Holding

The Karnataka Act’s provisions allowing a market fee on tobacco and the validation of the sellers’ fee under Section 42 are unconstitutional, the enhancement of the fee from 1% to 2% is invalid for lack of quid‑pro‑quo and procedural compliance, and no refund of the fees is permitted.

Summary

The case concerned the Karnataka Agricultural Produce Marketing (Regulation) Act, 1966 and its amendments, which imposed a market fee on sellers and buyers of agricultural produce and later enhanced the fee from 1% to 2%. The petitioners challenged (i) the constitutional validity of Section 65(1) as amended and its validation under Section 42, (ii) the enhancement of the fee under Section 65(2) for lack of quid‑pro‑quo and procedural violations of Section 148, and (iii) the inclusion of tobacco (and cardamom) in the Act as repugnant to the central Tobacco Board Act, 1975. The Karnataka High Court struck down the provisions relating to sellers and the validation clause, held the fee enhancement invalid, and directed the Chief Marketing Officer to prescribe norms. The Supreme Court upheld most of the High Court’s findings, striking down the Karnataka provisions that allowed a market fee on tobacco and the validation of the sellers’ fee, confirming that no refund is payable, but allowed Civil Appeal No. 629 of 1983, setting aside the High Court’s judgment in that specific matter.

Issues considered

The constitutionality of Section 65(1) of the Karnataka Agricultural Produce Marketing Act as amended and its validation under Section 42 of the Amendment Act 1980.
The validity of the enhancement of the market fee from 1% to 2% under Section 65(2) in view of the requirement of quid‑pro‑quo and compliance with the procedural safeguards of Section 148 (prior publication and hearing).
Whether the Karnataka Act’s provisions on marketing of tobacco (and cardamom) are repugnant to the central Tobacco Board Act, 1975 (Entry 52 of List I).
Whether any refund of market fees collected from sellers or buyers is permissible under the validation provision.
The legality of Karnataka Ordinance No. 22 of 1981 that omitted the prior‑publication requirement of Section 148.
The competence of the High Court to issue directions to the Chief Marketing Officer regarding norms for market‑fee utilisation.

Legislation cited

Cardamom Act, 1965
Karnataka Agricultural Produce Marketing (Regulation) Act, 1966s. 148, s. 150, s. 65
Karnataka Agricultural Produce Marketing (Regulation) Amendment Act, 1973
Karnataka Agricultural Produce Marketing (Regulation) Amendment Act, 1975s. 65
Karnataka Agricultural Produce Marketing (Regulation) Amendment Act, 1980s. 20, s. 42
Karnataka Motor Vehicles Taxation Act, 1957
Karnataka Ordinance No. 22 of 1981s. 3, s. 5
Tobacco Board Act, 1975s. 12, s. 13, s. 14A, s. 2, s. 31, s. 8

Subjects

market feequid pro quorepugnancyTobacco Board Actconstitutional validityArticle 245Article 246Article 254Entry 52 List IEntry 28 List IIprocedural fairnessprior publicationvalidation of legislationagricultural produce marketingfee vs tax

Judgment

145

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 F
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 G
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 H
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,
F 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
G 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 E
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, F
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.

(Per majority; Fazal Ali and Vardarajan, JJ.-Sabyasachi Mukharji, J.
dissenting)
-
HELD : 1 (i) A close and careful analysis of Articles 245 and 246 shows
that the Constitution strikes a just balance between the powers of the Parlia·
B ment and the State Legislatures but reserves to itself the right to legislate in
exceptional cases even in matters appearing in the State List. This is the
logical result and the necessary concommitant of clause (4) of Art. 246. [168 E)

(l)(ii) The cardinal principles justifying the competency of the respective
legislatures with respect to the entries concerned are : (a) Entries in each of
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) ;

1. The provisions of the Karnataka Marketing Act and Tobacco Board
Act and the Rules are not inconsistent. The cardinal rule of interpretation
is that the words should be read in their ordinary natural and grammatical
meaning. But words in a constitutional document conferring legislative powers H
should also be construed most liberally and in their widest amplitude. On the
construction of the Central Act read with the rules it is clear that the Central
Act and the declaration made by section 2 of the Act cover all kinds of tobac-
150 SUPREME COURT REPORTS [19851 SUPPL. S.C.R.

cos. Whether a particular legislation or enactment is within the competence of
A 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]

2. (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

3. While it is true that in the spheres very carefully delineated, the
Parliament has supremacy over State Legislatures, supremacy in the sense that
in those fields Parliamentary legislation would hold the field and not the State
legislation-but to denude the State Legislature of its power to legislate where
th~:: legislation in question in pith and substance i.e. in its true nature and E
character, belongs to the State field, one should be chary to denude the State
of its power to legislate and mobilise resources because that would be 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

4. (i) In the instant case the Karnataka Marketing Act deals with the
subject of market in entry 28 read with entry 66 of List II. Such Acts are F
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 G
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
G on the purchasers at the auction of goods or articles in the market.
[161 H; 159 E}

In the instant case, though the fee appears to be on the higher side but
there is unimpeachable evidence to show that the entire amount realised has
not been spent on some other object or purpose but has been kept in reserve
H for developing the markets during the course of the coming 10-12 years,
Though this period is large but it cannot be said that there is no nexus bet·
ween the services rendered and the fee realised. Whether the development
I.T.C. '· KARNATAICA 153

akes place immediately or in the course of a few years, so long as it is done
within a reasonable period it cannot be said that the fee amounts to a tax and A
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 E
to the payers of the fees, to be a fee it is not necessary that a!! the services
must be to the payers of the fees nor can the correlation between pa> ment of
fee and services rendered be established with mathematical exactitude. It is
permissible in the modern set up to take into account projections into future
and not only the present services can be utilised for justifying the imposition
of fee, All planning, projects into the future for its existence and survival.
Any incidental benefit to those other than the payers of the fee is not decisive F
of the fact whether it is a 'tax' or a 'fee'. It is necessary to find out the
primary object and essential purpose of the imposition (emphasis supplied).
If the primary object and essential purpose of the imposition be service of
some special kind to the users of the market or payers of fee, other 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 G
common sence point of view, taking an integrated view. The proper principles
are: (l) that there should be relationship between service and fee, (2) that
the relationship is reasonable cannot be established with mathetical exactitude
in the se"lse that both sides must be equally balanced; (3) in the course of
rendering such services to the payers of the fee if some other benefits accrue
or arise to others quid-pro-quo is not destroyed. The concept of quid-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
D 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
E 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 E
instant case. [269 A-B; D]

5. (i) The High Court was competent to give directions and the same
were within the competence of the High Court while dealing with grievances
made under Article 226 of the Constitution to ensure that appropriate statuory
authorities acted according to law after properly ascertaining the facts and for F
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 G
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 G
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 H
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
A 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 C
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 D
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 E
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 F
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 G
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 H
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
A 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
F
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
G 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
H 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 A
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 E
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 F
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 G
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
A 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
B
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
E 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
F 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
G 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
F 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
G 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 D
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
E
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
D 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
E 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
F 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
G 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
H 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
A
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 D
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 E
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
D their powers over the same subject matter."

Repugnancy between two statutes may thus be
E 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
F 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
A 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
B
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 E
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 F
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
A field belonging to B 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 A is in possession of the entire field leav-
ing, however, a small portion (30x20) metres vacant, B 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 D
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 E
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
A
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
B
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 D
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 E
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
E
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 F
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 G
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 H
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
D
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
E 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 C
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 D
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 F
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
G
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."

It was submitted before the High Court that there was no compli-
c ance with the requirement of previous sanction add previous
publication in the prescribed manner in regard to the amendment
of the bye-law for enhancing the rate of market fee leviable under
s. 65 (2) from one per cent to two per cent. The High Court has
observed that there was no answer to that criticism in regard to the
D validity of the amendment to the bye-law for raising the market fee
from one per cent to two per cent and therefore the State Govern·
ment promulgated Ordinance 22 of 1981 when arguments before the
High Court were coming to a close amending S. 148 as also ss. 134
and 158 of the act. The amendment introduced by that Ordinance
omitted the words "after previous publication in the prescribed
E manner'' which occurred in S.l48 of the Act with retrospective
effect from the date of commencement of the Act. Sec. 3 of the
amending Ordinance 22 of 1981 validated the bye·law notwithstand·
ing the fact that the affected int~rests were not heard in any manner.
The High Court has observed that this amendment took
away the obligation of prior hearing of the affected interests
F on the ground that the persons affected have no right
to be heard before stautorty rules or bye-laws are made
unless the right is conferred by the Statute and that the
• right has been taken away by ss. 3 and 5 of the amending Ordinance
22 of 1981. The High Court found that in this case the Chief
G marketing Officer himself has issued directions to the market
Committees to amend the bye-laws for enhancing the market fee from
one per cent to two per cent and the bye-laws were accordingly
amended by the market committees and the Chief Marketing Officer
thereafter accorded sanction. The High Court has held that the
B Chief marketing Officer's direction can be regarded as his previous
sanction for amending the bye-laws.
t.'I'.C. v. ICARNATAKA (Varadarajan, J.) is~

However, the learned Judges themselves do not appear to have
been quite happy about what had happened,for they have observed A
in para 61 of their judgment thus:

"The question might, however, become a live issue if
the Market Committees were to amend the bye-laws made
under s. 65(2) of the Act in future without such an
B
opportunity of hearing effected interests."

Even the learned Advocate General appearing for the State and
the learned Counsel appearing for the market Committees stated
before the High Court, though according to them no obligation
of hearing the affected interests was implicit in s. 65(2). that it would c
be eminently desirable that the Market Committees adopt some
reasonable procedure in that behalf and that the amendment to
s. 148 made by the Ordinance was only intended to cure the defect in
making the impugned bye-laws and avoid great public inconvenience
which may result from the invalidation of the bye·Jaws and that
D
there was no intention to make the deletion a permanent feature.
They submitted that any reasonable procedure which may be
suggested by the High Court would be adopted in practice even if
there was no such legal compulsion. In view of that request by the
learned Advocate General and learned Counsel for the Market
Committee the High Court has observed in its judgment thus: E

"It appears to us that before a Market Committee
proposes to amend a bye-law to make an upward revision
of the rate of fee, in future, the Market Committees must,
first follow the dire.;tions of the Supreme Court at para F
55 in KEWAL KRISHAN PURl'S case (supra). It would
also be proper for the Market Committees to prepare a
statement containing the particulars of the development
works and services intended to be undertaken out of the
market fee receipts together with cost-projections thereof, .
also setting out the likely period of execution. The plans G
and estimates for all civil engineering works should be
prepared and sanctioned as prescribed in Rules 70 and 71
of the Rules framed under the Act. Then the Market
Committees should notify the proposals calling for
objections and suggestions from the affected interests H
with in a stipulated period, not being less then one month.
The mode of inviting objections and suggestions may bet
186 SUPREME COURT REPORTS (198S] SUPPL. s.c.t.

in addition to the publication on the Notice Board of the
A Market Committee's Office, by appropriate publication
in a daily news-paper, having circulation in the area.
Those who wish to file objections or offer suggestions
shall be entitled to inspection of the statements con-
taining the estimates, co~ts and other financial projections.
B The Market-Committees sha:tl take into consideration the
objections and suggestions so offered and here the
mterest.s affected before amendin~ the bye-laws revising
the fee. This appears to be the minimal requirement of
a hearing of the interests affected. The Market-Committees
shalJ, of course, be at liberty to adope a more comprehen-
c sive procedure. The C.M.O. should also look into the
objections and suggestions before according his sanction.
All that we need say at this stage is that following of
such a procedure would help the market committees to
render better and efficient service, and the bye-laws
framed after following such a procedure would be beyond
D reproach on procedural grounds, obviating needless and
avoidable litigation."

Point No .. 12 framed in para 7 of the judgment of the High
Court relates to the question of justification for enhancement of the
E market fee payable under s. 65(2) of the Act from one per cent to
two per cent and reads thus:

"Whether the enhancement of market fees leviable
uhder s. 65(2) of the Act from one per cent to two per
F cent brought about by amendment of the bye-laws of the
Market Committees in unsupportable in law and fails for
want of correlation with the value of services rendered
to the payers of the fees."

G The High Court has observed:

"In 1974 when the k:vy had come to be challenged
in Vaman Rao's case, (supra) the several market commi-
ttees had filed financial projections for a 15 year period
n from 1974-75 to show the estimated income and expendi·
ture. Just about that time all the market committees
had occasion to prepare and furnish similar financial
proposals to the Chief Marketing Officer in connection
i.T,C. v, KARNATAKA (Varadarajan, J.) 187

with certain proposals for development with the aid of a
loan from the World Bank. As learned counsel wanted A
the Court to examine these proposah also having regard
to the principles and guide lines laid down by the
Supreme Court in Kewal Krishan Puri's case (supra), we
directed by over order dated 30.11.1981, the Chief
Marketing Officer to furnish in respect of each r~spondent B
Market Committee, a comprehensive statement in a
tabular from, setting out the following amongst other
particulars:

1. The year of establishment of the Market-Committee.
c
2. Amount actually spent for capital or developmental
works from the beginning till 30.6.1974.

3. The particulars (in metric tonnes) of the total annual
arrivals of all notified agricultural commodities for
the three years 1978·79, 1979·80 and 1980-81. D
4. · Average daily arrivals (in metric tonnes) for the
years 1978·79, 1979-80 and 1980-81.

5. Total amount of market-fee collected for the years
1978·79. 1979-80 and 1980·81. E

6. Revenue expenditure incurred for the years 1978-79,
1979-80 and 1980·81.
7. Cash on hand or in banks or in the form of invest·
ment as on 1-7·1981. F
8. Items of developmental works originally envisaged
(for a period of 15 years during I Y74·75 to 1988·89)
to,2ether with item wise estimated cost thereof; revised
estimates, if any, item wise; progress in execution in G
terms of financial outlays of work, itemwise in
respect of each item up to 1.7.1981; balance remain-
ing to be executed (in terms of money) with break up
for the future years upto 1988-89 if the work to be
completed in ·instalments in future; any deletion of H
or alteration in the items of work envisaged in 1974·
75; and any other additional developmental works
proposed after 1974-75."
188 SUPREME cOuRT REPORT (J985j SUPPL. S.C.R.

In response to this order, the Chief Marketing Officer
A has filed the statements which are at Exhibits R-1 to
R-111, In addition, several of the respondent-Market
Committee have filed statements wich though not in the
same form also contain similar information."

The petitioners before the High Court made fourfold submi-
B ssions regarding those statements. they are:

(1) Exs. R-1 to R-111 are totally at variance with the corres-
ponding estimates furnished for the same period in 1974-75 and they
have been prepared only in order to supply an artificial quid pro quo
c for enhancement of the levy and are merely show-pieces on paper to
get over the present challenge;

(2) the vagaries and disparities in the proportion of the pro-
posed development of market yard to market yard are so glarding
that no authority in the position of the Chief Marketing Officer
D would reasonably approve such unco-ordinated and disproportionate
development of the regulated markets;

(3) many of the items of works envisaged in the development
such as constructions of shops, godowns and like are unrelated to
E the concept of special service to the buyers and cannot be reckoned
as qualifying for correlation. If these impermissible items are
deleted from the estimates, the Market Committees would not be in
a position to establish the requisite quid pro quo; and

(4) a substantial part of the proposed financial outlays relates
F to what are called rural markets the outlays on which could not be
reckoned as for rendering special service to the buyers.

After considering the above proposals and estimates and the
arguments advanced at length about them and after taking into
G consideration the proceedings of the National Seminar on Rural
Markets Development held in New Delhi during December 1979 in
which it is stated that in Karnataka the Panchayats manage the
rural markets as agents of the Market Committees and 75 per cent
of the revenues is given to the Panchayats for managing the markets
H and the remaining 25 per cent is taken by the Market Committees,
the High Court has held that the outlays on the establishment
of rural markets cannot be held to be impermissible for the purpose
of reckoning correlation.
I.T.c. v. KARNATAKA (Varadarajant J.) 189

The High Court has observed :
A
"Indeedt in the proposals for the development of the
Market-Committees, it is legitimate to expect a scientific
consistency and adherence to some broad norms of
development. Under the 'Act' the Chief Marketing
Officer is required to sanction the budgets of these Market
Committees. Any project for development must take
B
into account, and be reasonably related to, factors such
as the quantum of notified agricultural produce handled
annually at the markets; the increase thereof expected in
the reasonable near future; the market-fee and other
annual incomes; the potentialities for expansion and the c
like. Any proposals for growth and development are to
be scientific; they ought to be sensible. In quite a few
cases they prima facie appear to be neither. There ought
to be some broad-norms reconciling the actualities and
potentialities of the markets on the one hand and the
ambitions of development of the Market Committees and D
the financial outlays proposed thereon on the other. The
criticism that the proposals for development disclose no
uniformity or consistency with any norms cannot be said
to be without justification. In several cases markets with
decidedly lesser potentialiaties for expansion and handling [.
lesser quantum than other markets propose to spend
sums on development which are several times higher than
those proposed by those other markets.

It is no doubt true that uniform standards, though
desirable, may not be practical in all cases and the F
requirement of a market which handles, say ten thousand
tonnes of cotton every year might differ very widely from
those of a market which may handle the same tonnage of
;orne other notified produce which though in terms of
weight may be equivalent but in terms of volume be
G
very much lesser. A market which deals prodominantly
with some seasonal commotities may have its own special
problems and requirements. But in some cases before us
even where there are similarities in the nature of the
produce and in other circumstances, the ambitions for .H
development are irreconcilably disparate. Even amongst
markets which are similarly situate from the point of view
190 SUPREME COURT REPORTS {1985) SUPPL. S.C.R.

of the market fee income, quantum of produce handled
A and transacted; potentialities for expansion and levels of
development XX already reached, the proposals reveal a
wide divergence. There is admittedly no uniformity or
standardisation of norms for growth even broadly and
each Market-Committee has its own plans of growth ad
B hoc.

Indeed the Indian Standards Institution has
standardised the pattern of regulated markets classifying
them into 'A', 'B', 'C', 'D', and 'E' classes based on the
quantum of the notified agricu,tural produce handled
c therein annually. The assessment of the marketing-
projects in Karnataka made by Experts of the Inter-
national Development Association in connection with the
World Bank aid for development of the markets has
classified and graded the markets based on certain well
accepted common-criteria. The cost-projections for
D various classes of markets are also made therein. The
present proposals have obviously not kept any of them in
view. One explanation was that the whole concept of
marketing is expanding and these precipitious ? are not
now apposite. However, the wide divergence in the plans
E for development lends some credence to the criticim of
the petitioners that the e~timates were not taken seriously
even by the Market-Committees or the C.M.O.

F
But apart from such basic infrastructures which
stand on a different footing, the benefit of utilitarian
projects relatable to and developed from fee resources
must be available to the payers of the fee for at least a
G considerable part of the period covered by the financial
estimates and projections. The logic of some of the
Market-Committees in this behalf, if pushed to its logical
or illogical conclusions, would mean that the present
H generation of fee-payers would pay for services which
would only be available to the next-generation. In our
opinion levy of fee cannot be justified on such wholly
prospective services''
l.T.C. V, KARNATAKA (Vordarajan. J.) 191

After considering in some detail the proposals and estimates on
the assumption that they are correct the learned Judges of the High A
Court have observed :

"The upshot of the above discussion is that though
we are unable to hold, on the material placed before us
by the petitioners, that the levy ought to fail for want of
• quid pro quo however, having regard to the infirmities
B
noticed in the estimates and the financial projections of the
proposed developmental works on the basis of which the
enhancement is sought to be justified, we are also unable to
say with any confidence and without reservutions that the
enhancement offee, depending us it does on those estimates c
is totally justified. Some time-bound directions to which
' we will refere presently for a second look at the estimates
by the statutory authorities are required to be issued in this
""" behalf.
~·
Indeed, having regard to the wide range of the
D
•.
-J;
apparently inexplicable disproportions in the developmental
projects of the Mrious Market-Committees both the /ear-
ned Advocate-General and the Learned cou11se/ for the
Market-Committees, stated that there was obvious scope-in
our opinion an imperative need-for some rationalisation E
of the pattern of development of market-yards based
upon and related to the relevant factors such as quantum
and nature of agricultural produced handled by the
markets; potentialities of development of the market in
reasonably near future and the like. It is neither possible
nor advisable to lay down exhaustively all the criteria F
that may become relevant to the task. However, the need
for such an exercise to regulate the development to these
market-yards on a scientific, rational and uniform basis
was accepted by all the parties."

- A time-bound schedule has to be prescribed for the
Chief Marketing Officer, as the authority under the 'Act',
approving the budgets, to evolve and standardise broad
G

and general norms, taking into account the observations
made in the course of this order, both for infra-structural
and developmental works and services, on as uniform a
H
basis as may reasonably be feasible, for the various
markets depending upon their classification to be made
192 SUPREME COURT REPORTS (1985] SUPPL. S.C.il.

by the C.M.O on the basis of such criteria as he
A may deem relevant and also to evolve corresponding cost
patterns of the projects with suitable inbuilt indicia for
escalation of cost-structures, from time to time, propor-
tional to the rise in the price of material. These norms
shall operate as broad and general guide-lines for the
B development of regulated markets and shall be kept in
view of the market-committees in planning developmental
projects. Departure from these norms and standards
shall, of course, be permissible on grounds of special
requirements of individual regulated markets depending
upon their specific individual problems and requirements.
c At the time of sanction of the budgets of the Market-
Committees the C.M.O. should scrutinise the budgets
with reference to and applying the broad-norms and
criteria evolved and adopted by him so that the
programme and the projects of development for the next
D 8 years are need based and are as far as may be, on a
uniform and rational ba~is.

The learned Advocate-General and the learned counsel
for the Market-Committees concede that this exercise is
neceJsary and beneficial as indeed the matter involved an
E
outlay of nearly 145 crores of rupees in the next 8 years
on the regulated markets.

