Uttarakhand HC Strikes Down Cess On Outside-State Produce Brought Into Market Areas For Purposes Other Than Sale

The Uttarakhand High Court has recently struck down the levy of development cess on agricultural produce brought from outside the State for manufacturing or processing, where no sale or purchase takes place within the market area.

A Division Bench of Chief Justice Manoj Kumar Gupta and Justice Subhash Upadhyay held that the first proviso to Section 27(c)(v) of the Uttarakhand Agricultural Produce Marketing (Development and Regulation) Act, 2011, was beyond the legislative competence of the State Legislature to this extent.

The court observed that merely bringing agricultural produce into a notified market area does not make the movement an activity relating to a market that can attract development cess.

“The mere physical entry of agricultural produce into an area notified as market area, therefore, does not, by itself, render such movement an activity relating to a 'market' so as to sustain the levy under Entry 28 read with Entry 66 of List II,” the court observed.

The matter arose from petitions filed by Ashirwad Agro Industries and several other manufacturers challenging the constitutional validity of the provision and the consequential demands for development cess.

The manufacturers told the court that they brought agricultural produce such as wheat, paddy, maize, legumes and wood from outside Uttarakhand to make products including flour, rice, corn starch, paper and plywood. They challenged the demands, arguing that no sale or purchase took place within the market area.

They relied on the Supreme Court's ruling in Gujarat Ambuja Exports Ltd. v. State of Uttarakhand, which struck down a similar provision imposing market fee and development cess on agricultural produce brought into the market area for manufacturing or further processing without any sale or purchase there.

The State argued that the provision under challenge was different because it imposed only development cess and not market fee. It also contended that manufacturing units benefited from roads, bridges and other infrastructure maintained by market committees.

The court rejected the distinction. It held that the constitutional defect identified by the Supreme Court could not be overcome by shifting substantially the same levy to another provision or describing the movement of goods differently.

“The ratio of Gujarat Ambuja cannot be circumvented by shifting substantially the same levy from one sub-clause to another, by describing the movement of goods as 'Primary Arrival' or 'Additional Secondary Arrival', or by retaining development cess while excluding market fee,” the court observed.

The court also rejected the argument that the levy could be justified because its proceeds were used to maintain and develop market infrastructure. It observed that the purpose for which the proceeds were spent could not, by itself, confer legislative competence on the State to impose the levy.

It accordingly held that the first proviso to Section 27(c)(v), insofar as it authorised development cess merely because agricultural produce was brought from outside Uttarakhand into a market area for manufacturing or further processing without any sale or purchase there, was beyond the legislative competence of the State Legislature.

The court quashed the impugned notices and consequential demands insofar as they required the manufacturers to pay development cess solely on such agricultural produce.

It clarified that a market fee or development cess could still be imposed under another valid charging provision where its requirements were independently satisfied, including where a taxable sale or purchase took place within the market area.

For the Petitioners: Advocates Pankaj Kumar Singh, Prem Prakash Singh Phartiyal, Piyush Garg, Nikhil Singhal, Jitendra Chaudhary, Rajyavardhan Chaudhary, Anuj Sharma, Hardik Sah and Rajeev Bhatt appeared in the respective connected petitions.

For the State: Additional Advocate General Ganesh Dutt Kandpal, assisted by Standing Counsel B.P.S. Mer and Brief Holder M.S. Bisht.

For Respondent Nos. 2 and 3: Senior Advocate A.S. Rawat, assisted by Advocates Vipul Sharma, Kartikeya Naithani and N.S. Pundir in the respective petitions.