# P66 RATHI KHANDSARI UDYOG ETC v. STATE OF U.P. AND ORS. ETC. February i2, 1985

- **Citation:** [1985] 2 S.C.R. 966
- **Court:** Supreme Court of India
- **Decided:** 1985
- **Bench:** S. Murtaza Fazal Ali, A. Vajiadarajan, M.P. Thakkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/p66-rathi-khandsari-udyog-etc-v-state-of-u-p-and-ors-etc-february-i2-1985-8887
- **Pages:** 32

## Headnote

Constitution of India, 1950-Artic/es 14, 19(1) ( f) and (g), 31, 265
a•d 301.
U.P. Erlshl Utpadan Mnndl Adhinlyam Act, 1964, ss. 2 (al, 2(p), 17
(Ill), and Rule 67 of the Rules made under s. 40 of the Act-S. 2(a)-Agricul·
turo/ Produce-Amendment thereof by U.P. Kri>hi Utpada11 Mandi (Amendment
and Validation) Act 1970-"Khandsari Sugar" manufactured by open pan
proress-Whethtr different from "Khandsarl"
produced by agriculturists
ind/genous/y-S. 2 (p)-'Producer'-Whether excludes the article produced by
the petitioners from the coverage of the A.ct-S. 17 (Ui)-Market Commiltee
(Mandi Samlti)-Whether competent to levy and collect Market fee-Rule
67-Whether petlrloners liable to obtain licence and pay licence fee-Protec.
tion of producers from exploitation-Whether principal object of the Act.
I
Essential Commodities Act, 1955, s.3-U.P. Khandsarl Man,facruring
F
H
Orrier, 1975-CI. 2(f)-"Khandsari Sngar"-Scope of.
Section 2(a)-Validity of-Whet%er violative of Arts. 14, 19(]) <fl and
(g), 31, 265 and 301 of the Constitution.
An Ordinance, U.P. Krishi Utpadan Mandi Adbiniyam, 1964 (Amend~
ment and Validation Ordinance No. 1969) passed on November 5,
1969
amended the definition of "'agricultural producen embodied ins. 2(a) of tbe
UP. Krishi Utpadan Mandi Adhiniyam Acit 1964 and 'gur, rab, shakkar,
khandsari and jaggery' were included in the amended definition.
This
Ordinance was subsequently converted into U .P. Krishi Utpadan Mandi
(Amendment an:J Validation) Act 1970.
Thus 'Kbandsari' stood covered
by the definition of s. 2 (a) or the Aci so amended.
The petitioners, who are owner& of Kbandsari factories, have alleged
that what they produce is "Khandsari Sugar" and not 'Kbandsari', which
is covered by the definition of rragricuhural produce".
It was contended;
(1) that they are not liable to obtain a licence under Rulo 67 of the Rules
framed under s. 40 of the Act or to pay the licence fees (Rs. 100 per
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RATH! KHANDSARI v. U. P. STATE
961
annum) payable for such licence; (2) that the Market Committee (Mandi
Samiti) constitutrd under s. 12 of the Act caooot lcvv and collect market
ree of l % of the value, under s. I 7(iii) of the Act, on the transactions in
respect of what they produce, from the traders who purchase the product
from them ; and (3) that s. 2 (a) of the Act is discriminatory and violative
of Article J 4 of the Constitution.
Dismissing the petitions,
HELD ; (Per Ma}otiry)
1.
The definition e1nbodied ins. 2(a) of the Act is an inclusive
one. It io terms provides that 'Khandsari' is included within the coverage
of •ragricultural produce".
The Act, however, does not define the term
~Khandsari'. It is not sufficient to contend that what the petitioners
produce is "Khandsari Sugar" and not 'Kbandsari'.
It has also to be
shown by them that what they produce is popularly or commercia11y known
as "Khandsari Sugar" and not as "Khandsari".
And thus they have faiJed
to establish.
It is not shown that "Khandsari Sugar" is the nomenclature
employed in the world of trade and commerce in respect of their product.
Neither the traders, nor the consumers are shown to have done so in their
day-to·day dealings. [989F.H; 990A]
2.
The term ''Khandsari Sugar" owes its origin to U .P. KHANDSARI SUGAR M~NUFACTURING ORDER of 1977 issued under s. 3
of the ESSENTIAL COMMODITIES ACT,
1955.
"Khaosari
Sugar"
was defined by cl. 2(f) of the said Order as meaning ''sugar containing more
than 90% sucrose and manufactured by open pan process including beJs."
It is a statutory defi11ition enacted for the rpurpose of the aforesaid Control
Order which uses the expression "Khandsari Sugar".
Jt has nothing lo do
with the mc-aning and content of the term 'Kbandsari' as used by the trade
in U .P. [9908.C]
2. (i)
It is unnecessary for the present purpose to cite all the deci·
sions.
Or to undertake a journey through the factual hinterland of each
decision.
Or to turn the beadli1hts on the observations made in each of
the decisions.
For, the principle

## Text

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P66
RATHI KHANDSARI UDYOG ETC.
v.
STATE OF U.P. AND ORS. ETC.
February i2, 1985.
[S. MURTAZA FAZAL ALI, A. VAJIADARAJAN AND M.P.
THAKKAR, JJ.J
Constitution of India, 1950-Artic/es 14, 19(1) ( f) and (g), 31, 265
a•d 301.
