I.T.C. Ltd. Vs. State of Karnataka & Ors [1985] INSC119 (3 May 1985)
1985 Latest Caselaw 119 SC

I.T.C. Ltd. Vs. State of Karnataka & Ors [1985] INSC 119 (3 May 1985)

FAZALALI, SYED MURTAZA FAZALALI, SYED MURTAZA VARADARAJAN, A. (J) MUKHARJI, SABYASACHI (J)

CITATION: 1985 SCR Supl. (1) 145 1985 SCALE (2)515

ACT:

Constitution of India, Seventh Schedule. Entry 52 of List I, and Entries 22 and 66 of List II-"Industries"- Tobacco Board Act 1975 (Central Act) passed for the development of tobacco industry-State Act subsequently included tobacco in its Schedule and levied market fee on tobacco or its products-Whether the provisions of the State Act repugnant to the Central Act on this point.

Karnataka Agricultural Produce Marketing (Regulation) (Amendment) Act 1966, Section 65 Enhancement and collection of market fee-Whether it should have direct nexus between services randered and the amount collected-Levy of market fee found to be bad in law-Fee collected-Whether it should be refunded-Whether the State legislature competent to validate levy declared by Court as bad in law.

HEADNOTE:

On 19th May, 1975, the State Government amended s. 65 of the Karnataka Agricultural Produce Marketing (Regulation) Act, 1966 by the Karnataka Agricultural Produce Marketing (Regulation) (Amendment) Act 24 of 1975. Sub-Section (1) of S. 65 as it stood after the amendment provided that the Market Committee shall levy and collect market fee from every seller in respect of agricultural produce sold by such seller in the market area at the rate of one rupee per hundred rupees of the price of such produce sold. Sub Section (2) laid down that the market Committee shall levy and collect market fee from every buyer in respect of agricultural produce bought by such buyer in the market area at such rate as may be specified in the bye-laws. Sub- Section (3) stated that every market committee shall credit to the Karnataka Motor Vehicles Taxation Act, 1957, the market fee collected under sub-section (1) for being spent for the purpose of construction, repair, improvement and maintenance of rural roads in the State. On 2th September, 1978, the High Court struck down the amended section 65(1) and (3) of the Act and upheld the levy on buyers at the rate of one rupee per one hundred rupees under s. 65(2) of the Act in Rajasekhariah's case (ILR (1978) Karnataka 1939).

Thereafter, the Karnataka Ordinance 2 of 1979 was promulgated amending ss. 63 and 65 of the Act. Section 63 was amended with retrospective effect from 19.5.1975 by substituting in clause (ii) of sub-section (1) of S. 63 the words "transport and marketing" for the word "marketing".

The amended S. 65(a) validated market fee levied and collected under sub-section (1) of S. 65 for the period 19.5.1975 to 28.9.1978; (b) omitted the amended sub-section (1) of S. 65 with effect from 28.9.1978; (c) enhanced the maximum permissible limit of market fee levied and 146 and collected from buyers of specified agricultural produce under sub-section (2) of S. 65 from one per cent to two per cent; and (d) omitted sub-section (3) of S. 65 as if it never existed in the Statute. The Ordinance was later replaced by the Karnataka Agricultural Produce Marketing (Regulation) (Amendment) Act 17 of 1980 which also numerated for the first time cardamom and tobacco as an agricultural produce for the purpose of the Act. The Tobacco Board Act 1975 (Act No. 4 of 1975) which had been passed for the development of the tobacco industry under the control of the Union was already in existence before tobacco was included in the Schedule to the Act, Section 42 of that Amendment Act validated the levy and collection of market fee during the period 19.5.1975 to 28.9.1978. Pursuant to the amendment made to sub-section 2 of S. 65 of the Act, all the Market Committees in the State of Karnataka except the Mangalore Market Committee amended the bye-law by enhancing the levy under S. 65(2) of the Act from one per cent to two per cent on the directions of the Chief Marketing Officer and without following the procedure laid down in S. 148 of the Act.

The appellants/traders filed writ petitions in the High Court challenging the enhancement of the levy from one per cent to two per cent as well as the collection of market fee from sellers during the period 19.5.1975 to 28.9.1978. The High Court directed the Chief Marketing Officer to furnish in respect of each market committee a comprehensive statement in a tabulated form setting out certain factors which may be relevant for considering the question of enhancement of market fee. During the hearing of the writ petitions, the respondent State promulgated Karnataka Ordinance No. 22 of 1981 dispensing with the requirement of the previous publication contemplated in S. 148 of the Act in relation to making of bye-laws and amendments thereof with retrospective effect.

The High Court held (1) that s. 65(1) as substituted by the Act 17 of 1980 and S. 42 of the Amendment Act were unconstitutional and liable to be struck down on the grounds (1) that before S. 65(3) was struck down, the levy and collection of market fee under S. 65(1), as it then stood were for the benefit of the Karnataka Roads and Bridges Fund constituted under the Karnataka Motor Vehicles Taxation Act, 1957, and that event which had happened, namely, crediting of the market fee to that Fund cannot be reversed by the subsequent amendment of S. 65(1) and introduction of S. 42 in the Amendment Act 17 of 1980; (ii) that as per the decision of the Supreme Court in Kewal Krishan Puri's case rural roads are primarily and essentially intended for the benefit of the public and the class of market fee payers are, as part of the general public, entitled to the benefit of their user and the market fees cannot be levied on and collected from them for that purpose, more so because the rural roads constructed, improved, repaired and maintained with the market fee collected did not become the property of the market committees or shed their character as public roads; (2) that sub-section 65(2) does not confer uncanalised and excessive power on market committees in the matter of fixing the rate of market fee and that there are adequate statutory guidelines and safeguards; (3) that on the materials placed, the levy ought nor to fail for want of quid pro quo. However, having regard to the infirmities noticed in the estimates the High Court is unable to say with any confidence that the enhancement of fee was 147 totally justified; (4) that S. 3 of the amending Ordinance 22 of 1981 validated the bye-law, notwithstanding the fact that the affected interests were not heard because that right has been taken away by s.3 and 5 of the amending Ordinance 22 of 1981. However the Chief Marketing Officer's direction can be regarded as his previous sanction for amending the bye-laws; (5) the question whether S. 65(2) must be held to imply an obligation on the part of the market committees to hear affected interested parties, before the rate of fee was fixed was left open in the judgment; (6) that the provisions of the Act in so far as marketing of cardamom is concerned, are repugnant to the provisions of the Cardamom Act (Central Act 42 of 1965) but, so far as the provisions of the Tobacco Board Act, 1975 (Central Act) are concerned it makes provisions only in relation to Virginia tobacco and not all varities of tobacco and the Act is not repugnant to the provisions of the Tobacco Board Act, and all that is necessary for the Market Committee is to obtain auctioneer's licence under the provisions of the Tobacco Board Act.

