# I.T.C. LTD. ETC v. STATE OF KARNATAKA & ORS

- **Citation:** [1985] Supp. 1 S.C.R. 145
- **Court:** Supreme Court of India
- **Decided:** 1985-05-03
- **Bench:** S. Murtaza Fazal Ali, A. Varadarajan, S-\BYASACHI MuKHARJJ
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/i-t-c-ltd-etc-v-state-of-karnataka-ors-9057
- **Pages:** 137

## Headnote

145
Constitution of India, Seventh Schedule. Entry 52 of List 1, and Entries 22
and 66 of List 11-''lndustties"-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 prodr1cts-Whether the
proPisions of the State Act repugnant to the Central Act on this point.
Karnataka Agricultural Produce Marketing (Regu/lltion) (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 had in law-Fee collected- Whether it should be
refunded- Whether the Slate legislature competant to validate levy declartd by
Court as bad in law.
On 19th May, 1915, the State Government amended s. 65 of the
Karnataka Agricultural Produce Marketing (ReKu1ation) 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. SubSection (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 Kamataka Motor
Vehicles Taxation Act, !957, the market fee collected under sub-section (I) for
being spent for the purpose of construction, repair, improvement and main·
tenance of rural roads in the State. On 2 th 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 Raja1ekhariah's case (lLR (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) enh<\nce<1 the maximum vermissible limit of market fee levied and
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SUPREME COURT REPORTS
(1985) SUPPL. S.C.R.
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 sob-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 Amend·
ment 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 Markt:t 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 c

## Text

_Characters 0–39,753 of 323,986. This is a partial read: ask again with offset=39753 for what follows._