U.P. Erlshl Utpadan Mnndl Adhinlyam Act, 1964, ss. 2 (al, 2(p), 17
(Ill), and Rule 67 of the Rules made under s. 40 of the Act-S. 2(a)-Agricul·
turo/ Produce-Amendment thereof by U.P. Kri>hi Utpada11 Mandi (Amendment
and Validation) Act 1970-"Khandsari Sugar" manufactured by open pan
proress-Whethtr different from "Khandsarl"
produced by agriculturists
ind/genous/y-S. 2 (p)-'Producer'-Whether excludes the article produced by
the petitioners from the coverage of the A.ct-S. 17 (Ui)-Market Commiltee
(Mandi Samlti)-Whether competent to levy and collect Market fee-Rule
67-Whether petlrloners liable to obtain licence and pay licence fee-Protec.
tion of producers from exploitation-Whether principal object of the Act.
I
Essential Commodities Act, 1955, s.3-U.P. Khandsarl Man,facruring
F
H
Orrier, 1975-CI. 2(f)-"Khandsari Sngar"-Scope of.
Section 2(a)-Validity of-Whet%er violative of Arts. 14, 19(]) <fl and
(g), 31, 265 and 301 of the Constitution.
An Ordinance, U.P. Krishi Utpadan Mandi Adbiniyam, 1964 (Amend~
ment and Validation Ordinance No. 1969) passed on November 5,
1969
amended the definition of "'agricultural producen embodied ins. 2(a) of tbe
UP. Krishi Utpadan Mandi Adhiniyam Acit 1964 and 'gur, rab, shakkar,
khandsari and jaggery' were included in the amended definition.
This
Ordinance was subsequently converted into U .P. Krishi Utpadan Mandi
(Amendment an:J Validation) Act 1970.
Thus 'Kbandsari' stood covered
by the definition of s. 2 (a) or the Aci so amended.
The petitioners, who are owner& of Kbandsari factories, have alleged
that what they produce is "Khandsari Sugar" and not 'Kbandsari', which
is covered by the definition of rragricuhural produce".
It was contended;
(1) that they are not liable to obtain a licence under Rulo 67 of the Rules
framed under s. 40 of the Act or to pay the licence fees (Rs. 100 per
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RATH! KHANDSARI v. U. P. STATE
961
annum) payable for such licence; (2) that the Market Committee (Mandi
Samiti) constitutrd under s. 12 of the Act caooot lcvv and collect market
ree of l % of the value, under s. I 7(iii) of the Act, on the transactions in
respect of what they produce, from the traders who purchase the product
from them ; and (3) that s. 2 (a) of the Act is discriminatory and violative
of Article J 4 of the Constitution.
Dismissing the petitions,
HELD ; (Per Ma}otiry)
1.
The definition e1nbodied ins. 2(a) of the Act is an inclusive
one. It io terms provides that 'Khandsari' is included within the coverage
of •ragricultural produce".
The Act, however, does not define the term
~Khandsari'. It is not sufficient to contend that what the petitioners
produce is "Khandsari Sugar" and not 'Kbandsari'.
It has also to be
shown by them that what they produce is popularly or commercia11y known
as "Khandsari Sugar" and not as "Khandsari".
And thus they have faiJed
to establish.
It is not shown that "Khandsari Sugar" is the nomenclature
employed in the world of trade and commerce in respect of their product.
Neither the traders, nor the consumers are shown to have done so in their
day-to·day dealings. [989F.H; 990A]
2.
The term ''Khandsari Sugar" owes its origin to U .P. KHANDSARI SUGAR M~NUFACTURING ORDER of 1977 issued under s. 3
of the ESSENTIAL COMMODITIES ACT,
1955.
"Khaosari
Sugar"
was defined by cl. 2(f) of the said Order as meaning ''sugar containing more
than 90% sucrose and manufactured by open pan process including beJs."
It is a statutory defi11ition enacted for the rpurpose of the aforesaid Control
Order which uses the expression "Khandsari Sugar".
Jt has nothing lo do
with the mc-aning and content of the term 'Kbandsari' as used by the trade
in U .P. [9908.C]
2. (i)
It is unnecessary for the present purpose to cite all the deci·
sions.
Or to undertake a journey through the factual hinterland of each
decision.
Or to turn the beadli1hts on the observations made in each of
the decisions.
For, the principle, though garbed in different apparel, is
simply this.
In legislations pertaining to the world of business and
commerce, the dictionary to refer to is the dictionary of the inhabitant' of
tOat world.
What they understand by the term 'Khandsari' is precisely
what that term meaOs in the statute designed to regulate their dealings and
transactions.
The best test therefore is to ask the question what they
themselves have understood by the term 'Khandsari, how they themselves
have interpreted it, and on what basis they themselves have moulded their
own conduct, for all these years.
The factory owners similarly situated as
petitioners as also the traders in general have understood the term 'Khandsari' as being applicable to the Khandsari produced by the factories by
open pan process as also to Kbandsari prooduced indigenously. [990E·G]
CommisH"oner of Income-tax, Andhra Pradesh v. Taj Mahal Hotel,
( 1971) 82 l.T.R. 44 at p, 47 and Porrils & Spencer (Asia\ Ltd. v. State of
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flarf""a, (1979] I $.C.R. 545, relied on,
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968
SUPREME COURT REPORTS
(198') 2 l.C.R
2. (ii)
Inclusion of Kbandsari in tlie definition
or '' aa;ricultural
produce'' by virtue of amendment of s. 2(a) was challenaed by a few
commission agents carrying on business of sale and P1Jrchase of Khandsari
in 1969 by instituting writ petitions in the High Court of Allahabad.