In the appeals and writ petitions to this Court the appellants and petitioners/traders contended that the enhancement of the market fee from one per cent to two per cent of the price of the specified agricultural produce is invalid on two grounds : (1) that the item of expenses envisaged for the rural roads has gone with the striking down of s.65(1) and (3) of the Act and the omission of clause (3) of s.65 from the Act by the Amendment Act 17 of 1980. However, the amount collected under that sub-section will take care of the proposed expenditure envisaged in the estimates and projections for the improvement of the services in the regulated markets; and (ii) that reduction of the enhanced levy from two per cent to one per cent subsequently by the State Government shows that there was no justification for the enhancement of the market fee from one per cent to two per cent; (2) that the amendment of the bye- laws made for enhancement of the market fee from one per cent to two per cent was not in accordance with the procedure laid down by s. 148 of the Act and ss. 3, 5(a) and 5(b) of Ordinance 22 of 1981 promulgated during the pendency of the writ petitions in the High Court would not cure the defect; (3) that S.65(1) as substituted by Act 17 of 1980, read with s.42 of the Amending Act, seeking to validate the collection of market fee on "sellers" made under the old s.65(1) of the Act is constitutionally invalid, and (4) the High Court erred in holding that the Tobacco Board Act, 1975 covers only Virginia tobacco and is not repugnant to the provisions of ss.8(2)(a), 8(3) and 12 of the Tobacco Board Act and r.35 of the Rules made under that Act.

On behalf of the respondents it was contended that quid pro quo was established in respect of 73 out of 93 market committees falling in categories `A', `B', `C' and `D' for enhancement of the market fee from one per cent to two per cent and no further enquiry was needed in view of Kewal Krishan Puri's case. (2) that there is no repugnancy between the Act and the Tobacco Board Act, 1975, (3) that after s.65(3) has been omitted from the Act there was no question of striking down S.65(1) as substituted by the Amendment Act 17 of 1980 and since S.42 of the Amendment Act has validated the levy, there is no question of refund of the market fee collected under S.65(1).

148 Dismissing all the civil appeals, special leave petitions and the writ petitions except C.A. No. 629 of 1983.

(Per majority; Fazal Ali and Vardarajan, JJ.-Sabyasachi Mukharji, J. dissenting) ^

HELD : 1 (i) A close and careful analysis of Articles 245 and 246 shows that the Constitution strikes a just balance between the powers of the Parliament and the State Legislatures but reserves to itself the right to legislate in exceptional cases even in matters appearing in the State List. This is the logical result and the necessary concomitant of clause (4) of Art. 246. [168 E] (1)(ii) The cardinal principles justifying the competency of the respective legislatures with respect to the entries concerned are : (a) Entries in each of the Lists must be given the most liberal and widest possible interpretation and no attempt should be made to narrow or whittle down the scope of the entries; (b) the application of the doctrine of pith and substance really means that where a legislation falls entirely within the scope of an entry within the competence of a State legislature then this doctrine will apply and the Act will not be struck down; (c) the consideration of encroachment or entrenchment of one List in another and the extent thereof is also well established. If entrenchment is minimal and does not affect the dominant part of some other entry, which is not within the competence of the State Legislature, the Act may be upheld as constitutionally valid; (d) the nature and character of the scope of the entries having regard to the touch stone of the provisions of Arts. 245 and 246; and (e) the doctrine of occupied field has a great place in the interpretation as to whether or not a particular legislature is competent to legislate on a particular entry. This means that when the field is completely occupied by List I, then the State legislature is wholly incompetent to legislate and no entrenchment or encroachment, minimal or otherwise, by a State legislature is permitted. In other words, where, the field is not wholly occupied, then a mere minimal encroachment or entrenchment would not affect the validity of the State legislation. [168 F-H; 169 B-C; F-H] The five principles have to be read and construed together and not in isolation-where, however, the Central and the State legislation cover the same field then the central legislation would prevail. It is also well settled that where two Acts, one passed by the Parliament and the other by a State legislature collide and there is no question of harmonising them, then the Central legislation must prevail. There may also be cases where despite an entry being in List II, the Parliament may under the provisions of Art. 246(3) take over that particular field and legislate on that subject which will debar the State legislature from adding or passing any such legislation which has been taken over under Art. 246(3). [170 B-D] S.P. Mittal v. Union of India & Ors. [1985] 1 SCC 51;

Delhi Cloth & General Mills Co. Ltd. v. Union of India & Ors. [1983] 4 SCC 167; Subrahmanyan Chettiar v. Muttuswami Goundan AIR [1941] F.C. 47: Zaverbhai Amaidas v. State of Bombay [1955] 1 SCR 799; Deep Chand v. State of U.P.

