SCA/13606/2005 1/32 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 13606 of 2005 For Approval and Signature: HONOURABLE MR.JUSTICE AKIL KURESHI ============================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ============================================================== AGRICULTURE PRODUCE MARKET COMMITTEE-VADODARA - Petitioner(s) Versus STATE OF GUJARAT & 1 - Respondent(s) ============================================================== Appearance : MR SK JHAVERI WITH MR DILIP B RANA for Petitioner(s) : 1, MR SIRAJ GORI, AGP for Respondent(s) : 1, RULE SERVED BY DS for Respondent(s) : 2, MR BS PATEL for Respondent(s) : 2, MRS RANJAN B PATEL for Respondent(s) : 2, ================================================================== CORAM : HONOURABLE MR.JUSTICE AKIL KURESHI Date : 22/12/2005 ORAL JUDGMENT 1.In the present petition, the petitioner Agriculture Produce Market Committee has challenged an order dated 19-04-2005 passed by the Deputy Secretary (Appeals) SCA/13606/2005 2/32 JUDGMENT Agricultural and Cooperation Department, Government of Gujarat. By the impugned order the Deputy Secretary was pleased to allow the revision application filed by the respondent no.2 herein and quash an order dated 27-12-2004 passed by the petitioner-market committee. 2.Short facts leading to the present petition are as follows : 2.1The petitioner-Agriculture Produce Market Committee is constituted under the provisions of Gujarat Agricultural Produce Market Act (here-in-after referred to as “the said Act”) having its operations in Baroda. Admittedly respondent no.2 is an industrial unit situated within the limits of the market area. The respondent no.2 for the purpose of its industrial operation purchases Castor Seeds from market and uses the same for its own consumption, extracts Castor Oil from Castor Seeds so purchased and sells the by-product called de-oiled cakes. The stand of the petitioner Market Committee is that the respondent no.2 is liable to pay the market fee on the purchase of Castor Oil Seeds as well as on sale of the Oil Cakes. It is the case of the petitioner Market Committee that the sale SCA/13606/2005 3/32 JUDGMENT of the Castor Seeds takes place within the market area and that therefore, respondent no.2 is liable to pay the fees as per the rules and regulations. Secondly, it is the contention of the petitioner-Market Committee that after extraction of Castor Oil from the Castor Seeds so purchased by the respondent no.2, the respondent no.2 sells the by-product which is also exigible to market fees. It is the contention of the petitioner that what the respondent no.2 is selling is oil cake. 2.2On the other hand, case of the respondent no.2 is that though respondent no.2 brings within the market area castor seeds, the sale thereof does not take place within the market area and respondent no.2 therefore, does not have to pay any fees on such purchase. Secondly it is also the contention of the respondent no.2 that after extracting oil almost completely from the castor seeds, what is sold by the respondent no.2 is de-oiled cake and not oil cake and item de-oiled cake would attract no market fees. 2.3 With this controversy between the parties, the petitioner insisted on recovering the market fees and SCA/13606/2005 4/32 JUDGMENT accordingly, by a demand notice dated 27-12-2004 called upon the respondent no.2 to pay a sum of Rs. 1,27,46,349.38ps to the petitioner towards market fees due and payable. The respondent no.2 being aggrieved by the insistence of the petitioner, filed a revision application before the State Government under the provisions of the said Act. The State Government after hearing both the sides passed the impugned order on 19-04-2005. Considering the provisions made under rule 48(2) of the Gujarat Agricultural Produce Market Rules, 1965 (here-in-after referred to as “the said Rules”), Deputy Secretary was of the opinion that the demand of the petitioner is not justified. It was observed that the provisions contained in sub-rule(1) of rule 48 of the said rules would not apply in the facts of the present case. It was also observed that since respondent no.2 does not sell the castor seeds brought from outside, it is not liable to pay any market fees on such an activity. It was further observed that since the respondent no.2 sells de-oiled cake, same is not covered under the schedule which specifies oil cake as one of the items on which market fees is leviable. The petitioner being aggrieved by the order passed by the State Government has approached this Court SCA/13606/2005 5/32 JUDGMENT challenging the impugned order dated 19-04-2005. 3.Issues arising in the present petition can be separated in two compartments. The first question that is required to be considered and decided is whether respondent no.2 is liable to pay market fee on the castor seeds which it purchases for its own consumption. Second question is with respect to the insistence of the petitioner to levy fees on the sale of the de-oiled cake which the respondent no.2 sells after extracting oil from the castor seeds. It is common ground that market fees is payable by the purchaser. However, it is the case of the petitioner and to which no dispute has been raised by the respondent no.2 that as a licensed seller, respondent no.2 owes a primary duty to the Market Committee to collect such market fees from the purchaser and deposit the same with the Market Committee. In this view of the matter, the legality of the demand of the petitioner regarding the market fees on sale of de-oiled cake would retain its significance and it would be necessary to decide the legality of such a demand in the petition though as noted, respondent no.2 is not primarily responsible to bear the burden of market fees in case SCA/13606/2005 6/32 JUDGMENT of sale of by-product. 