Judgment sc-s-1985-1-145-281

I.T.C. LTD. ETC. A v.

STATE OF KARNATAKA & ORS.

May 3, 1985 B [S. MURTAZA FAZAL ALI, A. VARADARAJAN AND S-\BYASACHI MuKHARJJ, JJ.}

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 c 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 D 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 E 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 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

146 SUPREME COURT REPORTS (1985) SUPPL. S.C.R.

and collected from buyers of specified agricultural produce under sub-section A (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 B 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 c 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 D 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 res- pondent 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 retros- pective effect. E 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) H 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

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 A 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 B 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. c 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, D 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 G

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 H 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),

148 SUPREME COURT REPORTS (1984] SUPPL, S.C,R.

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

(l)(ii) The cardinal principles justifying the competency of the respective legislatures with respect to the entries concerned are : (a) Entries in each of c 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 com- petence 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 entrench- D ment 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 interpreta- tion as to whether or not a particular legislature is competent to legislate on a E 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

F 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

G 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 &: H General Mills Co. Ltd. v. Union of India & Ors. (1983]4 SCC 167; Subrah- manyan 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.

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 Con- current 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 F 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) G Per Mukharjl, I. (dissenting) ;

1Copy pinpoint1. 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 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 cons- truction. 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 8 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. c 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 D 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]

2Copy pinpoint2. (ii) The principles of repugnancy in Indian Constitution are well- settled. These are as follows :- E (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 exclusi- vely within the competence of the Parliament. [276 B]

(b) A legislation falling exclusively, in its pith and substance, within any F 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 G (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 H 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

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 A 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 B 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

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

3Copy pinpoint3. 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 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 destru- ctive 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

4Copy pinpoint4. (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, inciden- tally, 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] H

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

152 SUPREME COURT REPORTS (1985] SUPPL, S.C,R.

of their respective true nature and character. While giving due weight to A 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 8 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 c 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. D

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 E 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

F 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 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. B 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 there- fore not vitiated on that account. The question whether on a proper construc- 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 func- D 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 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 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 conseque- nces 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 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-pro- H 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~

154 SUPREMB OOURT REPORTS [198S] SUPPL. S.C.R.

and these benefits cannot be divorced from the benefits accruing incidentatly A 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 t6) the primary object and fhe essential purpose of the imposition must be looked into. [256 B-E; 260 F-H]

B 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; c 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 expendi- ture 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)

F 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 G 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 H 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. A

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 B 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 Corpora- c tion 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 0 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 com- modities 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]

5Copy pinpoint5. (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

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]

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 exacti- tude, but an amount of fee must be earmarked for rendering services to the 8 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 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 D 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) E 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, 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 F 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]

G 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 H 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 A 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 B 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. ln 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 ~arket Committees to amend the bye-laws c for raising the market fee the direction cannot be taken as previous approval of something which was not in existence at that time. Therefore, the amend- ment 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] D

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 E 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 Krisha11 Puri's case is bad in law The same \\ould be the position even if the amendment to the bye-Jaw 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) F

3. The High Court has erred in giving the direction dated 30.11.1931 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 amt:ndment 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) or 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 (11 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 consruction, repair, improve-

]58 SUPREME COURT REPORTS (1985] SUPPL. S.C.R.

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 (I) 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 An:endment 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]

8 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. f227 H]

The market fee collected from sellers under the substituted s. 65 {I) must have been credited to the Karnataka Roads and Bridges Fund and used for the c purpose of construction, repair, improvement and maintenace 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 pur- poses contemplated by the Act. The persons from whom they have been collec- ted. sellers and buyers, would naturally have pussed on the levy to those who purchased the agricultural produce from them and the levy must have ultima- tely been borne by the consumers of the produce. Any refund would go to D 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 t2) of the Act could be made in these cases. [227 F-HJ

M!s. Amarnath Om Prakash & Ors. v. State of Punjab [1975] 3 SCR 475 followed. E Southern Pharmaceuticals and Chemicals v. Stau of Kerala & Ors. etc. [1982]1 ~CR 519, Malian/ Sri Jagannatlz v. State of Orissa, [1954] SCR 1046, Rathilal Pa•am Chand Gandhi v. Slate of Bombay, [l '154] SCR 1055, Sreenivasa General Traders & Ors. v. State (If Andhra Pradesh, (19S3j 3 SCR 843 and Municipal Corporation of Delhi v. Mohd. Yasin, [1983] 3 SCR 229, referred to. F CtVIL 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. G From the Judgment and Order dated 25.1.1982 of the Karnataka High Court in Civil Writ Petttion No. 12133 of 1979.

Soli J. Sorabjee, Dr. Y.S. Chitale, V.M. Tarkunde, S.N. Kacker, H S.N. Haksar, Mrs. A.K. Verma, Aditya Narain, D.N. Misra, E.R. lnder Kumar, Mukul Mudgal, Mrs. S. Ramathandran, P.H. Parekh, Mrs. Manju Sharma, Ms. Divya K. Bhal/a, S.S. Javali, B.P. Singh, and Ranjit Kumar for the appearing Appellants.

J.T.C. r. KARNATAKA (Fazal Ali, J.) 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 A

R.B. Datar for the Respondents.

The following Judgments were delivered B

FAZAL Au, J. I have carefully gone through the judgment of my learned Brother, Mukharji, J., on the que5tion of fee leived 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, go downs, 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 fa~t rule for deter- mining the extent and contours of the services that shoud 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 furure expansion of the market, the provision for making further facilities, the building up of roads upto the point of markets so as to benifit the purchasers and make there task easier to collect aU 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 some- times 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 SUPMME COURT REPORTS (1985J SUPPL, S.C.R.