149

(Proprietary) Ltd. v. State of West Bengal & Ors. [1962] Supp. 3 SCR 1; State of Orissa v. M.A. Tulloch & Co. [1964] 4 SCR 461; Sudhir Chandra Nawn v. Wealth Tax Officer, Calcutta & Ors. [1969] 1 SCR 108; Baijnath Kedia v. State of Bihar & Ors. [1970] 2 SCR 100, relied upon.

(2) Once the Centre takes over an industry under Entry 52 of List 1 and passes an Act to regulate the legislation, the State legislature ceases to have any jurisdiction to legislate in that field and if it does so, that legislation would be ultra vires of the powers of the State legislature.

[174 H] (3)(i) In the instant case, by virtue of Notification No. 374(3) dated 31.5.80 the Central Government made applicable ss. 10 and 11 of the 1975 Act to the State of Maharashtra, West Bengal, Gujarat, Tamil Nadu and Uttar Pradesh. By making Rule 35 in the Tobacco Board Rules, 1976 (enacted under s. 12 of the 1975 Act) the Market Committees were debarred from auctioning or dealing in tobacco or its products unless they were registered with the Board.

Admittedly the market Committees of the State of Karnataka had not been registered with the Tobacco Board under the 1975 Act and were, therefore, incapable of rendering any service at all. By a letter dated 15.9.83 the Tobacco Board rejected the application made by the Karnataka State to allow it to participate in auctioning the tobacco products.

It is manifest, therefore, that by virtue of the aforesaid steps taken by the central legislation the field of tobacco stood completely occupied and there was no room for application of the doctrine of pith and substance nor would the question of incidental entrenchment arise in such cases.

[165 F-H; 167 C-D] (3)(ii) Even if the President's assent would have been taken it would not validate the Karnataka Act of 1980 so far as the Tobacco Industry is concerned because Art. 254(2) applies only to matters contained in the Concurrent List and has nothing to do with matters enumerated in List I or List II. Thus, the Karnataka Act of 1980 would have absolutely no application to entry 52 of List I which are fully occupied by the Central Act of 1975. [175 C] This being the position, this Court strikes down that part of the Karnataka Act which takes in itself the power to levy market fee on tobaco or its products. Even if the products may be sold in the markets in Karnataka or near about the same place situated in that States, the power to levy fee will not belong to that State; it will remain with the Centre which would regulate the sale and purchase of tobacco. [175 F] Per Mukharji, J. (dissenting) :

1. The provisions of the Karnataka Marketing Act and Tobacco Board Act and the Rules are not inconsistent. The cardinal rule of interpretation is that the words should be read in their ordinary natural and grammatical meaning. But words in a constitutional document conferring legislative powers should also be construed most liberally and in their widest amplitude. On the construction of the Central Act read with the rules it is clear that the Central Act and the declaration made by section 2 of the Act cover all kinds of tobac- 150 cos. Whether a particular legislation or enactment is within the competence of particular legislature must be judged after finding out the pith and substance, in other words, the true nature and character, of the legislation in question and secondly the entries in the list should be given liberal and generous construction. All the entries should be construed in harmonious manner so as to avoid conflict. In case of conflict, however, in respect of entries where both the State and the Centre can legislate, the Central legislation would prevail over the State Legislation in view of the provisions of Articles 245 to 254 of the Constitution. [278 B; 271 E; 272 C; 271 C-D] Navinchandra Mafatlal v. C I.T. Bombay, [1955] 1 SCR 829 at page 836-37, Baijnath v. Bihar State [1970] 2 S.C.R.

100 at 113, Kannan Devan Hills Co. v. Kerala, [1973] 1 SCR 356 at 369, Ganga Sugar Co. Ltd. v. State of U.P, [1980] 1 SCR 769 at 781, referred to.

2. (i) It is well-settled principle that Article 246 recognised the principle of Parliamentary supremacy in the field of legislation in case where both legislatures have competence to legislate (emphasis supplied). The constitutional scheme is that Parliament has full and exclusive power to legislate with respect to matters in List I and has also power to legislate with respect to matters in List III. A State Legislature has exclusive power to legislate with respect to matters in List II, excluding the matters falling in List I and has also concurrent power to legislate with respect to matters falling in List III excluding the matters falling in List I. The dominant position of the Central Legislature with regard to matters in List I and List III is established. [272 F-G]

2. (ii) The principles of repugnancy in Indian Constitution are well-settled. These are as follows :- (a) A legislation, which in its pith and substance, falls within any of the entries of List I of the Seventh Schedule to the Constitution, would be exclusively within the competence of the Parliament. [276 B] (b) A legislation falling exclusively, in its pith and substance, within any of the entries in List II of the Seventh Schedule, would be within the exclusive competence of the State Legislature; [276 B] (c) A Central law which in its pith and substance, falls within any entry in List I would be valid even though it might contain incidental provisions in List II which may contain ancillary provisions which might touch on any entry of List I incidentally; [276 C] (d) A State law which, in its pith and substance, is within any entry in List II would be valid even though it might incidentally touch upon a subject falling within List I; [276 D] (e) A Central law, which in its pith and substance, dealt with a subject falling within List II would be bad and ultra vires the Constitution. Similarly, a State law which in its pith and substance dealt with a matter falling within List I would be invalid and ultra vires the Constitution;