Accordingly, the C.M.O. shall within 4 months from
now evolve and standardise these norms and specifications
F and circulate the same to the Market-Committees.
Respondent· Market-Committees in categories ·c•, 'D'
and 'E' in Para-80 supra will, within 3 months there·
from, revise their proposals for development in accordance
with these norms and specifications,departures from stand-
G ard specification being permissible if the special conditions
peculiar to the particular markets so require and compel.
The C.M.O. will again scrutinise these revised proposals
and their cost projections and if, upon such scrutiny, is
of opinion that the present 2% market-fee of any Market·
H Committee in the category 'C', 'D' and 'E' supra is
unjustified, the C.M.O. will make appropriate orders
under s. 150 of the Act directing the Market-Committee
or Committees concerned to amend their bye-laws to
I.T.C, V. ){ARNATAKA (Vardarajan, J.) 193

effect an appropriate downward revision in the quantum
of the fee. Wherever the C.M.O. is of the opinion, after A
an examination of the proposals, that there Is no need
to make a downward revision, he shall make a specific
note in the behalf. These orders shall be made within a
period of8 months from now."
B
This is the gist of the discussion of learned Judges of the
High Court in regard to the above point No. 12 framed by them on
the question whether enhancement of the market fees leviable under.
S. 65 (2) of the Act from one per cent to two per cent brought about
by the amendment of the bye-laws of the Market Committees is
unsupportable in law and fails for want of correlation with the value c
of services rendered to the payers of the fee. The learned Judges
have stated at the end of the point in para 7 of their judgment that
the discussion relating to the point is in paras 75 to 110 and that the
finding is in para 111. Para Ill extraced above consists only of the
direction given by the learned Judges of the High Court to the Chief
Marketing Officer. The learned Judges have not expressed their D
opinion one way or the other in para 111 as regards the justification
for the enhancement of the market fees leviable on buyers under
section 65 (2) of the Act from one per cent to two per cent by
amendment of the bye-laws though earlier in para 107 they have
observed that they E

"are unable to hold, on the material placed before
u~ by the petitioners that the levy ought to failfor want
of quid pro quo; however, having regard to the infirmities
noticed in the estimates and financial projections of the F
proposed developmental works on the basis of which the
enhan<;ement is sought to be justified, we are also unable
to say with any confidence and without reservations that
the enhancement of the fee, depending as it does on those
estimate is totaly justified. Some time bound directions
to which we will refer presently, for a second look at the G
estimates of the statutory authorities are required in this
behalf.''

and they have given the same in para 109 of their judgment.
H
Dealing with the provisions of the Cardamom Act, 1965 and
the rules mad~ thereunder, in paras 34 to 38 of the judgment the
194 SUPREME COURT REPORTS (1985) SRPPL. S.C.~•

High Court has held that the provisions of the Act in so far as
A marketing of cardamom is concerned, are repugnant to the provisions ......
of the Cardamom Act (Central Act 42 of 1965). But in paras 41
and 42 the High Court has held that the Tobacco Board Act, 1975
makes provision 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 is for the Market
B Committee to obtain auctioneer's licence under the provisions of the
Tobacco Board Act. Proceeding on the basis that the Tobacco
Board Act is in relation only to Virginia tobacco and not all varities
of tobacco the High Court has observed that any intention of the
"Superior Legislature" (meaning Parliament) to cover the whole
c field and make a comprehensive law in regard to marketing of
tobacco is not manifest in the Central enactment and that the two
legislations can co·exist and operate cumulatively.

I have set out above the gist of the High Court's decisions on
the points regarding which alone arguments were advanced before
D
this Court in the Writ Petitions, Civil Appeals and Special Leave
Petitions. They are :

(I) That the provisions of S. 65 (1) of the Act as
substituted by the Amendment Act 17 of 1980 and also
E the validating S. 42 of that Amendment Act in so far as
it seeks to validate the levy of market fee on sellers of
notified agricultural produce during the period from
19.5.1975 to 28.9.1978 are unconstitutional and void;

F
(2) That the Chief Marketing Officer shall within
four months from the date of the judgment evolve and
--
standardise the norms and specifications and circulate the
same to the Market Committees is direction given by the
High Court. This was done by the High Court as it was
conceded by the learned Advocate General appearing for
G the Market Committees that the exercise suggested by the
High Court in para 109 of the judgment is •·necessary and
beneficial as indeed that the matter involved an outlay of
nearly 145 crores of rupees in the next 8 years on the
regulated markets";
H
(3) That the provisions of the Act are repugnant to
the Cilrc;la:p:~om Act, 1965 and the Rules framed there..
I.T.C. V. E!ARNATAKA (Varaarajan, J.) 195

under but not the provisions of the Tobacco Board Act,
1975; and A

(4) That a writ of mandamus be issued to direct the
State Government and the Market Committees to refund
to the Writ petitioners who had approached the High
Court and had the benefit of the issuance of writs of B
mandamus for the refund of the sellers' market fees
actually paid under S. 65 (l) in cases where the manda-
mus issued had not been complied with by the respon-
dents in the writ petitioners in view of the validating
provision contained in S. 42 of the Amendment Act 17
of 1980 on such writ petitioners filing their claims in c
writing before the Market Committees concerned, and in
the second category of cases where the writ petitioners
had not approached the High Court earlier their claims
for refund of the market fee paid by them as sellers shall
be confined to the market fees paid under S. 65 (1) within
D
a period of 3 years immediately preceding the presentation
of the writ petitions, and the same procedure as in the
case of the other class of writ petitioners shall be
followed.

Mr. Soli J. Sorabjee appearing for most of the appellants and E
the petitioners in the writ petitions and special leave petitions
(namely traders) advanced arguments on all the above points.
Mr. S.N. Kackar appearing for the appellants in Civil Appeals
Nos. 1247 to 1474 of 1983 adopted the arguments of Mr. Sorabjee
and supplemented it with his own. Mr. Bhatt appearing for the
State advanced arguments in the State's appeals filed against the F
High Court's decision invalidating S. 65 (I) as substituted by the
Amendment Act 17 of 1980 and also S. 42 of that Amendment Act
and the direction for the refund of the market fees collected under
s. 65 (I) as substituted by that Amendment Act. Mr. A.K. Sen
appearing for the Market Committees advanced argumets on the G
validity of the amendment of the bye-laws made for enhancement of
the n;J.arket fees on buyers leviable under s. 65 (2) of the Act, while
Mr. S.T. Desai, Dr. Y S. Chitale and late Mr. P.R. Mridul appear-
ing for the Market Committees advanced arguments supporting the
High Court's judgment that the provisions of the Act are not H
repu~nant to those of tbe Tobacco Board Act1 197$.
196 SUPRBMB COURT REPORTS (1985) SUPPL, S,C.ll.

The submissions of Mr. Sorabjee in short are these:
A
The item of expenses envisaged for the rural roads has gone
with the striking down of s. 65 (l) and (3) of the Act and the
omission of clause (3) of s. 65 from the Act by the Amendment Act
17 of 1980 from the date of its commencement as if it never existed
on the statute book. The amount collected under that sub-section
B will take care of the proposed expenditure envisaged in the estimates
and projections for the improvement of the services in the regulated
markets and therefore the enhancement of the market fee from one
per cent two per cent of the price of the specified agricultural produce
is invalid. The reduction of the enhanced levy from two per cent to
c one per cent by the Circular No. SMD-268/RGN-83 dated 27.2.1984
issued pursuant to the State Government's decision shows that the
State Government and the Market Committees prefer this course to
the exercise suggested by the High Court to be completed within eight
moths of the judgment and that there was no justification for the
enhancement of the market fee from one per cent to two per cent
D by amendment of the bye·law relating to the levy of market fee
under s. 65 (2) of the Act. The amendment of the bye-laws was not
in accordance with the procedure laid down by s. 148 of the Act for
making bye-laws and amendments thereto for want of previous
approval of the Chief Marketing Officer and previous publication of
E the proposed amendment and hearing of the affect interests, and
ss. 3. 5 (a) and 5 (b) of Ordinance 22 of 1981 promulgated when the
hearing of the Writ Petitions in the High Court was in progress
would not cure the defect. In the course of the arguments before
the High Court it was specifically conceded that there was no comp·
Iiance with the requirement of s. 148 in making the amendment of
F the bye-law for enhancement of the market fee from one per cent to
two per cent. But on 17.12.1981 Karnataka Ordinance 22 of 1981
was promulgated, and ss. 3 and 5 (a) thereof stated :

"3. Amendment of section 148-ln section 148 of
G the principal Act, in sub-section (1), the words "after
previous publication in the prescribed manner", shall be
and shall be deemed always to have been omitted.

5 (a) aU acts, proceedings or things done or action
H
taken by the State Government or by the Market
Committees or by any other authority in connection with
the levy or collection of p}ar~et f~e shall for a.l1 l'urposes
t.t.C. Y, KARNATAil.A (Vardarajan, J.) 197
be deemed to be and to have always been done or taken
in accordance with law,. A
and s. 5 (b) stated that:

"no suit or other proceedings shall be instituted,
maintained or continued in any court or before any B
authority for refund of any such market fee or for
questioning the validity of any action or thing taken or
done under the said bye-laws and no court shall recognise
or enforce any decree or order declaring the said bye-laws
or any action or thing taken or done thereunder as
invalid on the ground that the bye-laws were made with- c
out giving reasonable opportunity to persons likely to be
affected thereby to file their objections and suggestions, or
otherwise without following the procedure prescribed."

Ss. 3, 5 (a) and 5 (b) have been replaced by ss. 12 and 14 of D
the Karnataka Agricultural Produce Marketing (Regulation)
(Amendment) Act, 1982. The amendment of the bye-law made for
enhancement of the market fee from one per cent to two per cent is
not in accordance with law. The High Court has practically held so
as can be seen from the direction given by it in para 61 of the judg- E
ment as to what should be done before a market committee amends
its bye-law to make an upward revision of the rate of market fee in
the light of the submission made by the learned Advocate General
appearing for the State and the learned Counsel appearing for the
Market Committees that it will be eminently desirable that the
Market Committees should adopt some reasonable -procedure in that F
behalf and that the amendment of s. 148 (1) of the Act made by
Ordinance 22 of 1981 was only intended to cure the defect in the
making of the impugned amendment of the bye· law to avoid great
public inconvenience which will result from the invalidation of the
bye-law and that there was no intention to make the deletion a
permanent feature, and any reasonable procedure which may be
G
suggested by the High Court would be adopted in practice even if
there was no such legal compulsion. There were no resolutions,
etimates or projections of the market Committees for making
improvements to the regulated markets immediately or within the H
near future before the bye-law was amended for enhancing the
market fee from one per cent to two per cent under the directions of
198 SUPREME COURT REPORTS [1985) SUPPL. S.C.R.

the Chief Marketing Officer, and Exs. R-1 to R-111 and other state-
A ments referred to in the High Court's judgment were prepared long
after the date of filing of the Writ Petitions in the High Court and
only pursuant to the directions given by the High Court for that
purpose on 30.11.1981. The High Court was not satisfied even with
those estimates, projections and statements and has therefore issued
8 the directions contained in paras 109 and 111 of the judgment and
those directions have been given in respect of all the Market
Committees and not in respect of only 8 or 4 Market Committees in
categories 'C', 'D' and 'E' ~s contended by Mr. A.K. Sen.
Enhancement of the market fee from one per cent to two per cent is
not justified. The High Court erred in holding that the Tobacco
c Board Act, 1975 covers only Virginia tobacco and is not repugnant
to the provisions of the Act, ignoring the provisions of ss. 8 (2) (a),
8 (3) and 12 of the Tobacco Board Act and r. 35 of the Rules made
under the provisions of that Act. Though reference is made in
s. 8 (2) (a) to (g) of that Act to Virginia tobacco c1ause (h) relates to
"promoting the gradation of tobacco at the level of growers", clause
D
(I) relates to "sponsoring, assisting, co-ordinating or encouraging
scientific, technological and economic research for the promotion of
tobacco industry", and s." (3) says that :

"without prejudice to the genel'ality of the provisions
E of sub-section (1) and subject to priority being given to
matters specified in sub-section (2), the measures referred
to in sub-section (1) may also provide in relation to
tobacco, other than Virginia tobacco, for all or any of
the matters specified in clauses (c) to (g) of sub-section
F (2) and for this purpose any reference in those clauses to
Virginia tobacco shall be constured as including a
reference to tobacco other than Virginia tobacco".

S. 12 of the Act says that :
G "no person shall export tobacco or any tobacco
products or function as a packer, auctioneer of, or dealer
in, tobacco unless he registers himself with the Board in
accordane with the rules made under this Act."

H
R. 35 of the Tobacco Board Rules, 1976 relates to registration as
exporter or packer or auctioneer of, or dealer in tobacco.
i.i'.c. Y. DRNATAKA (Jiartlarojan, j.) 199

Clauses (c) to (g) of s. 8 (2) read thus :
A
"(c) maiut-=nance and improvement of existing
markets, and development of new markets outside India
for Indian Virginia tobacco and its products and devising
of marketing strategy in consonance with demand for
the commodity outside India, including group marketing B
under limited brand names;
- ·- (cc) establishment by the Board of auction plat~
forms, with the previous approval of the' Central
Government, for the sale of Virginia tobacco by registered
growers or curers, and functioning of the Board as an c
auctioneer at auction platforms established by or
registered with it subject to such conditions as may be
5pecified by the Central Government;

(d)· recommending to Central Government the
minimum prices which may be fixed far purposes of D
Virginia tobacco with a view to avoiding unhealthy
· competition amongst the exporters;

(e) regulating in other respects Virginia tobacco
marketing in India and export of virginia tobacco having E
due regard to the interests of growers, manufacturers and
the nation; ·'

(f) propagating information useful to the growers,
dealers and exporters (including packers) of Virginia
· tobacco and manufacturers of Virginia tobacco products F
and others concerned with Virginia tobacco and products
thereof; and

(g) purchasing Virginia tobacco from growers when
the same is considered necessary or expedient for protect-
ing the·interests of the growers and disposal of the same ·
G
iii India or abroad as and when considered appropri~te'"; :

·These clauses (c) to (g) would apply to tobacco also in view of
I. a (3) of the Tobacco Board Act. H
Mr.· Kacker adopted the arguments. of Mr. Sorabjee and.
/
supplemented it with his own. His submissions are these ;
2oo SUPREME COURT REPORTS (198SJ SUPPL. S.C.R.

Before sub~section (3) of s. 65 was struck down in
A Rajasekhariah's case (supra) on 28.9.1978 several crores of rupees
had been collected under s. 65 (1) from 19.5.1975 when it was amen~
ded by Amendment Act 24 of 1975 to 28.9.1978 and that that
amount must be sufficient to meet the estimates and projections
envisaged in Exs. R-1 to R-111 and other statements prepare.d and
produced by the Market Committees pursuant to the High Court's
B
directions issued on 30.11.198 I having regard to the fact that sub-
section (3) of s. 65 under which that amount had to be credited to
the Roads and Buildings Fund has been struck down in
Rajasekhariah's case (supra) and that sub-section has been omitted
from the Act as if it never existed in it. The Market Committees had
c surplus fund with them in 1979 and they bad no scheme for effecting
improvements to the regulated markets when they enhanced the
market fee from one per cent to two per cent under sub-section (2)
of s. 65 of the Act by amending the bye-law except the statements
produced in Vaman Roo's case (supra) in 1974. The statements
Exs. R-1 to R~ 111 and other statements produced in the High Court
D were not in e:\istence when the Writ Petitions were presented in the
High Court. The market fee has been since reduced to one per cent
with effect from 1.4.1984. The High• Court should not have given
an opportunity to the Market Committees to fill up the lacuna by
preparing and producing Exs. R-1 to R·lll and the other statements
E when the Writ Petitions were being heard in the High Court.

On the other hand, Mr. A.K. Sen submitted his arguments
which may be summarised thus :

As many as 4298 Writ Petitions were filed in respect of 93
F Varket Committees. Clear quid pro quo was established in respect
of 73 Market Committees falling in categories 'A', 'B', 'C' and 'D'
for enhancement of the market fee from one per cent to two per cent
and no further enquiry was needed on the principles laid down in
Kewal Krishan Pari's case (supra). The High Court found that
reconsideration of the financial projections by the Market Com-
mittees was necessary only in regard to 8 out of the remaining 20
Market Committees, and it was entitled to give the directions which
had been given to the Chief Marketing Officer to re-examine them.
There is no repugnancy between the Act and the Tobacco Board
Act, 1975.

Mr. Bhatt submitted that after s. 65 (3) has been omitted from
the Act as if it never existed.in it there was no question of striking
i.T.C. V. KARNATAKA (J!ardara}an, J.) 201

down s. 65 (I) as substituted by the Amendment k t 17 of J980, that
s. 42 of that Amendment Act has validated the levy and there is no A
question of the refund of the market fee collected under s. 65 (1} as
the fee collected under the Act has to be used for the purposes
envisaged by the Act and than in any event the refund could be only
to the Market Committees and not to the traders.
B
It is not necessary for me to refer to the arguments of
Mr. S.T. Desai, Dr. Y.S. Chitale and late Mr. P.R. Mridul regarding
the question of repugnancy of the provisions of the Act with those
of the Tobacco Board Act, 1975 as my learned brother Murtaza
Fazal Ali, J. has dealt with that question in his judgment and I agree
with him in that regard. I wish to add that the learned Judges of c
the High Court have disposed of this matter of repugnancy between
the Act and the Tobacco Board Act, 1975 in two short paras 41 and
42 without much of a discussion under the belief that the Tobacco
Board Act, 1975 concerns only Virginia tobacco and not other vari·
ties of tobacco. They have held after some discussion in paras 34 D
and 38 of their judgment that the Act is repugnant to the Cardamom
Act which is almost similar to the Tobacco Board Act in its scope
and operation. The consequence is that cardamom has to be taken
out of the schedule to the Act. No appeal has been filed against
that part of the High Court's judgment. The Act relates to markets
falling under entry 28 of List II (markets and fairs) while the Toba- E
cco Board Act falls under entry 52 of List I (industries) of the
Seventh Schedule to the Constitution. Industries would certainly
include marketing of the products. The Act would therefore be

- repugnant to the Tobacco Board Act in view of Art. 254 (I) of the
Constitution. The attention of the learned Judges does not appear to
have been focussed on s. 8 (3) and s. 12 of the Tobacco Board Act
extracted above and r. 35 of the Rules framed under that Act, a
F

perusal of which would show that the Tobacco Board Act covers
tobacco of all varities in regard to matters required to be done by
the Market Committees under the provisions of the Act. The High
Court has thus erred in holding that the provisions of the Act are G
not repugnant to the Tobacco Board Act, 1975 and that they can
co-exist and operate cumulatively.

In the course of arguments both sides invited this Court's H
attention to a number of decisions. I think it is sufficient if reference
is made to only five of them and also to the decision of this Court in
Civil Appelals Nos. 4500-4501 of 1984 (Mjs. Amarnath Om Pradesh
202 SUPR2ME COUllT REPOllTS (1985) SUPPt. S.C.tl.

& Others v. State of Punjab and Food Corporation of India v. State of
A Punjab) disposed of on 19.11.1984. The first of those decisions is of
Mathew, Bhagwati and Untwalia, JJ. in State of Maharashtra & Ors.
v. The Salvation Army,\1J In that decision Mathew, J, speaking for
the Bench observed :

8 "We do not think any such levy for investment or
diversion of the surplus would be consistant with the
principle behind the levy of fee. While we do not think
it necessary that all available surplus in a year or for
some years should always go in for redu ing the rate of
contribution for the subsequent year or years, we are of
c the view that the organisation cannot be allowed to
accumulate an unreasonable amount, unreasonable in the
sense that the amount might not be reasonably required
for the proper and afficient working of the organisation
in a foreseeable future. No hard and fast rule applicable
in all contingencies can be formulated. The Court will
D have to draw a line somewhere when surplus must be the
taken into consideration for reducing the levy of con-
tribution. In drawing the line, the Court will have to
look into the nature ot the organisation, the potentiality
for its growth, the multiplication in its work consequent
E on its expansion for rendering the services visualised by
the Act and the necessity for capital expenditure in the
near future, as also the amount of levy collected or
expected to be collected in a year. As already stated the

F
Division Bench was of the view that the stage when the
surplus must be taken into account to determine the
character of the levy was reached by the end of March
-
31, 1958 when the available surplus came to Rs. 30. 44,
541/ --. The Division Bench was alive to the desirability
of locating the head office and regional offices in buildings
to be owned by the organisation and incurring of capital
G expenditure in that behalf. The Charity Organisation has
purchased a building worth about Rs. 30 lakhs. Even
according to the Division Bench, investment of the
surplus in buildings for locating the head and regional
offices cannot be said to be diversion of the surplus for
H purposes alien to the object of the organisation, namely,
the better administration of the trusts."
(1) (1975}3 S.C.R. 47S.
t.'r.C. V. KARNATAKA (VarJarajan, /.)

This decision indicates what should be borne in mind
when there is a complaint that the market fee already levied is A
excessive or before any further increase in the levy is made.

The second decision is that of a Bench of five learned Judges of
this Court !Chandrachud, C.J. and Bhagwati, Untwalia, Murtaza
Fazal Ali and Pathak, JJ.) in Kewal Krishan Puri v. State of Punjab B
(supra) where the purpose for which Marketing Development Fund
and Market Committee Funds levied and collected under the Punjab
Agricultural Produce Markets Act, 1961 and justification for
enhancement of the rate of market fee from two per cent to three
per cent came up for consideration. This appears to be a leading
decision on this subject. It has been relied upon not only by C
Mr. Sorabjee and Mr. Kacker but also by Mr A.K. Sen. In that
case, Untwalia, J. speaking for the Bench observed thus :

"Such a fee cannot be utilised for the purpose of
rendering all sorts of facilities and services for the benefit D
of agriculturists throughout the area. It may be very
necessary to render such services to the agriculturists;
rather, they must be rendered. But the laudable end in
itself cannot justify the means to achieve that end if the
means have got no sanction of the law ............ .
E
From a conspectus of the various authorities of this
Court we deduce the following principles for satisfying

- the tests for a valid levy of market fees on the agricultural
produce bought or sold by licensees in a notified market
area: F

(1} That the amount of fee realised must be earmarked
for rendering services to the licensees in the notified
market area and a good and substantial portion of it
must be shown to be expended for this purpose, G

(2) That the services rendered to the licensees must be
in relation to the transaction of purchase or sale of
the agricultural produce. H
(3) That while rendering services in the marketing area
foil the purposes of facilitating the transactions of
204 SUP!WMB COURT IUlPORfS (1985] SUPPL. S.C.l,

purchase and sale with a view to achieve the objects
A of the marketing legislation it is not necessary to
confer the whole of the benefiit on the licensees but
some special benefits must be conferred on them
which have a direct, close and reasonable correlation
between the licensees and the transactions.
ll
(4) That while conferring some special benefits on the
licensees it is permissible to render such service in the
market which may be in the general interest of all
concerned with the transactions taking place in the
market.
c
(5) That spending the amount of market fees for the
purpose of augmenting the agricultural produce, its
facility of transport in villages and to provide other
facilities meant mainly or exclusively for the benefit
of the agriculturists is not permissible on the ground
[)
that such services in the long run go to increase the
volume of transactions in the market ultimately
benefiting the traders also. Such an indirect and
remote benefit to the traders is in no sense a special
benefit to them.
E
(6) That the element of quid pro quo may not be
possible, or even necessary, to be established with
arithmetical exactitude but even broadly and

F
reasonably it must be established by the authorities
who charge the fees that the amount is being spent
for rendering services to those on whom falls the
-
burden of the fee.

