Rice bran oil and de-oiled rice bran are not ‘agricultural produce’: Calcutta HC orders refund of market fees with 12% interest

The appellant manufactured and sold Rice Bran Oil and De-Oiled Rice Bran at its unit in Burdwan, West Bengal. The products were transported to and sold in Kolkata, where the West Bengal Agricultural Produce Marketing (Regulation) Act, 1972 (“1972 Act”) was not applicable.

By notification dated 29 January 2002, the State included “Rice Oil” and “Rice Bran Oil” in the Schedule to the 1972 Act without amending the statutory definition of “agricultural produce”.

By a further notification dated 22 August 2008, the operation of the 1972 Act was extended to Burdwan, and the appellant was required to obtain a licence and pay market fees on its products.

The appellant challenged the 2002 and 2008 notifications in W.P. No. 17846 (W) of 2012.

The 2014 Amendment expanded the definition of “agricultural produce” to include processed products, related products, by-products and combinations, and introduced definitions of “processing” and “sale”.

The 2017 Amendment inserted “oils” and “vegetable oils” into the Schedule, followed by an executive notification dated 24 July 2017 specifically including Rice Bran Oil.

The appellant also challenged market-fee assessment orders, including the appellate order dated 16 May 2019 demanding approximately Rs. 1.74 crore, in W.P. No. 11513 (W) of 2019.

The Single Bench upheld the levy, holding that Rice Bran Oil and De-Oiled Rice Bran were agricultural produce covered by the 1972 Act. The appellant preferred the present appeals.

Whether the 2014 and 2017 Amendments restricted the freedom of trade, commerce and intercourse under Article 301 and consequently required the President’s prior assent under Article 304(b) of the Constitution?

Whether the definition of “sale” introduced by the 2014 Amendment was inconsistent with the Sale of Goods Act, 1930 and constitutionally impermissible?

Whether Rice Bran Oil and De-Oiled Rice Bran constituted “agricultural produce” under the original or amended definition in the 1972 Act?

Whether the State could levy market fees without establishing the provision of individual services to the appellant, and whether the levy resulted in impermissible double taxation alongside GST?

Whether the inclusion of Rice Bran Oil and De-Oiled Rice Bran under the 1972 Act conflicted with the Industries (Development and Regulation) Act, 1951?

The Court applied Article 301 of the Constitution, which protects the free movement of trade, commerce and intercourse, and Articles 302–304 governing restrictions on that freedom.

Relying principally on State of Madras v. N.K. Nataraja Mudaliar and Jindal Stainless Ltd. v. State of Haryana, the Court held that a levy which does not directly and immediately impede the movement of goods does not attract Article 301 scrutiny in the relevant sense.

It construed the State’s legislative competence under Entry 26 of the State List, read with Entry 66, and distinguished it from Entry 33 of the Concurrent List.

Under Section 2(1)(a) of the 1972 Act, as originally framed, and its 2014 amended version, agricultural produce included specified agricultural products and products subjected to recognised forms of processing; Section 2(mb) defined “processing” by reference to operations such as pressing, crushing and other manual, mechanical, chemical or physical treatments.

The Court applied the distinction between processing and manufacture, relying on Park Leather Industry (P) Ltd. v. State of U.P., CTT v. Kumar Paints and Mill Stores, Commissioner of Central Excise, Hyderabad-I v. Xerox India Ltd., Noble Resources and Trading India Pvt. Ltd. v. Union of India, and Sangam Milk Producer Co. Ltd. v. Agricultural Market Committee.

It held that a manufactured product which emerges as a commercially distinct commodity does not retain the character of agricultural produce.

Section 17 of the 1972 Act permits market fees on scheduled agricultural produce brought into or sold within the market area, and individual receipt of services or exact quid pro quo is not essential to the levy.

Finally, the Court held that the 1972 Act and the Industries (Development and Regulation) Act, 1951 operate in distinct fields and are not repugnant.

The Court held that the 2014 and 2017 Amendments did not directly restrict the movement of Rice Bran Oil or other goods; they merely enabled regulation and levy within a market area.

Accordingly, they fell primarily within Entry 26 of the State List and did not require prior Presidential assent under Article 304(b).

The definition of “sale” under the 1972 Act was treated as a special anti-evasion provision, deeming transfers between market areas to attract liability even without a change in ownership; it was therefore not inconsistent with the Sale of Goods Act, 1930.

On the central question, the Court distinguished simple agricultural processing from industrial manufacture.

It found that the conversion of paddy and rice bran into De-Oiled Rice Bran and Rice Bran Oil involved solvent extraction, refining and other industrial processes, producing commercially distinct commodities that no longer retained the essential characteristics of paddy.

The Court therefore concluded that the products were not “processed agricultural produce” under the amended definition.

Since the State Executive could not enlarge the statutory definition through delegated notification, the 2002 notification was ultra vires and the subsequent 2017 notification was likewise invalid.

Although the Court observed that market fees under Section 17 do not depend upon the appellant receiving individual services, that principle did not save the levy because the products were not agricultural produce in the first place.

The double-taxation issue was left undecided for want of a sufficient factual foundation.

The Court also found no conflict with the 1951 Central Act because that statute regulates scheduled industries and manufacturing, whereas the 1972 Act regulates the marketing of agricultural produce.

The notification dated 29 January 2002 including Rice Oil and Rice Bran Oil in the Schedule was quashed, and the notification dated 24 July 2017 including Rice Bran Oil and De-Oiled Rice Bran was also quashed.

The 2008 notification extending the operation of the 1972 Act to Burdwan was not itself interfered with, but it could not authorise the levy of market fees on these products.

The 2014 and 2017 Amendment Acts were upheld as constitutionally valid and not requiring prior Presidential assent; the amended definition of “sale” was also upheld.

The assessment order dated 30 June 2016 and appellate order dated 16 May 2019 were quashed, and all market fees recovered from the appellant on the manufacture of Rice Bran Oil and De-Oiled Rice Bran were declared illegal.

The respondents were directed to refund the amounts paid, together with 12% simple interest, within fourteen days.

The appeals were allowed without an order as to costs.