and [276 E-F] 151 (f) The concept of repugnancy arises only with regard to laws dealing with subjects covered by the entries falling in List III, in respect of which both Parliament and State Legislature are competent to legislate. Under Article 254 of the Constitution, a State law passed in respect of a subject matter comprised in List III would be invalid if its provisions were repugnant to a law passed on the same subject by Parliament. The repugnancy would arise only if both the laws cannot exist together. Repugnancy does not arise simply because Parliament and the States pass law on the same subject. There can not be any repugnancy in respect of State laws passed in respect of matters falling in pith and substance in List II or in respect of Central laws passed on subjects falling in List I. Parliament cannot legislate on a State subject and State cannot legislate on a Central subject. If either trenches upon the field of the other, the law will be ultra vires. [276 G-H; 277 A] Subramanyam v. Muthuswamy, [1940] 45 C.W.N. (FC) 1=AIR 1941 FC 47 at 58, Sudhir Chand v. Wealth Tax Officer, Calcutta, [1969] 1 SCR 108 at 113 Ch. rika Ramji & Others Etc. v. State of Uttar Pradesh & Others, [1956] SCR 393, State of Orissa v. M.A. Tulloch Co. [1964] 4 SCR 461 at 477, M/s. Rochst Pharmaceuticals Ltd. & Others Etc. v. State of Bihar and Others etc, Ramesh Chandra Etc. v. State of U.P.

Etc., [1983] 4 SCC 45 and The Calcutta Gas Company (Proprietary) Ltd. v. The State of West Bengal and Others, [1962] 3 Supp. SCR 1 referred to.

3. While it is true that in the spheres very carefully delineated, the Parliament has supremacy over State Legislatures, supremacy in the sense that in those fields Parliamentary legislation would hold the field and not the State legislation-but to denude the State Legislature of its power to legislate where the legislation in question in pith and substance i.e. in its true nature and character, belongs to the State field, one should be chary to denude the State of its power to legislate and mobilise resources because that would be destructive of the spirit and purpose of India being a Union of States. States must have power to raise and mobilise resources in their exclusive fields. [280 B-C]

4. (i) In the instant case the Karnataka Marketing Act deals with the subject of market in entry 28 read with entry 66 of List II. Such Acts are covered by entry 28 of List II exclusively unlike entries 23, 24, 26 and 27. It is important to bear in mind that entry 28 is not subject to withdrawal into list I by Parliament as under entries 52 and 54 of List I and entry 33 of List III. The State Act is not on a subject in List III-nor is the Central Act a law relating to any subject in List III. Therefore, there cannot be any question of repugnancy. Section 31 of the Central Act makes it clear that it does not derogate from any law but enacts something in addition. Essentially the Central Act was for the development of the industry of tobacco and, incidentally, certain provisions for better sale of tobacco through certain auction platforms had been made. There is nothing in the Act or in the Rules which indicate that it is inconsistent with or cannot be operated along with the marketing regulations. [277 F-G; 279 B-C]

4. (ii) It is fully manifest that both Act can operate in their respective fields and there is no repugnancy if both the Acts are considered in the light 152 of their respective true nature and character. While giving due weight to Centre's supremacy in the matters of legislation, the States' legitimate sphere of legislation should not be unnecessarily whittled down-because that would be unwarranted by the spirit and basic purpose of the constitutional division of powers-not merely allocation of power by the Constitution but invasion by Parliamentary legislations. By complying with the State Act, the Central Act can function to serve the purpose and object of the Central Act, but if only the Central Act was to prevail, the State Act of marketing for coffee would become non est- wholly unnecessary and undesirable. The Marketing Act is essentially an Act to regulate the marketing of agricultural produce; control of coffee industry would not be defeated if the marketing of coffee is done within the provisions of the Marketing Act. It must therefore be held that the State Act should prevail. One should avoid corroding the State's ambit of powers of legislations which will ultimately lead to erosion of India being a Union of States. [279 F-G; 280 D-E] The Calcutta Gas Company (Proprietary) Ltd. v. The State of West Bengal and Others, [1962] 3 Supp. SCR 1, followed.

Per majority, Fazal Ali and Mukharji, JJ.-Varadarajan, J. dissenting. Per Fazal Ali, J.

1. (i) The levying of market fee on the sale and purchase of agricultural products in the markets is not a static event but is an ever changing concept. It has to be medulated and adapted to the requirements and necessities of the society, the expanding needs of the nation and the ever increasing trends of the rise in prices. In other words, this is a dynamic concept which keeps on changing. Thus it is impossible to lay down a hard and fast rule which would apply for all times to come. Therefore, the decision in Kewal Krishan Puri's case cannot be held to be law for all times to come irrespective of the period nor was this decision meant to lay down any such principle. [161 H; 162 B] (ii) The one cardinal principle which flows from Kewal Krishan Puri's case is that any fee or money realised should not be diverted to any other purpose except for the benefit of the purchaser/seller. What would be the nature of the service, when and how it should be rendered and in what measure is entirely a matter for the market committees to decide or determine. So long as the money is realised, even though on the higher side, but in spent on the extention and expansion of the markets, market yards, market facilities, godowns, rest houses, buildings, even roads leading up to the markets, that would be fully within the concept of a fee and could not be labelled as a tax on the purchasers at the auction of goods or articles in the market. [161 H; 159 E] In the instant case, though the fee appears to be on the higher side but there is unimpeachable evidence to show that the entire amount realised has not been spent on some other object or purpose but has been kept in reserve for developing the markets during the course of the coming 10-12 years. Though this period is large but it cannot be said that there is no nexus between the services rendered and the fee realised. Whether the development 153 takes place immediately or in the course of a few years, so long as it is done within a reasonable period it cannot be said that the fee amounts to a tax and is, therefore, ultra vires. [161 B-C] Kewal Krishan Puri & Anr. v. State of Punjab & Ors.

[1979] 3 SCR 1217, Southern Pharmaceuticals & Chemicals, Trichur & Ors. etc. v. State of Kerala & Ors. etc. [1982] 1 SCR 519 and Sreenivasa General Traders & Ors. v. State of Andhra Pradesh, [1983] 3 SCC 353 referred to.