How.
ever, none of the grounds of challenge pertained to the aspect relating to
the meaning and content of the term 'Kbandsari'.
The petitions were dis.
missed by a Single Judge and that decision was confirmed by the Division
Bench. [989C-D]
2. (iii)
Factory owners producing Kbaudsari have been obtaining
licence under the Act and paying, without demur, market fee at t% of the
value since 1969·70 till 1981, when fresh challenge was made through the
instant petitions.
For more than ton years even the petitioners have not
felt that 'Khandsari' means something other than what they produce.
It
is not shown that in the popular or commercial sense, the product i1 not
known as 'Kbaadsari' but is known as "Khandsari Sugar".
The term
"Khandsari Sugar" saw the light of day seven years after the Act was
enacted in 1970 when U.P. Khandsari Sugar Order of 1977 was born and
the artificial nomeOclature was coined for the restricted purpose or tho
order.
There is no material even to bhow that this nomenclature was
known to the petitioners or to the traders tbemselvi;s there to before.
[990H; 991C; E·F]
3.
The Legislature has in terms encompa.;sed
'Kbandsari~ within the
definition of s. 2(a) of the Act.
And the term 'Khandsari' is sufficiently
wide to cover all varieties of Khandsari including the article produced by
the factories like those of the
petitioner~.
Besides, the basic premise
assumed by the petitioners that the object of
th~ Act is merely to protect
the producers from exploitation is fallacio'l~.
This is one of the objects
and not the sole or only object of the A;:t.
The Act has many more
t bjects and a much wider horizooJ and even transactions where both the
sides are traders and neither side is agriculturist, are brought within the
coverage of the Act. [992A-D]
Ram<sh Chandra v. State of U.P.,
[1980] 3 S.C.R.
104 and Ramesh
Chandra Kachardas Porwal & Ors. v. State of Maharashtra & Ors. etc., (1981]
2 S.C.R. 866, relied on.
There is nothing in the definition of 'Producer' contained ins. 2(p)
of the Act which would justify overriding the clear language of the statutes
read in the light of the perspective of the Act and the history of the levy.
While the term 'Khandsari' has not been defined, it is obviously wide
enough to cover Khandsari produced by any process regardlei;;s of its quality
or variety. [994D·E]
S.
This Court bas had several occasions to deal with a similar
problem in the context of taxing statutes.
And this Court has consistently
taken the view that in the matter of classification the Legislature bas a
wide discretion in selecting the persons or objects it will tax, and that a
statute is not open to attack on the ground that it taxes some persons or
objects and not others.
'Everythina-or-nothing•
argument is basicatly
fallacious.
For, the Legislature may tax or regulate the trade in some
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RATH! KHANDSARI V. U. P. STA TB
969
objects and not io others.
Or may bring within its net some objects
initially and may cast the net wider later on.
Or may ta1 or regulate the
trade in only such objects which it considers expedient or worthwhile. The
decision, essentially a policy decision, may depend on several factors. Factors,
such as, the felt necessity for such an impost or regulation of a trade in a
particular article, likely impact of the decision on the trade, industry, or
consumer, viability of the same from the stand point of its own management
resources.
Or from the angle of the net advantage to be secured in the
balance-sheet of pros and coos taking into account the 1lnticipated administrative and management in1puts required tu be invested in the e2erci1e.
In
substance, it is a policy decision turning on numerous and complex factors.
[99B-E)
5. (i)
It is not for this Court to question why Khandsari produced
by the petitioners is included when sua:ar produced by the Mills is not so
included,
It iS not a question to which
we can legitimately address
ourselvei, for. essentially it is a question of legislative wisdom and legislativ1 policy dictated by countless and complelll considerations.
The Court
cannot, and wi11 not, substitute its own wisdom in place of the legislative
wisdolD; in such matters. The Court will not impose on itself this responsibility, if not for any other reason, than for the reason that it is
beyond its
province.
Hence s. 2(a) of the Act is not discriminatory and violative of
Article 14. [9960-H; 997A)
East India Tobacco Co. v. Stai. of Andhra Pradesh, [1963) 1 S.C.R.
404, relied on.
Willie on Constitutional Law p. 857, referred to.
Per A. Yaradarajan, J. (Dissenting)
1.
What the petitioners produce in their modern Khandiiiari mills
by the open pan process is Khandsari Sugar, an industrial product like
plantation whiti;;; sugar and not Kbandsari which is produced by agricultural producers in the indigeoous method and the levy of market fee on
sales or khandsari sugar under the Adbiniyam is unwarranted as the Adhiniyam is int ended for the protection of agricultural producers in the disposal
of their products and only Kbandsari produced by agricultural producers is
included in the definition of agricllltural produce" in 1. 2(a) thereof and not
Khandsari sugar. [986F-O)
2.
A manufacturer producing Khaodsari Sugar by the modern
method in the open pan process is not a producer within the meaning of
s. 2(p) of the Adhiniyam. [980E]
3.