I am not persuaded to accept the agrument 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.(l) 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. 8 The problem of marketing in a developing country like ours bas assu- med 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 c 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 Pharmacecutfca/s & Chemicals, Trichur & Ors. etc. v. State of Kerala & Ors. etc.,(•) A.P. Sen, J. speaking for the Court observed thus: D "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. E Our attention has been drwan to the observations in Kewal Krishan Puri & Anr. v. State of Punjab & Drs. 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 f~e by a mathe· matical 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 henefit of the payer of the fee.

To our mind, these observations are not intended and meant as laying down a rule of universal application.''

(l) [1979)3 S.C.R. 1217. (2) [1982) 1 S.C.R. 519.

•T.c. P. KARNATAl!!A (Fazaf Ali, J.) 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 8 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 withing a reason- able period, it cannot be said that the fee amounts to a tax and is, therefore, ultra vires. c In Sreenivasa General Traders & Ors. v. State of Andhra Pradesh,(!) this Court observed as follows :

"With greatest respect, the decision in Kewal Krishan D 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 of the rise in prices. In other words, this is a dynamic concept which H

(1) [1983] 3 S,C,R. 353.

162 SUPREME COURT REPORTS [1985] SUPPL. S.C.R.

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 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. 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. c 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 D 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 tbe 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 (Ust II) or the Concurrent List (List III). So far as List lis concerned that is reserved purely for Parliament for any legislation 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 conflict or collision between the two lists (List I and 11)-whether the State List or the Union List should prevail. In 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 bt extracted thus:

''52. Industries, the control elf which by the Union is declared by Parliament by law to be expedient in the _, public interest." H Two problems, however, may arise. The word 'Industries• is very wide and baa been used in the other two list~> also. Where a particular industry falls clearly within the four corners of entry

I.T.C. v. KARNATAKA (Faza[ Ali, J.) 163

No. 52 then the State has no jurisdiction to legislate on that parti· .... cular fleld if that field is occupied and the doctrine of occupied field A would apply. Difficulty arises in borderline cases where an industry has been declared by the Centre under entry 52 of List I and this entry overlaps, to a great extent, the corresponding entry in List JI. The question arises as to whether the Central List would prevail or the State List. B In the instant case what has happened is that although the tobacco industry has been notified as having been taken over under entry 52 of List I yet the Karnataka State started levying fee on the tobacco or its products. In order to appreciate whether or not the field was fully occupied and there could not be encroachment on c this fee by the Karnataka State a brief history of the Central legis] aM tion may be given.

As already mentioned, entry 52 of List I authorises the Central legislature (Parliament) to take over any industry it Jikes, tobacco being no exception. It is also not disputed that by virtue of the D Tobacco Board Act, 1975, (for short, referred as "1975 Act'). The Parliament chose to occupy the entire field tobacco industry which includes all kinds of tobacco and its by-products and not merely Virginia tobacco. It may be necessary to extract a few relevant portions from the Act : - E "2. It is hereby declared that it is expendcnt in the public interest that the Union should take under its control the tobacco industry.

3.(a) "Board" means the Tobacco Board established under section 4; F

(d) "'dealer" means a dealer in tobacco;

- (f) "export" and "import" mean, respectively. taking out of, or bringing into, India, by land, sea or air; G

4. (3) The head office of the Board shall be at Guntur in the State of Andhra Pradesh and the Board .H may, with the previous approval of the Central Govern- ment, establish offices or agencies at other places in or outside India.

164 Stll'.REMB COURT REPORTS (1985) !UPPL. S.C.t,

7. (1) The Board may app~in~ such comi?ittees ..as A y be necessary for the efficient discharge of 1ts duties . :~ performance of its functions under this Act.

.. 8. (1) It shall be the duty of the Board to promote, by sucb measures as it thinks fit, the development under the control of the Central. Government of the tobacco n industry.

(2) Without prejudice to the generality of the provisions of sub-section (I}, the measures refemd to therein may provide for- c (a) regulating the production and curing of virginia tobacco having regard to the demand therefore in India and abroad;

(c) maintenance and improvement of el!isti.ng markets, · D and development of new markets outside India for Indian virginia tobacco and it! products and devising of market• ing strategy In consonance with demand for the commodity outside India, including ~;roup marketing under limited brand names: E (cc) establishment by the Board of auction platforms, with the previous approval of the Central Government, for the sale of virginia tobacco by registered grower or curers, and functioning of the Board as an auctioner at auction plnnteforms established by or registered with it aubject to such conditions as may be specilited by tho Central Government;

(g) purchasing virginia iobarco from · gr~wers when the sn~e is considered necco.sary or expedient · for protecrro~ the ln!erests of the growers and disposnl of the same: In lndro or abroad as and when considered appropnate; ' If · (i)·nsponsoring. a5sisling• coord'matrog · or encouraginJ ICJcnta ~· technological and economic r~senrch for the promotion of tobacco industry;

(i) fUcb oth~r matters as may be prescribed, '""'\ ~-----

l.t.c. ~. KARNATAI:A (Faza/ Aii, J.)