(7) At least a good and substantial portion of the
amount collected on account of fees, ma be in the
G neighbourhood of two-thirds or three-fourths, must
shown with reasonable certainty as being spent for
rendering services of the kind mentioned above_ •..
. .. .. . . . . . .. . ... .. . The benefit of market fee, there-
fore, has to be correlated with the transactions taking
H
place at the specified place in the market area and
not in the whole of the area.
I.T.C. v. KARNATAKA (Vardarajan, J.) 205

A
Supposing a market has been established consisting
of principal market yard or sub-market yards at a
particular place where there is no facility for the carts or
the trucks and other vehicles to go, then approach roads,
and if necessary even culverts and bridges may be const-
ructed, or repaired out of the Market Committee Fund. B
Such an expenditure within the limited limit will be with
the object of facilitating the taking place of the trans-
actions of purchase and sale in the market and will
confer some special benefits to the traders apart from a
share of the benefit going to the agriculturists who are C
not required to share the burden of the market fee. But
as we have pointed out above, if one were to give a very
wide meaning to this phrase of construction and repair of
approach roads, culverts and bridges to say that such
construction can be permitted anywhere in the market
area for the facility of the agriculturists which ultimately D
will benefit the traders also, then the whole concept of
correlation of fee and its character of having an element
of quid pro quo will dwindle down and become an empty
formality.
E

If many of the purposes mentioned in the Act, as we
have shown above, are outside the ambit of the service
element and fa]] within the realm of the governmental
functions, then it is plain tbat to say by generalisation F
that the fee money can be spent for the purposes of
objects of the Act is not quite correct.

The High Court points out that the money cannot be G
spent in construction of governmental activities for
providing main roads in the State. How, then, the
Market Committees can be made to contribute a very
big chunk of their market fee income in the construction
of link roads through all villages ? To put the matter
H
logically, if a link road is to be constructed from a village
f9 the main road for enabling an agriculturist to trans.-
206 SUPREME COURT REPORTS (1985] SUPPL. S.C.R.

port his produce up the main road then the Market
A Committee should be under an obligation to construct or ..
at least to maintain the main road also in order to enable
that agriculturist to reach the market which may be at a
distance of 20 miles from the link road. It is plain that
construction of such link roads is as much a part of the
governmental activity as that of the main roads.
8

The impost must be correlated with the service to be
rendered to the payers of the fees in the sense and to the
c extent we have pointed out above. Again the High Court
fell into an error in paragraph 15 of the judgment when,
while upholding the construction and repair of approach
roads, culverts and bridges in the larger sense of the term,
it said :

D 'Ifthe approach roads, culverts or bridges are
in such a bad shape that they would become
hinderance in the mobility of the produce from one
part of the notified market area to the principal
market yard, then the worst sufferor would be the
grower for whose benefit the Act bas been enacted.'
E

It may be as was submitted before us that it is not
imperative either for the Market Committees or the
Board to prepare balance-sheets because their accounts
F
are audited by Government auditors but for the purpose
of raising the market fee any further, the balance-sheet will
give a true picture of the position along with the budgets
and estimates. Then, and then only there may be a legal
justification for raising the rate of the market fee further
G to a reasonable limit."

The third decision is of Chinnappa Reddy, A.P. Sen and
Baharul Islam, JJ, in Southern Pharmaceuticals and Chemicals v.
State of Kerala & Ors. etc.(1) where Sen, J. speaking for the Bench
H has observed at page 542 thus :

(1) !1982] 1 S.C.R. 519,
I.T.C. V. KARNATAKA (Vardarajan, J.) 207

"It is also increasingly realised that the element of
quid pro quo stricto senso is not always a sine qua non of A
a fee. It is needless to stress that the element of quid pro
quo is not necessarily absent in every tax.''

It has to be noticed that the observation was made by the
learned Judge in a case in which the appellants who were manu-
facturers of medicinal and toilet preparations containing alcohol
B
challenged the constitutional validity of certain provisions of the
Kerala Abkari Act, 1967. In the earlier part of the judgment Sen, J.
has observed :

"The distinction between a 'tax' and 'fee' is well c
settled. The question came up for consideration for the
first time in this Court in the Commissioner, H.R.E.
Madras v. Lakshmindra Thirtha Swamiar of Shirur Mutt
(1954 SCR 1005). Therein, the Court speaking through
Mukherjea, J. quoted with approval the definition of
'tax' given by Latham, C.J. in Matthews v. Chickory D
Marketing Board (60 CLR 263). In that case the learned
Chief Justice observed:

'A tax is a compulsory exaction of money by
public authority for public purposes enforceable by E
law and is not payment for services rendered.'

Coming now to fees, a fee is generally defined to be
a charge for a special service rendered to individuals by F
some Governmental agency.

If, as we hold, a fee is regarded as a sort of return
or consideration for services rendered, it is absolutely
necessary that the levy of fees should on the face of the
legislative provision, be correlated to the expenses G
incurred by Government in rendering the services."

The same view was taken in Mahant Sri Jagannath v. State of
Orissa(l) and Rathi/al Param Chand Gandhi v. State of Bombay.(2)
H
(1) [1954] S.C.R. 1046.
(2) p954J S.C.C. I0$.5.
208 SUPREME COURT RP.PORTS (1985) SUPPL, S.C.R.

Therefore, the aforesaid observation of ·sen, J. that it is now
A increasingly realised that the element of quid pro quo stricto sensa is
not always a sine qua non of a fee and that it is needless to stress
that the element of quid pro quo is not necessarily absent in very
tax cannot be made applicable to the facts of the present cases which
relate to market fees where the element of quid pro quo is absolutely
8 necessary.

The fourth decision is A.P. Sen, Venkataramiah and R.B Misra.
JJ, in Sreenivasa General Traders & Ors. v. State of Andhra
Pradesh(!) where Sen, J. speaking for the Bench has observed:

c ''There is no generic difference between a tax and a
fee. Both are compulsory exactions of money by public
authorities. Compulsion lies in the fact that payment is
enforceable by law against a person in spite of his
unwillingness or want of consent. A levy in the nature
of a fee does not cease to be of that character merely
D
because there is an element of compulsion or coerciveness
present in it, nor is it a postulate of a fee that it must
have direct relation to the actual service rendered by the
authority to each individual who obtains the benefit of
service. It is now increasingly realised that merely
E because the collections for the services rendered or grant
of a privilege or licence are taken to the consolidated
fund of the State and not separately appropriated towards
the expenditure for rendering the service is not by itself
decisive......... .. .... It is also increasingly realised
that the element of quid pro quo in the strict sense is not
F
always a sine qua non for a fee. It is needless to stress
that the element of quid pro quo is not necessarily absent
in every tax. ••

The above decision arose out of proceedings taken under the
G Andhra Pradesh (Agricultural Produce and Livestock) Market Act,
1966. With respect, it is not possible to agree with the above
observation that there is no generic difference between a tax and a
fee and the element of quid pro quo in the stricto senso is not always
a sine qua non for a fee in view of my learned brother Sen's appro-
H val in Southern Pharmaceutical and Chemical's case (supra) of the

(1 l [1983] 3 S.C.R. 843.
I.T.C. Jl. KARNATAKA (Vatdarajan, J.) 209

distinction pointed out by Latham, C.J. in Matthews v. Chickory
Marketing Board (supra) between a tax and fee and that it is A
absolutely necessary that levy of fee should on the face of the legis-
lative provisions be correlated to the expenses incurred in rendering
services and the learned Judge's observation in that decision that the
same view was reiterated by this Court in Mahant Sri Jogannath
Ramanuj Das's case (supra), Rathi/at Param Chand Gandhi's case B
(supra) and also in view of the decision of the larger Bench of five
Judges of this Court in Kewal Krishan Puri's case (supra) that quid
pro quo is a necessary element of the market fee.

The fifth decision is of Desai and Chinnappa Reddy, JJ. in
Municipal Corporation of Delhi v. Mohd. Yasin( 1) where my learned c
brother Chinnppa Reddy~ J. speaking for the Bench has observed:

"Though a fee must have relation to the services
rendered or the advantages conferred, such relation
need not be direct, a mere casual relation is enough," D
That was a case where the Delhi Municiple Corporation
purported to enhance the fee for slaughtering animals in the
slaughter houses from 25 paise to one .rupee per animal in the case
of sheep, goats and pigs and from one rupee to eight rupees per
animal in the case of buffaloes. With respect, it is not possible to E
accept this view having regard to the decision of a large Bench of
this Court in Kewal Krishan Puri's case (supra) which is relied
upon by both sides in these cases as stated above.

The last of the decisions to be mentioned is of Chinnappa F
Reddy, A.P. Sen and VenkP.taramiah, JJ. in Civil Appeal Nos. 4500
4501 of 1984-M/s Amarnatn Om Prukash & Ors. v. State of
Punjab and Food Corporation of India v. State of Punjab (supra)
disposed of on 19.11-1984, That decision which relates to what bad
happened under Punjab Agricultural Produce Market Act is
referred to in the judgment of my learned brother Sabyasachi G
Mukhrji, J. in his judgment in these matters. In that case my learned
brother Chinnappa Reddy, J. speaking for the Bench has observed
that it is of fundamental importance that there shoud be a net work
of roadways if effective aid is to be given to farmers to transport
and market their produce. No execption could be taken to this H

(1) [I983J 3 S.C.R. 229,
210 SUPREME COURT REPORTS (1985) SUPPL. S.C.R.

observation. In Kewal Krishan Puri's case (supra) while the construe·
A tion of link roads has been welcomed by the learned Judges, it has
been observed: ....
"Uplift of villages and helping the agriculturists by
all means is the duty and the obligation of the State no
8 doubt and it has to do it by incurring expenses out of
the public exchequer consisting of the income from
various kinds of taxes etc."

Referring to the observations of A.P. Sen. J. in Sreenivasa General
c Traders's case (supra) Chinnappa Reddy, J. has observed in his
judgment thus :

"He also draw attention to the increasing realisation
that the element of quid pro quo in the strict sense was
not always a sine que non for fee. Nor was the element
D of quid pro quo necessarily absent in every tax. He further
pointed out that an insistence upon a good and substantial
portion of an amount collected on account of fee_ say in
the neighbourhood of two-thirds or three·fourths, being
shown with reasonable certainty as having been spent for
rendering services in the market to t.he payer of the fee
E
could not be a rule of universal application, and that it
was a rule which had necessarily to be confined to the
special facts of Kewal Krishan Puri s case (supra). Other-
wise, it would affec~ the validity of marketing legislations
undertaken throughout the country during the
past half a cuntery. We agree with tne view
F of Sen, J. that the observations extracted by him
from Kewal Krishan Puri'~ case were not really necessary
for that case and we also agree with the clarification of
the observation made by Sen, 1.
G
With respect, I am not able to see how an why the observa-
tions made in Kewal Krishan Puri's crse (supra) have to be confined
to the special facts of that case. Kewal Krishan Puri's case arose
out of proceedings taken under the Punjab Agricultural Produce
H Markets Act, 1961 which is an Act for the better regulation of the
purchase, sale, storage and processing of agricultural produce and
for the establishment of markets for agricultural produce in that
~~at~. The objects of that Act and the Act with which we are
I.T,C. Jl, KARNATAKA ('Vardarajan, J.) 211

concerned in these cases are almost the same. The maximum rate
of market fee whi:lh could be levied by the various market commi· A
ttees under s. 23 of the Punjab Act was fifty paise for every hundred
rupees. The fee was raised from time to time. A number of writ
petitions were filed in the High Court challenging the power of
the Board to increase the levy. That is what has happend in these
cases arising under the Act which relates to Karnataka State. The B
question whether quid pro quo was necessary and to what extent and
what should be done by the Market Committees before the fee
could be raised fell for considration in that case as in these cases.
In Sreenivasa General Traders' case (supra) which arose under the
Andhra Pradesh (Agricultural Produce and Livestock) Markets Act,
1966 the market fee which was 25 paise per hundred rupees was C
raised to 50 paise in 1972 and eventually to one rupee for every
hundred rupees. The contention was that increase in the rate of
market from 50 paise to one rupee was illegal on the ground that
there was no correlation between the increase and the services
rendred. That is exactly the position in the present case where the D
increase was from one per cent to two per cent of the price paid by
the buyers. Therefore, with respect I an unable to see how and why
what bas been decided in Kewal Krishan Puri's case (supra) should
be confind to the facts of that case alone. Again with respect, I
consider myself bound by the decision in Kewal Krishan Puri's case
and that even the Bench of which I am one of three is bound by that E
decision having regard to the principles governing precedents and the
necessity to avoid confusion in the minds of the High Courts and
Subordinate Courts as regards the correct view to be followed by
them. Fortunately, in these cases, as stated above, both sides relied
upon the decision in Kewal Krishan Puri's case (supra) which F
inter alia laid down of following principles :

l. That the amount of fee realised must be earmarked
for rendering services to the licensees in the notified
market area and a good aud substantial portion of it
must be shown to be expended for this purpose; G
2. That the element of quid pro quo may not be possible
or even necessary to be established with arithmetical
exactitude;
H
3. That at least a good and substantial portion of the
amount collected on account of fees, may be in the
nei~hbourhood of two-thirds or three-fourths, must
212 SUPREME COURT RBPORTS ll985] SUPPL. S.C.R.

be shown with reasonable certainty as being spent
A for rendering services of the kind mentioned in
the judgment; and

4. That if the market fee is sought to be raised proper
budgets, estimates and balance·sheets showing the
balance of the money in hand and in deposit, the
B
estimaated income nd expenditure etc. should be
carefully prepared.

It may be that it is not imperatiye either for the Market
Committee or the Board (Chief Marketing Officer in the present cases)
c to prepare balance-sheets becaue their account are audited by
Government auditors for the purpose of · raising market fee any
further. The balance-sheet will given a true picture of the position
also with the budgets and estimates and then and only then there
may be legal justification for raising the market fee to a reasonable
extent. On drawing the correct balance-sheets and preparing
D correct estimates and budgets the authorities will be able to know the
correct position to decide reasonably as to what extent the raising
of the market fee can be justified taking an over~all picture of the
matter.

E It may be noticed that even the High Court has given similar
directions to the Market Committees and the Chief Marketing
Officer to see whether there is justification for increasing the market
fee from one per cent to two per cent on the invitation of the learned
Advocate General appearihg for the State and the learned Consel
appearing for the Market Committee as stated above.
F
Now that I have set out the facts and the decision of the High
Court to the extent necessary and the arguments of the learned
counsel for the parties and the lay bearing on the questions involved
as It understand the same. I proceed to record my findings.
G The principles of law laid down by the Bench of five learned
Judges of this Court in Kewal Krishan Puri's case (supra) so long as
they have not been dissented from, varied or set aside by a larger
Bench are binding, with respect, not only on smaller Benches of this
H Court but also undoubtedly on the High Courts and other Subordi-
nate Courts and parties similarly placed. I have already pointed
out that the facts and the points which arose for consideration in
1.1\c. v. KARNATAli!A (Vardarajan, i.)

Kewal Krishan Puri's case (supra), ~sreenivasa General Traders' case
(supra) and the present cases are broadly similar. All ' these cases A
relate to market fees and the enhancement thereof. I have set out
the seven points laid down by this Court in Kewal Krishan Puri's case
(supra) in the earlier part of my judgment and four of those points
which have a direct bearing on these ca~es in the preceding paras.
It is not necessary to establish the element of quid pro quo in regard 8
to market fees with arithmetical exactitude, but an amount' of fee
must be earmarked for rendering services to the buyers in the notified
market area and a good and substantial portion of it must be shown
to be expended for those purposes. The good and substantial portion
earmaked for rendering services may be in the neighbourhood of
two-thirds or three-fourths and it must be shown with reasonable c
certainly as being spent for rendering services of the kind mentioned
in Kewal Krishan Puri's case (supra). 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 under-
taken etc. should be carefully prepared. Then and only then there
may be a legal justification for raising the rate of the market fee
D
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. But in the present cases, none of the;>s
requirements was satisfied before the market fee was raised The E
Market C.-:>mmittees bad no such materml 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 mere direction of the
Chief Marketing Officer. These facts are not in dispute. Therefore,
with respect, the High Court erred in Jaw in not applying the
principle of law laid down by this Court in Kewal Krishan Purl's case F
(s~pra) and failing to strike down the enhancement of the market fee
from one per cent to two per cent on account of the failure to
comply with the principles laid down in Kewal Krishan Puri's case
(snpra). The State Government and the Market Committees appear
rightly to have retraced their steps by reducing the rate of the market G
:)je from two per cent to one per cent by the Circular No. SMD-268/
RGN-83 dated 27.2 1984 with effect from 1.4.1984. The learned
Judges of the High Court themselves do not appear to have been
quite happy about how the enchancement of the market fee had been
made. for they have observed in para 61 of their judgment, as H
mentioned above, that the question might become a live issue if the
Market Committees were to amend the bye·laws made under s.l48
214 SUPREME COURT REPORTS [1983) SUPPL. S.C.l.

read with s.65(2) of the Act in future without giving an opportunity
A to the affected interests of being heard in regard to the proposed
enhancement. Even the learned Advocate General appearing for the
State and the learned Counsel appearing for the Market Committees
had stated before the learned Judges of the High Court that it would
be eminently desirable that the Market Committees should adopt
8 some reasonable procedure in that behalf and that the amendment
to s.l48 ofthe Act made by Ordinance 22 of 1981 dispensing with
the need for prior publication and hearing of the affected interests
was only intended to cure the defect in making the impugned amend-
ment to the bye-law for avoiding 'great public inconvenience which
may result from the invalidation of the bye-law and there was no
c intention to make the deletion, brought about by the Ordinance, a
permanent feature'. They submitted before the learned Judges of
the High Court that any reasonable procedure which may be
suggested by them would be adopted in future 'even if there is no
such legal . compulsion'. In these circumstances, the High Court
has observed : ''It appears to us that before the Market Committees
D propose to amend a bye-law to make an upward revision of the rate
of fee, in future, the Market Committees must first follow the direc·
tions of the Supreme Court (given) in para 55 in Kewal Krishan
Puri's case". The learned Judges have thereafter given the directions
contained in the judgment in that case as mentioned above. With
E respect, I am unable to see how the directions given by this Court
in Kewal Krishan Puri' s case (supra) should be followed only in
future and how there is no compulsion in law for the Market Com-
mittees to follow the directions already given by this Court in that
case and how this could be dispensed with or ignored for the pur-
pose of the impugned enhancement. With respect I think that the
F High Court has erred in not applying the principles of law laid down
by this Court in Kewal Krishan Puri's case (supra) and in observing
that they should be applied only in future. In these circumstances, I
hold that the enhancement of the market fee from one per cent to
~wo per cent by amendment of the bye·law under the directions of
G the Chief Marketing Officer without complying with the principles of
law down in Kewal Krishan Puri's case (supra) is bad in law. The
same would be the position even if the amendment to the bye-law
made in accordance with s. 148 of the Act as it is stood before the
amendment by the Ordinance 22 of 1981.
H
Point No. 12 in para 7 of the High Court's judgment relating
to the question of enhancement of the market fee reads thus :
i.T.C. V. K.ARNATAKA (Vardarajan, j,) 2i5

"Whether the enhancement of market fee leviable
under s. 65(2) of the Act from one per cent to two per A
cent brought about by the amendment of the bye-law res-
ponnents-Market-Committees is unsupportable in law and
fails fo want of correlation with the value of services
rendered to the payers of the fee."
B
The burden cast on the appellants is to prove the negative.
The appellant are bound to succeed in the light of the decision in
Kewal Krishan Puri' s case (supra} if they P• ove that the enhancement
of the market fee was made without complying with the law laid
down in that case. That has been established by the appellant
without any manner of doubt whatsoever. c
As rightly contended by Mr. Kacker the High Court has erred
in giving the direction dated 30.11.1981 to the Chief Marketing
Officer for furnishing a comprehensive statement in respect of each
of the Market Committees in a tabular form as indicated in para 69 D
of the impugned judgment, set out in the earlier part of this
judgment. 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 Exs. R-1 to R-III and simi1ar statements perused
by the High Court were not available either on the date of the
amendment of the bye-law enhancing the rate of the market fee from E
one per cent to two per cent or even on the dates on which the
Writ Petitions were :filed in the High Court. The High Court has
erred in giving the direction and granting an opportunity to the
Market Committees to fill up the lacuna. I do not agree with Mr.
A.K. Sen that the High Court was entitled to do so. F
The High Court has found even Exs. R-1 to R-Ill and the
other statements prepared and furnished pursu~nt to its order dated
30.11.1981 not sufficient to sustain the enhancement of the fee. This
is clear from what the High Court has stated in paras 107 to lll of
its judgment which is extracted for ready reference : G

"101. The upshot of the above discussion is that
though we are unable to hold, on the material placed
before us by the petitioners, that the levy ought_ to fail for H
want of quid pro quo, howe••er having regard to the irtfirmi·
tiE:s noticed in the estimates and financial projections of the
proposed developmental works on the basis of which the
. SUPREME COURT REPORTS (i98)) SUPPL. 5.~.~•

'enhancement is sought to be justified, we are also unable to
A ·say with any confidenee and without reservations that the
enhancement of fee depending as it does on those estimates
iS totally justified. Some time-bound directions to which
we will refer presently for a second [Qok at the estimates
by the statutory authorities are required to be ·issued in
·B this behalf.