4.In so far as the question of legality of the demand of the petitioner from respondent no.2 to pay the market fees on the purchase of Castor Oil Seeds is concerned, following factual aspects need to be taken into account before adverting to legal issues. 4.1It is not in dispute that respondent no.2 has an industrial unit within the market area of the petitioner-Agriculture Produce Market Committee. It is not in dispute that the petitioner purchases large quantity of castor seeds for its consumption from outside of the market area. It is also not in dispute that order for purchase of said castor seeds is placed by respondent no.2 with the supplier situated outside the market area. The petitioner has produced several invoices, bills and payment receipts to demonstrate the nature of transactions between the buyer and seller in the present case to contend that in effect the sale of castor seeds actually takes place within the market area. 4.2On the other hand the case of the respondent no.2 has all through out been that the respondent no.2 purchases SCA/13606/2005 7/32 JUDGMENT castor seeds from the suppliers from outside the market area and such sale takes place outside the market area. It bas consistently been the case of the respondent no.2 that sale is completed outside the market area and that therefore, no market fee can be collected by the petitioner-Market Committee on such sale. 4.3It is the case of the petitioner that the castor seeds so purchased by respondent no.2 is weighed within the market area and only upon weighment that actual payment is made to the seller by the respondent no.2. It is therefore, the case of the petitioner that the sale can never be said to have been completed outside the market area and that essentially sale actually takes place within the market area when the consignment is weighed and final payment is decided upon. Reliance is placed in this regard on sub-rule(1) of Rule 48 to which reference would be made at a slightly later stage. To the contrary respondent no.2 has been contending that though it is true that weighment of consignment of the castor seeds does take place within the market area, the same is only for the purpose of verifying any shortfall, loss or damage in transit and SCA/13606/2005 8/32 JUDGMENT not for the purpose of sale. It is therefore, strongly urged that sale having already been concluded outside the market area, the factum of weighment of the consignment would not change the nature of the transaction and permit the Court to draw a conclusion that sale actually took place within the market area. 5.In order to resolve the above legal controversy, few relevant provisions contained in the said Act and the said rules need to be noted at this stage : 5.1 Section 2(i) of the said Act defines the term “agricultural produce”. It reads as follows : “2(i) “agricultural produce” means all produce, whether processed or not, of agriculture, horticulture and animal husbandry, specified in the Schedule” 5.2 Section 28 of the said Act empowers the Market Committee to levy fee on agriculture produce brought or sold in the market area and provides inter-alia that Market Committee shall subject to the provisions of the rules and the maxima and minima, from time to time prescribe, levy and collect fees on the agricultural produce brought or sold in the market area. Section 28 SCA/13606/2005 9/32 JUDGMENT reads as follows : “28 – Power to levy fee. The market committee shall, subject to the provisions of the rules and the maxima and minima from time to time prescribe levy and collect fees on the agricultural produce brought or sold in the market area; Provided that the fees so levied may be collected by the market Committee through such agents as it may appoint.” 5.3 The legislature has also provided for a schedule under section 2(1)(i) of the said Act specifying agricultural products. Sub-rule(IV) therein contains oil seeds. Item no.8 therein is castor seed and item no.11 therein is oil cakes. 5.4 Section 59 of the said Act empowers the State Government, by notification in the Official Gazette, to makes rules, either generally or specially for any market area or market areas for the purposes of carrying out the provisions of the Act. 5.5 In exercise of powers conferred on the State Government under section 59 of the said Act, the Government has made the said Rules. Rule 48 of the said rules pertains to market fees. Sub-rule(1) of rule 48 SCA/13606/2005 10/32 JUDGMENT provides for minima and maxima subject to which the Market Committee can levy and collect fees on agriculture produce bought or sold in the market area. Explanation to rule 48 inter-alia provides that for the purpose of the said rules a sale of agricultural produce shall be deemed to have taken place in a market area if it has been weighed or measured or surveyed or delivered in case of cattle in the market area for the purpose of sale, notwithstanding the fact that the property in the agricultural produce has by reason of such sale passed to a person in a place outside the market area. Sub-rule (2) of rule 48 provides for exemption from payment of fee of agricultural produce brought from outside the market area into the market area for use therein by the industrial concerns situated in the market area or for export. Rule 49 of the said rules provides for recovery of fees. Rule 48 and 49 reads as follows : “48- Market fees:-(1) The market committee shall levy and collect fees on agricultural produce bought or sold in the market area at such rate as may be specified in the bye-laws subject to the following SCA/13606/2005 11/32 JUDGMENT minima and maxima viz., (1) rates when levied ad valorem shall not be less than 30 paise and shall not exceed Rs.2(two) per hundred rupees. (2) rates when levied in respect of cattle, sheep or goat shall not be less than 25 paise per animal and shall not exceed Rs.4 per animal. Explanation.