14 A (1). Where Virginia tobacco is sold at any auction platform established by the Board under this Act, A it shall be competent for the Board or for any officer of the Board authorised by it in this behalf to levy fees, for the services rendered by the Board in relation to such sale, at such rate not exceeding two per cent of the value of such tobacco as the Central Government may from B time to time by notification in the Official Gazette, specify.

(2) The fees levied under sub-section (1) shall be collected by the Board or such officer, equaUy from the seller of the virginia tobacco and the purchaser of such c tobacco, in such manner as may be prescribed.

20. (1) The Central Government may, by order published in the Official Gazette, make provision for prohibiting, restricting or otherwise control1ing the import or export of tobacco products, either generally or in specified classes of cases,

(2) All tobacco and tobacco products to which any order under sub-section ( 1) applies, shall be deemed to be goods of which the import or export has been prohibited under section 11 of the Customs Act, 1962 and all the provisions of that Act shall have effect accordingly."

By virtue of Notification No. 374(3) dated 31.5.80 the Central F Government made applicable ss. 10 and II of the 1975 Act to the States of Maharashtra, West Bengal, Gujarat, Tamil Nadu & Uttar Pradesh. It may, however, be mentioned that 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. G It is also admitted that 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 a!l. Though some Markets are situated in Karnataka State but H that, to my kind, makes no difference because the Central legislation applies to the whole country. This appears to be the constitutional scheme of the three Lists which separately demarcate their fileds and

166 SUPREME COURT REPORTS [198S] SUPPL. s.c.i.

it is now well settled that one cannot encroach on the other. For A instance, take the case of Railways which is mentioned in List I and is fully covered by the entry in that List. Though the railways may pass through various States it can neither be contended nor imagined that each State would be competent to legislate by passing regula• tions or Acts for the working of the railways with respect to areas B through which they pass. This is exactly the case here. When the Parliament took over the tobacco industry without any preconditions or permutations and combinations and established a Tobacco Board for regulating the sale and purchase of tobacco under entry 52 of List I the entire field of tobacco industry was fully occupied and nothing remained for the States to do, and thus neither the doctrine c of entrenchment nor that of pith and substance would have any application. ·

The crucial point for determination in this cases is whether the Karnataka State had any jurisdiction to encroach upon the limits of entry 52 of List I and the court wilt have to closely examine the encroachment or entren<'hment and the extent of the same. Where the court is of the opinion that the encroachment or entrenchment amounts to defeating the very object sought to be subserved by the Central legislation then the Central legislation must prevail. Where it is a borderline case and covered almost fully by List II but in the course of the implemention of the same there is an entrenchment or encroachment which is only minimal, the question of the doctrine of pith and substance will come into play and the State will be justified in legislating over the subject concerned.

In the instant case we are concerned only with List I (Union F List) and List II (State List) of Seventh Schedule. The matter in dispute falls within the four corners of entry 52 of List I and entries 28 and 66 of List II. It is not disputed as discussed above that by virture of the 1975 Act the central legislation had taken within its ambit the entire tobacco industry. The matter docs not rest here alone. It appears that the central legislation made a provision for G sale and distribution of tobacco products through the Tobacco Board and sellers were directed to be registered with the Board. Clause (cc) of sub-s. (2) of s. 8 of the 1975 Act enjoins establishment of auction platforms with the approval of the Central Government H for sale of tobacco products. Section 12 of the 1975 Act deals with registration of Exporters, packers, auctioneers and dealers of tobacco and may be reproduced thus :

t.T.c. p, ~ARNATAI:A (Fazal All, J.) 167

''12. No person shall export tobacco or any tobacco products or function as a packer, auctioneer of, or dealer A in, tobacco unless he registers himself with the Board in accordance with the rules made under this Act."

Section 13 states that virginia tobacco shall be sold only at a.n auction platform registered with the Board and runs thus : 8 "13. No registered grower or curer shall sell or cause to be sold virginia tobacco elsewhere than at an auction platform registered with the Board in accordance with ru1es made under this Act, or established by the Board under this Act." c By a Jetter 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 step3 taken by the central legislation the field D of tobacco stood completely occupied and there was no room for application of the doctrine of pith and substance nor would the question of the incidental entrenchment arise in such cases.

I shall now discuss the law on the subject which has been well settled by a long course of decision of the Federal Court, the Privy E Council, House of Lords and this Court. Before doing that it may be necessary to extract the relevant provisions of Arts. 245 and 246 of the Constitution/which may be extracted thus :

"245. Extent of laws made by Parliament and by the Legislatures of State F

' (1) Subject to the provisions of this Constitution Parhament may make laws for the whole or any part of . the territory of India, and the Legislature of a State may make laws for the whole or any part of the State. G

(2) No law made by Parliament shall be deemed to be invalid on the ground that it would have extra- territorial operation. H

246. Subject-matter of laws made by Parliament and by the Legislatures of States

16i SUPRiMi COURT RiPORTS (1985j SUPPL. S.c.it , (1) Notwithstanding anything in clauses ( 2) and (3), A Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in Seventh Schedule (in this Constitution referred to as the "Union List).

B (3) Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters ' enumerated in List II in the Seventh Schedule (in this c Constitution referred to as the "State List").

(4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included (in a State) notwithstanding that such matter is a matter enumerated in the State List." D A close and careful analysis of these two Articles 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 E List. This in fine is the logical result and the necessary concomitant of cl. (4) of Art. 246.