Per Mukharji, J.

1. Section 65(2) did not confer any arbitrary power and there was no excessive delegation of legislative power to the market committees and therefore not vitiated on that account. The question whether on a proper construction of section 65(2) there was any obligation on the part of the marketing committee to hear the parties was rightly left upon by the High Court with certain observations and directions contained in its judgment. So far as the High Court held against the contentions of the appellants that bye-laws were invalid for want of previous publication or for want of consulting the interests affected, I am also in respectful agreement for the reasons discussed by the High Court which need not be reiterated again. The principle of audi alteram partem has application only to judicial, quasi- judicial and administrative functions and not to any legislative functions. [270 A-D] The Tulsipur Sugar Co. Ltd. v. The Notified Area Committee, Tulsipur, [1980] 2 SCR 1111 at pages 1118 to 1121, Avinder Singh etc. v. State of Punjab & Anr. Etc., [1979] 1 SCR 845, referred to.

2. (i) It is well-settled that though there must be some special services to the payers of the fees to be a fee it is not necessary that all the services must be to the payers of the fees nor can the correlation between payment of fee and services rendered be established with mathematical exactitude. It is permissible in the modern set up to take into account projections into future and not only the present services can be utilised for justifying the imposition of fee. All planning, projects into the future for its existence and survival. Any incidental benefit to those other than the payers of the fee is not decisive of the fact whether it is a `tax' or a `fee'. It is necessary to find out the primary object and essential purpose of the imposition (emphasis supplied). If the primary object and essential purpose of the imposition be service of some special kind to the users of the market or payers of fee other consequences or other benefits to others do not in the least affect the position. The concept of benefit to the users of market must be looked at from a broad common sense point of view, taking an integrated view. The proper principles are : (1) that there should be relationship between service and fee, (2) that the relationship is reasonable cannot be established with mathematical exactitude in the sense that both sides must be equally balanced; (3) in the course of rendering such services to the payers of the fee if some other benefits accrue or arise to others quid-pro-quo is not destroyed. The concept of quid-pro-quo should be judged in the context of the present days-concept of markets which are expected to render various services and provide various amenities 154 and these benefits cannot be divorced from the benefits accruing incidentally to others; (4) that a reasonable projection for the future years of practical scheme is permissible; (5) services rendered must be to the users of those markets or to the subsequent users of those markets as a class. Though fee is not levied as a part of common burden yet service and payment cannot exactly be balanced; and (6) the primary object and the essential purpose of the imposition must be looked into. [256 B-E; 260 F-H] Kewal Krishan Puri v. State of Punjab, AIR 1980 S.C.

1008, H. H. Shri Swamiji of Shri Admar Mutt, etc. v. the Commissioner, Hindu Religious & Charitable Endowments Department & Ors. [1980] 1 SCR 368; Ramesh Chandra etc v.

State of U.P. etc. [1980] 3 SCR 104; Municipal Corporation of Delhi and Others v. Mohd. Yasin, [1983] 3 SCC 229;

Southern Pharmaceuticals & Chemicals Trichur & Ors. Etc. v. State of Kerala & Ors. Etc. [1982] 1 SCR - 19; Sreenivasa General Traders and Others v. State of Andhra Pradesh and Others, [1983] 4 SCC 353; Amar Nath Om Parkash & Ors. etc.

v. State of Punjab & Ors. Civil Appeal Nos. 4500 and 4501 of 1984 (decided on 19.11.1984), relied upon.

In the instant case, having regard to the detailed analysis of the expenditure of the various market committees, it could not be said that the expenditure and appropriation of fee was so disproportionate to the projects actual and projected that it could be said that the levy lost the character of fee. [261 B]

2. (ii) Construction of rural roads giving facilities for going to the market is a special service primarily and directly intended for the benefit of the users of market.

If, without rural roads, markets could not be reached and the functions for which the market committees were constituted could not be performed, if it is of fundamental importance that there should be a net work of roadways if effective aid is to be given to buyers and sellers of goods for marketing their products, then the fact that the public streets and roads as trustees would be of no consequence in considering such realisation as fee. [267 B; 268 B-C] In the instant case, the High Court was error in holding that the second major defect noticed in the law authorising the levy on the sellers in Rajasekhariahs case namely construction of rural roads would not qualify being reckoned as a special service to the class of persons paying the fee, had not been cured or removed by the law which sought to validate the levy. The Act which sought to validate the levy contributed to the `Karnataka Roads and Bridges Fund" was for the maintenance of rural roads which forms an integral part of the facilities for marketing of the goods. Therefore this court is unable to sustain the findings of the High Court of Karnataka that section 65(1) as substituted by Section 20 of the Act 17 of 1980 as well as section 42 of the Amending Act was not constitutionally valid and was liable to be struck down. These sections are constitutionally valid in view of the perspective in which the concept of fee has to be judged. [268 D-G] Amar Nath Om Parkash & Ors. etc. State of Punjab & Ors., Civil Appeal No. 4500 and 4501 of 1984 (decided on 19.11.1984), followed.

155 Municipal Corporation of Delhi and Others v. Mohd. Yasin, [1983] 3 SCC 229, relied upon.

3. The validity of a validating law has to be judged mainly be judging, firstly whether a legislature possesses competence over the subject matter i.e., whether by validation, the legislature exercises competence over the subject matter and secondly whether by validation the legislature has removed the defect which the court had found in the previous law and thirdly whether it is consistent with the provisions of part III of the Constitution. Section 42 of the Amending Act is valid and by virtue of the said section, there cannot be any order for refund in the instant case. [266 G; 269 F] Misrilal Jain etc. etc. v. State of Orissa and Another., AIR 1977 SC 1686-[1977] 3 SCR 714: Shri Prithvi Cotton Mills Ltd. Anr. v. Broach Borough Municipality & Ors., AIR 1970 SC 192=[1970] 1 SCR 388; Municipal Corporation of City of Ahmedabad, etc. v. New Shorock Spg & Wvg. Co. Ltd. etc., AIR 1970 SC 1292=[1971] 1 SCR 288; I.N.

