2015 (12) TMI 846 - SC - Indian Laws

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

M/s. Gujarat Ambuja Exports Ltd. & Another Versus State of Uttarakhand & Others

M/s. Gujarat Ambuja Exports Ltd. & Another Versus State of Uttarakhand & Others - [2016] 94 VST 1 (SC) 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.