It is also not disputed that under s. 2 of the 1975 Act the entire tobacco industry was taken over by the Central Government. Having thus narrated the admitted facts I would now proceed to the merits of the appeals. To begin with, I might indicate the cardinal principles justifying the competency of the respective legislatures with respect to the entries concerned:-

( l) 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. This is a well settled principle of law and was reiterated in a recent decision of this Court in S.P. Mittal v. Union of India Ors.(1) where this Court observed thus:-

(1) [1983) 1 S.C.R. 51.

i.T.c. }', KARNATAKA (Fazal Ali. J.)

"It may be pointed out at the very outset that the function of the Lists is not to confer powers. They merely demarcate the legislative fields. The entries in the three Lists are only legislative heads or fields or legislation and the power to legislate is given to appropriate legislature by Articles 245 and 248 (sic 246) of the Constitution." B (2) 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, the doctrine of pith and substance has been summarised in the case of Delhi Cloth & General Mills Co. Ltd. v. Union of India & Ors.(l) where Desai, J. c speaking for the Court made the following observations :

"To resolve the controversy if it becomes necessary to ascertain to which entry in the three Lists, the legislalation is referable, the Court has evolved the doctrine of pith and substance. If in pith and substance, the legislation falls within one entry or the other but some portion of the subject-matter of the legislation incidentally trenches upon and might enter a field under another List, then it must be held to be valid in its entirety, even though it might incidentally trench on matters which are beyond its competence."

(3) The consideration of encroachment or entrenchment of one List in another and the extent thereof is also well established. If the entrenchment is minimal and does not affect the dominant part of some other entry, which is not within the competence of the State F Legislature, the Act may be upheld as constitutionally .valid.

(4) The nature and character of the scope of the entries having regard to the touch stone of the provisions of Arts. 245 and

246. G (5) The doctrine of occupied field has a great place in th; interpretation as to whether or not a particular legislature is compe- tent to legislate on a particular entry. This means that when the field is completely occupied by List I, as in this case, then the State H

(1) {1983]4 s.c.c. 167.

i70 SUPREME COURt IU!PORTS (198S] SUPPL. S.C.l.

legislature is wholly incompetent to legislate and no entrenchment or A encroachment, minimal or otherwise, by a State legislature is permitted. In other words, where the field is not wholly occupied, than a mere minimal encroachment would not affect the validity of the State legislation.

B Thus, in my opinion, 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 legis- lation 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 c egislation 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 D nate legislative from adding or passing any such legislation wbicq has been taken over under Act. 246(3).

Now to the authorities. As far back as 1941, the Federal Court, while interpreting the ideal provisions of the Government of India SAct of 1935 in Subrahmanyan Chettiar v. Muttuswami Goundan(1 E observed thus.

"In [1921] 2 A.C. 91, Lord Haldane after stating 'the rule of exception' applicable to the heads of ss. 91 and

92. added: F Neither the Parliament of Canada nor the Provincial Legislature have authority under the Act to nullify, by implication any more then expressly, statutes which they could not enact.

G While the Federal Legislature is given power. it is expressly provided that "a Provincial Legislature has not power to make laws with respect to any of the matters enumerated in List I.. .... On a very strict interpretation of H s. 100, it would necessarily follow that from all matters in

(1) A.I.R. 1941 F.C. 47.

i:t.c. v. KARNATAKA (Fazai Ali,/.) 171

List II which are exclusively assigned to Provincial . legislatures, all portions, which fall in List I or A list III must be excluded. Similarly, from all matters falling in List Ill, all portions which fall in List I must be excluded. The section would then mean that the Federal Legislature has full and exclusive power to legislate with respect to matters in List I, and has also power to legis· B - late with respect to matters in List lfi. A Provincial Legislature has exclusive power to legislate with respect to List II, minus matters falling in List I, or List III; has concurrent power to legislate with respect to matters in List III, minus matters faUing in List I. In its fullest scope, s. 100 would then mean that if it happens that there is c any subject in List II which also falls in List I or List III, it must be taken as cut out from List II ..... .If a subject falls exclusively in List II and no other list, then the power of the Provincial Legislatures is supreme. But it does also fall with in List I, then it must be deemed as if it is not included in List II at all. SinJilarly, if it also D falls in List IH, it must be deemed to have been excluded from List n ... But the rigour of the literal interpretation is relaxed by the use of the words "with respect to" which as already pointed out only signify "path and substance," and do not forbid a mere incidental encroachment. But, E even if such an incidental encroachment may be ordinarily permissible, the field may not be clear. There may be competency and yet repugnancy also. The question is how to prevent a clash if the trespass is on a field already occupied by a Central Legislation.'' F In the above case their Lordships relied on the leading case reported in [1921] 2 A. C. 91. To the same effect is a decision of this Court in Zaverbhai A.maidas v. State Bank of Bombay(!) where the following observations were made: G "The principle embodied in section 107 (2) and article 254 (2) is that when there is legislation covering the same ground both by the Central and by the Province both of them being competent to enact the same, the law of the Centre should prevail over that of the State.'' H

(1) {J9SS] I S.C.R. 799.

112 ti98S] SUPPl.. s.e.i.

In Deep Chand v. State of U.P. & Ors. (1) same principles A of repugnancy have been reiterated and the three principles laid down by Nicholas were fully approved by Subba Rao, J. thus :

"Nicholas in his Australian Constitution, 2nd Edition. page 303, refers to three tests of inconsistency or repug.; B nancy:-

"( 1) There may be inconsistency in the actual terms of the competing statutes; - (2) Though there may be no direct conflict, a State law c may be inoperative because the Commonwealth law, or the award of the Commonwealth Court, is intended to be complete exhaustive code; and

(3) Even in the absence of intention, a conflict may arise when both State and Commonwealth seek to exercise their powers over the same subject matter."

