Market Fee on Imported Agricultural Produce: Supreme Court Upholds APMC Levy

The Supreme Court of India recently delivered a judgment in the case of APMC Yashwanthapura vs. M/s. Selva Foods, addressing the levy of market fees on processed agricultural produce imported from outside Karnataka. The Court ruled in favor of the Agricultural Produce Market Committee (APMC), affirming that market fees are applicable to processed agricultural goods sold within the market area. The decision clarified the scope of Section 65 of the Karnataka Agricultural Produce Marketing (Regulation and Development) Act, 1966, particularly its applicability to importers of agricultural produce.

Background of the Case

The case involved M/s. Selva Foods, a trader engaged in the purchase, processing, and sale of spices such as turmeric, chili, coriander, methi, and mustard seeds. These goods were imported from outside Karnataka, processed, and then sold within the APMC Yashwanthapura market area.

In 2008, an inspection by APMC authorities revealed that Selva Foods had not paid the required market fee on the sale of processed goods. Subsequently, the APMC issued a demand notice and canceled the firm’s trading license due to non-payment of fees amounting to Rs. 28,422.

The trader challenged the action in the Karnataka High Court, which ruled in its favor, holding that market fees were not applicable to processed agricultural products imported from outside the state. The APMC, dissatisfied with the ruling, appealed to the Supreme Court.

Legal Issues Raised

Whether market fees under Section 65 of the Karnataka Agricultural Produce Marketing Act apply to traders importing agricultural produce from outside the state and selling processed goods within a market area.
Whether the High Court erred in holding that processed agricultural goods sold in the market area were exempt from market fees.
Whether the definition of “buyer” under the Act includes an importer selling processed agricultural produce within the market area.

Petitioners’ Arguments (APMC Yashwanthapura)

The APMC argued that under Section 65(2) of the Act, market fees apply to any agricultural produce bought and sold within the market area, regardless of whether the produce was originally imported.
The second proviso to Section 65(2) exempts processed goods only if market fees were previously collected within Karnataka. However, since Selva Foods imported the produce from outside the state, this exemption did not apply.
The explanation to Section 65(2) explicitly excludes agricultural produce imported from outside Karnataka from exemption.
Under Section 65(2A)(ia), an importer selling agricultural produce must collect and remit market fees to the APMC.

Respondent’s Arguments (M/s. Selva Foods)

Selva Foods contended that since the goods were purchased outside Karnataka, the state’s APMC laws should not apply to their transactions.
They relied on judicial precedents where courts ruled that market fees could not be levied on goods processed and sold within the state if they were not initially acquired within Karnataka.
The trader argued that processed agricultural produce should be treated differently from raw agricultural produce, and since the Act does not explicitly mention processed goods, it should not attract market fees.

Supreme Court’s Verdict

The Supreme Court, in a bench comprising Justices R. Subhash Reddy and Sanjiv Khanna, ruled in favor of the APMC and set aside the Karnataka High Court’s decision. The Court held:

“A harmonious reading of Section 65(2) of the Act, its second proviso, and explanation to the same, along with Section 65(2A)(ia), makes it clear that any dealer importing agricultural produce from outside the State into any market area within Karnataka for the purpose of processing and sale is liable for market fee.”

Key Observations by the Supreme Court

Market fees are applicable to imported agricultural produce that is processed and sold within a market area.
The explanation to Section 65(2) of the Act explicitly excludes agricultural produce imported from outside Karnataka from exemptions.
The trader’s argument that processed goods are not covered under the Act was incorrect because processed items are still agricultural produce as per the schedule of the Act.
The provision of Section 65(2A)(ia) clearly places the burden of collecting and remitting market fees on the importer when selling goods within a market area.
Market fees are levied on sales within the market area, not on the first purchase. Thus, even though the initial purchase was outside Karnataka, the sale within the APMC’s jurisdiction made the transaction subject to the fee.

Final Order

The Supreme Court allowed the APMC’s appeal and ruled that Selva Foods was liable to pay market fees on the sale of processed agricultural produce.
The judgment of the Karnataka High Court was set aside.
The demand raised by the APMC was upheld, and Selva Foods was directed to pay the outstanding market fees.

Key Takeaways

Market fees apply to processed agricultural goods sold within a market area, even if initially purchased outside the state.
Importers of agricultural produce are responsible for collecting and remitting market fees if the goods are sold within the APMC’s jurisdiction.
Exemptions from market fees apply only when the produce was initially purchased and taxed within Karnataka.
Processed agricultural produce remains subject to market fees. The Act does not differentiate between raw and processed agricultural goods for fee purposes.

This judgment provides clarity for businesses involved in the import, processing, and sale of agricultural goods within Karnataka and other states with similar APMC regulations. It reinforces the principle that APMCs can levy market fees on sales within their jurisdiction, regardless of the produce’s origin.

Petitioner Name: APMC Yashwanthapura.
Respondent Name: M/s. Selva Foods.
Judgment By: Justice R. Subhash Reddy, Justice Sanjiv Khanna.
Place Of Incident: Karnataka.
Judgment Date: 13-12-2021.

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