- For the purposes of this rule a sale of agricultural produce shall be deemed to have taken place in a market area if it has been weighed or measured or surveyed or delivered in case of cattle in the market area for the purpose of sale, notwithstanding the fact that the property in the agricultural produce has by reason of such sale passed to a person in a place outside the market area. (2) No fee shall be levied on agricultural produce brought from outside the market area into the market area for use therein by the industrial concerns situated in the market area or for export and, in respect of which declaration has been made and a certificate has been made and a certificate has been obtained in Form V: Provided that if such agricultural produce brought into the market area for export is not exported or removed therefrom before the expiry of twenty days from the date on which it was so brought, the market committee shall levy and collect fees on such agricultural produce from the person bringing the produce into the market area at such rates as may be specified in the bye-laws subject to the maximam and minimam specified in sub-rule(i) : Provided that no fee shall be payable on a sale or purchase to which sub-section(3) of section 6 applies. 49 – Recovery of fees -(1) The fees on agricultural produce shall be payable as soon as it is brought into the principal market yard or sub-market yard or market proper or market area from the purchaser as may be specified in the bye-laws : SCA/13606/2005 12/32 JUDGMENT Provided that the fees so paid shall be refunded- (i)on production of sufficient proof that such produce was not sold within the limits of the market area; or (ii)if such produce is brought from outside the market area into the market area for use therein by the industrial concerns situated in the market area or for export and in respect of which a declaration has been made and a certificate has been obtained in Form V subject to the proviso to sub-rule(2) of rule 48. (2) The licence fees payable under rule 56 and/or 57 shall be paid along with the application for licence but in case the market committee refuses the grant or renewal of a licence the fees recovered shall be refunded to the applicant.” 6.Combined reading of provisions of the said Act and rules made therein and also taking note of the schedule the Act, it would become clear that for sale of any agricultural produce within the market area, the Market Committee is empowered to levy fee within the minima and maxima prescribed under the rules. It would therefore, appear that if the castor seed's sale or purchase by respondent no.2 does take place within the market area, respondent no.2 cannot escape the liability from paying the fees thereon to the Market Committee. The central question therefore, which is required to be decided here is at what stage does the sale take place between the respondent no.2 and its seller of the castor seeds. SCA/13606/2005 13/32 JUDGMENT 7.To ascertain the exact point of time when the goods in question stand transferred from the seller to the buyer, provisions contained under section 19 and 20 of the Sale of Goods Act, 1930 can be noted : “19- Property passes when intended to pass.-(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. (2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. (3) Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. 20- Specific goods in a deliverable state.- Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made,and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed.” 8.In the present case there is no specific contract between the respondent no.2 and its supplier of castor seeds to enable us to ascertain the exact event of passing of the title. It would therefore, be necessary to ascertain when the transfer can be said to have SCA/13606/2005 14/32 JUDGMENT taken place based on the intention of the parties in this regard. Section 20 of the Sale of Goods Act, reproduced here-in-above would suggest that in an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of the payment of the price or the time of delivery of the goods, or both, is postponed. 