Repugnancy between two statutes may thus be ascertained on the bases of the following three principles:

(1) Whether there is direct conflict between the two provisions;

(2) Whether Parliament intended to lay down an exhaustive code in respect of the subject matter replacing the Act of the State Legislature; and

(3) Whether the law made by Parliament and the law made by the State Legislature occupy the same field." G In The Calcutta Gas Company (Proprietary) Ltd. v. State of West Bengal & Ors.(Z) the same view seems to have been taken where the following observations were made : H (1) [1959} Supp. 2 S.C.R. 8. (2) {1962) Supp. 3 S.C.R. 1.

J.T.c. v. ~ARNATAEA (Fazal Ali, J.) 173 "It may, therefore, be taken as a well settled rule of construction that every attempt should be made to har- A monize the apparently confl.icting entries not only of dfferent Lists but also of the same List and to reject that construction which will rob one of the entries of its entire content and make it nugatory." (Emphasis ours)

- Thus, indeed if I accept the agrument of the Karnataka · Government, which seems to have found favour with Brother Mukharji, J. I would really be robbing the 1975 Act of its entire B

content and essential import by handing over the power of legislation to the State Government which per se has been taken over by Parliament under Art. 246 by the 1975, Act. c The case of State of Orissa v. M.A. Tulloch & Co.(1) appears to be a direct authority on the question at issue, viz., if the Central Act and the State Act collide the inevitable consequence would have to be that the Central Act will prevail over the State Act and the latter will have to yield. In this connection, this Court observed thus : D

"Repugnancy arises when two enanctments both withi11 the competence of the two Legislatures collide and when the Constitution expressly or by necusary implication provides that the enanctment of one LegiJlature has E superiority over the other then to the e~tent of th~ repugnancy the one supersed~s the other......... The best of two legislation containing contradictory provisions is not, however, the only criterion of repugnancy, for if a competent legislature with a superior efficacy expressly or impliedly evinces by its legislation an intention to cover the whole fiJed, the ena ctments of the other legislaturt whether passed before or after would be overborne on the • ground of repugnance." (Emphasis supplied) To the same effect is another decision of this Court in Sudhir G Chandra Nawn v. Wealth Tax Officer, Calcutta & Ors.(2 ) where Shah.

1. observed thus : "Exclusive power to legislate conferred upon ParJiaw mentis exercisable, notwithstanding anything contained H (1) f1964) 4 S.C.R. 461. (2) (1969) 1 S.C.R. 108.

174 SUPREME COURP REPORT [1985] SUPPL. S.C.R.

in cis. (2) & (3), that is made more emphatic by providing in cl. (3) that the Legislature of any State has exclusive , power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule, but subject to cis. (I) and (2). Exclusive power of the State Legislature has therefore to be exercised subject to cl. (1) i. e., the exclusive power which the Parliament has in respect of the matters enumerated in List I. Assuming that there is a conflict between entry 86 List I and entry 49 List IT, which is not - capable of reconciliation, the power of Parliament to legislate in respect of a matter which is exclusirely c entrusted to it must supersede pro tanto the exercise of power of the State LegMatere." (Emphasis supplied)

Practically the same view has been taken in Baijnath Kedia v. State of Bihar & Ors.(l) where the following observations were D made:-

"It is open to Parliament to declare that it is expedient in the public interest that the control should rest in Central Government. To what extent such a E declaration can go is for Parliament to determine and this must be commensurate with public intere~t. Once this declaration is made and the extent laid down, the subject of legislation to the extent laid down becomes an exclusil'e subject for legislation by Parliament. Any legis- lation by the State after such declaration and trenching F upon the field disclosed in the declaration must necessarily be unconstitutional because that filed is abstracted from the legislative competence of the State Legislature. This proposition is also self-evident that no attempt was rightly made to contradict it." G (Emphasis supplied)

Thus, it would appear that in view of the recent decisions, once the Centre takes over an industry under entry No. 52 of List I and passes an Act to regulate the legislation, the State legislature H ceases to have any jurisdiction to legislate in that field and if it does

(1) [19:0)2 S.C,R. 100,

I.T.C. V. KARNAT~K.A (Fazal Ali, J.) 175

so, that legislation would be ultra vires of the powers of the State legislature. A I might mention here a reference made by Brother Mukhaiji J. to the fact that the Karnataka State Legislature passed an Act of 1980 by which the Tobacco Industry was taken within its ambit but, the assent of the President was not taken as required by Article B 254 (2). This takes us no where because in the first place as the assent of the President was not taken, the Karnstaka Act of 1980 was who]]y incompetent. Moreover 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 Article 254(2) applies only to matters contained in the Concurrent List and c 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 was fully occupied by the Central Act of 1975 as referred to above. This circumstance, therefore, is of no consequence. D On a careful consideration, therefore, of the facts and circums- tances of this case I express my respectful dissent with the view taken by Brother Mukbarji, J., on this point and hold that so far as the case of the I.T.C. (C. A. No. 629 of 1983) is coacerned, the Govern- , ment of Karnataka bad no jurisdiction to levy any market' fee because that directly collides with the 1975 Act as indicated above.

