultural Produce Market Committee* to support their argument that importers are liable to pay market fees.

Respondent’s Arguments (M/s. Selva Foods):

• The respondent argued that they are not liable to pay market fees on agricultural produce purchased from outside the state, processed within the market area, and then sold. They contended that Section 65(2) is the charging section and does not allow for the collection of market fees in their situation.

• They referred to amendments made to the Act (by Act 22 of 2004) to support their argument that market fees should not be collected on produce they import and process.

• The respondent relied on the judgments in *Gujarat Ambuja Exports Limited and Another v. State of Uttarakhand and Others* and *ITC Ltd., v. State of Karnataka and Others* to argue that market fees should not be applied to goods imported for processing.

Submissions of Parties

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue that the Court addressed was:

1. Whether the respondent, who imports agricultural produce from outside the state, processes it, and then sells it within a market area, is liable to pay market fees under Section 65 of the Karnataka Agricultural Produce Marketing (Regulation and Development) Act of 1966.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court followed the judgment in *G. Giridhar Prabhu and others v. Agricultural Produce Market Committee* [(2001) 3 SCC 405], stating that a person who purchases raw materials and processes them for sale is a trader and is liable to pay market fees.
• The Supreme Court endorsed the view in *Gujarat Ambuja Exports Limited and Another v. State of Uttarakhand and Others* [(2016) 3 SCC 601] and *ITC Ltd., v. State of Karnataka and Others* [2005 SCC OnLine Kar 86 : 2005 AIHC 2950], that agricultural produce brought into a market area for processing, not for sale, is not subject to market fees. However, it distinguished the present case on the basis that the processed goods were sold within the market area.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the clear language of Section 65(2) of the Karnataka Agricultural Produce Marketing (Regulation and Development) Act of 1966, particularly the second proviso and its explanation, along with Section 65(2-A)(ia). The court emphasized that the explanation to the second proviso explicitly excludes processed agricultural produce imported from outside the state and sold within the market area from the exemption. This, coupled with the provision that importers are responsible for collecting and paying the market fee, formed the basis of the Court’s reasoning.

Fact:Law Ratio

The Court’s reasoning was predominantly based on legal interpretation rather than factual aspects of the case. The court focused on the statutory provisions and their plain meaning.

The Court’s logical reasoning followed a clear path: If agricultural produce is imported, processed, and then sold within the market area, it is subject to market fees. The court emphasized that the sale within the market area is what attracts the levy, not the initial purchase outside the market area.

The court considered the arguments made by the respondent that market fees should not be applied to goods imported for processing, but distinguished the present case as the processed goods were sold within the market area. The Court also considered the judgments cited by the respondent, but clarified that those cases dealt with situations where the goods were not sold within the market area after processing.

The Supreme Court concluded that the respondent was liable to pay market fees on the processed goods sold within the market area because of the specific language of the statute. The Court emphasized that the sale within the market area is what attracts the levy, not the initial purchase outside the market area.

The Court quoted, “A harmonious reading of the Section 65(2) of the Act, its second proviso, and explanation to the same and clause (2-A)(ia), makes it clear that if any dealer imports agricultural produce from outside the State into any market area within the State of Karnataka for the purpose of processing and sale, the applicability of second proviso to sub-section (2) of Section 65 of the Act stands excluded.”

The Court also noted, “The explanation to sub-section (2) of Section 65 of the Act, makes it clear that even the processed items from the agricultural produce imported from outside the State of Karnataka, attract market fee on sales within the market area of the appellant – Market Committee.”

Further, the Court stated, “It is the sale within the market area that attracts levy of market fee, and not the first purchase that was outside the market area.”

Key Takeaways

• Market fees are applicable on processed agricultural goods that are imported from outside the state and sold within the market area.
• The exemption provided under the second proviso to Section 65(2) of the Karnataka Agricultural Produce Marketing (Regulation and Development) Act, 1966, does not apply to such goods.
• Importers of agricultural produce are responsible for collecting and paying market fees on the sale of processed goods within the market area.
• If agricultural produce is imported for processing but not sold within the market area, market fees are not applicable.

Directions

The Supreme Court set aside the impugned judgment and order of the High Court and dismissed the writ petition filed by the respondent.

Development of Law

The ratio decidendi of this case is that the second proviso to Section 65(2) of the Karnataka Agricultural Produce Marketing (Regulation and Development) Act of 1966 does not exempt processed agricultural goods imported from outside the state and sold within the market area from market fees. This clarifies the interpretation of the provision and its explanation, reinforcing that the sale of such goods within the market area attracts market fee.

Conclusion

The Supreme Court’s judgment in APMC Yashwanthapura vs. M/s. Selva Foods clarifies that market fees are applicable to processed agricultural goods that are imported from outside the state and sold within the market area. This decision emphasizes the importance of the specific language used in the statute and its explanation, ensuring that importers are responsible for paying market fees on such transactions. The judgment provides clarity on the applicability of market fees, emphasizing that the sale within the market area is the determining factor for the levy.