The object of the Adhiniyam as seen from the prefatory note and
preamble is to protect the
agricultural producer
from exploitation.
Protection of any industrial producer is not the object of the Adhiniyam.
[9790)
4. The Khandsari Sugar produced by the petitioners in their mills with
the aid of power in the open pan process by employing large number of
employees to whom the Industrial Disputes Act, Minimum Wages Act,
Factories Act. Employees Provident Fund Act and similar enactments apply
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1170
SUPl!.EME COURT REPORTS
(198SJ 2 s.c.R.
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is an industrial product which is very different from Kbandsari produced by
agriculturists or sugarcane growers in the old indigenous method. [982E·F]
5.
The Adhiniyam originally intended to protect the interests of
agricultural producers has not become a marketing legislation utider entry
28 of List II in the Seventh Schedule by the mere fJct of inclusion of one
or more industrial products in the definition of agricultural produce in
s. 2(a) of the Adhiniyam. [983~; 984A]
6.
The prefatory note and the preamble can be looked into in the
present case as there is dispute between the parties on the question whether
"khandsari 1ugar" produced by the petitioners, which is not included in
the schedule or definition of agricultural product! in the Adhiniyam~ while
"K.haodsari" is mentioned in the definition of agricultural produce ins. 2(a)
thereof can be the subject matter of levy of market fee under the Adhi·
niyam. [984F·G]
7. The principle underlying the levy of tax cannot be made appli.
cable to the levy of market fee under the Adhiniyam.
Both Plantation
While Sugar and Khaodsari Sugar are industrial products and there is
discrimination against Khandsari _Sugar in seeking to subject it to the levy
under the Adhiniyam leaving out plantation White Sugar. [988Bj
Laxml Khandsarl Etc. v. State ofU.P. & 01hers, (1981] 3 SCR, 92
Paunakram v. State of Punjab, AIR 1975 SC 187 and Andhra Sugars ltd.
& A.nr. 11c. v. State of Andhra Pradesh & Ors., [1968]
1 SCR, 705,
referred to.
ORIGINAL JURISDICTION: WP. Nos. 1347·60/81, 132-143, 340516, 3420-22, 3423-25 of 1980, 806-18 of 1981,4251, 95C0·05, 9511-13,
9514of1981, 21-23,37-43, 45-56, 63, 91-lli, 166·67, 174, 181-192of
1982, 407-11 of 1979, 412-415, 416-18 of 1979, 193•220, 237-48, 82536, 721-722of1982, 723-39, 319-30,969-78, 2171-73of 1982and386469of J980,1227-33of 1981,5520-22of 1980, 1001-07of1981, 1109-30,
1384, 1453-62, 1469 of 1981, 805-24, 866, 972, 1453-62, li498, 4667-68,
975-83, 854, 984, 1469-78, 787, 1319.24, 1400-.02, 1504·05, 1608-11,
1621-25, 1934-63, 2172-77, 2228-31, 2251-53, 2374-75, 2327-61,
2556-65, 2612-13, 2625-27, 2624, 3070-88, 3178-95, 985, 4158-65,
4527-32, 5113-19, 9196-98 of 1982, 5727, 8397, 9583, 9719-22 of
1982, 8262-67 of 1981, 10039, 10223 of 1982, 2682-84 of 1983, 388586 of 1983, 66-67, 68·69, 1139-2759 of 1983, 2379 of 1982, 27 ,3,
1119 of 1983, 7993 of 1982, 1172 of 1983, 6498 of 1982.
H
(Under Article 32 of the Constitution of India)
-'. ..
,
l!A1BI KHAl'<DMln v. u. P. STA1E (Varadarajan, J.)
971
FOR THE APPEARING PARTIES
Shantr Bhushan, R. K. Garg P. R. Mridul R. K. Jain, Pradeep
Kumar Jain, B. R. Kapoor, S. R. Srivastava, P. H. Parekh, Miss
Nisha Srivastava, Hemani Sharma, Miss Indu Sharma, K. K. Mohan,
and Geetanjali Mohan.
~
0. P. Rana, D. D. Thakur, E. C. Agarawala, Raju Ramachan-
•
dran, R. Sathish, V. K. Pandita and R. Rana
Dr. L. M. Singhvi, L. N Sinha, Y. S. Chita/e, and G. N.
Dlkshit.
Miss Shobha Dikshit, Pradeep Mishra, S. K. Ku/shrestha, and
A. M. Singhvi, Advocates Ravindra Bana, Sarva Mltlra, Rajiv Datta,
B. B Tawak/ey, R. B. Mehrotra, Pramod Swarup, R. N. Poddar &
N. N. Sharma.
The following Judgments were delivered
VARADARAJAN, J. Writ Petitions 1347 to 1360 of 1981 and
Writ Petition 174 of 1982 are by manufacturers of khandsari sugar
in the open pan process and sellers thereof in Uttar Pradesh. Writ
Petitions 21 to 23 of 1982, Writ Pe1itions 3178 to 3195 of 1982, Writ
Petitions 3178 to 3195of1982, Writ Petitions 4527 to 4532 of 1982
and Writ Petition 3890 of 1983 are by traders in that product in
U. P. The pleadings in W. Ps. 1347 to 1360of1981 were referred
to by the learned counsel for the parties when common arguments
were advanced in all the writ petitions. Therefore, the pleadings
in those writ petitions alone are referred to in this judgment.