This being the position, J, therefore, strike down that part of the Karnataka Act which takes in itself the power to leYy 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 tha State, the power to levy fees will not belong to that State : it wil remain with Centre which would regulate the sale and purchase o[ tobacco. It may be reiterated at the risk of repetition than an application for registration with the Tobacco Board was made by the~ Karnataka Government which was, however, rejected by the Boardf. G This indirectly shows that the Government of Karnataka was aware that it could not encroach on the field which was fully occupied by the Centre by virtue of the 1975 Act.

H Before closing the judgment I would like to give a rough and ready example to illustrate my constitutional point of view in a fi$ur~tjve sense. Suppose there are two fields belonging to A and B.

176 SUPREME COURT REPORTS (1985) SUPPL. S.C.R.

The area of A's field is 500x200 metres. There is another adjacent field belonging to comprising 400x100 metres. A's possession covers every nook and corner of the entire field leaving nothing vacant. It is manifest that B cannot encroach or entrench on the field of A. Conversely, if is in possession of the entire field leav- ing, however, a small portion (30x20) metres vacant, would be justified in encroaching on that particular part of the vacant field. 8 This is how we have to construe the provisions of the Central and State entries in List I and List II in accordance with the provisions of Arts. 245 and 246 of the Constitution.

Having regard to these circurostauces I allow the appeal of the c I.T.C. (C.A. No. 629 of 1983) and quesh the order of the Market Committees of Karnataka levying fee on tobacco and its products. To this extent, tkerefore, I dissent from the view taken by Brother Mukharji, J. for whom I have the greatest respect. There will. however, be no order as to costs and any fee realised will not be refunded and it will be for the Centre and the State to adjust and D work out the equities of adjustment.

VARADARAJAN, J. The Mysore Agricultural Produce Marketing (Regulation) Act. 1966 came into force on 1-5-1968. Now known as the Karnataka Agricultural Produce Marketing (Regulation) Act, E 1966 it will be hereinafter referred to as 'the Act'. S. f 5(1) of the Act as it originally stood directed Maket Committees in the State to levy and collect market fee from buyers in respect of specified agricultural produce at rate which may not be more than thirty paise per one hundred rupees of the price of the agricultural produce in such manner and at such times as may be specified. Clause (2) of S. 65 F stated that for the purpose ·of clause ( 1) all notified agricultural produce leaving a yard shall, unless the contrary is proved be presumed to have been brought within such yard by the persons in possession of such produce. Pursuant to S. 65 (1) the market fee appears to have been fixed by all the market committees in G the State of Karnataka at thirty paise per one hundred rupees of the price paid to the buyers.

S. 2 of the Kamataka Agricultural Produce Marketing (Regulation) Amendment Act. 20 of 1973 which came into force on H 23-10-1973 amended S. 65 of the Act by substituting the words "thirty paise... in sub-section (1) of S. 65 of the Act by the words "one rupee... That Amendment Act was passed in replacement of

[,T.C. V. KARN,\TAKA (Varadarajan, J.) 177

the Karnataka Ordinance 5 of 1973 which was repealed by S. 4 of that Act with the necessary saving clause by way of the proviso. The market Committees accordingly raised the market fee to the maximum limit of one per cent of the sale price by amendment of the bye- laws. The enhancement of the market fee from thirty paise to one rupee per one hundred rupees of the price paid to buyers was upheld by the High Court in the decision rendered on 17.12.1974 in W. P. B No. 537 of 1974 (Vaman Rao v. Agricultural Produce MarKet Committee, Sagar), Subsequently, the Act was further amended by the Karnataka Agricultural Produce Marketing (Regulation) Amendment Act 24 of 1975 which came into force on 19.5.1975. S.2 of that Amendment Act substituted S.65 of the Act by a new section, which read: c "65. Levy of market fees-

(1) The market committee shall levy and collect market fees from every setier in respect of agricultural produce sold by such seller in the market at the rate of one rupee per hundred rupees of the price of such produce sold;

(2) The Market Committee shall levy and coiJect market fees from every buyer in respect of agricultral produce bought by such buyer in the market area as may be specified in the bye-laws (which shall not be more than

- one rupee' per one hundred rupees of such produce bought) in such manner and at such times as may be specified in the bye-laws; F (3) Every Market Committee shalt notwithstanding anything contained in this Act, credit to the Karnataka Roads and Bridges Fund. constituted under the Karnataka Motor Vehicles Taxation Act, 1957. the market fees collected under sub-section (1) for being spent for the G the purpose of construction, repairs improvement and maintenance of rural roads in the State."

This amendment provided for the levy and collection of market B fees by market committees on and from the selJer of specified agri- cultural produce sold in the market area at one rupee per one hundred rupees of the price of such produce sold and for crediting

178 SUPREME COURT REPORTS [1985) SUPPL, S.C.R.

the market fees so collected to the Roads and Bridges Fund consti- A tuted under the Karnataka Motor Vehicles Taxation Act 1957 for being spent for the construction, repair, improvement a~d mainte· nance of rural roads in the State.

The levy of market fees on sellers of specified agricultural produce by the amendment of S. 65 of the Act and the appropriation B of the market fee collected under that sub-section from sellers to the credit of the Roads and Bridges Fund under sub-section (3) was chaJlenged in Rajasekhatiah's case(1) In that case the High Court struck down the amended s. 65( 1) and (3) of the Act and upheld the levy on buyers under S.65 (2) of the Act in the judgment delivered c on 28.9.1978 following the decision dated 17.12.1974 rendred in Vaman Rao's case (supra) so for as the lavy on buyers is concerned.