Sakeena v. The State of Madhya Pradesh, AIR 1976 SC 2650 [1976] 3 SCR 237; relied upon.

4. Section 42 of the Amending Act has specifically provided against refund of levy of fees already collected.

At no stage was it claimed or stated that the traders had paid market fees themselves. The appellants before this Court are buyers in the market but they themselves are trading in the commodities purchased by them. On further sale of the commodities as traders they have recovered the fees from their purchasers. Therefore, in view of section 42 of the Amending Act which provided for the validation of the levy of market fee and which provided further by section 42(1)(b) and (c) that no proceedings for refund would lie, there cannot be any order of refund in the instant case.

[269 A-B; D]

5. (i) The High Court was competent to give directions and the same were within the competence of the High Court while dealing with grievances made under Article 226 of the Constitution to ensure that appropriate statuary authorities acted according to law after properly ascertaining the facts and for the purpose of rending fully justice to the parties.

[261 H; 262 A]

5. (ii) Courts of today cannot and do not any longer remain passive with the negative attitude, merely striking down a law or preventing something, being done. While it is true that if a law is bad, the Court must strike it down, if the law by and large and in its true perspective is of a social purpose if implemented in a particular manner could be valid, then the Court can and should ensure that implementation should be done in such particular manner and give directions to that effect. [263 A-B] In the instant case, the High Court having found, that basically and essentially the fee was justified on the theory of quid pro quo, the Court was entitled to give positive directions regards the manner the money should be spent. [263 C] 156 Per Varadarajan, J. (dissenting)

1. There is no correlation between the enhancement of the rate of the market fee leviable under s. 65(2) from one per cent to two per cent and the services rendered or proposed to be rendered by the Market Committees and, therefore, the enhancement is invalid in law, It is not necessary to establish the element of quid pro quo in regard to market fees with arithmetical exactitude, but an amount of fee must be earmarked for rendering services to the buyers in the notified market area and a good and substantial portion of it must be shown to be expended for those purposes. The good and substantial portion earmarked for rendering services may be in the neighbourhood of two thirds or three-fourths and it must be shown with reasonable certainty as being spent for rendering services of the kind mentioned in Kewal Krishan Puri's case. [213 F; 213 B-C] In facts and circumstances of the case, the High Court should have held that there is no correlation and that there is no justification for enhancement of the rate of the market fee. The learned judges of the High Court have failed to exercise the jurisdiction vested in them by law by not recording any finding one way or the other on the question of correlation, and that they have clothed the Market Committees and the Chief Marketing Officer with their jurisdiction to decide the question whether the enhancement is justified and if not justified to effect a down-ward revision wherever necessary. [220 A-B] Kewal Krishan Puri v. State of Punjab, [1973] 3 SCR 1217, followed.

2(i) Enhancement of the rate of market fee leviable under s. 65(2) of the Act by Amendments of the bye-laws from one per cent to two per cent of the price of the notified agricultural produce is invalid in law for non-compliance with the law laid down in Kewal Krishan Puri's case. If the market fee is sought to be raised, proper budgets, estimates, balance-sheets showing the money in hand and in deposit, expenditure on projects to be undertaken etc.

should be carefully prepared. Then and only then there may be a legal justification for raising the rate of the market fee further to a reasonable extent, for only then the authorities will be able to know the correct position and to decide reasonably as to what extent the raising of the market fee can be justified, taking an over-all view of the matter. [228 C; 213 C-D] 2 (ii) Admittedly, there was no previous publication as required by s. 148(1) as it stood at the relevant time, and that requirement is purported to have been dispensed with retrospectively by s 3 of Ordinance 22 of 1981. Market fee is not a tax which is imposed by law passed by a Legislature where the interests affected are or are supposed to be represented unlike the market fee the enhancement whereof is made by subordinate legislation by way of amendment of the relevant by-laws by the Market Committees. That is why the provision for previous publication was made in s. 148(1) of the Act as it stood at the relevant time. Previous approval can only be of some 157 proposal or resolution of the Market Committees for during one or the other of the things required to be done under the provisions of the Act. When undisputably there was no such resolution or proposal by the Market Committees for enhancement of the rate of the market fee, it is difficult to see how the direction of the Chief Marketing Officer given to the Market Committees to amend the bye-laws for raising the rate of the market fee from one per cent to two per cent can be considered to be his approval. The right of the affected interests of being heard before the Market Committees could raise the rate of the market fee being a right available to them under the principles of natural justice cannot be denied to them even by omitting in s.

148(1) the clause relating to previous publication of the proposal to make or amend any bye-law under s. 148 of the Act. In any event the amendment has not taken away the requirement of previous approval of the Chief Marketing Officer, and since there was no resolution or proposal of the Market Committees to enhance the rate of the market fee before the Chief Marketing Officer gave the direction to the Market Committees to amend the bye-laws for ralsing the market fee the direction cannot be taken as previous approval of something which was not in existence at that time. Therefore, the amendment of the bye-laws made for enhancement of the rate of the market fee from one per cent to two per cent is invalid in law notwithstanding s. 3 of Ordinance 22 of 1981 and s. 12 of Karnataka Act 4 of 1982.