I.T.C. LTD. ETC.
v.
STATE OF KARNATAKA & ORS.
May 3, 1985
[S. MURTAZA FAZAL ALI, A. VARADARAJAN AND
S-\BYASACHI MuKHARJJ, JJ.}
145
Constitution of India, Seventh Schedule. Entry 52 of List 1, and Entries 22
and 66 of List 11-''lndustties"-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 prodr1cts-Whether the
proPisions of the State Act repugnant to the Central Act on this point.
Karnataka Agricultural Produce Marketing (Regu/lltion) (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 had in law-Fee collected- Whether it should be
refunded- Whether the Slate legislature competant to validate levy declartd by
Court as bad in law.
On 19th May, 1915, the State Government amended s. 65 of the
Karnataka Agricultural Produce Marketing (ReKu1ation) 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. SubSection (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 Kamataka Motor
Vehicles Taxation Act, !957, the market fee collected under sub-section (I) for
being spent for the purpose of construction, repair, improvement and main·
tenance of rural roads in the State. On 2 th 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 Raja1ekhariah's case (lLR (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) enh<\nce<1 the maximum vermissible limit of market fee levied and
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SUPREME COURT REPORTS
(1985) SUPPL. S.C.R.
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 sob-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 Amend·
ment 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 Markt:t 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 statemeBt 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 happend,
nemely, crediting of the market fe.: 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 commitlees 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 sa~ with any confi~ence that the enhance~en1 Qf fee was
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I.T.C. V. KARNATAKA
147
totally ju~tified; (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 peti.
tionersftraders contended that the enhancement of the market fee from one per
cent to tv.:o per cent of the price of the specified agricultural produce is invalid
on two grounds: (I) that the item of expenses envisaged for the rural roads
has gone with the striking down of s.65( I) 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 teduction 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 •n· 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 Purl'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 dow!} 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 rn11rk<tt fee collected under S.65(l),
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SUPREME COURT REPORTS
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Dismissing all the civil appeals, special leave petitions and the writ peti·
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tions except C.A. No. 629 of 1983.
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(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 Parlia·
ment 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 concommitant of clause (4) of Art. 246. [168 E)
(l)(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 b¢ 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
\lpheld 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 bas 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 St'!te 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-HJ
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 t~e other by a State legis·
lature, collide and there is no question of hannonising them, then the Central
legislation must prevail. There may also be cases wher¢ 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-DJ
S.P. Mittal v. Union of India & Ors. l1985J 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;
ZaYerbhai
Amaidqs v. Sta(e of Bombay ll955l1 SCR 799; Deep Ch411d v. State ofU.P.
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t.T.C. _,, KAkNATAKA
149
& Ors. [1959] Supp. 2 SCR 8; The Calcutta Gas Company (Proprietary) Ltd. v.
State of West Btngal & Ors. [1962] Supp. 3 SCR l; State of Orissa v. M.A.
A
Tulloch & Co. [1964]4 SCR 461; Sudhir Chandra Nawn v. Wealth Tax Officer,
Calcutta & On [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
D
be ultr~ vires of the powers of the State legislature. [174 H)
(3)(i) In the instant case, by virtue of r\otification 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
C
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 manifiest,
O
therefore, that by virtue of the aforesaid steps taken by the central legislation
the field of tobacco stood completely occupied ar:d 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-DJ
(3)(ii) Even if the President's assent would have been taken it would
E
not validate the Karnataka Act of 1980 so far as the Tobacco Industry is
concerned because Art. 2S4(2} applies only to matters contained in the Concurrent List and has nothing to do with matters enumerated in List I or List
11. 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 tobacco
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 Mukharjl, I. (dissenting) ;
F
G
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
H
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-
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SUPREME COURT REPORTS
[19851 SUPPL. S.C.R.
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)
NaPinchandra Mafatlal v. C l.T. Bombay, [1955] 1 SCR 829 at page
836-37, Baijnath v. Bihar Stale [1970) 2 S.C.R. 100 at 113, Kannan Devan Hills
Co. v. Kera!a, [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 matt<!rs falling in List I and has also con·
current 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 wellsettled. 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 I ist I would be valid even though it might contain incidental provisions in
List II which may contain ancilliary provisions which might touch on any
entry of List I incidentally; (276 Cj
(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-FJ
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t:t.C. V. KARNATAKA
iSl
(f) The concept of repugnancy arises only with regard to laws dealing
with subjects covered by the entries falling in List Ilf, 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 Ill 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 subjt>ct. 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 AJ
A
B
Subr;~manyam v. Mu11Juswamy, [1940]45 C.W.N. (PC) l=AIR 1941 PC
C
47 at 58, Sudhir Cha11dv. Wealth Tax Officer, Calcutta, [1969] 1 SCR 108 at 113
Ch. Tika Ramji & Others Etc. v. State of Ullar Pra/esh & Others, (1956j SCR
393, State of Orissa v. M.A. Tulloch & Co. (1964]4 SCR 461 at 477, Mjs.
Rochst Pharmaceuticals Ltd. & Others Etc. v. State of Bihar and Others etc
Ramesh Chandra Etc. v. State of UP. Etc., [1983] 4 SCC 45 and The Calcutt~