On 30.6.1968 Karnataka Ordinance 2 of 1979 was promulgated making some amendments to ss. 63 and 65 of the Act. S. 63 which deals with the powers and duties of D market Committees was amended with retrospective effect from 19.5.1975 so as to substitute in clause (ii) of sub-section (1) of s.63 the words "transport and marketing" for the word, marketing" In Sub-section (2)(a) of s.63 with reference to the duties, of the Marketing Committees, after item (1) the amendment stated: E "provide either independently or along with some other authority necessary facilities for the transport of notified agricultural produce to the yard in such manner as may be prescribed."

F S. 65 was ammended (i) validating market fees levied and collected under sub-section (1) of S. 65 for the period from 19.5.1975 to 28.9.1~78; (ii) omitting the amended sub-section (1) of S. 65 with effect from 28.9.1978; (iii) enhancing the maximum permissible limit of market fee levied and collected from buyers of specified agricul· tural produce under sub-section (2) of S. 65 from one per cent to two G -' per cent, and (iv) omitting sub-section (3) of S. 65 as if it never existed in the Statute.

The Karnataka Agriculture Produce Marketing (Regulation) H Amendment Act 17 of 1980 which came into force on 9.5.1980 seems I

(1) I.L.R. (1978)l(arvatalca 1939.

J.T.C. V. KARNATAKA (Varadarajan, J.) 179

.. to have been passed in replacement of Ordinance 16 of 1979 which in turn was promulgated in replacement of Ordinance 2 of 1979. S . 42 of that Amendment Act validating the levy and collection of market fee during the period from 19.5.1975 to 28.9.1978 which was struck down in Rajasekhariah's case (supra) reads:

''42. Validation of levy of market fee etc.-(1) Not- withstanding anything contained in any decree, order or judgment of any court, or other authority any levy or collection of market fee made or purported to have been made, any action taken or thing done in relation to such levy or collection under the provisions of the' principal Act before the commencement of this section shall be deemed to be as valid and effective as if such levy or collection or action or thing had been made, taken or done under the prindpal Act as amended by this Act and accordingly-

(a) all acts, proceedings or things done or action taken by any market committee in connection with the levy and collection of such market fee shall, for all purposes be deemed to be or to have always been made, done or taken in accordance with law;

(b) no suit or other proceedings shall be maintained or continued in any court or before any authority for the refund to any such market fee; and

(c) no court shall enforce any decree or order directing the refund of any such fee. F (2) (a) The Karnataka Agricultural Produce Marketing (Regulation) (Second Amendment) Ordinance, 1979 (Karnataka Ordinance No. 16 of 1979) is hereby repealed.

(o) Notwithstanding such repeal, any action taken or G any appointment, notification, order, scheme, rule, form or bye-law made or issued from deemed to have been taken, made or issued under the Karnataka Agricultural Produce Marketing (Regulation)( Amendment) Ordinance, 1979 shall be deemed to have been taken, made or issued under this Act as if this Act were in force at all relevant times and any reference therein to the said Ordinance

180 SUPREME COURT REPORTS {1985) SUPPL. S.C.R.

shall be deemed to be a reference to this Act and they A shall continue in force accordingly unless and until superseded by any action taken or any appointment, ... notification, order, scheme, rule, form or bye-law made or issued under this Act or any other law."

B Section 20 of the Amendment Act 17 of 1980 amended S.65 of the Act thus:

"In S.65 of Principal Act, (1) for sub-section (1) the following sub-section shall be deemed to have been substituted with effect from 19th day of May 1975 c namely:-

(1) In respect of agricultural produce sold in the market area there shall be levied and collected by the Market Committee thereof, from every seller market fees D at the rate of one per cent of the sale proceed& of the produce so sold;

(2) Sub-section (l) as so substituted shall be and shall deemed to have been omitted with effect from the 29th day of September, 1978; E (3) In Sub-section (2) for the words ''one rupee" the words "two rupees" shall be substituted;

(4) Sub-section (3) shall and shall be deemed always to have been omitted .• , F Thus the levy of market fee subject to a maximum of one per cent of the sale price of specified agricultural produce on sellers for the period from 19.5.1975 bas been done away with effect from 28.9.1978 and sub-section (3) of s. 65 which provided for crediting the G market fee levied and collected from sellers of specified agricultural produce to the Roads and Bridges Fund has been omitted as if it never existed in S. 65 of the Act by the Amendment Act 17 of 1980. H Pursuant to the amendment made to sub-section (2) of S. 65 of the Act enhancing the maximum limt of the market fees leviable on buyers under the section from one l'er cent to two per cent, all the

i.T.c. l', KARNATAKA ('Varadarojan, J.) t8i Market Committees in the State of Karnataka except the Mangalore Market Committee amended the bye-laws for enhancing the levy A under s. 65 (2) of the Act from one per cent to two per cent.