These W. Ps. 1347 to 1360 of 1981 under Article 32 of the
Constitution are for declaring the provisions of the U. P. Krishi
Utpadan Mandi Adhiniyam, 1964 as ultra vires the Constitution
and for restraining the respondents from realising market fee and
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licence fee from the petitioners under the provisions of that AdhiniG
'
yam (hereinafter referred to as 'the Adhiniyam').
The case of the petitioners/firms which manufacture Khandsari
sugar by the open pan process in the State of Uttar Pradesh and sell
the same in that State is this:
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SUPRllME C08RT RBPORRS
(1985) 2 S.C.R.
In the process of manufacture of Khandsari sugar there is not
only a physical change of the sugarcane used but also a chemical
change and the white crystalline sugar of 90 per cent sucros purity
is obtained after drying, grading and vagging by eliminating all the
ingredients of sugarcane except sucros. But in the case of desi
khandsari, gur,jaggery, rab and shakkar which are all manufactured
from raw sugarcane juice, pectins, live saps, motals, minerals, nitrogenous compounds, waxes and salts are not removed and there is no
chemical change in the manufacturing process. The Adhiniyam was
enacted to reduce multiple trade charges and provide amenities to
the producers and sellers of agricultural produce, for certification
of accurate weights and scales and for the establishment of market
committees to ensure that the agricultural producer has a say in the
matter of utilisation of the market funds.
The Adhiniyam applies
to agricultural products which according to s. 2 (a) are 'such items
of produce of agriculture, horticulture, viticulture, sericulture,
pisciculture, animal husbandary or forest, as are specified in the
schedule, and include anadmixture of two or more such items and
alio include any such item in processed form and further include
gur, rah, shakkar, Khandsari and jaggery'. The Adhiniyam does
not define khandsari sugar but it is defined in clause 2 of the U. P.
Khandsari Sugar (Levy) Order, 1975 as "whole crystalline sugar
containing more than 90 per cent and manufactured at a sulphitation
unit by open pan process including a bet''. The khandsari sugar
produced by the petitioners who hold licence for operating hydraulic power crushers is not khandsari but crystalline sugar as produced by sugar mills. The sugar produced by the petitioners is
physically and chemically different from sugarcane which is one
of the items specified in the schedule to the Adhiniyam and also
from gur, rab, jaggery and khandsari and cannot be treated as a
processed form of sugarcane. Therefore, the Adhiniyam cannot
apply to the product manufactured by the petitioners which is
plantation white sugar. The petitioners/firms which are producers
of sugar are not liable to pay market fee under the Adhiniyam, s. 17
(iii) (b) whereof provides that the market committee shall have
power to levy and collect market fee which shall be payable on
transactions of sale of specified agricultural produce in the market
area at such rates being not less than one per cent and not more
than one and a half per cent of the price of the agricultural produce
so sold as the State Government may specify by notification.
Section 17 (iii) is ultra vires the Constitution as it permits
H
excessive delegation of legiilative power and does not lay down any
•
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RATH! l::HANDSARl v. u. P. STATE (Varadarajan, J.)
973
guideline for the State Government fixing the market fees and only
market committees rendering services can determine the quantum
of market fees.
The illegal levy of market fees on the petitioners is
violative of Articles 19 (l) (f) and 301 of the Constitution. The
action of the respondents in seeking to apply the provisions of the
Adhiniyam to the petitioners leaving out other manufacturers similarly situate is violative of Art.
14 of the Constitution. Section 8
of the Adhiniyam is violative of Art. 14 as it does not provide any
guideline regarding the basis on which the State Government can
include or exclude any agricultural produce from the list of notified
commodities under s. 6.
The market fees and licence fees are in the natnre of payments
for services rendered. But the market committees render no service
at all to the petitioners and therefore the levies are really in the
nature of tax. The levies deprive the petitioners of their right to
property without any authority of law and are therefore violative of
Arti8les 265, 31 and 19 (1) (f) and (g) of the Constitution. It is in
these circumstances that the petitioners have prayed for declaration
of the provisions of the Adhiniyam as being ultra vires the Constitution and for the issue of a writ of mandamus restraining the respondents from reahsing market fee and licence fee from the petitioners under the Adhiniyam.
The contentions of the Mandi Samiti/respondents who oppose
the petitions are these:
The petitioners who are manufactucers of khandsari/khandsari
sugar are fully covered by the Adhiniyam in view of the definition
of'agricultural produce' in s. 2 (a). Khandsari is mentioned in
schedule 'Kha' to the notification No. 584/XII-8-104/76 dated
11.4.1978. Khandsari sugar is not sugar as is evident from the definition of sugar in s. 2 (f) of the Sugar (Regulation of Production) Act.