Gas Company (Proprietary) Ltd. v. The State of West Bengal and Others, f!Y62]
3 Supp. SCR 1 referred to.
lJ
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
th~:: legislation in question in pith and substance i.e. in its true nature and
E
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-CJ
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 1 and entry 33 of List
III. The State Act is not on a subject in List Ill-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. l277 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 botn the Acts are considered in the light
F
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SUPREME COURT REPORTS
(1985] SUPPL, S.C,R.
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
inciustry would not be defeated if the marketing of co tree 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, Fazaf Ali and Mukflarji, 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 conept.
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 k~ps 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
Ke~·al 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 BJ
(ii) The one cardinal principle which flows from Kewal Krishan Purl'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 te 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 lebelled 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
H
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 bet·
ween the services rendered and the fee realised. Whether the development
-
I.T.C. '· KARNATAICA
153
akes 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·CJ
Kewa/ Krishan Puri & Anr. v. State of Punjab & Ors. [1979) 3 SCR 1217,
South~rn Pharmaceuticals & Chemicals, Trichur & Ors. etc. v. State of Kerala
& Ors. elf". [1982} 1 SCR 519 and Sreenivasa General Traders & On v. Stare 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 construcA
B
tion of section 65(2) there was any obligation on the part of the marketing
C
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-Jaws were
invalid for want of previous publication or for want of consulting the interests
affected, l am also in respectful agreement for the reasons discussed by the
High Court which neeJ not be reiterated again. The principle of audl alteram
partem has application only to judicial, quasi-judicial and administrative funcD
tions and not to any legislative functions. [270 A·D}
The Tulsipur 5ugar Co. Ltd. v. The Notified Area Committee, Tulsipur,
[1980]2SCR 1111 at pages lll8to 1121,AvinderSinghetc. 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
E
to the payers of the fees, to be a fee it is not necessary that a!! the services
must be to the payers of the fees nor can the correlation between pa> ment 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
F
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
G
common sence point of view, taking an integrated view. The proper principles
are: (l) that there should be relationship between service and fee, (2) that
the relationship is reasonable cannot be established with mathetical exactitude
in the se"lse 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-proH
quo should be judged in the context of the present days-concept of markets
which are expected to render various services and provide various ameniti~
A
B
c
D
E
F
G
H
154
SUPREMB OOURT REPORTS
[198S] SUPPL. S.C.R.
and these benefits cannot be divorced from the benefits accruing incidentatly
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 t 6) the primary object and fhe 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. 10~8. H. H. Shrl
Swa'lliji of Shri Ad111ar Mutt, etc. v. the Commissl,mer, Hindu Religious &
Charitable Endowments Dcparlment & Ors. (1980] 1 SCR 368; Ramesh Chandra
etc v. State of UP. etc. [ 1980] 3 SCR 104; Municipal Corpcration of Delhi and
Others v. Mohd. Ya5in, [19831 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 Andi;ra Pradesh and Others,
[1983]4 SCC 353; Amar Nath Om Parkash & Ors. etc. v. State of Punjab & Ors·
Civil Appeal Nos. 450:> and 4501 of 1984 (decided on 19.ll.1984), relied
upon.
In the instant clSC, having regard to the detailed analysis of the expenditure of the nrious maket 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 BJ
2. (ii) Construction of rural roads giving facilities for going to the
market is a special service primarily and directly iDJended for the be-nefit 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
reckened as a special service to the class of persons paying the f~e, had not
been cured or removed by the Jaw 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.
fherefore 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 & Drs. etc. State of Punjab & Ors., Civil Appeal
No. 4500 and 4501 of 1984 (decided on 19.11.1984), followed.
l.T.c. V, KARNATAKA
155
Municipal Corporation of De/hi and Others v. Mohd, Yasin, [1983] 3 SCC
229, relied upon.
3. The validity of a validating law has to be judged mainly by 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 Ill 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}
Misrila' Jain etc. ere. v. State of Orissa and Another., AIR 1977 SC 1686=
[1977] ~ SCR 714: Shri Prithvi Cotton Mills Ltd. & Anr. v. Broach Borough
Municipality & Ors., AIR 1970 SC 192=[1970] 1 ~CR 383; Municipal Corporation of City of Ahmedabad, etc. v. New Shorock Spg
& Wvg. Co. Ltd. etc.,
AIR 1970 SC 1292=[1971]1 SCR 283; /.N. Sakeena v. The State of Madhya
Pradesh, AlR 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 comtr.odities as traders
they have recmered 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(l)(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 statuory
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. {iil Courts of tC'day 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-BJ
A
B
c
0
E
F
G
In the instant case, the High Court having found, that basically and
H
· 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]
8
c
D
E
F
G
H
156
SUPREME COURT REPORTS
( 1985) SUPPL, S.C.R.
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 te 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 f«:es 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-CJ
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 eff~ct a down-ward revision wherever necessary. [220 A-BJ
Kewal Krishan Purl 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 Jaw
for non-compliance with the law laid down in KewaJ Krishan Puri's case.
If the market fee is sought to be raised, proper budgets, estimates, balancesheets 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 ot 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 io s. 148(1) of the
Act as it stood at the relevant time. Previous approval can only be of some
I.T.C. 1'. KARNATA'KA
157
proposal or resolution of the Market Committees for duing one or the other
of the thinp 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 gi;en 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.