The 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 the market fee from sellers during the period 8 from 19.5.1975 to 28.9.1978. After the hearing of the writ petitions commenced in the High Court in October-November, 1981, Ordi· nance of 198 t was promulgated 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. After the High Court delivered the judgment in the Writ Peti· c tions on 25.1.1982 upholding the enhancement of the market fee on buyers from one per cent to two percent the market fee leviable under S. 65 (2) on buyers has been reduced by all the Market Committees by the Circular No. SMD-268/PGN-83 dated 27.2.1982 to one per cent pursuant to the declaration of the policy of the Government. D

The principal challenge before the High Court was as to : (i) the constitutional validity of S. 65 (1) of the Act as substituted by the Amendment Act 17 of 1980 which sought to validate the levy and collection of market fees from sellers of specified agricultural produce during the period of its operation between 19.5.1975 when S. 65(1) was introduced in the place of the old S. 65 by sub-section (2) of the Amendment Act 24 of 1975 and when it was struck down by the High Court in Rajasekhariah's case (supra); (ii) enhancement of the market fee from one per cent to two per cent of the price of the specified agricultural produce by amendment of the bye-law pursuant to the raising of the maximum limit from one per cent to two per cent by the Amendment Act 17 of 1980 on two grounds, namely, want of sufficient quid pro quo and violation of the require- ment of prior publication and subsequent sanction of the amendment to the bye-law by the Chief Marketing Officer contemplated inS. 148 of the Act, and (iii) inclusion of certain items of agricultural produce such as cardamom and tobacco in the schedule to the Act. The levy and collection of market fees from sellers during the period from 19.5.1975 to 28.9.1978 was sought to be validated by the aforesaid amendment because by reason of the judgment of the High Court in Rajasekhariah's case (supra) the State was exposed to the liablity to refund the market fees collected during that period. The High Court found that S. 65 (1) as substituted by the Amendment Act 17

182 SUPREME COURT REPORTS (1985] SUPPt. S.C.it

of 1980 and evenS. 42 'of that Amendment Act was not consti- A tutionally valid and are liable to be struck down. The reason is that before S. 65 (3) was struck down the levy and collection of market fees under S. 65 (1 ), as it stood then, were for the benefit of the Karnataka Roads and Bridges Fund constituted under the Karnataka Motor Vehicles Taxation Act. 1957 and that the event which had B happened, namely crediting of the market fees to that Fund cannot be reversed by the subsequent amendment of S. 65 (1) and the intro- duction of S. 42 in the Amendment Act 17 of 1980. The High Court rejected the submission of the learned Advocate General that several crores of rupees collected under S. 65 (1) from sellers had actually been spent for the construction, improvement, repair and maintenance c of rural roads, culverts and bridges and therefore, the Government was obliged to have recourse to the amendment and also to introduce S. 42 in the Amendment Act 17 of 1980 as not acceptable, and relying on the decision of this Court in Kewal Krishan Puri's casee) the High Court held that 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 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, im· proved, repaired and maintained with the market fees collected did not become the property of the market committees or shed their character as public roads. This appears to be the main reason for the High Court striking down S. 65 (1) as substituted by S. 20 of the Amendment Act 17 of 1980 and also the validating S. 42 of that Amendment Act.

As regards S. 65 (2) relating to market fees on buyers the High F Court rejected the contention that the sub-section confers uncanalised and excessive power on market committees in the matter of fixing the rate of market fees and held that there are adequate statutory guidelines and safeguards.

G On the question of the validity of the bye-law for enhancing the market fees from one per cent to two per cent the High Court found that after the maximum permissible limit of the market fee was raised under S. 65 (1) by the Amendment Act 17 of 1980 from one per cent to two per cent from 19.1.1980 the Chief Marketing H Officer issued instructions to the market committees for amending

(1) [1973)3 S.C.R. 1217.

I,T.C. l', KARNATAKA (Varadarajan, J.) 183

the bye-laws in order to raise the market fee from one per cent to two per cent and he subsequently sanctioned the enhancement after A the bye-laws were accordingly amended by the market committees.

The )earned counsel for the petitioners invited the attention of the High Court to the following passage occuring at page 952 of Volume 24 of Halsbury's Laws of England, Third Edition : B "The bye-law to be valid must be reasonable. Unless it is manifestly unjust, . capricious, or partial in the operation or involves oppressive, gratuitous inferences with the rights of those subject to it the question of its reasonableness is one to be decided by the authority making it!'

It was contended before the High Court that the very process by which the amendment to the bye-law for enhancing the market fee from one per cent to two per cent was made is without any application of the mind of the market committees to the relevant criteria and it should, therefore, be struck down on that ground. It was contended that the amendment of S. 65 (2) providing for enhancement of the maximum permissible limit of the market fee from one per cent to two per cent became effiective from 30.6.1979 and that the Market Committees lost no time in mechanically raising the market fee from one per cent to two per cent without any application of the mind to the question whether such enhancement was justified having regard to the financial resources available and

- the funds required to meet the outlay on the services proposed to be provided in the near furture and without preparing any budget estimates and balance sheet and considering them before deciding upon the quantum of enhancement and without giving an oppor- tunity of being heard about the the matter to the affected interests. On the other hand, for the Market Committees it was contended that the right to be heard was a creature of S. 148 (1) of the Act and not in recognition of or corollary to any obligation which could be said to be inherent in or implied from S. 65 (2) and that what was given by the Statute was taken away by the Stature and the Court not go against it.

It was also contended for the writ petitioners before the High H· Court that inS. 148 as it originally stood then it was provided that subject to the provisions of the Act and the Rules made under S. 146 and with the previous sanction of the Chief Marketing Officer a

is4 SUPREMS COURT REPORT [1985j SUPPL. S.C.ft

Market Committee may, after previous publication in the prescribed A manner, make bye-laws for the regulation of the business and the conditions of trading in the market area and that every bye-law made under that section shall be published in the prescribed manner. The question of increase in the rate of the market fee would perhaps fall under item XXXIII of S. 148 (2) which reads as : B "Any other matter in respect of which by-laws are required to be made or may be made under the Act."