Case: Krishi Utpadan Mandi Samiti  Vs. Pilibhit Pantnagar Beej Ltd.

The U.P. Krishi Uptadan Mandi Adhiniyam, 1964 (hereinafter referred to as the Adhiniyam") was enacted to regulate sale and purchase of agricultural produce and for establishment, superintendence and control of market in U.P. Section 6 provides for declaration of market area and Sections 9 and 10 prohibit business of specified agricultural produce in such areas without licence.4. Specified Agricultural produce is defined under Section 2(a) of the Adhiniyam, asagricultural produce means such items of produce of agriculture, horticulture, viticulture, apiculture, sericulture, pisciculture, animal husbandry or forest as are specified in the Schedule, and includes admixture of two or more of such items, and also includes any such item in processed form, and further includes gur, rab, shakkar, khandsari and jaggery.The schedule appended to the Adhiniyam provides a list of agriculture produce. Section 17(iii) of the Adhiniyam provides for imposition of market fee on the transactions of such specified agricultural produce in the market area, on such rates notified by the State. Wheat is specified in the Schedule at Serial No.1 under the heading of cereals. It was submitted that wherever seeds have been intended to be notified, it has been specifically mentioned as seeds. In case of wheat, however, it has not been notified for seeds and thus the seeds of wheat are not covered in the Schedule and are thus not covered by the definition of Specified Agricultural Produce.6. In first respondent-company is a private limited company, engaged in production of certified seeds since 1996-97 and holds valid registration certificate from the District Agriculture Officer, Pilibhit under the Seeds Control Order 10983 valid upto 25.5.2000 and holds a certificate of registration from the U.P. Seeds Certification Agency, Alam Bagh, Lucknow.7. According to the first respondent, the business of the company is to purchase breeder seeds from Agricultural Research Institute and to produce certified seeds. The first step of production is to distribute this breeder seeds to the listed and scheduled farmers. The breeder seeds are sown and are germinated under strict supervision of the statutory Seeds Certification Agency, set up under the Seeds Act, 1966 (hereinafter referred to as the Act). The harvest is selected carefully under supervision of the Agency. The lots which do not conform to specifications are rejected.8. It was further submitted that the standardized seeds so obtained are called Foundation Seeds. These foundation seeds are thereafter again supplied to the listed farmers variety wise with intimation to the Agency. The farmers show these foundation seeds which are again supervised by the Agency. This crop is again germinated under strict supervision of the agency and once again the lots rejected are not taken back by farmers. After harvesting the approved standardised certified seeds, these lots are fumigated for preservation under the samples of each lot is tested in the laboratories of Seeds Certification Agency at Alam Bagh (Lucknow), Kanpur, Rudrapur (Udham Singh Nagar). The rejected lots and losses at processing are returned to farmers only after the foundation seeds are certified as conforming to specifications, the lots are subjected to treatment with insecticides (Cell phose, Quick phose) and pesticides (thiram and barastin) at the time of packing.9. It is the case of the first respondent that the bags are marked as poison and are thereafter marketed. The entire production, operation is supervised by the Seed Certification Agency. It was submitted that until the seeds are certified they continue to be the property of the farmer, who agrees to such agreement on the foundation seed distribution form. In the year 1988, the Market Committee issued notices to the companies engaged in certified seeds. The notices were challenged and that after contest, the High Court allowed the writ petition holding that certified seeds are not specified agricultural produce and the notices issued by the Mandi Samiti were quashed. The aforesaid was challenged by the Mandi Samiti in Civil Appeal Nos. 106-110 of 1990. This Court relying upon the judgment in State of Rajasthan vs. Rajasthan Agricultural Input Dealers Association, (supra) dismissed the civil appeals. Based on the aforesaid judgment, all the pending writ petitions were also decided in favour of the dealers in certified seeds. However, by notice dated 15.10.1997, the Mandi Samiti directed the Ist respondent to deposit the market fee on seeds. The first respondent submitted a detailed reply annexing certificates issued by the Seeds Certification Agency and the other relevant documents. The first respondent also submitted that they are not dealing in sale and purchase of food grains or wheat but deals only in certified seeds and that the stock by them were not wheat but by the certified seeds to wheat under the supervision of the U.P. Seeds Certification Agency. The appellants rejected the representation of the first respondent and directed them to pay market fee. The first respondent challenged the aforesaid order by filing Writ Petition No. 1090 of 1997. Again by Notification dated 11.8.1998, the first respondent was required to submit information regarding sale and purchase of wheat for the year 1997-1998. A reply was submitted protesting the demands against law laid down by this Court. Aggrieved by the demands, the first respondent filed Writ Petition No. 31740 of the 1998 against the order dated 22.9.1998. The writ petition was disposed of with a direction to the first respondent herein to file a fresh representation. In pursuance of the aforesaid order, the first respondent filed a detailed representation dated 15.2.1999. The representation was rejected by the appellants on 12.3.1999 and a demand has been made for payment of market fee which was again challenged by the first respondent herein by filing the present Writ Petition No. 17877 of 1999 which was allowed by the High Court on 25.8.1999.10. Against the said judgment of the High Court the above appeal by way of special leave petition has been filed.

