Mere Entry Of Produce From Outside State For Processing Without Sale In Market Area Cannot Attract Development Cess: Uttarakhand High Court
The Uttarakhand High Court has held that mere bringing of agricultural produce from outside the State into a market area for manufacture or further processing, without any sale or purchase within the market area, cannot attract development cess. The Court held that the first proviso to Section 27(c)(v) of the Uttarakhand Agricultural Produce Marketing (Development and Regulation) Act, 2011 is beyond the legislative competence of the State Legislature to the extent it authorises such levy.
A division bench of Chief Justice Manoj Kumar Gupta and Justice Subhash Upadhyay was hearing a batch of writ petitions challenging the constitutional validity of the first proviso to Section 27(c)(v) of the Act and consequential notices demanding development cess. The petitioners brought notified agricultural produce from outside the State for manufacturing or processing products, and contended that the produce was not brought for sale or any commercial transaction within the market area.
The impugned notices proceeded on the basis that when specified agricultural produce was brought into the market area from outside Uttarakhand for processing or manufacturing, after payment of market fee and/or development cess in the originating State, such arrival constituted “Other Secondary Arrival” under the first proviso to Section 27(c)(v), attracting development cess.
The petitioners relied upon the Supreme Court's decision in Gujarat Ambuja Exports Ltd. v. State of Uttarakhand, where Section 27(c)(iii) was struck down insofar as it imposed market fee and development cess on agricultural produce brought from outside the State for manufacturing without any sale or purchase within the market area.
The Court noted that the Supreme Court in Gujarat Ambuja had held that the State Legislature lacked competence to levy market fee and development cess on agricultural produce brought into the market area not for sale, but for manufacturing or further processing.
The Court held that the fact that the Supreme Court had expressly struck down Section 27(c)(iii) but had not expressly struck down Section 27(c)(v) or its first proviso could not be treated as an affirmative pronouncement upholding the latter provision.
“The appeals before the Supreme Court arises from the challenge to Section 27(c)(iii) and Section 27(c)(iv) and, the Supreme Court adjudicated upon those provisions. The absence of an express declaration regarding Section 27(c)(v), therefore, cannot be treated as an affirmative pronouncement upholding its validity,” the Court remarked.
The Court observed that the principle declared by the Supreme Court while examining legislative competence had to be considered while testing another provision imposing a levy upon substantially the same event.
The Court noted that Entry 28 of List II deals with markets and fairs, while Entry 66 of List II enables the State Legislature to levy fees in respect of matters contained in List II. It held that Entry 66 of List II does not constitute an independent substantive field of legislation and that a fee levied under it must have a nexus with a matter otherwise falling within the legislative competence of the State.
Elucidating upon the contours of Entry 28 read with Entry 66, the Court observed:
“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.”
Hence, the Court held that Entry 28 does not confer power upon the State Legislature to impose development cess on agricultural produce brought into a market area not for sale but only for manufacture or further processing.
The Court further rejected the submission that the levy could be sustained because only development cess, and not market fee, was being imposed. It held that the true nature and incidence of the levy is important, and not merely its name.
The Court also rejected the argument that development cess could be justified because manufacturing units used roads, bridges and other infrastructure maintained by market committees, clarifying:
“The purpose for which the proceeds of a levy are utilized is distinct from the source of legislative power to impose the levy. The utilization of the amount collected for development of market infrastructure cannot by itself confer legislative competence if the event upon which the levy is imposed does not otherwise fall within the legislative field of the State.”
Accordingly, the Court held that the first proviso to Section 27(c)(v), insofar as it authorised development cess merely on agricultural produce brought from outside the State into a market area for manufacture or further processing without any sale or purchase within the market area, was beyond the legislative competence of the State Legislature.
The impugned notices and consequential demands were accordingly quashed.
Case Title: Ashirwad Agro Industries & Anr. v. State of Uttarakhand & Ors. [Writ Petition (M/B) No. 244 of 2025 & connected matters]