9.In the decision of Hoe Kim Seing v. Maung Ba Chit reported in AIR 1935 Privy Council 182, it was observed that the intention of the parties is the decisive factor in determining the time when the property in the goods passes to the buyer and if that intention is expressed in the contract itself, no difficultly arises. But where the contract contains no such express provision, the intention has to be gathered from the conduct of the parties and the circumstances of the case. 9.1 In the decision of Agricultural Market Committee v. Shalimar Chemical Works ltd. reported in AIR 1997 Supreme Court 2502, reliance on which was placed by the SCA/13606/2005 15/32 JUDGMENT learned advocate for the respondent no.2 also it was observed by the Hon'ble Supreme Court in para.40 as follows : “40. In order that Section 20 is attracted, two conditions have to be fulfilled :(i) the contract of sale is for specific goods which are in a deliverable state; and (ii) the contract is an unconditional contract. If these two conditions are satisfied, Section 20 becomes applicable immediately and it is at this stage that it has to be seen whether there is anything either in the terms of the contract or in the conduct of the parties or in the circumstances of the case which indicates a contrary intention. This exercise has to be done to give effect to the opening words, namely, “Unless a different intention appears” occurring in Section 19(3). In Hoe Kim Seing v. Maung Ba Chit, AIR 1935 PC 182, it was held that intention of the parties was the decisive factor as to when the property in goods passes to the purchaser. If the contract is silent, intention has to be gathered from the conduct and circumstances of the case.” 10.Before scrutinising the material produced before the Court minutely to ascertain the intention of the parties, one may also take note of the provisions contained in section 22 of the Sale of Goods Act which provide that where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof. SCA/13606/2005 16/32 JUDGMENT 11.In the present petition, the petitioner has produced at Annexure-F collectively certain documents such as invoices, bills and receipts etc. exchanged between the respondent no.2 and its supplier of castor seeds. At page-33 thereof is a bill issued by one Manish Trading Company of Naroda, Ahmedabad. The bill is dated 03-05- 2004 and is for supply of 150 bags of castor weighing 75 kilos each. The rate charged is Rs.305/- per 100 kg. The total quantity shown is 112.50 quintals and the total amount claimed is Rs. 1,71,562/-. In the said bill dated 03-05-2004, it is indicated that payment is yet to be made. At page 28 to the compilation, there is a Purchase Voucher/ Remittance Note issued by the respondent no.2. It is not in dispute that the said Purchase Voucher/Remittance Note pertains to the same consignment transported by the Manish Trading Company under the bill dated 03-05-2004. The purchase voucher indicates that the quantity of the castor seeds received was short by 37.50 kilos. Weight of bags of 150 kilos was also deducted from the quantity of castor seeds. The agreed rate of Rs. 305/- for 100 kilos remained constant and the respondent no.2 therefore, agreed to remit a total amount of Rs. 1,70,991/- to the SCA/13606/2005 17/32 JUDGMENT Manish Trading Company. The learned advocate Shri Patel for the respondent no.2 upon a query from the Court stated under instructions that the respondent no.2 weighs consignment received from the sellers within the market area for the purpose of finding out shortfall or pilferage and makes the payment to the extent of actual quantity received. This is also evidenced by comparing the documents at page-28 and 33 mentioned above. Though Manish Trading Company has claimed to have transported castor seeds weighing 112.50 quintals, respondent no.2 made payment after weighing the consignment and finding out the correct weight of the castor seeds received by it. The learned advocate Shri B.S. Patel also submitted that if there is any substantial shortfall in the weight of the castor seeds that the respondent no.2 may receive, the seller would seek to recover the loss from the transporters. In my view this would clinch the issue. Combined effect of the evidence noted above would be that though the respondent no.2 places order for purchase of castor seeds from its suppliers from outside the market area, no payment is immediately made for the same. On demand by the respondent no.2, the quantity of castor so requisitioned is transported by the supplier to be received by respondent no.2 within SCA/13606/2005 18/32 JUDGMENT the market area. The consignment so received is weighed by the respondent no.2 within the market area for the purpose of finding out exact weight of castor seeds received by it. The payment at the agreed rate is made to the supplier thereafter, on the exact quantity received by the respondent no.2. All these factors would show that sale was not effected till the consignment was received by the respondent no.2 and weighed within the market area. The assertion of the learned advocate for the respondent no.2 that in case of shortfall or loss or damage during the transport, the seller can claim damage from the transporters, would further demonstrate that respondent no.2 did not become the owner of the goods till he took the physical delivery thereof weighing the same and satisfying itself about the quantity received. It is not a mere formality for finding out the quantity transported but it has essential element of making payment to the extent of quantity received and in case of any drastic shortfall in the quantity, the issue would be between the supplier and the transporter. It would thus appear that in a given case, if against the quantity of 100 quintals of castor seeds supplied by the trader, respondent no.2 received only half of it on account of SCA/13606/2005 19/32 JUDGMENT loss, damage or pilferage, the respondent no.2 would make payment only for such quantity, leaving it for the trader to recover damages from the transporter. This would also be obviously a case where on account of some untoward and unforeseen circumstances, such as natural calamity or theft, respondent no.2 did not receive the full quantity of castor seeds. The respondent no.2 would be paying only for the quantity received by