108. Indeed, having regard to the wide range of the ·
apparently inexplicable disproportions in the developmental
projects of the various Market-Committees both the learned
Advocate-General arid the learned Counsel for the Market-
c Committees, stated that there was ·obvious scope-in our
,opinion an imperative need-for some rationalisation of:
./
the pattern of development of market-yards based upon
and related to the relevant factors such as quantum and
nature of agri~ultural produce handled by the markets;
D potentialities of development of the market in the reason•
ably near future and the like. Ii is neither possible nor
advisable to lay down exhaustively all the criteria that ·
may become relevant to the task. However the need for '
such exercise to regulate the development to these market·
yards on scientific rational and uniform basis was accepted
E hj all the parties. /

109. A time-bound schedule has to be prescribed
. forth~ Chief Marketing Officer, as the authority under. .,
I
'the 'Act, approving the budgets, to evolve and standardise
·F broad and general norms, taking into account the
observations made in the course of this order, both for
~. infra-structural and developmental works and services, on
·. -
as uniform a basis as may reasonably be feasible, for
'
·the various markets depending upon their classifiCation
tobe made by the C.M.O. on the basis of such criteria
G ·:- he may deem relevimt and also to evolve c-orresponding·
i . cost patterns of the . projects f with suitable inbuilt
indicia -for ·escalation ·of cost structures, from time
to time, proportional to the rise -in . the price of
material.· These norms · shall operate as broad · and
H·---
general guide-lines for the development of regulated
-
markets and shall be kept in view of the market· ~

- committees" . iri .. planning developmental . .projects.
I
t.f.c. Y. KARNATAKA CVardarajan, J.) 211
Departure from these norms and standards shall, of
course, be permissibli on grounds of special requirements A
of individual regulated markets depending upon their
specific individual problems and requirements. At the
time of sanction of the budgets of the Market-Committees
the C.M.O. should scrutinise the budgets with reference
to and applying thebroad-norms and criteria evolved and
8
adopted by him so that the programme and the projects
of development for next 8 years are need based and are as
far as may be, on a uniform and rational basis.

110. The learned Advocate-General and the learned
counsel for the Market Committees concede that this C
exercise is necessary and beneficial as ;ndeed the matter
involved an outlay of nearly 145 crores of rupees in the
next 8 years on the regulated markets.

111. Accordingly, the C.M.O. shall wHhin 4 months D
from now evolve and standardise these norms and
specifications and circulate the same to the Market-
Committees. Respondent- Market-Committees in categories
'C', 'D' and 'E' in Para-SO supra will, within 3 months
therefrom, re~·ise their proposals for development in
accordance with these norms and specifications, departutres E
from standard speciucation being permissible if the special
conditions peculiar to the particular markets so require
and compel. The C.M.O. will again scrutinise these
revised proposals and their cost-projections and if, upon
such scrutiny, is of opinion that the present 2% market-fee F
of any Market-Committee in the category 'C', 'D' and 'E'
supra is unjustified, the C.M.O. will make appropriate
orders. under s. 150 of the Act directing the Market-
Committee or Committees concerned to amend their
bye-laws to effect an appropriate downward revision in
the quantum of the fee. Wherever the C.M.O. is of the G
opinion, after an examination of the proposals, that there
is no need to make a downward revision, he shall malce a
specific note in the behalf. These orders shall be made
within a period of 8 months from now."
H
What the High Court has stated in paras 107 to 110 and in the
first sentence of para 111 would apply to all the Market-Committees
218 SUhEMB COURT REPORTS [1985] SUPPL, s.c.B..

which had enhanced the market fee from one per cent to two per
A cent, and the Chief Marketing Officer has been given four months
time from the date of the judgment to evolve and standaries the
norms and sp;:cifications and to circulate the same to the Market
Committees. After giving such a direction the learned Judges of the
High Court have given som0 other direction to the Market Committees
falling in categories 'C', 'D' and 'E' mentioned in para 80 of their
B
judgment, namely "within three months therefrom they should
revise their proposals for development in accordance with the norms
and specific1tions. Then the Chief Marketing officer will again
scrutinise these revised proposals and their cost projections, and if
upon such a scrutiny he is of the opinion that the present two per
c cent of market fee of any Market Committee in categories 'C' 'D'
and 'E' is unjustified, he will make the appropriate orders directing
the Market Committees concerned to amend their bye· laws to effect
an appropriate downword revision in the quantum of the fee and
wherever he is of the opinion after examination of the proposals that
there is no need to make a downward revision he shall make a
D specific not in this behalf and he shall make these orders within a
period of eight months from the date of the judgment". It is not
clear why after giving the general direction in respect of all the
Market Committees which had enhanced the market fee from one
per cent to two per cent the learned Judges of the High Court
E thought it necessary to give another set of directions to the Market
Committee falling in categories 'C' 'D' and 'E'. This confusion was
perhaps responsible for Mr. A.K. Sen contending seriously in the
course of his arguments that the directions given by the High Court
relate to only 8 or 4 of the Market Committees falling in categories
'C' 'D' and 'E'. It is not possible to accept this argument for the
F reason that the High Court has not recorded any finding on Point
No. l2 to the effect that there is sufficient correlation in respect of
all the Market Committees except 8 or 4 of the market Committees
falling in categories 'C', 'D' and 'E'. After setting out Point No. 12
in para 7 of their judgment the learned Judges of the High Court
G have indicated that the discussion relating to that point is in paras 75
to 110 and that the finding is in para 111. As stated earlier, a
perusal of paras 107 to 110 and first sentence in para Ill, especially
para 110, would show that the direction has been given by the
learned Judges in respect of all the Market Committees which had
H enhanced the fee from one per cent to two per cent. The learned
Judges have stated in para 110 that the learned Advocate General
appearini for the State and the learned Counsel appearing for the
l.T,C. V, KARNATAKA (VardQrajan, J.) 219

Market Committees conceded that the exercise suggested by the
learned Judges in para 109 of there judgment is necessary and A
beneficial as the matter involved an outlay of nearly 145 crores of
rupees in the next eight years on the regulated market. Surely, an
outlay of 145 croces of rupees could not be in respect of only 8 or 4
of the Market Committees falling in categories 'C', 'D' and 'E'.
The learned Judges of the High Court have observed in para 107 of 8
their judgment that having regard to the infirmities noticed in the
estimates and financial projections of the proposed developmental
works on the basis of which the enhancement is sought to be justified
they "are unable to say with any confidance and without reservations
that the enhancement of the fee depending, as it does, on these
estimates is totally justified", and that some time. bound directions c
to which they would refer for having a second look at the estimates
of the statutory authorities are required to be issued. There is nothing
in these observations of the High Court to indicate that they are
confined to only 8 or 4 of the market Committees falljng in categories
'C', 'D' and 'E'. The learned Judges of the High Court have no
D
doubt observed in the first sentence in para 107 that on the materials
placed before them by the writ petitioners they cannot hold that the
levy ought to fail for want of quid pro quo. With respect I think that
there is some confusion in this part of the judgment of the Hig~
Court which has given room for argument of Mr. A.K. Sen that the
directions have been given only in repect of R or 4 of the Market E
Committees falling in categories 'C', 'D' and 'E'. ,\.s stated earlier,
the learned Judges of the High Court have not recorded any finding
on Point No. 12 to the effect that correlation is established satisfac·
torily in regard to all the Market Committees which had enhanced
the market fee from one per cent to two per cent except 8 or 4 of
the Market Committees falling in categories 'C', 'D' and 'E'. The F
direction given in para Ill is stated under Point No. 12 in para 7
of the impugned judgment to be the finding on that point relating
to correlation. I, therefore, agree with Mr. Sorabjee that the direc-
tions given in paras 107 to 110 and the first sentence in para 111 of
the impugned judgment relate to all the Market Committees which G
had enhanced the market fee from one per cent to two per cent and
not to only 8 or 4 of the Market Committees falling in categories
'C', 'D' and 'E' and that in view of the observation made in para 107
that having regard to the infirmities noticed in the estimates and
financial projections of the proposed development works on the H
basis of which alone the enhancement is sought to be justified they
are unable to say with any confidence and without reservations
220 (1985)sUPPL. S.C.R.

that the enhancement of the fee is totally justified, they should have
A held that there is no conelation and that there is no justification
for the enhancement of the rate of the market fee. For these reasons, ..
~

I hold that there is no. correlation and that there is no justification
for the enhancement of the market fee from one per cent to two
per cent. I am constrained to observe that the learned Judges of the
High Court have failed to exercise the jurisidiction vested in them
B
by law by not recording any finding on Point No. 12 one way or
the other, namely, that there is or no correlation, and that they
have clothed the Market Committees and the Chief Marketing
Officer with their jurisdiction to decide the question whether the
enhancement is justified and if not justified to effect a downward
c revision wherever necessary.

In view of what has been stated above about the enhancement
of the market fee the question whether the amendment of the bye-
laws for raising the rate of the market fee from one per cent to two
per cent has been validly male or not becomes academic and is,
D however, considered for the sake of completeness. According to
s. 148 ( 1l of the Act as it stood on the date of the amendment of the
bye-laws for enhancing the rate of the market fee from one per cent
to two per cent and on the dates on which the Writ Petitions were
filed in the High Court "subject to the provisions of this Act and
E the rules made thereunder under s. 146 and with the previous
sanction of the Chief Marketing Officer a market committee may,
after previous publication in the prescribed manner, make bye-law
for regulation of the business and the conditions of trading in the
market area. Every bye-law made in this section shaH be published
in the prescribed manner". As stated earlier, the question of market
F fee would fall under s. 148 (2) (xuiii) of the Act. It was contended
before the High Court that there is no compliance with the require-
ment of previous sanction and previous publication in the prescribed
manner in regard to the amendment of the bye-laws for raising the
market fee leviable under s. 65 (2) of the Act from one per cent to
G two per cent. The High Court has observed that finding no answer
to that criticism in regard to the amendment of the bye-laws the
State Government has come forward with Ordinance 22 of 1981
when the arguments in the Writ Petitions were coming to a close.
That Ordinance has since been replaced by the Karnataka Act 4 of
H 1982. Ss. 3 and 5 of the Ordinance which have been replaced by
ss. 2 and 114 the Amendment Act may be extracted for easy
reference:
I.T.C. V. KARNATAKA (Jfardarajan, J.) 221

"3. Amendment of section 148.-In section 148 of
the principal Act, in sub-section (1), the words cafter prC- A
vious publication in the prescribed manner", shall be and
shall be deemed always to have been omitted."

us. Validation-Nothwithstanding anything contai·
ned in any judgment, decreet or order of any court or B
other authority, any bye-law made or purporting to have
been made, and levy or collection of market fee made
and any action or thing taken or done in relation to such
levy or collection under the provisions of the principal
Act, before the commencement of this Ordinance shall be
deemed to be as valid and effective as if such bye-law or c
levy or collection or action or thing had been made,
taken or done under the principal Act as amended by
section 2 and 3 of this Ordinance and accordingly,-

(a) all acts, proceedings or things done or action taken D
by the State Government or by the Market Commit·
tee or by any other officer of the State Government
or of the Market Committee or by any other authori-
ty in connection with the levy or collection of the
market fee shall, for all purposes, be deemed to be
and to have always been done or taken in accordance E
with law; and

(b) no suit or other proceedings shall be instituted,
maintained or continued in any Court or before any
authoritY for refund of any such market fee or for F
questioning the validity of any action or thing taken
or done under the said bye·laws, and no court shaU
rec.>gnise or enforce any decree or order declaring
the said bye-laws or any action or thing taken or
done thereunder as invalid on the ground that the
bye-laws were .made without giving reasonable G
opportunity to persons likely to be affected thereby
to file their objections and suggestions, or otherwise
without following the procedure prescribed".
H
Previous publication referred to in s. 148 (1) as it originally
stood before the 9,mendment to the bye-laws for enhancing the ratt
222 SUPREME COURT REPORTS (1985) SUPPL. S.C.R.

of the market fee from one per cent to two per cent was made was
A intended to give a reasonable opportunity to the persons likely to
be affected to file their objections or make their suggestions and for
being heard in regard to the increase in the rate of the market fee
and other relevant matters. That right is purported to have been
taken away by s. 3 of the Ordinance, and s. 5(b) of the Ordinance
validates the amendment to the bye-laws made without such previous
B
publication without giving an opportunity to the affected interests of
being heard in the matter. The High Court has found that in these
cases the Chief Marketing Officer him~elf had given directions to the
Market Committees to amend the bye-laws for enhancing the market
fee from one per cent to two per cent and the bye-Jaws were amended
c by the Market Committees accordingly and that the Chief Market-
ing Officer's direction to amend the bye-laws for enhancing the
rate of the market fee can be regarded as his previous approval.
I am unable to agree with this view of the learned Judges of the
High Court. Previous approval can only be of some proposal or
resolution of the Market Committees for doing one or the other of
D the things required to be done under the provisions of the Act. When
undisputably there was no such resolution or proposal by the
Market Committees for enhancement of the rate of the market fee I
am unable to see how the direction of the Chief Marketing Officer
given to the Market Committees to amend the bye-laws for raising
E the rate of the inarket fee from one per cent to two per cent can be
considered to be his approval. 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 Ordiance 22 of 1981. It is seen from the
impugned judgment that it was submitted before the learned Judges
F of the High Court that the affected interests' right of being heard
was conferred by the Statute and it has been taken away by the
subsequent amendment to the Statute with retrospective effect and
that there is, therefore, no ground for the affected interests to
complain. No such submissions were, however, made in this Court.
Market fee is not a tax which is imposed by law passed by a Legis-
G lature where the interests affected are or are supposed to be
represented unlike the market fee the enhancement whereof is made
by subordinate legisla1ion by way of amendment of the relevant
bye-laws by the Market Committees. That is why the provision for
previous publication was made in s. 148(1) of the Act as it stood at
H
the relevant time. It is not possible to accept the contention that the
right given by law was taken away by taw and cannot, therefore, be
I.T.C. r. KARNATAKA (Vardarajan, J.) 223

claimed by the affected interests, for though it was mentioned in
s. 148(1) of the Act as it stood at the relevant time it was a right A
which was available to the affected interests under the principales of
natural justice of being heard before the enhancement could be made.
The High Court appears to have been aware of this position and to
have not been quite happy about how the enhancement of the market
fee has been brought about, for the learned Judges have observed in
8
para 61 of their judgment that the questioa might become a Jive issue
if the Market Committees were to amend the bye-laws in future
without giving an opportunity of being heard to the affected interests.
Even the learned Advocate General appearing for the State and the
learned Counsel appearing for the Market Committees had stated
before the learned Judges of the High Court that the amendmt!nt c
to s. 148(1) made by the Ordinance was only intended to cure
the defect in . making the impugned bye-laws to avoid great
public inconvenience and that there was no intention to make the
deletion of the requirement of previous publication a permanent
feature. The right of the affected interests of being heard before
Market Committees could raise the rate of the market fee being a D
right available to them under the principles of natural justice cannot
be denied to them even by omitting in s. 148(1}. the clause relating to
previous publication of the proposal to make or amend any bye-law
under s. 148 of the Act. In any event the amendment has not taken
away the requirement of previous approval of the Chief Marketing E
Officer, and since there was no resolution or proposal of the Market
Committees to enhance the rate of the market fee before the Chief
Marketing Officer gave the direction to the Market Committees to
amend the bye-laws for raising the market fee the direction cannot
be taken as previous approval of something which was not in exis-
tence at that time. I, therefore, hold that the amendment of the F
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.

S. 65(1) of the Act as it originally stood provided for Market G
Committees to levy and collect market fees from buyers in respect of
agricultural produce bought by (i) any trader or other person in the
yard and (ii) any trader outside the market or sub-market in the
market area, at such rate as may be specified in the bye-laws
(which will not be more than thirty paise per one hundred rupees of H
the price of the specified agricultural produce) in such manner and
at such times as may be specified in the bye-laws. S. 65(2) laid down
that for the purposes of sub-section (1), all notified agricultural
224 StJPRBMB COURT REPORTS (1985} !lUPPL. S.C.R..

produce leaving a yard shall, unless the contrary is proved, be presu-
A med to have been bought within such yard by the person in posses·
sion of such produce. S. 65 was amended by Amendment Act 24
of 1975 which came into force on 19.5.1975. S. 2 of that Amendment
Act substituted s. 65 of the principal Act as amended by Act ;o of
1973 by a new section which read as:
8
"S. 65. Levy of market fees.-

(1) The market committees shall levy and collect market
fees from every seller in respect of agricultural
produce sold by such seller in the market area at the
c rate of one rupee for one hundered rupees of the
price of such produce sold;

(2) the market committees shall levy and collect market
fees from every buyer in respect of agricultural
D produce bought by such buyer in the market area at
such rate as may be specified in the bye-laws (which
shall not be more than one rupee per hundred rupees
of the price of such produce bought) in such manner
and at such times as may be specified in the
bye-laws;
E
(3) every market committee shall, not withstanding
anything contained in this Act, credit to the
Karnataka Roads and Bridges Fdnd constituted
under the Karnataka Motor Vehicles Act, 1957
F market fees collected under sub-section (1) for being
spent or the purpose of construction, repair,
improvement and maintenance of rural roads in the
State.''

Market fee was levied on the sellers for the first time under
G s. 65(1) as substituted and the entire collection made under that
sub-section bad to be credited to the Karnataka Roads and Bridges
Fund for being spent for the purposes of construction, repair,
improvement and maintenance of rural roads in the State. Sub·
sections (1) and (3) of s. 65 of the Act, as substituted by Amendment
H Act 24 of 1975 were struck down on 28.9.1978 by the decision in
Rajasekhariah's case (supra). Subsequent to that decision s. 65 of
I.T.C. v. KARNATAKA (Vardarajan, J.) 225

the principal Aetas substituted by Amendment Act 24 of 1975 was
amended by s. 20 of Amendment Act 17 of 1980 thus : A
"S. 20. Amendment of section 65.-ln section 65 of
the principal Act, --

(1) for sub-section (1), the following sub-section shall
be and shall be deemed to have been substituted with B
effect from 19th day of May, 1975 namely:-

"(I) In respect of the agricultural produce sold
in a market area, there shall be levied and collected
by the market committee thereof, from every seller,
market fees at the rate of one per cent of the sale
c
proceeds of the produce so sold;

(2) Sub-section (1) as so substituted shall be and shall be
deemed to have been omitted with effect from the
23th day of September, 1978; D
(3) in sub-section (2), for the words "one rupee", the
words "two rupees" shall be substituted;

(4) sub-section (3) shall be and shall be deemed always
to have been omitted." E

The result of the amendment was that the levy and collection
of market fees on and from sellers of agricultural produce at one
per cent of the price of the agricultural produce sold in the market
area had been rest.ricted to the period from 19.5.1975, the date on
which Amendment Act 24 of 1975 which substituted the new s. 65
in the place of the original section 65 came into force upto 28.9.1978,
the date on which the substituted sub-sections (1) and (3) of s. 6S
were struck down in Rajasekhariah's case (supra), andthe substituted
sub-section (3) was omitted by Amendment Act 17 of 1980 as if it
never evisted in the Statute. S. 42 of Amendment Act 17 of 1980 G
relates to validation of market fees-etc. and reads:

"S. 42 Notwithstanding anything contained in any
decree, order of judgment of any court, or other
authority, any levy or collection of market fee made or H
purported to have been made, any action taken or thing
done in relation to such levy or collection under the
226 SUPREME COURT REPORt'S (198SJ SUPPL. !!.C.R..

provisions of the principal Act before the commencement
A 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 principal Act as amended
by this Act and accordingly,-

(a) aU acts, proceedings or things done or action taken
B
by any market committee in connection with the levy
and collection of such market fee shaH, for all pur·
poses, be deemed to be or to have always been
made, done 'Jr taken in accordance with law;

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

(c) no court shall enforce any decree or order directing
the refund of any such fee;
D
..
The market fee levied on and collected from sellers under the
substituted s. 65(1) of the Act went to the credit of the Karnataka
E Roads and Bridges Fund under sub-scetion (3). Sub-section (3) had
been omitted by Amendment Act 17 of 1980 as if it never existed in
the Statute as mentioned above. The High Court, following this
Court's decision in Kewal Krishan Puri's case (supra) has held that
rural roads are essentially and primarily intended for the benefit of
the public and the class of market fee payers as part of the gene1 al
F public is entitled to the benefit of their user and the fee cannot be
levied on and collected from them for being spent for the purpose of
construction, repair, improvement and maintenance of such roads,
more so because rural roads, even if constructed, repaired, improved
or maintained from the market fee collected under the Act, do not
G become the property of the Market Committees and shed their
character as public roads. Expenditure of market fees for construc-
tion of roads, main or rural, is impermissible in view of the decision
in Kewal Krishan Puri's case (supra), and even s 65(3) has been
omitted as if it never existed in the Statute after it was struck down
H in Rajasekhariah's case (Supra). The quid pro quo for the levy under
substituted s. 65(1) on sellers was the construction, repair, improve-
ment and maintenance of rural ro~ds which is no longer permissible
J,T.C. V, KARNATAKA (Vardarajan, J.) 227

to be done out of moneys collected as market fees. There ii thui
no quid pro quo to any extent for the levy under the substituted A
s. 65(1) of the Act and therefore, it fails, and it is not protected even
by s. 42 of the Amendment Act 17 of 1980 and has been rightly
struck down by the High Court. S. 42 of the Amendment Act 17 of
1980 in so far as it seeks to save the levy and collection of market
fee on sellers under the substituted s. 65(1) cannot also stand. The B
High Court is, therefore, right in its finding on this aspect of the
case.

In the Act there is no provision in regard to the market fee like
s. 23A of the Punjab Agricultural Produce Markets Act
sub-section (1) thereof reads thus : c
"Notwithstanding anything contained in any
judgment, decree or order of any court it shall be lawful
for a market committee to retain the fee levied and
collected by it from a licensee in excess of that leviable D
under s. 23 if the burden of such fee was passed on by
the licensee to the next purchaser of the agricultural
produce in respect whereof such fee was levied and
collected."

In Civil Appeals Nos. 4500-4501 of 1984 decided on 19.11.1984
E
this Court has held that what s. 23A of the Punjab Act does is to
prevent unjust enrichment by means of a refund to which the person
claiming it has no moral or equitable entitlement. The market f~e
collected from sellers under the substituted s. 65(1) must have been
credited to the Karnataka Roads and Bridges Fund and used for the F'
purpose of construction, repair, improvement and maintenance of
rural roads which are undobtedly for the benefit of the general public.
The excess fee collected under s. 65(2) of the Act also must have been
utilised for the purposes contemplated by the Act. The persons from
whom they have been collected, sellers and buyers, would naturally
G
have passed on the levy to those who purchased the agricultural
produce from them and the levy must have ultimately been borne by
the consumers of the produce. Any refund would go to unjust
enrichment of the persons from whom they have been collected.
In these circumstances I do not think that any order for refund of H
the market fee collected under the rubstituted s. 65(1) and the excess
market fcc collected under s. 65(2) of tl'.c Act could be made in these
cases.
228 IUPREMB COURT RBPOi.TI {1985] SUPPL. I.C.l.

