2015 (12) TMI 846 - SC - Indian Laws

State Legislature's Overreach in Levying Market Fees on Agricultural Produce Struck Down by Supreme Court

The Supreme Court held that the State Legislature of Uttarakhand lacked the legislative competence to enact Section 27(c)(iii) of the Uttarakhand ... Validity of Section 27(c) (iii) and 27(c) (iv) of the Uttarakhand Agricultural Produce Marketing (Development and Regulation) Act, 2011 - The principal challenge was mounted on the ground that market fee is not liable to be charged on their agricultural produce for the reason that, firstly, there is no sale and purchase of the goods in the market area and, secondly, it cannot be charged under Section 27(c)(iii) for the reason that there is no sale, storage, processing or transaction of this agricultural produce. - HC upheld the validity - Held that:- an examination of Section 27(c)(iii) would show that it is against the scheme of the Act, as it seeks to levy market fee and development cess even on those units which merely bring agricultural produce from outside the State into the market area for carrying out manufacturing, in that there is no sale or purchase of the product within the market area per se. Entry 52 of List I governs the process of manufacture and production. Therefore, in the instant case, the State Legislature did not have the competence to enact the impugned provisions which sought to levy market fee and development cess even on those agricultural produce which were not being brought into the market for the purpose of sale, but for the purpose of manufacture or further processing. Since the State Legislature was not competent to enact the impugned provision of Section 27(c)(iii) of the Act, the same is liable to be struck down as the same was enacted by the State Legislature without having the legislative competence to do so. In view of the findings and reasons recorded in Point No.1 supra, the impugned common judgment and order upholding the validity of the amendment to Section 27(c)(iii) of the Act is set aside. Section 27(c)(iii) of the Act is struck down. The consequential action of issuing notice of demand and any other orders passed against the appellants are hereby quashed. However, Section 27(c)(iv) is hereby upheld. This Court makes it very clear that the purchaser must prove that the agricultural produce is brought from other State which is an interstate sale, and is in accordance with the provisions of the Sale of Goods Act, 1930. Issues Involved:1. Legislative competence of the State Government of Uttarakhand to enact the impugned provisions.2. Validity of the Amendment Act, 2012, particularly Section 27(c)(iii) of the Uttarakhand Agricultural Produce Marketing (Development and Regulation) Act, 2011.Detailed Analysis:Issue 1: Legislative Competence of the State Government of UttarakhandThe appellants contended that the Amendment Act, 2012, was ultra vires the Constitution as it was not supported by the relevant entry in the Constitution. They argued that Entry 28 of List II of the Seventh Schedule, which pertains to 'Markets and Fairs,' did not cover the activities of manufacturing, and thus the State Legislature exceeded its legislative competence. The appellants relied on the judgment in ITC Ltd. v. Agricultural Produce Market Committee (2002) 9 SCC 232, which defined 'market' and 'industry' and emphasized that 'industry' for Entry 52 of List I is confined to the process of manufacture or production.The respondents, on the other hand, argued that Entry 28 of List II and Entry 66 of List II (which allows for the levy of fees) provided the State with the necessary legislative competence. They contended that the levy of market fee and development cess on agricultural produce brought into the market area for manufacturing was within the State's legislative powers.The Supreme Court, however, concluded that the State Legislature did not have the competence to enact Section 27(c)(iii) of the Act. The Court held that Entry 52 of List I governs the process of manufacture and production, and thus the State Legislature could not levy market fees on agricultural produce brought into the market area for manufacturing purposes. The Court referred to the Constitution Bench decision in ITC Ltd., which confined 'industry' to manufacture or production, and stated that Entry 28 of List II did not cover manufacturing activities.Issue 2: Validity of the Amendment Act, 2012Section 27(c)(iii) of the Uttarakhand Agricultural Produce Marketing (Development and Regulation) Act, 2011, as amended by the Amendment Act, 2012, sought to levy market fees and development cess on agricultural produce brought into the market area for various purposes, including manufacturing. The appellants challenged this provision on the grounds that it was beyond the legislative competence of the State and that it was against the scheme of the Act, which primarily aimed to regulate the buying and selling of agricultural produce within the market area.The High Court had upheld the validity of the Amendment Act, 2012, stating that the inclusion of 'manufacturing' in Section 27(c)(iii) was within the legislative competence of the State. However, the Supreme Court disagreed, holding that the impugned provision was against the scheme of the Act and beyond the legislative competence of the State Legislature. The Court emphasized that the primary object of market legislation is to ensure fair returns to the producers of agricultural produce and to govern the buyer-seller relationship, which did not extend to manufacturing activities.The Supreme Court struck down Section 27(c)(iii) of the Act, holding it to be enacted without legislative competence. Consequently, the Court quashed the demand notices issued to the appellants under this provision. However, the Court upheld Section 27(c)(iv), which pertains to the secondary arrival of agricultural produce within the State after the first transaction or sale.Conclusion:The Supreme Court allowed the civil appeals, set aside the impugned judgment and order upholding the validity of Section 27(c)(iii) of the Act, and struck down the said provision. The Court also quashed the consequential demand notices issued to the appellants but upheld Section 27(c)(iv). The judgment emphasized the importance of legislative competence and the scope of market legislation under the relevant constitutional entries.