[222 E; G-H; D-E ; 223 D-F] In the present cases, none of these requirements was satisfied before the market fee was raised. The Market Committees had no such material before them before they raised the rate of the market fee from one per cent uniformly to two per cent by amendment of the bye-law on the more direction of the Chief Marketing Officer. Therefore the enhancement of the market fee from one per cent to two per cent by amendment of the bye-law under the directions of the Chief Marketing Officer without complying with the principles of law laid down in Kewal Krishan Puri's case is bad in law The same would be the position even if the amendment to the bye-law was made in accordance with s. 148 of the Act as it stood before the amendment by the Ordinance 22 of 1981. [213 E; 214 G-H]

3. The High Court has erred in giving the direction dated 30.11.1981 to the Chief Marketing Officer for furnishing a comprehensive statement in respect of each of the Market Committees in a tabular form. The High Court has, thus, given an opportunity to the Market Committees to fill up the lacuna since the materials supplied thereafter by way of Ex. R-1 to R-111 and similar statements perused by the High Court were not available either on the date of the amendment of the bye-law enhancing the rate of the market fee from one per cent to two per cent or even on the dates on which the Writ Petitions were filed in the High Court.

[215 D-E]

4. S. 65(1) of the Act as substituted by the Amendment Act 24 of 1975 and Act 17 of 1980, and s. 42 of Amendment Act 17 of 1980 in so far as it seeks to save what has been done under s. 65 (1) of the Act are unconstitutional and have been rightly struck down by the High Court; the quid pro quo for the levy under substituted s. 65 (1) on sellers was the construction, repair, improve- 158 ment and maintenance of rural roads which is no longer permissible to be done out of moneys collected as market fees There is thus no quid pro quo to any extent for the levy under the substituted s. 65 (1) of the Act and therefore, it fails, and it is not protected even by s. 42 of the Amendment Act 17 of 1980 and has been rightly struck down by the High Court. S 42 of the Amendment Act 17 of 1980 in so far as it seeks to save the levy and collection of market fee on sellers under the substituted s. 65 (1) cannot also stand. [226 H; 227 A-B

5. There shall be no refund of the market fees collected under the substituted s. 65 (1) or excess fee collected under s. 65 (2) either by the State Government or by any of the Market Committees. [227 H] The market fee collected from sellers under the substituted s. 65 (1) must have been credited to the Karnataka Roads and Bridges Fund and used for the purpose of construction, repair, improvement and maintenance of rural roads which are undoubtedly for the benefit of the general public. The excess fee collected under s. 65 (2) of the Act also must have been utilised for the purposes contemplated by the Act. The persons from whom they have been collected, sellers and buyers, would naturally have passed on the levy to those who purchased the agricultural produce from them and the levy must have ultimately been borne by the consumers of the produce. Any refund would go to unjust enrichment of the persons from whom they have been collected. In these circumstances no order for refund of the market fee collected under the substituted s. 65 (1) and the excess market fee collected under s. 65 (2) of the Act could be made in these cases. [227 F-H] M/s. Amarnath Om Prakash & Ors. v. State of Punjab [1975] 3 SCR 475 followed.

Southern Pharmaceuticals and Chemicals v. State of Kerala & Ors. etc. [1982] 1 SCR 519, Mahant Sri Jagannath v. State of Orissa, [1954] SCR 1046, Rathilal Param Chand Gandhi v. State of Bombay, [1954] SCR 1055, Sreenivasa General Traders & Ors. v. State of Andhra Pradesh, [1983] 3 SCR 843 and Municipal Corporation of Delhi v. Mohd. Yasin, [1983] 3 SCR 229, referred to.

& CIVIL APPELLATE JURISDICTION :Civil Appeal Nos. 605- 2526, 3528-3632, 4356-5278, 6977-7173, 7514-8199, 8921-9939, of 1983 and Special Leave Petitions Nos. 3419-20 and 7087- 7111 of 1983 and Writ Petition No. 6859 of 1982.

From the Judgment and Order dated 25.1.1982 of the Karnataka High Court in Civil Writ Petition No. 12133 of 1979.

Soli J. Sorabjee, Dr. Y.S. Chitale, V.M. Tarkunde, S.N. Kacker, S.N. Haksar, Mrs. A.K. Verma, Aditya Narain, D.N.

Misra, E.R. Inder Kumar, Mukul Mudgal, Mrs. S. Ramachandran, P.H. Parekh, Mrs. Manju Sharma, Ms. Divya K. Bhalla, S.S.

Javali, B.P. Singh, and Ranjit Kumar for the appearing Appellants.

159 P.R. Mridul, S.T. Desai, H.B. Datar, R.P. Bhatt, K.L. Sharma, A.K. Sen, B.G. Sridharan, Devendra Singh, Mrs. Bina Tamta, R.B. Datar, Swaraj Kaushal, V.C. Brahmraijappa, K.N. Madhysoodhnan, E.C. Vidyasagar, M. Veerappa, Ashok Kumar, B.G. Shreedharan and R.B. Datar for the Respondents.

The following Judgments were delivered FAZAL ALI, J. I have carefully gone through the judgment of my learned Brother, Mukharji, J., on the question of fee levied by the Karnataka State on the agricultural produce brought to the market for sale in that State. The theory of nexus between the fee levied and the services rendered cannot be reduced to a ritualistic formula so as to close it in a straitjacket nor can it be weighed in golden scales All that is necessary is that there should be a direct nexus between realisation of fees and the services rendered. What would be the nature of the services, when and how it should be rendered and in what measure is entirely a matter for the market committees to decide or determine. So long as the money is realised, even though on the higher side, but is spent on the extention and expansion of the markets, market yards, market facilities, godowns, rest houses, buildings, even roads leading up to the markets, that would be fully within the concept of a fee and could not be labelled as a tax on the purchasers at the action of goods or articles in the market. It is, however, difficult to lay down any hard and fast rule for determining the extent and contours of the services that should be rendered by the Government while imposing a fee. All that the law requires is that the amount of fee realised from the purchasers should be spent for the purposes of the market.