To summarise, my findings are:
A
(1) S. 65 (1) of the Act as substituted by Amendment
Act 24 of 1975 and Act 17 of 1980, and s. 42 of Amend-
ment Act 17 of 1980 in so for as it seeks to save that has
been done under s. 65 (1) of the Act are unconstitutional
and have been rightly struck down by the High Court;
B
(2) Enhancement of the rate of market fee leviable
under s. 65 (2) of the Act by amendments of the bye-laws
from one per cent to two percent of the price of the
notified agricultural produce is invalid in Jaw for non-com-
pliance with the law laid down in Kewal Krishan Puri's
case (supra);

(3) 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
D or proposed to be rendered by the Market Committees
and, therefore, the enhancement is invalid in law;

(4) Amendment of the bye-Jaw~ made for enhance-
ment of the rate the market fee levilable under s. 65 (2) of
E the Act from one per cent to two per cent is invalid in law;

(5) The provisions of the Act are repugnant to the
Tobacco Board Act, 1975 and, therefore, tobacco is liable
to be removed from the schedule; and

F (6) There shall be no refund of the market fees
collected under the substituted s. 65 (1) of excesss fee
collected under s. 65 (2) either by the State Government
or by any of the Market Committees.

The appeals, writ petitions and special leave petitions are
G
disposed of accordingly. The Market Committees shall pay costs
of Rs. 15,000 to the parties represented by Mr. Sorabjee and.
Rs. 10,000 to the parties represented by Mr. Kacker.

SABYASACH1 MUKHARJJ, J. Some Writ petitions out of a large
H number of petitions, nearly 4298 in number arising out of The
Karnataka Agricultural Produce Marketing (Regulation) Act, 1966
()lereiJJafter referred to as the 'Act') were taken up by the High
. i.T.c. v. ~RNAT~KA (S, Mukharjt, /.)

·Court of Karmitaka for hearing and disposed of by one common
j'.!dgment as one or more of the contentions in those petitions were .A
common, and all the petitions were heard together by the High
Court of Kamataka so as to afford opportunities to learned counsel
appearing in the c:1ses to address arguments. These were disposed
of by a common ofjer which was representative of the contentions
urged at the hearing of the argument. The learned judges directed B
that the remaining writ petitions which had been heard along with
those cases. would be disposed of, in co11venient batches, following
the findings on the various contentions recorded in that order.

These.appeals arise out of the said order. In these appeals we
were concerned with the provisions of the Act as well' as (1) the
c
challenge to the constitutional validity of section 65 (I) of the Act
as substituted by The Karnataka Agricultural Produce Marketing
(Regulation) (Amendment) Act, '1980 (hereinafter referred to as the
(Amending Act') which sought to validate the market fee levied on
·the ••sellers of notified agricultural produce" under section 65 (I), D
for and during the period of its operation, prior to its being struck
down by the Karnataka High Court in Rajasekhariah' v. Tiptur Agrl• .
. Produce Ma;keting Committee & Anr.(l) (2) to the enhancement of
market fee from 1% to 2% effected by the various Market Commit-
tees by amending the bye-laws after permissible maximum levy of the
fee on the buyers under section 65 (2) was raised to 2 per cent by the
.E
said Amending Act, the challenge being both on the ground that the
amendment of bye-laws was made in violation of the mandatory·
requirements of prior publication and prior sanction contemphited
by section 148 and on the ground that the enhancement of fees fail
for want of quid-pro-quo ; and (3) to· the inclusion of certain items · F
such as wood~ cardamom, sugarcane, tobacco in the list of notified
agricultural
..._ '.
produce incorporated in the Schedule to the ;Act.
·,
On 1st May~ 1968, the Act came into force. Section 65 of the
Act as originally stood directed the Market Committtees to levy and G
collect Market fees from tbe buyers in respect of agricultural
produce by-

...... _ (i) any trader or oth~ person in the yard. and
H
· (1) 1979 1 Karoataka L.J. p. 43,
230 SUPREME COURT REPORTS [1985) SUPPL. S.C.R.

(ii) any trader o~tside the market or sub-market in tho
A market area. i·
.. t
Section 65 of the Act was amended on 20th October, 1973 by
The Karnataka Act No. 20 of 1973 raising the maximum fee leviable
by a Market Committee from 30 paise to one rupee.
B
On the 17th December, 1974, the enhancement of the market
fee from 30 paise to one rupee made by the amendment of the bye-
laws by some of the Market Committees was challenged by the
traders-buyers of the agricultural produce before the High Court
of Karnataka in Writ Petition No. 537 of 1974 and the connected
c writ petitions in the case of K.S. Varnon Roo v. The Agricultural
Produce Market Committee. Sagar and the High Court by its
judgment dated 17th December, 1974 held that the levy authorised
by the section was in the nature of a fee and after scrutinising the
estimate of expenditure of each of the Market Committees spread
over a period of 15 years. and the amount recoverable by way of
D fees thereto held that there was correlation between the services
rendered and the amount of fees collected.

On 19th .May, 1975, section 65 of the Act was substituted by
a new section (Act No. 24 of 1975). The substituted section reads as
E follows:-

"65. Levy of Market Fees-( I) The Market Commit·
tee shall levy and collect market fees from every seller in
respect of agricultural produce sold by such seller in the
market area at the rate of one rupee per one hundred
F rupees of the price of such produce sold.

(2) The Market Committee shall levy and collect
market fees from every buyer in respect of agricultural
produce bought by such buyer in the market area, at
G such rate as may be specified in the bye-laws (which of
such produce bought) in such manner and at such times
as may be specified in the bye-laws.

(3) Every Market Committee shaH, notwithstanding
H anything contained in this Act, credit to the Karnataka
Motor Vehicles Taxation Act, 1957, the market fees
collected under sub-section (I) for being spent for the
'
I.1·.c. v. KARNATAKA (S. Mukharji,. J.) 231

purpose of construction, repair, improvement and main·
tenance of rural roads in the State." A
By Act No. 14 of 1976 passed on 24th January, 1976 which
replaced and earlier Ordinance. section 65 (1) was amended by
insertion of a proviso to section 65 (I) as under :-
8
"Provided that the State Government may, by order
in public interest, exempt any Market Committee from
such levy and collection in respect of any agricultural
produce ...

On 1st June, 1976, by the Amending Act No. 43 of 1976, the c
following changes were made :-

(a) By section 2 of the amending Act, the word
"MARKETING" was substituted for the words
"buying and selling'', in the long title to the Act. D
(b) By section (3) of the amending Act, the word
'·MARKETING" was substituted for the words
"buying and selling'' in the preamble to the Act.

(c) By section (4) of the amending Act a new clause E
18 (A) was inserted as under :-

"18 (A) "Marketing" means buying and selling
of agricultural produce and includes grading, pro-
cessing, storage, transport, packaging, market infor- F
mation and channels of distribution."

On or about 1978 judgment was delivered by the High Court
of Karanataka in the case of Rajasekhariah v. Tiptur Agricultural
Produce Marketing Committee and Anr. (supra). By the said G
judgment, the High Court struck down section 65 (1) and (3) of the
Act which authorised the levy and collection of market fee on the
sellers of agricultural produce, and the High Court in the said
judgment also considered the levy of market fee at the rate of l per
cent on the buyers of the agricultural produce levied and collected B
by certain Market Committees and upheld such levy on the buyers
of agricultural produce following the earlier judgment dated 17th
December, 1974 in Vaman Rao's case mentioned hereinbefore.
~32 SUPREME COtiB.T REPORTS (1985} SUPPL. S.C.it.

On or about the 30th June, 1979 Ordinance No. 2 was pro-
A mulgated which brought about the following changes :-

(a) Section 63 of the Act which deals with powers and
duties of the Market Committees was amended with
retrospective effect from 19-5-1975 so as to provide
'that in clause (ii) of sub-section (1) of section 63, the
B
words "Transport and Marketing" shall be substitu-
ted for the word ''Marketing" in the said clause.
Clause (ii) of sub-section (1) of section 63 was amen-
ded to provide for "it shall be the duty of the Market
Committee to provide such facilities for transport
c and marketing of agricultural produce therein".

(b) In sub-section (2) of section 63 of the Act and in
clause (a) thereto, the following was inserted after
item (I):
D "(ia) 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."

E (c) Section 65 of the Act was amended to provide for
the following consequences :

(i) The Market fee levied and collected under sub-
section (l) of section 65 of the Act for the
period 19-5·1975 to 28-9-1978 was validated.
F
(ii) Sub-section (1) of section 65 was deemed to
have been omitted with effect from ..<.8-9-1978.

(iii) Sub-section (2) of section 65 of the Act provid·
ing for the levy of Market fee on the buyers of
G the agricultural produce . was amended by
enhancing the maximum permissible levy there·
to from 1 per cent to 2 per cent.

(iv) Sub-section (3) of section 65 oi the Act which
H
dealt with the crediting of the Market fee levied
and collected under sub-section (1) was always
deemed to have been om~tted.
t.t.c. v. K.AitNATAKA (S. MuJchar}i, J.) i33
Pursuant to the amendment of sub-section (2) of section 65
of the Act enhancing the maximum Market fee leviable thereto A
from 1 per cent to 2 per cent, all the Market Committees in the
State (except that of Mangalore) amended the bye-laws by enhanc·
ing the Market fee leviable under sub-section (2) of section 65 of
the Act from I per cent to 2 per cent and on such enhancement of
the market fee from 1 per cent to 2 per cent, all the buyers-traders 8
filed writ petitions befort the High Court assailing the said enhanced
levy.

By Karnataka Ordinance No. 14 of 1979, on 2nd November,
1979, the earlier Ordinance, namely Ordinance No. 2 of 1979 was
repealed. Another Ordinance on the same lines as Ordinance No. 2
c
of 1979 was promulgaged on 3rd November, 1979. On 9th May,
1980, Karnataka Act No. 17 of 1980 containing the same changes
were brought as noticed in the Ordinance mentioned before.

D
Hearing of these writ petitions before the High Court commen·
ced in October-November, 1981. Section 148 of the Act was amend-
ed by Karnataka Ordinance No. 22 of 1981 during the hearing of
these writ petitions and by the said Ordinance the conditions of
previous publication contemplated in section 148 of the Act was
dispensed with retrospective effect. We shall have to advert to E
these provisions subsequently.

Judgment was delivered by the High Court of Karnataka on
25th January, 1982 in these writ petitions. Thereafter the rate of
market fee payable under section 65 (2) of the Act was reduced F
from 2 per cent to 1 per cent by all the market committees by
Circular dated 27th February, 1984. As mentioned hereinbefore,
these appeals challenge the said judgment.

Several contentions were urged before the learned trial judge and G
iome of these contentions were pressed before us. One of the
questions posed was, whether section 65 ( 1) of the Act (as substitu·
ted by the Amending Act 17 of 1980) read with section 42 of the
said Amending Act retrospectively validating the levy and collection
of market fees on the sellers at one per cent for the period between H
19·5·1975 and 28·9·1978. was constitutionally valid. By the said
234 ~UPREME COURT REPORTS [1985j SUPPL, S,C,R.

amending Act it was provided that the following sub-sections shall
A be deemed to have been substituted with effect from 19th May,
197 5, namely :-

"(1) In respect of the agricultural produce sold in a
market area, there shall be levied and collected by the
B market committee thereof, from every seller, market fees
at the rate of one per cent of the sale proceeds of the
produce so sold ;

(2) Sub-section (l) as so substituted shall be and
c shall be deemed to have been omitted with effect from
the 28th day of September, 1978."

It was contended on behalf of the petitioners before the
High Court that section 65 ( l) as substituted by Act 17 of 1980
read with section 42 of the Amending Act, seeking to validate the
D collection of market fee on "sellers" made under the old section
65 (1) was constitutionally invalid. It must be kept in view that
this validation had become necessary in view of the judgment of
this Court in Rajasekhariah's case (supra) striking down sub-sections
(I) and (3) of section 63 of the Act as these then stood. The present
E substituted section 65 (1) read with section 42 of the Amending Act
sought to validate the collections of market fee on sellers made when
the earlier section 65 (I) was operative.

The High Court in the case of Rajasekhariah's case struck
F down section 65 (I) (3) on grounds as follows :

u(a) The though the fees levied under sub-section
(1) of section 65 were required to be spent on construc-
tion, repair, improvement and maintenance of rural
roads, the construction or repair or improvement and
G maintenance of Rural roads was not one of the obliga-
tory functions of the Market committees under the Act ;
and the construction and maintenance of rural roads,
which were public roads, were the primary responsibility
H of the State and its instrumentalities such as the authori~
ties under the Karnataka Municipa1ities Act, 1976 ;
Karnataka Municipalities Act, 1964 ; etc.
.
i.t.c. v. KARNATAKA (S. Mukharji. J.) 2.3.5

- (b) Secondly, having regard to the essential element
in the concept of fee requiring some special benefit by
way of quid-pro-quo, "to flow to the class of persons on
A

whom fee is levied, the construction and maintenance of
public roads could not be said to constitute or provide
any such special benefit to the payer of the fee who, as

--
members of the public were entitled to the use and benefit B
of public roads and that they could not be compelled to
pay a fee for what they, in common with the general
public, were otherwise entitled to as of right."

Pursuant to the judgment in Rajasekhariah's case, the State
was exposed to the liability for refund of fee collected for the c
period between 19·5·1975 when sub-sections 65 (1) and (3) were
introduced by the Amending Act 24 of 1975 and 28·9·1978 when
tha judgment was pronounced. By the Act 17 of 1980, this levy
was sought to be validated and the fee retained by the State
Government. D

After discussing the rival submissions and after discussing the
legal principles and the decisions in the cases of MisrilaT Jairt v. State
ofOrissa,(l) Shri Prithvi Cotton Mills Ltd. v. Broach Borough Mnnici·
pality,(2) Ahmedabad Corporation v. New Shirock Spg. ond Wvg. Co. E
Ltd.,(8) I.N. Saxena v. State of M.P.,( 4) and The Commissioner, Hindu
Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar
of Sri Shirur Mutt,(5 ) the High Court of Karnataka distinguished fee
and tax and then referred to the case of Kewa/ Krishan Puri v.
State of Punjab.(8 ) Reliance was also placed on the observations of
this Court in Southern Pharmaceuticals and Chemicals v. State of F
Kerala(') and then the Court addressed itself to the question whether
construction of rural roads for which fee was levied on the sellers
can be said to be a special service primarily and directly intended for
the benefit of the class which paid the fee.
G
(1) A.I.R. 1977 S.C. 1686.
(2) A.I.R. 1970 S.C. 192.
(3J A.l R. 1970 S.C. 1292.
(4) A.I.R. 1976 S.C. 2250.
(S) A.I.R. 1954 S.C. 282. H
(6) A I.R. 1980 S.C. 1008.
(7) A.I.R. 1981 S.C. 1863.
i36 SUPREME COURT iulPOR.TS {i98Sl suPPL. s.c.k.

After discussing several decisions, Karnataka High Court felt
A that the second major defect noticed in the law in the case of
Rajasekhariah's case namely the construction of rural roads could
not qualify for being reckoned as special service to a class of
persons paying the fee had not been cured or removed by the law
which sought to validate the levy and in view of these circumstances,
B the Court came to the conclusion that section 65 (1) as substituted
by section 20 of the Amending Act 17 of 1980 as wen as section 42
of the Amending Act was not constitutionally valid and was liable
to be 11truck down.

As mentioned before several other contentions and submissions
c were urged before the learned trial Judge but befor us the following
main submissions were urged :

(1) There was no quid-pro-quo between the imposition of fees
and the services rendered, (2) In so far as the Amending Act 17 of
D 1980 sought to validate the taxes realised following the defects
mentioned in Rajasekhariah's case valid or not, and, if not, whether
the appellants were entitled to refund of any amount ? (3) Is
imposition of market fee on Tobacco valid ? (4) Is the deletion of
the provisions for previous publication in section 148 proper and
valid?
E
I will, however, notice the other contentions briefly raised in
those writ petitions.

It was contended that the Act as amended by Act 17 so far as
F marketing of cardamom was concerned, was repugnant to The
Cardamom Act. 1965. The High Court held that Karnataka
Legislature was not entitled to impose market fee so far as car-
damom was concerned. It may be noted before the High Court that
the inclusion of cardamom in the Act was contended to be bad in
view of entry 52 of List I and entry 33 of List III but it appears the
G
question was not considered in the light of entry 52 of List I and
entry 28 of List II in the present case. The High Court, further.
found that the rules framed under the Cardamom Act were at
variance with the present Act. So far as sugar-cane was concerned
H it was held that sugarcane was outside the pale of the present Act.
The Government has not appealed against the findings so far as
cardamom was concerned. In so far as the High Court held that
I.r.c. "· I:AitNATAkA (S. Mukhcuji, J.) 237

sugarcane was outside the pale of the Act, no argument impugnin&
that finding was canvassed before Ull. A

It was for the first time by the Amending Act 17 of 1980 that
tobacco was enumerated as an agricultural produce for the purpose
of the Act. It may be borne in mind that the Amending Act 17 of
1980 for the first time enumerated tobacco for the purpose of the B
"Act". The amending Act was not reserved for the consideration of
the President.

On a consideration of the provisions of the Tobacco Board
Act, 1975 and the present Act, after discussing various contentions,
the High Court held that there was no repugnancy and conflict as c
between the provisions of Tobacco Board Act, 1975 and the present
Act.

One of the main contention~ urged before the High Court and
reiterated before us was whether the Act in so far as it provided for
D
regulating the marketing of tobacco is unconstitutional as being
repugnant to the Central Act and on the same topic marketing of
tobacco is regulated by Tobacco Board Act, 1975. It should be
borne in mind that there was a declaration under section 2 of the
Central Act namely Tobacco Board Act, 1975 pursuant to entry 52
of List I regarding tobacco. It was contended that tobacco after the E
declaration under section 2 of the Tobacco Board Act became part
of entry 52 of List I and it was submitted that once the declaration
was made, any legislation by the State after such declaration trench-
ing upon the field disclosed in the declaration must necessarily be
unconstitutional because that field or area according to the appellants
was excluded from the legislative competence of the State Legislature.
Entry 52 of List I reads as follows :-

"Industries, the control of which by the Union is
declared by Parliament by law to be expedient in the
public interest." G

There has been a declaration by the Union that the control of
tobacco industry bas been taken over in public interest. Thereafter
Tobacco Board Act, 1975 being Act 4 of 1975 was passed for the H
development under the control of the Union of the tobacco industry.
Chapter li of the said Act deals with the establishment and constitu-
Hon of the Board. Section 7 permits the Board to appoint committees
238 SUPIU!ME COURT REPORTS (1985) SUPFL, S.C.R.

as might be necessary for the efficient discharge of its duties and
A performance of its functions under the Act. Sub·section (2) of
section 7 enjoins that the Board shall have powers to co-opt
members. Section 8 of the Tobacco Board Act, 1975 deals with the
functions of the Board and empowers by sub-section (I) of section
8 of the Tobacco Board the duty to promote, by such measures as
it thinks fit, the development under the control of the Central
B
Government of the tobacco industry. Sub-section (2) of section 8
of the said Act lays down different functions of the Board and,
inter alia, by clause (a) permits regulating the production and
curing of virginia tobacco having regard to the demand therefor in
India and abroad. Clause (cc) of section 8 (2) empowers the Board
c as follows:

''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 auctioneer at
D
action platforms established by or registered with it
subject to such conditions as may be specified by the
Central Government."

Section 10 provides for registration of tbe growers of virginia
E tobacco. Section 13 provides that 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 the
rules made under this Act or established by the Board under this
Act. Section 14 deals with the application, cancellation, fees and
F other matters relating to registration. Section 14A deals with the
power 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 specify.

Section 11 provides that no person other than a registered
G curer shall cure or undertake the curing of virginia tobacco unless
he registers himself as a curer with the Board in accordance with
the rules made under the Act.

Chapter V deals with the control by Central Government of
H import and export of tobacco and tobacco products. There are
provisions under section 21 for the issuance of directions by the
Central Gov€;rnment and by section 22 of returns and reports.
i.T.C. r. IfARNATAKA (S. Mukharji, J.) 239
Chapter VI deals with the penalties and offences by the companies.

- Section 31 provides that the provisions of the said Act shall be in
addition to, and not in derogation of, the provisions of any other
law for the time being in force. Section 32 provides for the power
A

of the Central Government to make rules. Section 1 provides that
the Act will come into force on such date as the Central Government
may by notification in the Official Gazette appoint and proviso of
sub-section 1 empowers that different dates may be appointed for
B
· different provisions of the Act and for different States or different
parts thereof. Under sub-section (3) of section 1 of Tobacco Board
Act, 1975, by Notification dated 31st May, 1980, the Central
Government appointed 31st May, 1980 as the date on which sections
10 and 11 would come into force in the States of Maharashtra, c
West Bengal, Gujarat, Tamil Nadu and Uttar Pradesh.

Scection 13 of the Tobacco Board Act is important because it
empowere that 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 the rules made under D
the Act. There was some confusion at the stage of the argument as
to on what date it bas come into force or even if it has not
specifically come into force in the State of Karnataka, by the passing
of the Act itself, the Centre has sufficiently expressed its intention
to occupy the field so as to exclude the operation of any activity E
by the State. Our attention has, however, been drawn to a Notifica-
tion being Notification No. S. 0 665 (E) dated 31st August, 1984
whereby section 13 of the said Act came into force in the State of
Karnataka from 1st day of September, 1984. I have already noted
the provisions of section l3 of the said Act. It may be mentioned
that this notification as such would be of no assistance to us F
because this notification carne into force subsequent to the writ
petitions anrl after hearing in these matters was concluded. It was
the contention on behalf of the petitioners that by declaration under
entry 52 of List I and by the passing of the Act in question i.e.
Tobacco Board Act, 1975, tobacco became an occupied field of G
Central Parliament and would prevail over the 'Act' irrespective of
any separate notification making Tobacco Board Act, 1975, applica-
ble to the State of Karnataka. In exercise of powers under section
32 of Tobacco Board Act, 1975 the Central Government was
empowered to make rules. These are known as Tobacco Board II
Rules, 1976. Rule 33 of chapter VII provides for registration of
growers, curers, exporters, packers and auctiopeers of, and dealers
in tobacco.
240 SUPREME COURT REPORTS {1985] SUPPL. S.C.lt,

The High Court was of the view that unlike the law governing
A the marketing of Cardamom and Sugarcane, the Tobacco Act did
not cover the marketing of tobacco in its entirety but only covered
a part of the area of the topic of marketing of tobacco. According
to the High Court the two legislations could co-exist and operate
cumulatively. The High Court was of the view that any intention of
the superior legislature to cover the whole field to make a compre·
B hensive law with regard to marketing of tobacco was not manifest
in the legislation. The High Court noted that it was not disputed
during the arguments that the only provision on what might be
called the area of marketing covered under the Tobacco Act was
the one requiring the auctioneers of tobacco to hold a licence for
c establishment of auction platforms. The High Court was of the
view that as long as the market committees became such licensees,
there was no further requirement under the Tobacco Board Act
which could be said to render the provisions of the 'Act' regulating
marketing of tobacco under the Act repugnant to or irreconcilable.
It may, however, be noted that by letters dated 15th September,
D
1983 and 23rd September, 1983 appearing at pages 462 and 466 of the
Paper Book, it was pointed out on behalf of the petitioners before
this Court that the market committees had not even upto that date
been registered under the Tobacco Board Act, 1975, in the first letter
written to the Market Committee it was stated that the market
E committee could not be given registration because these lacked
certain necessary qualifications and was therefore incapable of
rendering any service at all. Here it may have to be borne in mind
that section 12 of the Tobacco Board Aet, 1975 enjoins that no
person shall export tobacco or any tobacco products or function as
F
a packer, auctioneer of, or dealer in, tobacco unless he registers
himself with the Board in accordance with the rules made under
-
this Act.