Court's reasoning:
24. We have already reproduced Section 2(a) and Section 17(iii) of the Adhiniyam. Section 17(iii) of the Adhiniyam provides for imposition of market fee on the transactions of sale of specified agricultural produce in the market area at such rates notified by the State. As already noticed, Wheat is specified in the Schedule at S. No.1 under the Heading Cereals. A perusal of the Schedule would show that wherever seeds have been intended to be notified, it has been specifically mentioned as Seeds. In case of Wheat, however, Schedule does not provide or notify seed of wheat and thus the seeds of wheat are not specified in the Schedule and are thus not covered by the definition of Agricultural produce. We have also referred to the Objects and Reasons for enacting the Seeds Act, 1966 and the Seeds Rules, Rules, 1968. As already seen, Seeds Rule 1968 have made detailed provisions of production, processing and certification of seeds under the Seed Certification Agency. The Central Government in order to exempt the movement of seeds and in exercise of its powers under the Essential Commodities Act, has enacted Foodgrains Movement Restriction (Exemption of Seeds) Orders, 1970 and the Seeds Control Order, 1983. The seeds are also exempted from Sales Tax under an exemption dated 19.8.1970 issued under Section 4(1)(a) of the Act (Annexure CA 3).25. We have already referred to the essential conditions incorporated in the Certificate of Registration. One of the essential conditions incorporated in the Certificate of Registration is that the certificate holder shall not carry on any business such as dealing in food grains, other than the business of sale of certified seeds. Under the terms and conditions of such certificate, the first respondent is not carrying any other business except the business of certified seeds and it is also not in dispute that the respondent does not hold any other licence for dealing in food grains includingHigh Court has, in our view, correctly appreciated and accepted the contention of the respondent-Company and has rightly relied upon the judgment of this Court in State of Rajasthan vs. Agricultural Input Dealers Association (Supra).In our view, the High Court has correctly applied the above judgment. This Court held that no market fee could be levied by the State of Rajasthan on seeds on the ground that a seed was distinct from foodgrains inasmuch as they were not fit for human consumption. The ratio decidendi of the above decision is squarely applicable to this case wherein the appellant seeks to give a wide connotation to the words in the Schedule. In our opinion, that giving a wide interpretation is not possible and as Wheat Seed is not included in the Schedule, the Mandi Samiti is not allowed to levy a market fee on purchase. As the Mandi Samiti plays no role in the trade of the respondents seeds, it may not be allowed to levy the market fee. It is also not in dispute that the Breeder Seeds are allocated by the Ministry of Agriculture or by the Universities to the various seed producing agencies and companies who multiply the breeder seeds into foundations seeds.There is no nexus whether the seed has been chemically treated or not and the levy of market fees. Since the seed is a separate commodity from grain, the same is not covered under Schedule I of the Adhiniyam and as such no market fee is leviable over the sale and/ or purchase of the same.36. We are, thereafter, of the view that the seeds are not specified agricultural produce under the provisions of the Act and, therefore, the business of purchase and sale of seeds under the supervision of Seed Certification Agency established under the Act is not a business of sale and purchase of specified agricultural produce and as such the first respondent is not required to pay the market fee or to take out a licence.37. We are also of the view that the respondents have grossly erred in ignoring the law settled by this Court in the case of State of Rajasthan vs. Rajasthan Agricultural Input dealers Association (supra) under Article 141 of the Constitution in demanding market fee on seeds. Since the processing of wheat resulting in loss of its basic characteristics of being cereal,, it cannot be subjected to levy as agricultural produce since the purchase by the respondent is for the purpose of growing seeds, no levy is permissible and, therefore, market fee cannot be imposed on seeds which are unfit for human consumption.Question No. I38. Thus, the true scope and ambit of Section 2(a) and 17(iii) (b) of the Act has been explained in paras supra.Question No. II39. The appellant has no authority to levy market fee on the purchase of wheat by the seed processing unit. This question is answered in the negative.Question No. III40. Wheat seed converted into certified seed is unfit for human consumption and, therefore, market fee levy is impermissible.Question No. IV41. The object of legislature was to notify only those seeds which are different from the produce itself.The argument of the counsel for the first respondent is well merited and founded on sound legal principles and on practical and factual aspects of the