For instance, if the fee is on the higher side but the excess amount is reserved for the present or future expansion of the market, the provision for making further facilities, the building up of roads upto the point of markets so as to benefit the purchasers and make there task easier to collect all their goods at one place or to build rest houses for their stay while transacting their business in which case any reasonable fee levied by the market committees would be justifiable. It may be that sometimes there may be a huge rush of arrivals of goods and the purchasers/sellers may have to wait for a day or two or even a week to buy or sell the goods in such cases it will be sufficient if the fee realised, even if it is in excess, is reserved exclusively for the purpose of expansion and development of the markets or market buildings or roads leading up to the markets.

160 I am not persuaded to accept the argument that the facts of the present case are fully covered by the decision of this Court in Kewal Krishan Puri & Anr. v. State of Punjab & Ors.(1) That case must be read in the light of the peculiar facts before the Court. I do not consider this to be an authority for all times to levy a fee of Rs. 2 or Re. 1 per 100 in all cases irrespective of the merits of the case. The problem of marketing in a developing country like ours has assumed very large proportions and the market fees are required to provide excellent facilities for extension, expansion and development of markets. In doing so, the Government can construct roads by converting rural roads into tarred ones in order to provide all possible convenience to the purchasers and boost up the sales. What Kewal Krishan Puri's case decided was that in the facts of that case there was no clear nexus between the fee and the services rendered. In Southern Pharmaceuticals & Chemicals, Trichur & Ors. etc. v. State of Kerala & Ors. etc.,(2) A.P. Sen, J. speaking for the Court observed thus :

"the Constitution did not contemplate it to be an essential element of a fee that it should be credited to a separate fund and not the consolidated fund. It is also increasingly realised that the element of quid pro quo stricto senso is not always a sine qua non of a fee.

... ... ...

Our attention has been drawn to the observations in Kewal Krishan Puri & Anr. v. State of Punjab & Ors. 1 (1979 (3) SCR 1217 at 1230) :

The element of quid pro quo must be established between the payer of the fee and the authority charging it. It may not be exact equivalent of the fee by a mathematical precision, yet, by and large, or predominantly, the authority collecting the fee must show that the service which they are rendering in lieu of fee is for some special benefit of the payer of the fee.

To our mind, these observations are not intended and meant as laying down a rule of universal application." 161 The one cardinal principle which flows from Kewal Krishan Puri's case (supra) is that any fee or money realised should not be diverted to any other purpose except for the benefit of the purchaser/seller. In the instant case, though the fee appears to be on the higher side but there is unimpeachable evidence to show that the entire amount realised has not been spent on some other object or purpose but has been kept in reserve for developing the markets during the course of the coming 10-12 years. Though this period is large but it cannot be said that there is no nexus between the fee realised. Whether the development takes place immediately or in the course of a few years, so long as it is done with in a reasonable period, it cannot be said that the fee amounts to a tax and is, therefore, ultra vires.

In Sreenivasa General Traders & Ors. v. State of Andhra Pradesh,(1) this Court observed as follows:

"With greatest respect, the decision in Kewal Krishan Puri's case does not lay down any legal principle of general applicability.

... ... ...

The traditional view that there must be actual quid pro quo for a fee has undergone a sea change in the subsequent decisions.. In determining whether a levy is a fee, the true test must be whether its primary and essential purpose is to render specific services to a specified area or class, it may be of no consequence that the State may ultimately and indirectly be benefited by it... However, correlationship between the levy and the services rendered (sic or) expected is one of general character and not of mathematical exactitude." I might observe here that the levying of market fee on the sale and purchase of agricultural products in the markets is not a static event but is an ever changing concept. It has to be modulated and adapted to the requirements and necessities of the society, the expanding needs of the nation and the every increasing trends sf the rise in prices. In other words, this is a dynamic concept which (1) [1983] 3 S.C.R. 353.

162 keeps on changing. For instance, it cannot be said that what is good for the 70 crores people of today will also hold good when the population jumps to 75 crores or even more in the course of another 5-10 years. Thus, it is impossible to lay down a hard and fast rule which wôõld apply for all times to come. Therefore, the decision in Kewal Krishan Puri's case cannot be held to be law for all times to come irrespective of the period nor was this decision meant to lay down any such principle. I, therefore, with due respect, agree with the observations made and the detailed survey done by Brother Mukharji, J. This disposes of the first limb of the question of levy of fee so far as the agricultural produce in Karnataka State is concerned.

Civil Appeal No. 629 of 1983 This now brings me to the second important question, viz., whether the Karnataka Government was entitled to levy fee on the goods or the various products and sub-products of tobacco. The question is not free from doubt. Since the inception of this Court, which was the precursor of the Federal Court, it has been laid down that the various entries found in the three Lists of the Seventh Schedule of the Constitution of India are demarcated fields of legislation and their contours and limits have been expressely described in the entries mentioned in the said three Lists. each State is free and independent to legislate on the field which is covered by the State List (List II) or the Concurrent List (List III). So far as List I is concerned that is reserved purely for Parliament for any legistation to be made. So far so good. The most knotty and difficult problem arises when we find that there is some sort of an inconsistency or convict or collision between the two Lists (List I and II) whether the State List or the Union List should prevail. the instant case we are really concerned with the question of tobacco industry. Entry 52 of List I (Union List) which lays down and fixes the subjects of legislation to be made by Parliament may be extracted thus:

"52. Industries, the control of which by the Union is declared by Parliament by law to be expedient in the public interest." Two problems, however, may arise. The word 'Industries' is very wide and has been used in the other two Lists also.

Where a par