1961 according to which sugar means any form of sugar whether
wholly or partially manufactured but does not include khandsari
sugar, that is to say, sugar in the manufacture of which neither a
vacuum pan procesi nor a vacuum operator is employed; or palmyra
sugar, that is to say, sugar manufactured from jaggery obtained by
boiling the juice of.palmyra palm. 'Khandsari' is the short form of
'Khandsari sugar' in the Adhiuiyam and the notification, and there
is nothing like khandsari different from khandsari sugar in any of
the concerned laws or in common parlance. There is only one
khandsari and it is call~d khandsari sugar and it is manufactured
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SUPREME COURT REPORTS
[1985) 2 s.c.a.
by mechanical power process,
The word 'sugar' has been used
everywhere for the sugar manufactured by the vacuum pan process
by mills and factories and the words 'khandsari sugar' have been
used for the material produced by open pan process
In the
Sugarcane (Control) Order, 1966 by clause 2 (d), khandsari sugar is
defined as sugar produced by the open pan process. Kbandsari
sugar is defintd in clause 2 If) of the U. P. Khandsari Sugar Manufacturing Order, 1967 as sugar containing more than 90 per cent
sucros and manufactured by the open pan proces~ including bels.
There is no chemical change in the proc,ss adopted by the
petitioners in the manufacture of Khandsari sugar and there is nothing like desi Khandsari sugar. What the petitioners call desi
khandsari is shqkkar produced by manual efforts. It is true that
khandsari sugar manufactured by the petitioners contains more than
90 per cent sucros but it is denied that the sugar manufactured by the
petitioners is not khandsari or that it is crystalline sugar as producej
by sugar mills or that the khandsari sugar produced by the petitioners
is not physically and chemically different from the sugar produced
by mills. The produce manufactured by the petitioners is processed
form of sugarcane, namely, sugarcane from which the chaff has
been removed and the sweet material has been retained for human
consumption. Gur, rab, jaggcry and khandsari sugar are all manufactured by the open pan process while sugar produced by mills is
manufactured by the vacuum pan process. The producers of khandsari sugar by open pan process and the producers of sugar by
vacuum pan process have to .take out licences under different orders,
namely, U. P .. Khandsari Sugar Manufacturing Order, 1967 and
u. P. Vacuum Pan Sugar Factories Licensing Order, 1969. Thus,
khandsari sugar produced by the petitioners is different from sugar
produced by sugar mills and it is folly covered by s. 2 (a) of the
Adhiniyam.
Market fee is not claimed from the petitioners in any manner
different from the one stipulated in s. 17 (iii) (b) of the Adhiniyam.
Section 17 (iii) (b) is .10t ultra vires the Constitution and does not
suffer from any excessive delegation of legislative power. The levy
of market fee and licence fee is not violative of any constitutional
provision. Art. 19 (0 (f) does not exist any longer and Art. 301
does not confer any fundamental right on the petitioners. There is
no discrimination against the petitioners and s. 8 of the Adhiniyam
is not violative of Art. 14.
The market fee and licence fee are fees
I
RATHI KHANDSARI v. u. P. STATE (Varadarajan, J.)
975
and not taxes.
A major portion of the funds of the market committees is applied for development of the market area.
The Rajya Krishi Utpadan Mandi Parishad
(hereinafter
referred to as 'the Parishad'), impleaded as respondent in the petitions has filed separate counter-affidavit raising similar contentions
as ihe market committees. The additional contentions raised by
that Board which also opposes the petitions are these :
The original definition of agricultural produce in s. 2 (a) of
the Adhiniyam did not contain the words "and further includes gur,
rab, shakkar, khandsari and jaggery". These words were added in
the definition by the U. P. Amendment Act IO of 1970 in order to
remove anomalies in the words "processed agricultural produce".
The Government issued the said notification No. 584/XII-8-IO 1/76
dated 11. 4. 1978 after considering all the objections raised, specifically mentioning Khandsari along with gur, rab, shakkar and jaggery
in the list of 1!5 commodities liable for the levy of market fees.
The sale of khandsari is free without any Government control and
it is effected in the market areas by commission agents by mutual
negotiation or open auction while a large part of the sugar produced
by the vacuum pan process is controlled by the Central Government.
Sugar and khandsari are distinct and different from each other. The
sugar produced in vacuum pan process is stmdarised as per India
Sugar Standards and graded into A30, B30, C30, 030, E30, A29, B29
C29, 029 and E29 whereas khandsari sugar produced by the open
pan process is called khandsari, khandsari sugar, rab and sugar in
the market. There is no levy on khandsari and it is sold in the
open market whereas 65 per cent of the sugar produced in the mills
by the vacuum pan process is taken by the Central Government for
feeding !he public distribution system by levy and the remaining 35
per cent alone is left with the factories for free sale through wholesale dealers approved under the control orders. The producers of
khandsari sugar are not liable to pay the impugned market fee.
They arc liable to pay it only if they also hold licences as commission agents or wholesale dealers and sell the product.
Mr. Shanti Bhushan, learned counsel for the petitioners advan-
\l~d a.q;umcnts in these petitions under three main heads, namely
(i) whether khandsari sugar manufactured by the petitioners in their
mills by the open pan process is an agricultural produce, covered by
the Adhiniyam as amended by the U. P. Act 10 of 1970; (ii) whether khandsari sugar manufactured by the petitioners in their
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SUPREMI! COURT REPORTS
(1985) 2 S.C.R.
