Rice Bran Oil And De-Oiled Rice Bran Are Manufactured Products, Not "Agricultural Produce": Calcutta High Court Quashes Market Fee Levy

The Court quashed their inclusion in the Act’s Schedule, invalidated the resulting market-fee demands and directed a refund of the fees collected with 12% simple interest.

The Court was hearing appeals against a Single Judge’s decision upholding the inclusion of Rice Bran Oil and De-Oiled Rice Bran within the definition of agricultural produce and affirming the market fee imposed on their manufacture and sale.

A Bench of Justice Rajasekhar Mantha and Justice Ajay Kumar Gupta 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. Advocate General Surojit Nath Mitra and Senior Advocate Nilanjan Bhattacharyya represented the State.

Background

The appellant manufactures Rice Bran Oil and De-Oiled Rice Bran in Burdwan. The products were transported to Kolkata for sale, where the 1972 Act was not applicable.

An executive notification issued in 2002 included Rice Bran Oil and Rice Oil in the Schedule to the Act. Another notification issued in 2008 extended the Act’s operation to Burdwan, following which the appellant was directed to obtain a licence and pay market fees.

The 2014 Amendment expanded the definition of agricultural produce to include processed or unprocessed produce and related, secondary and by-products. It also introduced statutory definitions of “processing” and “sale”. The 2017 Amendment and a subsequent executive notification expanded the Schedule to cover oils, including Rice Bran Oil and De-Oiled Rice Bran.

The appellant challenged the notifications and the constitutional validity of the amendments. It contended that Rice Bran Oil and De-Oiled Rice Bran were manufactured products that had lost the characteristics of paddy and could not be brought within the definition of agricultural produce.

It also challenged an appellate order requiring it to pay approximately ₹1.74 crore as market fees. The appellant 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 providing corresponding services.

The State maintained that the products originated from paddy and were 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.

Court’s Observations

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.

Referring to State of Madras v. N.K. Nataraja Mudaliar (1968) and Jindal Stainless Ltd. v. State of Haryana (2017), it distinguished a restriction on trade from a restriction on the physical movement of goods. It found that the market fee did not impede the movement of the products within or between States.

The Court 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 amendments fell within the State Legislature’s power over trade and commerce under Entry 26 of the State List and did not require the President’s prior sanction. The Court consequently upheld the constitutional validity of the 2014 and 2017 amendments.

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 allowed 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 Court 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.

The original definition of agricultural produce empowered the State Government to include or exclude agricultural produce from the Schedule. The Court held that this delegated power did not authorise the executive to alter or enlarge the substantive statutory definition.

The Court 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 they were not agricultural produce. The notification was consequently quashed on the ground of excessive delegation.

The 2008 notification was not quashed because it merely extended the Act to Burdwan. However, the Court clarified that it could not be used to levy market fees on Rice Bran Oil or De-Oiled Rice Bran.

The Court examined the definition of “processing” introduced by the 2014 Amendment. It 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 distinct in name, character and use from its raw material.

The Court 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.”

Paddy is converted into rice, husk and bran. The bran then undergoes solvent extraction to produce crude Rice Bran Oil and De-Oiled Rice Bran, following which the crude oil is refined into several separately marketable products.

The Court 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 Park Leather Industry (P) Ltd. v. State of Uttar Pradesh (2001), Sangam Milk Producer Co. Ltd. v. Agricultural Market Committee (2024), Champaklal H. Thakkar and Others v. State of Gujarat and Another (1980), Kishan Lal v. State of Rajasthan and Others (1990) and Britannia Industries Ltd. v. Bombay Agricultural Produce Marketing Committee (2010).

The Court noted that the products considered in those decisions retained the essential characteristics of their agricultural raw materials or resulted from comparatively simple processes. Rice Bran Oil and De-Oiled Rice Bran, by contrast, lost every semblance of paddy and were recognised as different commodities in the market.

It held that a product’s agricultural origin was insufficient when the statutory definition specified the techniques through which agricultural produce could be obtained.

Although its finding that the products were not agricultural produce was sufficient to invalidate the levy, the Court considered the broader question of whether a market committee could collect fees without providing an individual service to the payer.

Referring to Jalkal Vibhag Nagar Nigam v. Pradeshiya Industrial & Investment Corporation (2021), it noted that the distinction between a tax and a fee had substantially diminished and that an exact correlation between the amount collected and an individual service rendered was unnecessary.

The Court examined Section 17 of the 1972 Act and held that market fees could validly be imposed when scheduled agricultural produce entered a notified market area, irrespective of whether the trader individually used the committee’s facilities.

It observed: “A market committee, therefore, is the market regulator, who ensures transparent selling and buying of agricultural produce in the designated area is carried out in accordance with the rule of law of trade and commerce. Therefore, the duty of the market committee is not to provide services at the door step of an entity without the latter asking for.”

The Court clarified that market committees provide regulatory services by licensing traders, managing market yards, maintaining measurement facilities, resolving disputes and regulating the sale of agricultural produce.

The appellant argued that the collection of market fees in addition to Goods and Services Tax amounted to double taxation. The Court did not decide this issue because the factual details concerning the other taxes paid had not been placed before it and the market-fee demand had already been invalidated on a different ground.

It observed: “In the present case, since we have held that the appellant will not be called upon to pay the market fee as Rice bran oil and de-oiled rice bran are not agricultural produce. This issue is not pronounced upon in these proceedings. The question of double taxation cannot be decided in the context of the limited facts of the case.”

The Court rejected the contention that the 1972 Act conflicted with the Industries (Development and Regulation) Act, 1951.

It held that the Central legislation regulated manufacturing processes in scheduled industries, while the State enactment governed the commercial sale of agricultural produce within notified market areas.

The Court observed: “The Act of 1972 and the Central Act of 1951 thus operate across entirely different areas and or fields. The Act of 1972, therefore, does not occupy a field covered by the Central Act of 1951.”

Conclusion

The Calcutta High Court allowed the appeals and set aside the Single Judge’s decision.

It quashed the executive notifications insofar as they included Rice Bran Oil, De-Oiled Rice Bran and rice oil produced from rice bran within the Schedule to the 1972 Act. All market fees imposed on these products were declared illegal, and the assessment and appellate orders against the appellant were quashed.

The Court directed the Burdwan Market Committee to refund all market fees paid by the appellant with 12% simple interest within 14 days. It clarified that the direction would not create rights in favour of third parties who had not challenged the inclusion of the products under the Act.

The Registry was also directed to refund any amount deposited by the appellant during the proceedings, together with accrued interest. The Court passed no order as to costs.

Cause Title: Sethia Oil Industries Ltd. and Another v. State of West Bengal and Others

Appearances

Appellants: Senior Advocates Jaydip Kar and Sakya Sen; Advocates Jai Kumar Surana, Srijib Chakraborty and Debangshu Dinda

Respondents: Advocate General Surojit Nath Mitra; Senior Advocate Nilanjan Bhattacharyya; Advocates Mary Datta and Bijitesh Mukherjee; Advocates Swapan Banerjee and Diptendu Narayan Banerjee

Click here to read/download Judgment