Advertise
The Calcutta High Court has ruled that Rice Bran Oil and De-Oiled Rice Bran are distinct manufactured products that cannot be classified as 'agricultural produce' under the West Bengal Agricultural Produce Marketing (Regulation) Act, 1972.
A Division Bench of Justice Rajasekhar Mantha and Justice Ajay Kumar Gupta quashed the inclusion of these products in the Act's Schedule, invalidated the resulting market-fee demands, and directed a refund of the fees collected, with interest at 12% per annum simple.
The Court was hearing appeals against a Single Judge's decision that had upheld the inclusion of Rice Bran Oil and De-Oiled Rice Bran within the definition of agricultural produce and affirmed the market fee imposed on their manufacture and sale.
In its ruling, the Bench observed: 'The "De-oiled Rice Bran" and "Rice Bran Oil" are not "agricultural produce". The inclusion of "De-oiled Rice Bran" and "Rice Bran Oil", under the expression "Oils" in the Schedule to the Act of 1972 is illegal and is quashed and struck out therefrom. Rice Oil produced from rice bran is also illegal and is quashed and struck out from the schedule to the Act of 1972.'
Senior Advocates Jaydip Kar and Sakya Sen appeared for the appellants, while Advocate General Surojit Nath Mitra and Senior Advocate Nilanjan Bhattacharyya represented the State.
Background of the Case
The appellant manufactures Rice Bran Oil and De-Oiled Rice Bran at its facility in Burdwan. The products were transported to Kolkata for sale, where the 1972 Act did not apply.
An executive notification issued in 2002 added Rice Bran Oil and Rice Oil to the Schedule of the Act. A subsequent notification in 2008 extended the Act's operation to Burdwan, after which the appellant was directed to obtain a licence and pay market fees.
The 2014 Amendment to the Act expanded the definition of agricultural produce to include processed or unprocessed produce as well as related, secondary and by-products. It also introduced statutory definitions of 'processing' and 'sale'. The 2017 Amendment, together with a later executive notification, further expanded the Schedule to cover oils, including Rice Bran Oil and De-Oiled Rice Bran.
The appellant contested the notifications and the constitutional validity of the amendments, contending that Rice Bran Oil and De-Oiled Rice Bran were manufactured products that had lost the characteristics of paddy and therefore could not be brought within the definition of agricultural produce.
The appellant also challenged an appellate order requiring it to pay approximately ₹1.74 crore (around 17.4 million Indian rupees) as market fees. It argued that the amendments required the President's prior sanction under Article 304(b) of the Constitution, that the statutory definition of sale conflicted with the Sale of Goods Act, 1930, and that market fees could not be collected without the provision of corresponding services.
The State countered that the products originated from paddy and were therefore covered by the amended definition of processed agricultural produce. The Single Judge dismissed the challenges and upheld the market-fee liability, leading to the appeals before the Division Bench.
Constitutional and Statutory Analysis
The Court rejected the contention that the 2014 and 2017 amendments restricted the freedom of trade and commerce guaranteed under Article 301 of the Constitution. Citing State of Madras v. N.K. Nataraja Mudaliar (1968) and Jindal Stainless Ltd. v. State of Haryana (2017), it drew a clear distinction between a restriction on trade and a restriction on the physical movement of goods, finding that the market fee did not impede the movement of the products within or between States.
The Bench observed: 'A clear distinction must be drawn between restriction on free trade as opposed to free movement of goods of trade. The former may include imposing a fee for trading in an area. The latter entails restricting the transport of goods. Restriction on free trade is not regulated under Article 301 of the Constitution of India.'
The Court held that the amendments fell within the State Legislature's authority over trade and commerce under Entry 26 of the State List and did not require the President's prior sanction. The constitutional validity of the 2014 and 2017 amendments was therefore upheld.
The Court also rejected the challenge to the definition of 'sale' introduced by the 2014 Amendment. It noted that the Sale of Goods Act, 1930 codified general contractual principles but permitted other laws to prescribe how particular transactions would be treated. The definition under the 1972 Act addressed the specific possibility of agricultural produce being transferred from one market area to another without a formal transfer of ownership.
The Bench observed: 'The definition of "sale" provided under the Act of 1972, thus, addresses a specific mischief: a person may transfer the physical possession of agricultural produce from one market area to another market area but cannot escape ownership liability to the market committee of that area for services provided thereat.'
The Court held that the definition was intended to prevent market-fee evasion and was not contrary to the Sale of Goods Act, 1930.
Excessive Delegation
The original definition of agricultural produce empowered the State Government to include or exclude items from the Schedule. The Court held that this delegated power did not authorise the executive to alter or enlarge the substantive statutory definition.
The Bench observed: 'Section 2(1)/(a), however, could not and did not empower the executive to alter the definition of "agricultural produce". Every item included in the schedule must, therefore, be consistent with the said definition.'
It held that the 2002 notification exceeded the statutory definition by including Rice Bran Oil and Rice Oil, even though these were not agricultural produce, and quashed the notification on the ground of excessive delegation. The 2008 notification was not quashed because it merely extended the Act to Burdwan, but the Court clarified that it could not be used to levy market fees on Rice Bran Oil or De-Oiled Rice Bran.
Manufacture Versus Processing
The Court examined the definition of 'processing' introduced by the 2014 Amendment, which covered treatments such as powdering, crushing, decorticating, de-husking, parboiling, polishing, ginning, pressing and curing, as well as other manual, mechanical, chemical or physical treatments.
It held that the inclusion of processed produce did not bring products created through manufacturing and industrial activity within the definition of agricultural produce. Referring to Commissioner of Trade Tax v. Kumar Paints and Mill Stores (2023) and Commissioner of Central Excise, Hyderabad-I v. Xerox India Ltd. and Others (2026), the Court noted that manufacture results in a commercially recognisable new commodity that is distinct in name, character and use from its raw material.
The Bench observed: 'The process by which Rice Bran Oil and De-oiled Rice Bran are finally produced from paddy is, thus, not an agricultural activity but manufacturing and industrial. The said oils lose all the characteristics of paddy. The paddy, which is a grain, is converted to liquid. It marks the conversion of a solid substance to a liquid substance.'
The Court explained that paddy is converted into rice, husk and bran, and that the bran then undergoes solvent extraction to produce crude Rice Bran Oil and De-Oiled Rice Bran, after which the crude oil is refined into several separately marketable products.
The Bench further observed: 'When Rice Bran Oil and De-oiled Rice Bran are produced, they may not lose its logical and consequential causal connection with paddy. They however, are not perceived by the Market as oils, derived from paddy. The market does not recognize them as produce of paddy since they lose all its characteristics of paddy.'
The Court relied on Noble Resources and Trading India Private Limited v. Union of India and Others (2025), which distinguished products undergoing a simple operation from those emerging through manufacture as a separate marketable commodity. It distinguished the position in Park Leather Industry (P) Ltd. v. State of Uttar Pradesh.
Source: verdictum.in