industrial units employing a large number of workmen to whom the
Industrial Disputes Act, Employees Provident Fund Act, Factories
Act and Minimum Wages Act apply and which is subject to levy of
excise duty under the Sugar (Special Excise Duty) Act, 1959 is
subject to the levy of market fee under the Adhiniyam aud (iii)
whether pn account of the interpretation cf the Adhiniyam, khandsari sugar manufactured by the petitioners could be said to be
subje~t to the levy of market fee under the Adhiniyam there is any
difference between khandsari sugar produced by the petitioners in
the open pan process, and the plantation white sugar produced by
the other mills in the vacuum pan process, and there is no discrimination between khandsari sugar sought to be subjected to the
levy of market fee under the Adhiniyam and the plantation white
sugar produced by the vacuum pan process which is not subject to
the levy under the Adhiniyam. He clubbed his arguments on points
(i) and (ii) and submitted that khandsari sugar produced by the
petitioners in their mills by the open pan proeess is not an agricultural produce contemplated to be covered by the provisions of the
Adhiniyam for the purpose of levy of the market fee as it is not
produced by the agricultural producer but produced in mill; employing modern methods though under the open pan process. On the
third point _he submitted that there is no difference between the
khandsari sugar produced by the petitioners in their mills by the
open pan process and the plantation white sugar produced by the
other mills by the vacuum pan pr0cess except that khandsari sugar
is produced by the open pan process while the plantation white sugar
is produced by the vacuum pan process and the difference in the
composition of the two products is only as regards CAO, filterability
and conductivity and consequently there is discrimination hit by
Art. 14 of the Constitution in leaving plantation white sugar out
of the levy and seeking to subject the khandsari sugar produced by
the petitioners-mills alone to the levy of market fee under the
Adhiniyam.
On the other hand, Mr. L. N. Sinha, learned counsel for the
Parishad submitted that the original object of the Adhiniyam was
protection of agricultural produce as originally defined in the Adhiniyam and that the position has changed now and it has become a
marketing legislation covered by entry 28 of List II (Market) of the
Seventh Schedule to the Constitution. He further submitted that
if the Adhiniyam has become a marketing legislation as contended
by him industrial produce also can be included in the schedule of
produce appended to the Adhiniyam and khandsari is gen11s and
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RATH! KH\NDSARI v. u. P. STATE (Varadarajan, J.)
977
khandsari sugar is a specie and it is liable to be subjected to the
levy of market fee under the Adhiniyam.
As regards discrimination
Mr. Sinha submitted that similarity is one thing and identity is
another and that Art. 14 will be attracted only in the cas1 of identity
and there is difference between khandsari sugar and plantation
white sugar and therefore there is no question of discrimination.
Mr. D. D. Thakur, learned counsel for the Market Committees
submitted that it is not the only object of the Adhiniyam to benefit
the agricultural producer, but a number of other objects are noticeable in the Adhiniyam and that if the object is to protect the agricultural producer alone the levy of market fee would have been
confined to the first sale alone. He further submitted that the
Adhiniyain covers sales by producers to traders and sales by traders
to other traders subject to the requirement that what is sold is an
agricultural produce and no market fee is leviable on retail sales etc.
having regard to the proviso to s. 17 of the Adhiniyam. He submitted that the levy is not on khandsari producers but on khandsari
traders and that what is contained in the preamble to the Adhiniyam
is slightly different from the scheme of the Adhiniyam, and s. 2 (a)
of the Adhiniyam has to be looked into independently of the preamble which in turn oan be looked into only in case of ambiguity.
He too submitted that khandsari is a jlenus and khandsari sugar is
a specie. He however admitted that agriculturists
producing
khaudsari without the use of power need not obtain licence for its
manufacture while producers of khandsari •ugar by the open pan
process in the khandsari industry are bound to obtain licence.
He
contended that what is produced by the petitioners would fall within
the ambit of s. 2 (a) of the Adhiniyam. On the question of discrimination he submitted that plantation white sugar manufactured by
the vacuum pan process does not rcquiro regulation, unlike khandsari sugar produced by the open pan process and that if that is so
there is no question of di;crimination in not subjecting the plantation white sugar to the levy of market fee under the Adhiniyam.
Dr. Y. S. Chitale, learned counsel for the Parishad, Samiti
and Mandi, the rrspondents in W. Ps. 1348 to 1360 of 1981 submitted that s. 2 (a) of the Adhiniyam deals also with traders as
held in Laxmi Khandsari Etc. Etc. vs. St•te of U. P. and Others(l)
and that what the petitioners produce is khandsari though it may
(!) [1981] 3 S. C. R 92.
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SUPRBME COURT REPORTS
[1985) 2 S.C.R.
be more refined than khandsari produced by the agriculturists without the aid of power. On the question of discrimination he sub·
mitted that whatever w;s considered necssary to be regulated was
included in the schedule to the Adhiniyam and that there is no
discrimination in not subjecting plantation white sugar produced by
the vacuum pan process to the levy of market fee under the
Adhiniyam.
The prefatory note to the Adhiniyam as extracted from the
Statement of Objects and Reasons may be noted. It reads:
"The present chaotic state of affai~s as obtaining in
agricultural produce markets is an acknowledged fact.
There are innumerable charges, levies and exactions which
the agricultural producer is required to pay without having
any say in the proper utilisation of the amount so paid by
him. In matters of dispute between the seller and the buyer
the former is generally put at a disadvantage by being
given arbitrary awards. The producer is also denied a large
part of his produce by manipulation and defective use of
weights and scales in the market. The Government of India
and the various committees and commissions appointed to
study the condition of agricultural markets in the country
have also been inviting the attention of the State Government from time to time towards improving the conditions
of these markets. The proposal to enact a marketing legislation was first taken up in 1938; but it could not go
through as the then Ministry went out of office soon after
its inception. The Planning Commission stressed long ago
that legislation in respect of regulation of markets should
be enacted and enforced by 1955-56. Most of the other
States have already passed legislation in this respect.
