2009 (8) TMI 1093 - HC - VAT and Sales Tax

Court rules tobacco utilization for bidi manufacture as 'manufacture,' not 'processing,' exempting market fees.

JP. Tobacco Products and others Versus Krishi Upaj Mandi Samiti and others

The court allowed the petition, quashing the notices demanding market fees. It held that the process of utilizing tobacco for bidi manufacture constituted ... Whether the process undertaken by the petitioner for preparing bidi from tobacco amounts to manufacture? Whether the petitioner is liable to pay market fee in accordance with the provisions of the M.P. Krishi Upaj Mandi Adhiniyam, 1972? Held that:- The process of utilization of the tobacco by the petitioner for preparing bidi amounts to manufacture and as has been held by the Supreme Court in the case of Orient Paper [2006 (11) TMI 320 - SUPREME COURT OF INDIA] Falls outside the purview of section 19 and cannot be subjected to levy of market fee. Also the petitioner is neither selling, purchasing nor processing tobacco and has not subjected the tobacco to any of the process mentioned in the definition clause under section 2(1)(mmm) which is a notified agricultural produce within the market area and therefore, is also outside the purview of section 6 of the Act also. In favour of assessee. Issues:- Challenge to notices demanding market fees under Krishi Upaj Mandi Adhiniyam, 1972.- Determining whether the process of preparing bidi from tobacco amounts to manufacture.- Interpretation of relevant provisions of the Act regarding market fees and processing of agricultural produce.Analysis:Issue 1: Challenge to NoticesThe petitioners challenged notices demanding market fees under the Krishi Upaj Mandi Adhiniyam, 1972, issued by the Krishi Upaj Mandi Samiti. The petitioners contended that as manufacturers of bidi, they were not liable to pay market fees, as they were importing processed tobacco from Gujarat for bidi production and not involved in selling, purchasing, or processing tobacco within the mandi area. The petitioners argued that they were outside the purview of the Act and relied on various legal precedents to support their position.Issue 2: Manufacturing vs. ProcessingThe main issue was whether the process of preparing bidi from tobacco constituted 'manufacture' or 'processing' under the Act. The court examined the definitions of 'processing' and relevant provisions of the Act. It was established that the petitioner did not undertake activities mentioned in the definition of processing and simply used tobacco as a raw material for bidi production. Legal precedents were cited to distinguish between manufacture and processing, emphasizing that a new distinct commodity emerging after processing indicates manufacturing. The court applied this test to determine that bidi production from tobacco constituted manufacture, not processing, as it resulted in a different marketable commodity.Issue 3: Interpretation of Act's ProvisionsThe court analyzed sections of the Act related to market fees and processing of agricultural produce. It noted that the Act allowed market fees on the sale of agricultural produce within the market area and on processing of such produce. The definitions of processing and legal interpretations from previous judgments were crucial in determining the liability for market fees. Based on the legal principles established in relevant case laws, the court concluded that the petitioner's activity of preparing bidi from tobacco fell outside the scope of market fee liability under the Act.ConclusionThe court allowed the petition, quashing the impugned notices demanding market fees. It held that the process of utilizing tobacco for bidi manufacture constituted 'manufacture' and not 'processing' under the Act. The petitioner, not involved in selling, purchasing, or processing tobacco within the market area, was deemed outside the purview of market fee liability. The judgment was based on a detailed analysis of legal provisions, definitions, and precedents, ensuring a fair and thorough interpretation of the law in the context of the case.