The High Court took the view that on the limited aspect of
marketing provided for Tobacco Board Act, 1975 it only made
G provisions in relation to virginia tobacco and not for all varieties
of tobacco. The High Court therefore was of the view that the
provisions of the Act were not repugnant to the Tobacco Board
Act, 1975 and all that was necessary for the market committees was
to obtain auctioneer's licence under the provisions of Tobacce Act
H and'or to get the necessary qualifications so as to be able to obtain
necessary licence. The High Court came to the conclusion that
provisions of tbe Act in relation to the regulation of tobacco were
I.T.C. v. KARNATAKA (S. Mukharji, J.) 241

not repugnant to the Act. The High Court further noted that
neither the Union of India nor the Tobacco Board had been implead- A
ed as parties to the writ applications before the findings on these
contentions were strenuously challenged before us on behalf of the
appellants. On behalf of the appellants, it was urged that tobacco
was covered by entry 52 of List I by virtue of the declaration under
section 2 of the Tobacco Board Act, 1975 namely the Central 8
Government. It was submitted that once a dec:laration had been
made under section 2, pursuant to Entry 52, the Parliament had
exclusive competence to legislate every aspect or activity pertaining
to tobacco and the State would have no competence to legislate on
that topic.
c
Reference was made to the decision in the case of Baijnath
Kedia v.State of Bihar & Ors.(l)

I need not detain ourselves on the permissibilty of the regula-
tion of marketing of cardamom under the Act, because the same D
was not canvassed before us.

So far as the point relating to 'wood' and 'forest produce' was
concerned, the High Court felt that this point was concluded by
the pronouncement of this Court in Ram Chandra Kailash Kumar
& Co. v. State of U.P.(2) In any event we are not concerned ~ ith this E
controversy as the same was not canvassed before us.

It was contended that section 65(2) of the Act gave an
uncanaliced and excessive power to the market committees in the
matter of -specifying the rate of fee. The upper limit for the levy
was fixed at 2 per cent. It could only be related to the notified F
agricultural produce sold in the market. The concept of fee is itself
a further limitation. The High Court therefore was unable to
accept the submission that section 65(2) was bad for excessive
delegation of legislative powers.
G
It was contended that the bye-laws were unreasonable and
without proper criteria. Reilance was placed before the High Court
on the decision in the case of Maneka Gandhi v. Union of India (S)
H
(1) [1970}2 S.C.R. 100 at 113.
(2) A.J.R. 1980 S.C. 1124.
(3) A.I.R. 1978 S.C. 597.
242 SUPREME COURT REPORTS (1985] SUPPL. S.C.R.

and Ajay Hasia etc. v. Khalid Mujib Sehravardi & Ors. etc. (1). The
A High Court bas, however, found that the legislative measure could
not be invalidated on the ground that the relevant criteria was not
shown to have been taken into account in making the legislation.
Reliance was placed in Tu/sipur Sugar Co. v. Notified Area Committee,
Tulsipur ( 2) and in the said case on the observations of Megary,
B J. in Bates v. Lord Hailsham of St. Marylebone l3) the following effect:

" ...... Let me accept that in the sphere of the so called
quasi-judicial the rules of natural justice run, and
that in the administrative or executive field
there is a general duty of fairness. Nevertheless,
c these considrations do not seem to me to affect
the process of legislation whether primary or delegated.
Many of those affected by delegated legistation, a"nd
affected very substantially, are never consulted in the
process of enacting that legislation; and yet they have no
D remedy ...... ".

I am in respectful agreement with the aforesaid view. It may
further be noted that a minister or any other body in making
legislation was not subject to rules of natural justice. See in this
connection Prof. Wade's 'Judical Review of Administrative Action',
E
4th Edn. page lBS at 192 (De Smith). Though we are in general
agreement with the aforesaid view, the High Court, however, did not
detain it~elf on this point because the High Court, was of tbe view
that the fixation of market fee was challenged not because the persons
concerned were not heard but because there was no quid pro quo.
F
The High Court felt that the challenge to the doctrine of ultra
vires on the basis that hearing of interests affected was an imperative
requirement, not in compliance with rules of natural justice but as a
duty implicit in the nature of the power. Section 148(1) of the Act
as it originally stood provided that a market committee could frame
G bye-laws after previous publication in the prescribed manner and also
with the previous sanction of the Chief Marketing Officer. The
contention was that no procedure having been prescribed by the

H (1) A.LR. 1981 S.C. 487.
(2) A.l.R. 1980 S.C. 882.
~3) [1972] I W.L.R. 1373.
I.T.c. v. ltARNATAKA (S. Mukharji. J.) 243

rules, the concepts implicit in previous publication and incorporated
in section 23 of the General Clauses Act, 1897 were attracted. It was A
urged that there had been no compliance with the requirement of
previous sanction and publication contemplated in this section.
As the narration of events indicated before, an Ordinance was intro-
duced namely Karnataka Ordinance No. 22 of 1981 during the period
when the arguments in these cases were coming to a close before the B
High Court. The amendment sougth to amend sections 137, 148
and 158 of the principal Act. By section 3 of the Ordinance which
amended section 148 of the principal Act, the words "after previous
publlcation in the prescribed manner" occurring in section 148(~) of
the principal Act had been deleted with retrospective effect i. e. from
the date of commencement of the Act itself. lt was contended that C
the requirement of hearing of interests affected was not merely
a procedural requirement of section 148 of the Act but
an exercise inherent in the exertion of power of delegated legislation.
The very concept of 'fee' and the determination of its extent
and incidence by subordinate legislation would require for its D
reasonable exercise an opportunity for the interests affected being
heard, it was submitted.

On behalf of the Market-cmmittees and the Government, it was
contended that on a proper construction of section 65(2) of the Act,
such an implica1ion of a duty to hear affected interests did not at all E
arise. Any argument of such a statutory implication could not
survive the amendment made by Ordinance of 17th December, 1981
which, in turn, clearly took away the obligation of prior hearing.

The High Court was of the opinion that the authorities relied F
on before it indicated that· the opportunity of consultation and hearing
of affected interests were merely informal and extra-judicial. The
High Court referred to the observations in Wade's Administrative Law
and referred to certain decisions.

The High Court was of the view that persons affected did not G
have any right to be heard before the statutory rules or bye-Taws
were made unless the right was conferred by the statutes.

The High Court ultimately came to the conclusion that in the
batch of cases, this was not of much impo~tance on the ground t?at H
b . 'fie and express provisions of sectton 5 (a) of the amendmg
y ds~eci ht'ch validated these bye-laws notwithstanding the fact
Or mance w
that affected interest were not hearc;l in any manner.
244 SUPREME COURT REPORTS [1985) SUPPL. S.C.R.

The Advocate-General stated before the High Court that
A though there was no obligation, it would be eminently desirable to
consult or ascertain the views of those who would be affected and
the High Court, therefore, observed that before a market-committee
proposed to amend a bye-law to make an upward revision of rate
of fee, in future, the market committee could follows the directions
of this Court in Kewal Krishan Puri's case and the High Court,
B
suggested certain means. Ultimately, the High Court came to the
following conclusions:

(a) Section 65(2) of the Act did not confer an
unguided, arbitrary power and there was no excessive
c delegation of legislative power to the markeHommittees
and therefore not vitiated on that account;

(b) The question whether, upon a proper construction,
section 65(2) must be held to imply an obligation on the
part of the market committees to hear affected interested
D parties before the rate of fee was fixed, was left open with
certain observations made in that judgment.

(c) The contention that challenged the bye-law for
want of previous sanction under section 148(1) of the Act
was not accepted.
E
It bad been contended before the High Court that there was
discrimination on the ground that there was levy of the same rate of
fee on all types of produce. The High Court repelled this contention
relying mainly on the decision of this Court in the case of Ganga
F Sagar Corporation Ltd. v. The State of Uttar Pradesh and Others.(l)

One ofthe main contentions urged before the High Court was
that there was no quid-pro-quo. The High Court examined this
contention with reference to the factual details.

G The High court referrd to the decision in the case of KewtJI
Krishan Puri (supra) and observed that the following seven principles
were laid down by this Court:

(1) The amount of fee realised must be ear·market
H for rendering services to the Jlcensees in the notifieg

(I) A.I.R. l980, 28(i.
t.r.c. v. KARNATAKA (S. Mukharji, J.) 245

market area and a good and substantial portion of it must
·, be shown to be expanded for this purpose. A
(2) The services rendered to the licensees must be in
relation to the transactions of purchase or sale of the
agricultural produce.

B
(3) While rendering services in the market area for
the purpose of facilitating the transactions of purchase
and sale with view to achieve the objects of the marketing
legisiation it is not necessary to confer the whole of the
benefit on the licensees but some special benefits must be
conferred on them which have a direct, close and reason- c
able correlation between the licensees and the transactions.

(4) While conferring some special benefits on the
licensee, it is permissible to render such service in
the market which may be in the general interest
D
of all concerned with transactions taking placed in
the market.

(5) While spending the amount of market fees for the
purpose of augmenting the agricultural produce,
its facility to transport in villages and to provide E
other facilities meant mainly or exclusively for the
benefit of the agriculturists is not permissible on the

- ground that such services in the lnng run go to
increase the volume of transaction in the market
ultimately benefiting the traders also. Such an
indirect and remote benefit to the traders is in no
F
sense a special benefit to them.

(6) The element of quid-pro-quo may not be possible
or even necessary to be established with arithmeti~ G
cal exactitude but even broadly and reasonably it
must be established by the authorities who charge
the fees that the amount is being spent for rendering
services to those on whom falls the burden of the
~. H
(7) At least a good and substantial portion of the
amount collected on account of fees, may be in the
246 SUPREME COURT REPORTS ( 1985) SUPPL. S.C.k..

neighbourhood of two-thirds or three-fourths must
A be shown with reasonable certainty as being spent
for rendering services of the kind noted before.

The High Court by an order dated 30th November, 1981 had
directed the Chief Marketing Officer to furni~h in respect of each
marketing committees a comprehensive statement in a tabulation
B
from setting out certain factors which were relevant for determina-
tion of this question. These factors have been mentioned in the
judgment of the High Court. Such statements or similar statements
• were duly filed.

c The High Court noted that out of 33 market committees
which were involved, 2 were tobacco markets. Market committees
whose routine recurring annual revenue expenditure was somewhere
in the nature of 45 to 60% of the market-fee receipt formed one
group. The High Court felt that in the case of these market
D committees even though revenue expenditure did not sufficiently
establish the requisite degree of correlation. It was reasonable to
assume that having regard to the extent of infrastructural facilities
available in most of the modest allocations on future development
work of non-controversial kind will bring about the correlation
required to pass the test of market fee.
E
The High Court observed that the market committees where
the routine recurring annual revenue expenditure itself was over 60%
of the receipts of the market-fee at 2~~ thereby established a broad
and substantial correlation. In the case of these markets, the High
F Court felt that no further investigation was required.

In this class of cases were included 33 market committees.
Their names are tabulated et page 140 of the High Court judgment
(page 314 of the Paper Book). These market committees were
classed as Category 'A'.
G
The High Court at page 315 of the Paper Book (page 141 of
the judgment) tabulated other markets and the High Court felt that
in case of those markets, estimates for developmental work need not
also be subjected to minute examination. These markets were 16 in
H
number and mentioned in the judgment of the High Court namely,
(1) Doddaballapur, (2) Gubbi, (3) Sira, (4) Jamkhandi, (5) Kundgoi.
i.T.C. V. KARNATAKA (S. Mukharji, J.) 247

(6) Laxmeshwar, (7) Siruguppa, (8) Aurad, (9) Gulbarga,
(10) Nalwar, (ll) Shorapur, (12) Yadgir, (13) Yelburga, A
(14) Kollegal, (15) Bhadravati and (16 Manvi. These are classed
as Category 'B'.

The next category was market committees whose routine
annual revenue expenditure plus proposed outlays on infrastructural B
and developmental works which were indubitably relatable to services
to the buyers showed a broad correlation. These were about 14 in
number and mentioned at pages 142-143 of the judgment (pages
315-316 of the Paper Book). These market committees were classed
as Category ·c•.
c
In Category 'D', the High Court mentioned ten markets where
there were proposals for outlays on account of permissible items of
expenditure vis-a-vis the Buyers'-fee.

Then the High Court in Category 'E' dealt with markets whose D
financial estimates required to be individually examined. These
were the regulated markets of Bangalore, Hubli, Sagar, Bijapur.
Raichur, Gadag, Tiptur and Siddapur. The High Court was of the
opinion that correlation of fee and services could not be reckoned
on the basis of receipts and expenditure for one or two years only.
E
The High Court noted and in our opinion rightly, that these
regulated markets were yet in developmental stage, a stage which
should be marked by rapid growth. The initial planning and the
infrastructure must be taken into account, not only potentialities for
growth and expansion in the immediate near future but also long F
range possibilities. But apart from such basic infrastructure, which
stood on a different footing, tht: bt:nefit of utilitarian projects
relatable to and developed from fee resources must be available
to the payers of the fee for at least a considerable part of the period,
covered by the financial estimates and projections. The High Court
noted that if the logic of some of the market committees in this G
behalf, is pushed to its logical or illogical conclusions, would mean
that the present generation of fee-payers would pay for services
which would only be available to the next generation The High
Court was of the view that levy of fee could not be justified on such }I
wholly prospective services. The High Court, however, was of the
view that during the period of execution of the works particularly at
the formative stages of the markets the actual benefit of the services
248 SUPREME COURT REPORTS (1985] SUPPL, S.C.R.
might not be available to the payers of the fees; but if the execution
A of the work is so planned as to apply over the years in future as to
be incapable of providing any service to the class of fee-payers for
and during at least a considerable part of the unit of time-in these
cases a 15 years' period from 1974-75 to 1988-89 fixed by the market
committees themselves then the concept of quid-pro-quo would
B dwindle down to something which could not be characterised as
illusory.

The High Court then dealt in detail with the category of
markets mentioned hereinbefore classed as Category 'E'.

c It was contended that buyers of different kinds of produce
were differents, therefore service to one kind of buyers would not be
service to the other kind of buyers. Such argument based on the
dichotomy of service as between buyers of different kinds of goods
for example, buyers of rice and buyers of vegetables, was rightly
n rejected by the High Court. Such an argument ignored practical
and working problems.

On a detailed examination of the factual position, the High
Court was of the view that it should go by financial projections
made. These aspects were directed to be examined by the Chief
E Marketing Officer and the market committees in terms of certain
directions that the High Court gave which I shall mention later.

The High Court, however, felt that on the basis of the estimate
as these stood the enhanced levy could not be quashed.

So far as Hubli market committee was concerned, the High
Court dealt with it in detail. Amongst the items which were
specially mentioned was an item of outlay of Rs. 150 lakhs proposed
for construction of large godowns; second item was of Rs. 60 lakhs
G for construction of shops and small godowns; and the third item was
the proposed outlay on the 'museum' and the fourth item was the
estimated outlay of Rs. 75 lakhs for acquisition of 466 acres
of land.

H
After detailed examination of these projects, the High Court
was of the view that the market committees would perhaps be in a
position to establish a broad and general correlation of 66 per cent
i:t.c. v. KARNATAKA (S. Mukharji, J.) 249
on the basis of its present proposals and the High Court came to
the conclusion that these were not unreasonable. A

As mentioned hereinbefore, there was an outlay of Rs. 75 lakhs
on the aquisition of land. The provisions of Rs. 75 lakhs was a
modest estimate and it could not be said to be unreasonable. So far
as the outlay on museum was concerned, it was an essential amenity 8
for dissemination of ideas and it was therefore valid.

The High Court then examined in detail the markets of Sagar,
Bijapur, Raichur, Tiptur, Gadag and Siddapur. The High Court for
the reasons recorded and taking all factors into considration came to
the conclusion that though there was room for criticism, on the c
whole, however taking all the relevant factors into considration
it could not be said that the projections were unreasonable.

I am in agreement with the High Court that there was limitation
on the powers of the Court in a controversy of this nature. In D
ascertaining whether the necessary correlation between the services
and fee existed or not, what was required to be examined was only
a broad and general correlation not an equivalence with arithmetical
accuracy and precision. The Court was neither equipped for, nor
should it permit itself, the role of inspecting auditors much less
should it assume the role of technical experts. The other aspect E
which should be borne in mind was that in scrutinising the items of
work and services undertaken by market committee, in case of this
kind where the controversy was co:1fined to the existence of correla-
tion, the exHcise was not whether the items of work should or
should not be undertaken by the market committees. The question F
was somewhat different. The courts merely examined whether the
outlays on the concerned works and services qualified was a special
service vis-a-vis the 'Fee•.

The High Court as a result of the discussion of the aforesaid G
markets came to the conclusion that it was unable to bold on the
materials placed before it that the levy ought to fail for want of
quid-pro-quo. However, having regard to the infirmities noticed in
the estimates and the financial projections of the proposed develop-
mental works on the basis of which the enhancement was sougth to H
be justified, they were unable to say with any confidence and without
reservations that the enhancement of fee, depending as it did on those
250 SUPREME COURT REPORTS (1985) SUPPL. S.C.k.

estimates was totally justified. The High Court was of the opinion
A that some time bound progrmme was necessary to be given for a
second look at the estimates. At the invitation of the Advocate-
General and the counsel for the Market Committee, the High Court
was of the opinion that there was obvious scope and imperative need
for giving some directions and the High Court gave certain directions
B which are contained in pragraphs 109 onwards of the judgment of
the High Court. This part of the judgment has come in for criticism
because on behalf of thl.': petitionersjappeliants, it was contended that
in fact the High Court had abandoned its obligation to come to a
finding whether there was quid-pro-quo or not when there was a
challenge on that point. Therefore, it was contended that
c there was no quid-pro-quo established in respect of these markets.
On the other hand it was contended that the High Court
did come to the conclusion that •here was quid-pro-quo but the
High Court gave certain directions which it was competent to
give. This position will be dealt with in this judgment later.
D
The High Court came to the following conclusions: --

(a) that the provisions of section 65(1) of the
Karnataka Agricultural Produce Marketing (Regulation)
Act, 1966 and section 42 of the Karnataka Act 17 of 1980
E in so far as and to the extent these sought to validate the
levy of market fee on sellers for the period between
19.5.1975 and 28.9.1978 were declared unconstituitonal
and void;

F (b) the provtstons of the Karnataka Agricultural
Produce Marketing (Regulation) Act, 1966, in so far as
these sougth to provide for the regulation of marketing
of cardamom was concerned, were held to be repugnant
to the provisions of Cardamom Act, 1965:
G
(c) the provisions of the KaranatakaA gricultural
produce Marketing (Regulation) Act, 1966, in so far as
these sougth to regulate the marketing of sugarcane was
concerned, were held to be repugnant to the provisions
H of the Sugarcane (Control) Order, 1956, a statutory
order made under section 3 of the Essential Commodities
Act, 195~;
i.t.c. v. KARNATAKA (S. Mukharji, J.) 251

(d) the High Court directed that Chief Marketing
Officer .should, within four months from the date of the A
judgment of the Hignt Court, evolve and standardies
specification~ and norms with regard to the infra structural
and developmental requirements for the market·yards
and sub-market yeards and communicate the same to the
market committees in terms indicated. If, upon such B
scrutiny, the market-fee under section 65(2) now being
levied at 2 per cent was found, in respect of any market
committee, to be exce~sive and without quid pro quo, the
Chief marketing Officer should make orders under section
150 directing a suitable reduction in the quantum of the
market fee of the market-committees concerned. c
So far as the prayer for issue of mandamus directing refund
of sellers' market-fee paid under section 65(1) sought by producer·
sellers and trader-sellers who had earlier approached the High Court
was concerned, the High Court directed that mandamus should D
issue. In so far as producer-sellers and other petitioners who were
trader-sellers who had paid sellers fee under section 65(1) of the Act,
a mandamus to the State Government and to the concerned Market
Committees was directed to be issued in terms indicated in the
judgment of the High Court.
E
With the other directions of the High Court for refund and
otherwise, it is not necessary to detain overselves.

- The following broad questions were canvassed before us for
consideration in these appeals :
F
(1) Whether the government and the market
committees had been able to establish that there was
quid-pro-quo and as such levy of fee. and the increase of
fee from 1 per cent co 2 per cent was justified? It may be
mentioned that after this judgment, the\ evy was decreased G
from 2 per cent to 1 per cent again.

(2) Whether there could or should be refund of any
of these amounts to any of the parties?
H
(3) Whether the High Court had come to any
definite conclusion in respect of the eight Market
Committees mentioned hereinbefore?
SUPREME COURT REPORTS (1 98S] SUPPL. s.c,R..

(4) Whether the High Court had abandoned its
A jurisdiction in not coming to a definite conclusion about
the required correlation to sustain quid pro quo for the
imposition of market fees?

(5) Whether the High Court was competent to give
directions to the Market Committees in the manner it had
B done?

(6) Whether in respect of marketing of tobacco, the
State Government was entitled to legislate or whether in
view of the fact that there was a declaration under item
c 54 of List I of the Vllth Schedule, or whether the State
Legislature had no competence to legislate on this point
as such the impugned legislation was ultra-vires ?

(7) Whether the amendment of section 148 of the
Act as mentioned aforesaid whereby the opportunity of
D
previous publication was deleted was valid or not?