The
proposed measure to regulate the markets in this State has
been designed with a view to achieving the following
direction-
(i) to reduce the multiple trade charges, levies and
exactions charged at present from the producersellers;
(ii) to provide for the verification of accurate weights
and scales and see that the producer-seller is not
denied his legitimate due;
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RATH! KHANDSARI v. u. P. STATE (Varadarajan, J.)
979
(iii) to establish market committees in which the
agricultural producer will have his due representation;
(iv) to ensure that the agricultural producer has hJS
say in the utilisation of market funds for the
improvement of the market as a whole;
(v) to provide for fair settlement of disputes relating
to the sale of agricultural produce;
(vi) to provide amenities to the producer-seller in the
market;
(vii) to arrange for better storage facilities;
(viii) to stop inequitable and unauthorised charges and
levies from the producer-seller; and
(ix) to make adequate arrangements for market intelliA
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gence with a view to posting the agricultural
D
producer with the latest position in respect of the
markets dealing with his produce".
(emphasis supplied)
The prefatory note shows that the object of the Adhiniyam is
to save the agricultural producer from innumerable charges, levies
and exactio'ls and to enable him to have a say in the proper utili&ation of the amounts paid by him, to reduce the multiple charges,
levies exactions charged from producer-sellers and generally to help
the agricultural producer to sell his produce to his best advantage.
The objects set out in the prefatory note are reflected in a concised
form in the preamble to the Adhiniyam which says that it is "An
Act to provide for the regulation of sale and purchase of agricultural
produce and for the establishment, superintendence and control of
markets therefor in Uttar Pradesh". The preamble also speaks of
the necessity to provide for the regulation of sale and purchase of
agricultural produce and the establishment, superintendence and
control of markets therefor in Uttar Pradesh. Thus the object of the
Adhiniyam as seen from the prefatory note and preamble is to
protect the agricultural producer from exploitation. Protection of
any industrial producer is not the object of the Adhiniyam .
Section 2(p), of the Adhiniyam defines a "producer" as
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meaning "a person who, whether by himself or through hired
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SUPREMll COURT RllPORTS
[1985) 2 s.c.R.
labour, produces, rears or catches any agricultural produco, not
beini: ~ producer who also worb as a trader, broker or data!, commi,.ion agent or arhatiya or who is otherwise ordinarily en.ga~ed m
the businHs of storage of agricultural produce". Agricultural produce
is defined in s. 2(a) of the Adhiniyam as meaning "such items of
produce of agricaltur, horticulture, viticulture, ai:riculture, siriculture,
pisciculture, animale husbandary 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 words "and further
includes gur, rab, shakkar, khandsari and jaggery" have been
introduced into s. 2(a) of the Adhiniyam by the U.P. Amendment
Act 10 of 1970. Trader is defined in s. 2(y) of the Adhiniyam as
meaning "a person who is engaged in buying or selling agricultural
•
produce as a principal or as a duly authorised agent of one or more
principals and includes a person engaged in producing agricultural
produce". Thus it is seen from the definition of producer and trader
in the Adhiniyam that emphasis is on the product produced, reared
or caught by agriculturists whether by their own or through hired
labour and that such producer does not include a producer who also
works as a trader, broker, dalal, commission agent or arhatiya or
who is otherwise ordinarily engaged in the business of storag11 of
agricultural produce. Therefore, it is not possible to hold that a
manufacturer producing khandsari sugar by the modern method in
the open pan process is a producer within the meaning of s. 2(p) of
the Adhiniyam. The schedule to the Adhiniyam consists of 17 S items
including paddy, honey, silk, eggs and ghee which were in the
schedule from the inception. But, as stated earlier "K.handsari" is
one of the items introduced into the definition of agricultural
produce in s. 2(a) of the Adhiniyam by the Amendment Act 10 of .
19 70. It is •een from Annexure VIII to the counter-affidavit of the
respondent-Parishad filed in W. Ps. 1347-1360 of 1981 that "The
technique of sugar manufactured through the indigenous process
without the use of complicated machinery has been known in this
country from time immemorial. The sngar thus produced i• known
as khandsari". In the counter-affidavit of Shri Ram Sharan, Deputy
Director (Marketing) of the Parishad filed for the petitioners'
additional affidavit it is admitted that farmers and sugarcane &rowers
produce, what he calls, khandsari sugar with the help of small
electric motors, diesel engines or their own tractors. Mr. Shanti
Bhushan submitted that khandsari introduced in s. 2(a) of the
Adhiniyam by the Amendment Act 10 of 1'70 is khandsari produced
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l!.ATHI l:HANDSARI v. u.P. STATE (Varadarajan, J.)
981
by agriculturists and sugarcane growers in the old and primitive
method and not khandsari >Ugar produced in khandsari mills in the
modern sulphitation open pan process.
Annexure VI to the counter-affidavit filed by the Parishad in
W. Ps 1347-1360of1981 is the report of the Director of National
Sugar Institute, Government of India, Kanpur regarding the
approximate composition of khandsari sugar produced by the modern
sulphitation process and that of plantation white sugar produeed by
the vacuum pan sugar factories.