Crude Soybean Oil Is Not Agricultural Produce But Manufactured Product, Eligible For Customs Duty Exemption: Supreme Court

The Supreme Court ruled that a crude degummed soybean oil is not an agricultural product as it undergoes a manufacturing process that changes its fundamental nature, distinct from the original raw material, i.e., soybean.

The bench of Justices Abhay S. Oka and Ujjal Bhuyan set aside the Gujarat High Court's ruling that crude degummed soybean oil retains its agricultural character, rejecting the view that it remains unfinished and unfit for consumption simply because it is derived from soybeans and requires refining.

The question that fell for the Court's consideration was whether the processing of soybeans into crude degummed soybean oil strips it of its agricultural character, making it eligible for benefits on import.

In the absence of a direct definition of the term 'agricultural product', the bench referred to the definition stated by the Kerala High Court in the case of P. Narayanan Nair Vs. Dr. Lokeshan Nair, AIR 2014 Ker 141 which clarified that an agricultural product must be the direct result of cultivation and in its natural, unmanufactured condition.

Relying on the definition and test of 'manufacture' laid down in Union of India v. Delhi Cloth and General Mills Co. Ltd. (1963) and Deputy CST v. Pio Food Packers (1980), the judgment authored by Justice Bhuyan noted that manufacture entails a transformation resulting in a new and distinct product with a different name, character, or use one that is commercially recognized as separate from the original raw material.

The Court ruled that the crude degummed soybean oil is not an agricultural product because it is not merely a processed form of soybeans but a new marketable commodity with a separate identity.

In this regard, the Court list out the essential features to constitute manufacture such as:

i. There must be a process or series of process.

ii. The original commodity or raw material undergoes a transformation through the process or series of process.

iii. At the end of the process or series of process, a new commodity emerges.

iv. The new commodity should have a distinct name, character or use and can no longer be regarded as the original commodity.

v. It should be regarded as distinct from the original commodity and recognized as so in the trade.

“The test is not whether the end product is a consumable product or not. Therefore, the High Court clearly missed the point by holding that because crude degummed soyabean oil was not further refined and therefore was not a consumable item; it did not have a distinct identity. This is not the test of manufacture. While there is no dispute that soyabean is an agricultural product, the High Court while endorsing the view of the Assistant Commissioner held that crude degummed soyabean oil is also an agricultural product. Certainly, crude degummed soyabean oil is distinct from soyabean; it is not the same thing as soyabean.”, the court observed.

“Therefore, applying the above test, we are unable to concur with the view expressed by the High Court that crude degummed soyabean oil is an agricultural product.”, the court held.

In terms of the aforesaid, the Court allowed the appeal, and ruled that the Appellant was entitled to benefit on the import of crude degummed soyabean oil as it was not an agricultural product thus specifically excluded by the notification.

Case Title: NOBLE RESOURCES AND TRADING INDIA PRIVATE LIMITED (EARLIER KNOWN AS ANDAGRO SERVICES PVT. LTD.) VERSUS UNION OF INDIA & ORS.

Citation : 2025 LiveLaw (SC) 570

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Appearance:

For Petitioner(s) :Mr. Vikram S. Nankani, Sr. Adv. Mr. Kumar Visalaksh, Adv. Mr. Hardik Modh, Adv. Mr. Udit Jain, Adv. Mr. Mahfooz Ahsan Nazki, AOR

For Respondent(s) :Mr. S. Dwarakanath, A.S.G. Mr. Rupesh Kumar, Sr. Adv. Ms. Priyanka Terdal, Adv. Mr. Siddharth Sinha, Adv. Mr. Kartikeya Asthana, Adv. Mr. Rajat Vaishnaw, Adv. Mr. Gurmeet Singh Makker, AOR Mrs. Archana Pathak Dave, A.S.G. Mr. Raj Bahadur Yadav, AOR Mr. Ashok Panigrahi, Adv. Mr. Shashank Bajpai, Adv. Mr. Raghav Sharma, Adv.