It is necessary now to deal with the contentions that arise
in these appeals as enumerated hereinbefore. The rationale and the
necessity for the impesition of fees in contra-distinction of 'tax' have
E been recognised for a long time. Our Constitution has recognised
the distinction between 'taxes' and 'fees'. Entry 66 of List II of VII
Schedule speaks of 'fees' in respect of the matter enumerated in

F
List II. Similarly, Entry 96 of List I of VII Schedule speaks of fees'
in respect of matters mentioned in List I. Entry 97 of List 1 speaks
of 'ta:tt'. The classic distinction between the two was reiterated in
(
-
the observations of CJ. Latham in the crse of Matthews v. Chicory
Marketing Board (60 Commonwealth Law Report p. 263). A 'tax'
is a compulsory exaction of money by public authority for public
purposes enforceable by law and is not payment for services
rendered. In the case of The Commissioner, Hindu Religious
G Endowments Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur
Mutt.,( 1) this court reiterated that 'the distinction between a tax and
a fee lies primarily in the fact that a tax is levied as part of a
common burden, while a fee is a payment for a special benefit or
privilege'.
H
(l) {1954) S.C.R. 1005.
I.T.C. V, KARNATAJ.CA (S. Mukharji, J.) 253

From time to time in several decisions the need for imposition
of fees by the market·committees have been emphasised and A
examined. Rajamanner, C.J. and T.L. Venkatarama Aiyar, J. in the
case of Kutti Keya v. The State of Madras(l) dealt with the marketing
legislation and need for the same and referred to the report of the
Royal Commission on Agriculture in India. The decision of the
Madras High Court was affirmed by a Constitution Bench of this
8
Court in the case of Arunachala Nadar v. State of Madras(') where
Subba Rao, J. referred to the background of the marketing
legislation. It is not necessary to deal in detail with the said
decisions.

Most of these decisions were reviewed by this Court in judging C
the validity of fees imposed in the case of Kewal Krishan Puri (supra).
Several principales deduced from the decision in Kewal Krishan Puri's
case have been noted hereinbefore. Prior thereto the question was
considered in the case of Government of Andhra Pradesh v. Hindustan
Machine Tools Ltd.(3) which was noted in Kewol Krishan Puri's case. D
Kewal Krishan Puri's case specifica11y noted that the element of quid
pro quo might not possible of even necessary to be established with
arithmetical exactitude even broadly and reasonably it must be
established by the authority which charged the fees that the amount
was being spent for rendering services to those on whom fell the
burden of the fee. At least a good and substantial amount collected E
on account of fees might be in the neighbourhood of 2/3rd or 3/4th
must be shown with reasonable certainty as being spent for rendering
services to those from whom the fees are realised. The Court,
however, noted that while conferring special benefits to the licensees
or payers of fees, it was permissible to render other services in the F
market which might be in the general interest of aU concerned in
respect of transactions that take place in the markets. Services rende·
red to the licenses must be in relation to the transactions of purchase
or sale of produce in the market. It is not necessary, however, to
confer the whole of the benefit on the licensees but some special
benefits must be conferred on them which have a dircet, close, and G
reasonable correlation between the licensees and transactions. But
imposition of fees for general benefit like augmenting the agricultural
produce, its facility of transport in villages and to provide other

H
(1) A.T.R.1943 MAD 621.
(2) A.I.R. 1959 S.C. 300.
(3) [1975] Supp. S.C.R. 394.
254 SUPilBMB COURT llBPOilTS (1985) SUPPL. S.C.P.

facilities meant mainly or exclusively for the benefit of agriculturists
A was not permissible on the ground that such service in the long run
augmented the volume of transaction in the market ultimately
•
benefiting the traders. Such and indirect benefit could not be
considered to be wfficient quid·pro·quo to justify imposition
of market· fee.
B
This question was examined in the case of H.H. Shri Swamiji
of Shir Admar Mutt, etc. v. the Commis:ioner, Hindu Religious &
Charitabie Endowments Department & Ors( 1) The correlation was
again reviewed in the decision in the case of Ramesh Chandra etc. v.
State of U.P. etc.e>
c
This question was again examined by this Court in the case of
Muncipal Corporation of Delhi and Others v. Mohd. Yasbt.( 3 ) There
this Court reiterated that the mere fact there others besides those
paying the fees were also benefited did not detract from the character
D of the fee. In fact the special benefit or advantage to the payers of
the fees might even be secondary as compared with the primary
motive of regulation in the public interest. The Court was not
expected to assume the role of a cost accountant. It is neither
necessary nor expedient to weigh too meticulously the cost of the
sarvices rendered etc. against the amount of fees collected so as to
E evenly balance the two. A broad correlationship was all that was
necessary. Quid pro quo in the strict sense is not the one and only
true index of a fee; nor is it necessarily absent in a tax. A.P. Sen, J.
in the said decision observed at page 235 of the report as
follows:-
F
"What do we learn from these precedents? We learn
that there is no generic difference between a tax and a
fee, though broadly a tax is a compulsory exaction as part
of a common burden, without promise of any special
advantages to classes of tax payers whereas a fee is a pay-
G ment for services rendered, benefit provided or privilege
conferred. Compulsion is not the hallmark of the distinc·
tion between a tax and a fee. That the money collected

H (1) [1980] 1 S.C R. 368.
(2) [1980) 3 S.C.R. 104.
(3) [1983) 3 s.c.c. 229.
i
'

I.T.C. V, KARNATAKA (S. Mukharji. J.) 255

does not go into a separate fund but goes into the con~
solidated fund does not also necessarily make a levy a A
tax. Though a fee must have relation to the services
rendered, or the advantages conferred, such relation need
not be direct; a mere casual relation may be enough.
Further, neither the incidence of the fee nor the service
rendered need the uniform. That others besides those
B
paying the fees are also benefited does not detract from
the character of the fee. In fact the special benefit or
advantage to the payers of the fees may even be
secondary as compared with the primary motive of
regulation in the public interest. Nor is the court to
assume the role of a cost accountant. It is neither c
necessary nor expedient to weigh too meticulously the
cost of the services rendered etc. against the amount of
fees collected so a-; to evenly balance the two. A broad
correlationship is all that is necessary. Quid pro quo in
the strict sense is not the one and only true index of a
fee; nor it is necessarily absent in a tax."
D

In the c1se of Southern Pharmaceuticals&: Chemicals Trichur &
Ors. Etc. v. State of Keral.J & Ors. Etc.(1) This view as again
reiterated at page 542 of the report, A.P. Sen, J. observed as
follows:- E

"It is now increasingly realised that merely because
the collections for the services rendered or grant of a
privillege or licence, are taken to the consolidated fund of
the State and are not separately appropriated towards the F
expenditure for rendering the service is not by itself
decisive. That is because 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 to the
consolidated fund. It is also increasingly realised that G
the element of quid pro qu·J stricto senso is not always a
sine quo non of a tee. It is needless to stress that the
element of quid pro quo is not necessarily absent in every
tax."
H
(l) [1982] 1 S.C.R. 519.
256 SUPREMB COURT REPORTS (1985] SUPPL. S,C,R.

The learned judge at page 543 of the report observed that the
A traditional concept of quid pro quo was undergoing a transfor-
mation.

It is not necessary, however, for the purpose of this case to
express any opinion as to whether the traditional concept of quid
B pro quo is undergoing any transformation and if so to what extent?
Even on the basis of traditional concept it is well-settled that though
there must be some special services to the payers of the fees, to be a
fee it is not necessary that all the services must be to the payers of
the fees nor can the correlation between payment of fee and services
rendered be established with mathematical exactitude. It is
c permissible in the modern set up to take into account projections
into furture and not only the present services can be utilised for
justifying the imposition of fee. All planning, project into the future
for its existence and survival.

Any incidental benefit to those other than the payers of the fee
D is not deci~ive of the fact whether it is a 'tax' or a 'fee'. It is
necessary to find out the primary object and essential purpose of the
imposition (emphasis supplied). If the primary object and essential
purpose of the imposition be service of some special kind to the
users of the market or payers of fee, other consequences or other
E 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
commonsense point of view, taking an integrated view. In today's
world you cannot build a good market if the accesses through which
the produce comes to the market are not maintained. However, at
what point the roads will begin and at what point the roads will end
F to be able to justify the roads necessary to maintain solely the
market, appears to be highly theoretical and unreal question in the
modern concept of integrated development.

In the case of Sreenivasa General Traders and Others v. State
G of Andhra Pradesh and Otherse ), a bench of three judges of this
Court had to deal with this question. The said decision reiterated
the distinction between a fee and a tax and observed that a tax was
levied as part of a common burden, while a fee was for payment of
a specific benefit or privilege although the special advantage was
H secondary to the primary motive of regulation in public interest.

(1) [1983)4 S.C,C. 353.
i.T.C. V. KARNATAKA (S. Mukharji, J.) 257

According to this decision in determining whether a levy was of fee,
the true test must be whether its primary and essential purpose was A
to render specific services to a specified area or class; it might be of
no consequence that the State might ultimately and directly be
benefited by it. There must, however, be a reasonable relationship
between a levy of fee and the services rendered to the payers of fees.
According to this decision, Kewal Krishan Puri's case did not lay B
down any legal principle of general applicability. Sreenivasa General
Traders' case (supra) was approved by another decision of the bench
of three learned judges in the case of A mar Nath Om Parkash & Ors.
etc. v. State of Puniab & Ors.(1) (Judgment delivered by 0.
Chinnappa Reddy, J.}.
c
Prior to all this, in the case of State of Maharashtra & Ors. v.
The Salvation Army, Western India Territorye), this Court had to
consider the question of fee under Bombay Public Trust Act. 1950.
The Court noted that fee was defined as a charge for a special
service rendered to individuals by rhe Government or some other D•
agency like a local authority or statutory corporation. The amount
of fee levied. was supposed to be based on expenses incurred in
rendering the services, though in many cases the cost was arbitrarily
assessed. This Court noted that fees were generally uniform but
absence of uniformity was not a criterion on which alone it could
be said that levy was in the nature of a tax. As a f<~e was regarded E
as a sort of return or consideration for services rendered. it was
necessary that levy should be correlated to the expenses incurred in
rendering the services. This Court in Sa/ration Army's case reitera-
ted that in might not however be possible to prove in every case that
the fees collected alwa) s approximated to the expenses that were F
incurred in rendering the particular kind of services or in performing
any particular work for the benefit of certain individuals. In that
case, the Court found that revenve expenditure was about 62 per cent
of the amount of revenue receipts from 1953 to 1970 and this was
considered approximate correlation and the Court held that the levy
was in the nature of a fee. The Court dealt with the question of G
capital expenditure and observed that the expenditure in comtructing
buildings for locating the head offices and regional offices and the
increase in allowances or other amenities to the staff had also to be

H
(I) Civil Appeal No!. 4500 and 4501 of 1984--(judgment delivered by
19.11.1984).
(2) {1975) 3 S.C.R. 475,
r
258 SUPlUlME COURT RBPORTS [1985) SUPPL. S.C.R.

included in the cost of services. The Court observed that when
A there was a surplus it could not immediately be said that the surplus
must necessarily go in reduction of the rate of contribution to be
levied thereafter. This Court was of the view that it was neither
expedient nor prudent to Jay down any abstract proposition that
whenever there was surplus in a particular year or years that surplus
B must always be taken into consideration and the rate of contribution
should be reduced for the next year or subsequent years. An orga~
nisation like the Salvation Army had to incur capital expenditure for
the better allowances or other amenities to the staff and these had to
be incJuded. In after taking into account the capital and other
expenditure necessary for efficient functioning of an organisation for
c the better administration of Tru~t a very large surplus was still left
then, the Court noted that the question would arise whether then it
was permissible for the organisation to continue the levy at the rate
which would only result in further surplus and to invest the surplus
solely for earning income or to divert the surplus for other objects.
D The Court noted th.at it was not necessary that all available surplus
should always go in reducing the rate of contribution for subsequent
years, the organisation could not be allowed to accumulate unreaso-
nable amounts i.e., amounts which might not reasonably be required
for proper and efficient working of the organisation. In drawing the
line, however, the Court would have to look into the nature of the
E organisation, the potentiality of its growth, the multiplication in its
work consequent or its expansion for rendering to services visualised
and the necessity for capital exp~nditure in near future and also the
amount of levy collected or expected to be collected. It may be
mentioned that in the case of Indian Mica & Micanite Industries Ltd.
v. State of Bihar & Ors.(1 ) whether in a particular case there was a
F correlation or not is essentially a question of fact.

As has been noted estimates had been filed on behalf of the
various market committees before the High Court. These estimates
were criticised on behalf of petitioners·appellants as being totally at
G variance with the corresponding estimates furnished for the same
period and furnished for 1974-75. The present· estimates and pro~
jections, it was submitted on behalf of the appelJants, were prepared
only with a view to supply an artificial quid pro quo for the enhan·
ced levy and were merely show-pieces on paper to ~et ov~r th~
H
(3) {1971J Supp. S.C.R. 319~
J,T.C, V. KARNATAKA (S. Mukharjl, J.) 259
present challenge. It was further contended that having regard to
the pace of growth and perfonnance levels over the past seven years A
out of the fifteen years period, it was unreasonable to expect that the
huge developmental activities now projected for the next eight years
·•. were really intended to be acted upon.

Secondly, it was submitted that the disparitie-; and variance in B
the proportion of the proposed development from market-yard to
market-yard were so glaring that no authority in the position of the
Chief Marketing Oflh:er could reasonably approve of such uncoordi·
nated and disjointed development of the regulated markets.

Thirdly, it was urged that many items of work: envisaged in the
c
development schemes such as construction of shops, godowns and the
like were unrelated to the concept of ~pecial service to the buyers and
c:ould not be reckoned as qualified for correlation, and that if these
impermhsible items were deleted from the estimates, the market
committees would not be in a position to establish the requisite D
quid-pro-quo.

Fourthly, it w;ts S<tid that a substantial part of the proposed
financial outlays related to development of what were called "Rural
Markets" and these outlays were ineligible to be reckoned as special E
' ervice to lhc buyers.

The High Court in its judgment analy;eu these submissions
and contentions carefully with reference to -the financial statements
and projections filed by the market-committees and these statements
were discussed at considerable length by the High Court.

In the context of the said contentions urged on behalf of the
appellants, the High Court had examined the said statements and
pr~jections and n:cordcd findings on these in its jndgment. . The G
High Court uad also given certain directions. It was, therefore.
submitted that the market fee on the buyers of the agricultural
Produce was originally levied at J l p. which was increased to I per
te~t and was further increased from 1 per cent to 2 per cent and the
~atd enhancement of market fees was thus challenged by the appel- II
nnt& on the ground of non-existence of qufd pro quo and the
responuents-rnurket committee attempted to justify the enhanced
evy of 2 per cent Pn the basis of the statements and projections

J
v
260 SUPREMB COUllT REPORTS . (1985) SUPPL. S.C.ll
'
mentioned hereinbefore. The High Court noted that that were
A certain inaccuracies and lack of pt'rticulars in the projections but the
High Court ultimately came t.o the ccr.dosion that on the materials
placed before it on the basis of the principles of Jaw as discussed by
the High Court, it could not be said that there was no quid-pro·quo.
On the other hand it was contended on behalf of the appellants that
there was a total failure on the part of the respondents . to discharge
B the burden for sustaining the enhanced levy of market- fee, it was
urged that the High Court consequent to its findings referred to
above; ought to have quashed the bye-laws of the market committees
in respect of categories C, D and E mentioned hereinbefore.
~ccording to the appellants, the enhanced market fee from 30th
·c 1nne, 1~79 could not be supported.

The contention of lean1ed counsel for the appellant was that
the findings of the High Court with reference to eight committees· in
category •E• were untenable. On the other· band on : behalf of the
respondents·it was 'submitted that out of the 93 market· co~mittees,
D
· in respec~ of 73 market committees falling under categories A, B, C
& D, a clear quid pro quo was established and no further enquiry
was needed on the principles laid down by this Court •
. I.

Having examined the nature of the transactions and the~- princi-
E. ples of Jaw applicable to this case as I have noted before, I am of
the opinion that the High Court was right in its conclusion.

The p~oper: principles discernible frorri. these decisions are;
(I) there should be relationship between service and fee, (2) that the
F relationship is reasonable cannot be established with · mathemetical
exactitude in the ' sense .that both sides must be equally balanced,
·· - (3) in the course of rendering such services to the payers of the fee
~ ' if some other be~efits accrue or arise to others, quid-pro-quo is not
destroyed. _The concept of q:Jid-pro-quo should be judged in the
· context of the present days-a concept of markets which are expected .
G to· render various. services and provide various amenities and these
benefits cannot be divorced from the beriefits accruing incidentally to
, others, (4) a reasonable projection for the future yeus of a practical
acheme is permissible and (5) services rendered must be to the users
II'·-.._ of those markets.or to the subsequent users of those markets as a·
·clan. Though fee· is not levied . as a part of common burden yet
. ~e~ce and pa~ment '?aOJ~<?~ e~actty bC? ~alanced. (6) The pri:mary

/. ' .
'
l.r.c. v. KARNATAKA (S. Mukharji, J.)
'
261

object and the essential purpose of the imposition must be Jooked
into. A

Having regard to the detailed analysis of the expenditure of the
various market committees, we agree with the conclusion of the High
Court that it could not be said that the expenditure and appropria-
tion of fee was so disproportionate to the projects actual and B
projocted that it could be said that the levy lost the character of fee.
An analysis of the High Court's judgment would indicate that out of
93 market committees about which the High Court was concerned,
in respect of 73 market committees falling under categories A, B, C
& 0, a clear quid-pro-quo was established on a reasonable view. In
respect of the 20 market committees falling in category E. the High
G
Court found that with regard to the 8 committees only, final pro-
jections for the purpose of correlating the fees charged and the
services rendered required individual consideration. These were
Bangalore, Hubli. Sagar, Bijapur, Raichur, Tiptur, Gadag and
Siddapur. The High Court found that the projected expenditure D
was relatable to and referrable to the servi~es rendered and to be
rendered to the payers of the fee. While the High Court observed
that the levy of fee was justified, the High Court laid down certain
guidelines and norms for the market committees for the future.
E
The High Court examined in detail the estimates of each of the
market committees. The High Court felt that even if some of the
items of expenditure which were specifically challenged and which
the High Court noted were not strictly permissible, on the basis of
the remaining works there was ground to bold that there was
requisite measure of correlation between fees collected and intended F
to be collected and services rendered and intended to be rendered
but the High Court felt that for proper working of statutory bodies
like the market committees, general directions about the future
expenditure should be given.
G
As we have mentioned hereinbefore, at the invitation of
Advocate-General and the counsel for the market committees, the
High Court gave certain directions. It is not necessary in disposing
of these appeals to deal in detail with the spectfic directions given.
The High Court was competent to give these directions. We accept H
the submissions urged on behalf of the respondents that these
directions were within the competence of the Hi~h Court while
SUPRBMB COURT REPORTS [l98S) SUPPL. s.c.R..

dealing with the grievances made under Article 226 of the Consti-
A tution to ensure that appropriate statutory authorities acted
according to law after properly ascertaining the facts and for the
purpose of rendering full justice to the parties. tSee for the nature
of directions the High Court is capable of giving under Article 226
of the Constitution Bandhua Mukti Morcha v. Union of India &
Ors.( 1 ) See also the decision in the case of State of 'Kerala v.
8 Kumari T.P. Roshana & Anr.(2) In the case of Kewal Krishan Puri
& Anr. v. State of Punjab & Others, (supra) this Court had given
certain directions for future guidance of the authorities.

For the purpose of how the Court can mould its directions in
c order to give relief in a particular situation, we may refer to the
nature of directions given by the American Supreme Court, in
abolishing racial discrimination and the judicial efforts made with
attending difficulties, and how the Supreme Court of America
formulated by trial and error the proce~s of making the relief effective
to the discussions in Corwin's 'The Constitution and what it means
D today' 14th Edn. pages 504-511.

Therefore, the High Court, while finding that there was a
· corelation between the services rendered and the fees charged with
regard to the eight market committees, directed the Chief Marketing
E Officer to make certain enquiries on certain principles of corelation
and directed the surplus, if found, on such enquiry, to be
appropriately adjusted in the future by way of reductions of fees.

Pursuant to the above directions in respect of eight Marketing
F committees, the Chief Marketing Officer went into the facts. After
the Marketing Commjttees had submitted their budgets and the
projections, these have been approved by the Chief Marketing
Officer. After such approval, the concerned Marketing Committes
have passed appropriate resolutions for giving effect to the norms
laid down and the projects approved. This has been stated in the
G affidavit filed by the Chief Marketing Officer in reply to special leave
petition. !See the affidavit filed by the Chief Marketing Officer in the
Belgana Marketing Committee petition). This, in our opinion is a
constructive approach.

H
(1) [1984]3 S.C.C. 161 at 240-242.
(2) [1965]2 S.C.R. 974.
i.T.C. v. KARNATAKA (S. Mukharjf, J.) 263

Courts of today cannot and do not any longer remain passive
with the negative attitude, merely striking down a law or preventing A
something being done. 'Thon shall not do't' used to be the previous
form of remedy encouraged by Courts. But the new attitude is
towards positive affirmative actions, ditrecting people or authorities
concerned that 'thou shall do't' in this manner. While it is true that
if a law is bad, the Court must strike it down, if the law by and large
and i.a its true perspective of a social purpose if implemented in a 8
particular manner could be valid, then, the Court can and
should ensure that implementatation should be done in such
particular manner and give directions to that effect. In the
instant case the High Court having found with which finding
we are in agreement, that basically and essentially the fee was justified c
on the theory of quid pro quo, the Court was entitled to give positive
directions in the manner the money should be spent.

Another argument on this aspect was that estimate of Tiptur
Market Committee showed that there was a surplus Rs. 72 lakhs in D
the year ending 1982. It was contended that so long as this surplus
remained, there was no case for increasing market fee from 1 percent
to 2 percent. It was also submitted that according to the projections
filed and the estimated expenditure for the future upto 1988-89 there
would be a surplus of about Rs. 3 crores at the end of 1988-89. But E
reading the projections properly it appears that though estimated
earning would be Rs. 3.26 crorer at the end of 1988·89; at the same
time the estimate showed the proJected expenditure from 1981-82 to
1988-89 would amount to Rs. 4.28 crores. These projections are not
imaginary, and if the Market committee, in the present trend of
inflation and the need for modern markets, had taken these F
projections into consideration, the same cannot be condemned as
unreawnable. Thus looked at, it appears that the extra expenditure
of estimates showed a projected loan for the deficit.

In the aforesaid view of the matter, we are of opinion that the G
High Court was right in holding (a) that the quid pro quo necessary
to be established in these types of fees has been estabished, (b) that
the projections have been properly taken into consideration and they
are reasonable projections, (c) the directions given by the High Court
were within the competence of the High Court to meet the ends of H
justice.
264 SUPREME COURT REPORTS (1985] SUPPl... S.C.R..

In the premises the first question reserved for our consideration
A must be answered by saying that the High Court is right in holding
that the increase was justified. Necessarily point No. 3 must also be
answered by saying that the High Court had come, in the facts and
circumstances of the case, to a definite conclusion of this aspect in
respect of eight market committees mentioned hereinbefore. The
High Court had not abandoned, for the reasons mentioned herein-
8 before, its jurisdiction in not coming to a definite conclusion about
the requisite correlation to sustain the quid-pro-quo for the
imposition of the market fee. I am also of the opinion that the High
Court was competent for the reasons indicated hereinbefore to give
directions to the market committees in the manner it had done.
c Point Nos. 1, 3, 4 & 5 mentioned hereinbefore are therefore disposed
of in favour of the respondents in the manner indicated herein-
before.

So far as to the question of refund of the amout of the market
fees to any of the party is concerned. I will briefly have to note the
D position arising out of the judgment of the High Court.

It was contended on behalf of the appellants that section 65(1)
as substituted by Act 17 of 1980, read with section 42 of the Amend-
ing Act, seeking to validate the collection of market fee on "sellers"
E made under the old section 65 (I) of the Act _is constitutionally
invalid. The validation became necessary as mentioned hereinbefore
in view of the judgment of the Karnataka High Court in the case of
Rajasekhariah (supra). The present substituted section 65(1) read
with section 42 of the Amending Act seeks to validate the collection
of market fee on sellers made when the ealier section 65(1) was
F operative. We have set out the relevant provisions and the background
of the challenge to the Act.

The High Court of Karnataka in its impugned judgment bad
set out exhaustively the grounds upon which the said High Court has
G previously in Rajasekhariah•s case struck down section 65 (1) (3) of
the Act. Pursuant to the judgment in Rajasekhariah's case, the State
was exposed to the liability to refund the fee collected for the period
from 19.5.1975 when section 65(1) and (3) were introduced by the
Amending Act 24 of t 975 and 28.9.1978 when that judgment was
H pronounced. By the said Act of 1980, the levy was sought to be
validated and the fee retained by the State Government. The High
Court noticed the relevent substitution. First, by virtue of
t.f.c. v. KARNATAKA (S. Mukhar}i, J.) 265

sub-section 1(2) of section 19 of the amending Act, the amendment
had been deemed to have come into force <in 19.5.1975-in other
A
words making it retrospective. Secondly by clause (ii) of sub-
section (I) and item (ii) of clause (a) of sub-section (2) of section 63
as amended, the expression "Marketing,. was substituted by the
word.s ''transport and marketing". In clause (ii) of sub-section (2)
of section 63, item (ia) was newly introduced making the provision B
for, either independently or along with some other authority,
necessary facilities for the transport of notified agricultural produce
from and to the yard, as one of the obligatory functions of the
market committees.

Thirdly, section 20 of the Amending Act brought about certain c
changes in the structure of section 65 while making such amendment
retrospective with effect from 19.5.1975-being the date on which it
was originally inroduced.

The High Court has set out section 42 of the Amending Act
which validated the levy of market fee etc. It was urged before the
D
High Court that the market fee collected from the sellers between
19.5.1975 and 28.9.1978 under the old section 65(1) had gone to the
credit of and merged in the "Karnataka Roads and Bridges Fund"
constituted under the Karnataka Motor Vehicles Taxation Act and
the market fees have obviously been spent for the purposes and E
objects of "Karnataka Roads and Bridges Fund", and by deleting
section 65(3)-even if it be with retrospective effect- the events that
have factully happened pursuant to section 65(3) when it was
operative, could not be reversed. The effect of the amendment was
not, it was submitted, before the High Court, to put the funds back
into the coffers of the respective market committees enabling them to F
spend them for such of the purposes authorised by the Act as would
afford correlation by way of service to the fee. It was further conten-
ded that all that, at best, the amendments could be said to have
achieved was that providing "facilities for transport'' which was not
one of the duties and functions of the market committees earlier had
G
now been made as one of their duties and functions. It was urged
that even if the "facilities for transport" could be said to include
construction of rural roads, only the first defect or infirmity ponitrd
out in Rajasekharih's case could be said to have been cured or
removed but not the more important one, the second. H
Learned Advocate-General contended that the only ground on
which the previous judgment invalidated the levy on the sellers was
266 SUPREME COURT REPORTS (198S) SUPPL. S.C.R.

that the market committees were not statutorily charged with the
A duty of constructing and maintaining rural roads, and now that, the
duty of providing, either independently or along with any other
authority, necessary facilities for transport, which included the
making of roads in the market area leading to and from the market-
yards, the defect noticed in the law has been removed and the legal
basis for the levy supplied. Learned Advocate-General submitted
B that as a result of Rajasekharia!l's case the State was exposed to a
liability to refund several crores of rupees which had been realised by
way of sellers fee under section 65(1), and which according to him,
had, in fact, been spent for providing facilities for transport in the
form of construction, improvement and repair and maintenance of
c rural roads.

The High Cvurt noticed the relevant prov!Slons and the
principles of law which should govern the power of the legislature to
cure any defect in law with retrospective effect and to validate acts
done or taken under defective law which were declared invalid by the
D courts on any ground.

It is well-settled that if such validating law cures the
constitutional vice from which the earlier legislation suffered, the
validation must be given effect to.
E
These principles are well-settled by the decisions of this Court
in the cases of Misrilal Jain etc. etc. v. State of Orissa and
Another(l ), Shri Prithvi Cotton Mills Ltd. & Anr. v. Broach Borough
Municipality & Ors.(2), Municipal Corporation of the City of
F Ahmedabad, Etc. v. New Shorock Spg. & Wvg. Co. Ltd., Etc (8) and
l.N. Saksena v. The State of Madhya Pradesh.{ 4) The tests are well-
settled and it is not necessary to reiterate those. 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 exercise competence over the subject
G matter and secondly whether by validation the legislature has
removed the defect which the court had found in the previous law
and thirdly whether it is consistent with the provisions of Part III of
the Constitution.

H (l) A.T.R. 1977 S.C. 1686=[1977) 3 S.C.R. 714,
(2) A.I.R. 1970 S.C. 192=[1970] 1 S.C.R. 388.
(3) A.I.R. 1970 S.C. 1292={1971]1 S,C,R. 288.
(4) A.LR. 1976 S.C. 2250.-[1976] 3 S.C.R. 237.
i.t.C. v. KARNATAKA (S. Mukharii, J.) 267

The High Court was of the view that facilities for rural roads
could not be a ground for collection of fees. The High Court was A
further of the view that this was concluded by the decision of this
Court in Kewal Krishan Puri's case (supra).

1 have set out hereinbefore the principles to be governed in
case of judging the correlation between 'service' and 'fee' and the B
changing pattern of this concept. Construction of rural roads giving
facilities for going to the market is a special service primarily and
directly int<!nded for the benefit of the users of market. Market
could not be reached and people cannot go and come from the
market if there are no good rural roads to reach those markets.
This view has been recently reiterated by this Court after discussing c
several authorities in the case of M js A mar Nath Om Parkash & Ors.
Etc. v. The Swte of Punjab & Ors. Etc. (supra) where it was held
that it was of fundamental importance that there should be a net-
work of roadways if effective aid was to be given to farmers to
transport and market their produce. In this connection reliance
D
may be placed also on the observations of this Court in the case of
Municipal Corporation Delhi v. Mohd. Yasin (supra) where it was
reiterated that the fact that others besides those paying the fees are
also benefited did not detract from the characted of the fee. The
Court observed that in fact the special benefit or advantage to the
payers of the fees might even be secondary as compared with the E
primary motive of regulation in the public interest. Quid·pro·quo
in strict sense is not the one and only true index of a fee as we have
mentioned hereinbefore.

Judged by this concept, in my opinion, the High Court was in F
error in view of the principles we have discussed about the concept
of fee and therefore rural roads for construction, improvement and
maintenance of which sellers fees have been applied could be said to
be an obligation of the market committee. Now that has been made
function and obligation of the market committees by the amendment
with retrospective effect which we have noticed before. The learned
G
Advocate-General had stated before the High Court that the funds
from the "Karnataka Roads & Bridges Fund" collected from these
fees have in "fact been spent for the rural roads, the facilities for
which are for the benefit of the users of the markets. In the facts
and circumstances it should be presumed and assumed that the funds
H
spent by the '•Karnataka Roads & Bridges Fund" under the Motor
Vehicles Act have in fact been spent as an aiency of tho market
268 SUPR~ME COURT REPORTS [ 1985) SUPPL. S.C.R.

committees in discharge of the functions and obligations of these
A committees. In view of the amanded provisions of the statute which
we have mentioned providing facilities for transport is one of the
oblig'ltions of the market committees. In my opinion, realisation of
fees for such facilities would be justified and valid. If, as we have
discussed, without rural roads, markets could not be reached and
8 the functions for which the market committees were constituted
could not be performed, if it is of fundamental importance that
there should be a network of roadways if effective aid is to be given
to buyers and sellers of goods for marketing their products, then in
my opinion, the fact that the public streets and roads are public
properties and the State holds such streets and roads as trustees
c would be of no consequence in considering such realisation as
fees.

The contribution to the "Karnataka Roads and Bridges Fund''
maintainable under Motor Vehicles Act having been made as an
D agency of the market committees for tne construction of these road~
which facilitated the purpose of the market committees as amended
by the Amending Act. I am, therefore, of the opinion that the High
Court was in error in holding that the second major defect noticed
in the law authorising the levy on the sellers in Rajasekhariah's case
(supra) namely construction of rural roads would not qualify being
E
reckoned as a special service to the class of persons paying the fee,
bad not been cured or removed by the law which sought to validate
the levy. The Act which sought to validate the levy contributed to
the "Karnataka Roads and Bridges Fund" was for the maintenance
of rural roads which, as I have noticed, forms an integral part of the
F facilities for marketing of the goods. I . am therefore unable to
sustain the findings of the High Court of Karnataka that section
65(1) a~ substiEuted as Section 20 of the Act 17 of 1980 as well as
section 4l of the Amending Act was not constitutionally valid and
was liable to be struck down. I hold that these are constitutionally
valid in view of the perspective in which the concept of fee has to be
G judged in the light of the decision I have referred to hereinbefore.
If that is the position then no question of refund would really arise,
in view of the provisions of the said Act as amended by Act 17 of
1980 and section 42 of the Act 17 of 1980 as it validated the market
fee on sellers between 19.5.1975 and 28.9.1978. The funds collected
H had remained with the Government and have been spent for purpo-
ses which are valid purposes in view of the amendment. So no
question of refund arises.
i.T.C. l', KARNATAKA S. Mukharji, J.) 269
In any ev~nt I am of the opinion that there should not be any
refund in the facts and circumstances of the case, Section 42 of the A
Amending Act has specifically provided against refund of levy of
fees already collected, I am therefore of the opinion that such a
provision was valid. At no stage was it claimed or stated that the
traders had paid market fees themselves. The appellants before this
Court are buyers in the Market but they themselves are trading in B
the commodities purchased by them. On further sale of the com-
modities as traders they have recovered the fees from their
purchasers. For this purpose reliance may be placed on the
observations of this Court in the decision in the case of D. Cawasji
& Co. Etc. Etc. v. The State of Mysore & Anr.(l) Most of these have
been discussed in tne recent decision of this Court in the case of c
Amar Nath Om Parkash & Ors. (supra) and in that view of the
matter and in view of section 42 of the Amending Act which provi-
ded for the validation of the levy of market fee· and which provided
further by section 42(1)(b) & (c) that no proceedings for refund
would lie, in my opinion, in so far as the High Court had directed to D
refund in certain cases as indicated in the judgment of the High
Court, I am unable to sustain that part of the order and that order
is set aside. I may mention that when there was no provision like
section 42 of the Amending Act and there was a liability of refund
in the case of Shiv Shankar Dal Milfs Etc. Etc v. State of Haryana
& Ors. Etc.(Z), this Court had evolved certain procedure for utilisa- E
tion of the funds collected so as to avoid undue enrichment. In
view of the principles discus~ed above and the cases noted in the
aforesaid deci~ion in Amar Nath Om Parkush & Ors. case (supra),
we are of the opinion that section 42 of the Amending .Act is valid
and by virtue of the said section, there cannot be any order for
refund in the instant case. It must be borne in mind that the High
F
Court has given specific directions for utilisation of the surplus fund
in certain matters to the market committees. Point (2) noted above
is thus disposed of.

The next question that arises is whether the amendment of the G
bye-laws enhancing the market fee was invalid for want of comp-
liance with the mandate of section 148 of the Act requiring previous
publication and previous sanction of the Chief Marketing Officer.
The High Court had exhaustively discussed this matter and I have
H
(I) [1975] 2 S.C.R. 511.
(2) [1980] 1 S.C.R. 1170.
270 SUPREME COURT REPORTS {1985) SUPPL. S.C.R.

referred to this discussion before and had come to the conclusion
A that section 65(2) did not confer any arbitrary power and there was
no excessive delegation of legislative power to the market committees
and therefore not vitiated on that account. The question whether on
a proper construction of section 65(2) there was any obligation on
the part of the marketing committee to hear the parties was left open
8 with certain observations and directions contained in paragraph 61 of
the judgment of the High Court. I am in respectful agreement with
that direction of the High Court.

So far as the High Court held against the contentions of the
appellants that bye-laws were invalid for want of previous publica-
c tion or for want of consulting the interests affected,· I am also in
respectful agreement for the reasons discussed by the High Court
which need not to be reiterated again, with that view. The principle
of audi alteram partem has application only to judicial, quasi-judicial
and administrative functions and not to any legislative functions-
D See The Tulsipur Sugar Co. Ltd. v. The Notified Area Committee,
Tufsipur.(l), S.A. de Smith ''Judicial Review of Administrative
Action'', 4th Edn. pages 181 to 183. In any event the rule of 'audi
alteram partem' is applicable in exercise of the States' power of
taxation-See Avinder Singh Etc. v. State of Punjab & Anr. Etc.( 2 )
This disposes of point no. (7 ).
E
The next contention canvassed before us was whether in view
of the Tobacco Board Act, 1975, hereinafter referred to as the
Central Act and the issue of the Notification dated 31 st August, 1984
by which section 13 of the Central Act was made applicable in the
F State of Karnataka, in so far as the Central Act dealt with the
marketing of tobacco, the State le~:;islature was not competent to
pass this enactment. It was submitted that tobacco was covered by
entry 52 of List I by virtue of the declaration under section 2 of the
Central Act. It was submitted that the High Court has erred by not
acting in the parity of reasoning adopted in respect of Cardamom
G Act. As I have noticed that in case of Cardamom Act, 1965, the
High Court was of the opinion in the impugned judgment that the
said Act was not within the competence of the State Legislature.
Yet neither the market committees nor the State Government had
preferred any appeal in respect of that finding. It was sought to be
H
(I) fl980] 2 S.C.R. 1111 at pages 1118 to 1121.
(2) (1979] 1 S.C.R, 845.
I.T.C. v. KARNATAKA (S. Mukhorji, J.) 271

impressed before this Court that the same reasoning should apply in
view of the similarity of provisions of the Central Act as with A
Cardamom Act as it should have been held logically by the High
Court that the State Legislature was not competent to extend market·
ing provisions to tobacco in the State Act. Tobacco was brought
within the network of the Act by virtue of Karnataka Act 17
of 1980.
B
Two broad principles should be borne in mind in deciding the
controversy of this nature. One is 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 c
secondly the entries in the list should be given liberal and generous
construction. All the entries should be construed in harmonious
manner so as to avoid conflict. In case of conflict, however, in
respect of entries where both the State and the Centre can legislate,
the Central legislation would prevail over the State legislation in
view of the provisions of Articles 245 to 254 of the Constitution. It
D
was submitted that the effect of the declaration under section 2 of
the Central Act pursuant to Entry 52 of List I is that the Parliament
has exclusive competence to legislate upon every aspect or activity
pertaining to 'tobacco' including marketing thereof and the State
would have no competence to legislate on that topic. As mentioned E
hereinbefore a declaration under Entry 52 of List I of Vllth Schedule
has been made in respect of tobacco. Entry 52 of the said li5t
provides 'Industries, the control of which by the Union is declared
by Parliament by law to be expedient in the public interest.'

It is well· settled that the cardinal rule of interpretation is that F
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. See Navinchandra Mafatlal v. C. /. T.
Bombay(!). On behalf of the appellants reliance was placed on the G
observations in the case of Baijnath v. Bihar Statee) that once a
declaration was made, any legislation by the State after such decla-
ration trenching upon the field disclosed in the declaration must
necessarily be unconstitutional because that field is abstracted from
the legislative competence of the State Legislature. See Konnan H
0) [195511 S.C.R. 829 at paae;836·37.
(2) [1970] 2 S.C.R. 100 at 113.
272 SUPREME COURT REPORTS (1985) SUPPL. S.C.R,

Devan Hills Co. v. Kerala( 1) and Ganga Sugar Co. Ltd. v. State of
A U.P.e) where dealing with the sugar industry, this Court observed
that it was undisputed that sugar industry was a controlled industry,
within the meaning of entry 52, List I of 7th Schedule and therefore,
the legislative power of Parliament covered enactments with respect
to industries having regard to Article 246(1) of the Constitution. ff
the im?ugned legislation invaded Entry 52 it must be repulsed by
B
the Court.

It was urged that in the instant case declaration under
section 2 of the Central Act was in respect of the tobacco industry
and not any particular type of tobacco as held by the High Court
c that it was only virginia tobacco. Therefore, there was no warront
for restricting or limiting the width and amplitude of the words
"tobacco industry" and confining it to a particular type or kind
of tobacco.

Sofas as it was submitteed that the Central Act was not
D concerned with virginia tobacco only but covered other tobaccos the
High Court was in error. On the construction of the Central Act
read with the rules it appears to us that the said Central Act and the
declaration made by section 2 of the said Act covers all kinds of
tobaccos.
E
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 Li~t I and has
F also power to legislate with respect to matters in List Ill. A State
Legislature has exclusive power to legislate with respect to matters in
List II, excluding the matters falling in List I or List III and has also
concurrent power to legislate with respect to matters falling in List
III excluding matters falling in List I. The dominant position of the
G Central Legislature with regard to matters in List I and List Ill is
established. See in this connection the decision in Subrahmanyam v.
Muthuswamy.(S) Justice Suliaman in that case observed that the
rigour of that 1itera1 interpretation of section 100 of the Government

H (1) [1973]1 S.C.R. 356 at 369.
(2) [1980] 1 S.C.R. 769 at 781.
(3) {1940]45 C.W.N. (FC) l=A.I.R. 1941 FC 47 at 57-58.
I.T.C. P. KARNATA'K!A ($. Mukharjl, J.) 273

of India Act, 1935 with which Federal Court was concerned in that
decision was relaxed by the use of the words ''with respect to which A
only signify pith and substance" and do not forbid a mere incidental
encroachment. This is also the position that emerges from
Article 246(1) of the Constitution.

It was submitted on behalf of the appellants that the power of
the State Legislature with respect to matters in List II was made
B
subject to the power of Parliament to legislate with respect to matters
in List I and therefore followed that if any entry in List I and List II
appeared to overlap, if these appeared partly to cover the same field,
the field of legislation covered by the entry in List I must be
considered to be taken out of the scope of the entry in List II and c
reserved to be only dealt with the Parliament. In other words, to
that extent the power of the State Legislature must be considered to
be curtailed and the field must be held to have been occupied by the
Centre.

In the present case the Central Act, it was urged, fell within D
entry 52 of List I. To the extent that Karnataka State Act, by
amending tue Schedule brought tobacco within the provisions of
the State Act, it was urged that it was beyond the competence of
the State Legislature and it had encroached upon the Union List.
E
It was. further, submitted that in any event that the compe·
tence of the Parliament to legislate in respect of a matter which is
exclusively entrusted to it must supersede pro-tanto the exercise of
power of the State Legislature. Reliance was placed on Sudhir
Chand v. Wealth Tax Officer, Calcutta(!). But in resolving the rights F
of -:omponent units of federal or quasi-federal set up (to which
category, however, Indian Constitutional set up belongs-no Con-
stitutional pundit has yet been able to say) earne~t endeavour should
be made to avoid a conflict between two competing enteries, as to
too liberal an interpretation given to both of them might create a
clash. Therefore it was urged that the competence of the Karnataka G
State Legislature with regard to marketing of tobacco and levy of
'market fee thereon under entry 28 read with entry 66 of List II
which is "markets and fairs" stood pro-tanto superseded by the
exercise of the Parliamentary power under entry 52 read with entry
96 of Lbt I. H

(1) [1969] S.C.R. 108 at 113.
274 SUPREME COURT REPORTS (1985) SUPPL. S,C.R.

It was urged that in the case of Ch. Tika Ramji & Others Etc.
A v. The State of Uttar Pradesh & Others(1), this Court rejected the
contentions that all sugarcane legislation linked to sugar
industry was sugar legislation. Furthermore, on the facts of the
case, the Court came to the conclusion that the impugned Act
did not concern itself at all with the controlling or licensing of
B sugar industry or with the production or manufacture of sugar
or with trade and commerce in sugar and therefore, there was
no trenching upon the Union List by the impugned State Act.
Reliance was placed on the observations at pages 422·23 of the said
decision, mentioned hereinbefore. Reliance was also placed at
pages 783·84 in the case of Ganga Sugar Co. Ltd. v. State of U.P.
c (supra).

It was submitted on behalf of the appellants that the State
Legislature lost its competence because the field was occupied by
Parliament in view of the declaration under section 2 of the Central
Act. It was evident, it was urged, that the intention to cover the
D whole field has been expressed by the Central Act and as intended,
the Central Act is complete and exhaustive Code in respect of
tobacco. Consequently, the enactment of the subsequent State
Legislation was overborne on the ground of repugnancy. Reliance
was placed on the decision in the case of State of Orissa v. M.A.
E Tulloch & Co.(2).

The following submissions were placed before us on the ground
of repugnancy :
(I) There may be inconsistency in the actual terms of
F the competing statutes. (See R.V. Brishbane
Licensing Court, [1920] 28 C.L.R. 23.

(2) There may be no direct conflict and the State law
may be inoperative because the Commonwealth law
or the award of the Commonwealth Court was
G intended to be a complete exhuastive code (Clyde
Engineering Co. Ltd. v. Cowburn [1926] 37 C.L.R
466).

(3) Even in the absence of intention, a conflict may arise
H when both State Legislature and Commonwealth

(I) [1956] S.C.R. 393.
(2) [1964l4 S.C.~. 461 at 477,
I.T.C. V. KARNATAKA (S. Mukharji, J.) 275

seek to exercise their powers on the same subject
Victoria v. Commonwealth, [1937] 58 C.L.R. 618; A
Wenn Attorney General (Viet.) [1948] 77 C.L.R. 84)
Nicholas, Australian Constitution 2nd Edn. at
p. 303. Tikar(Jmji [1956} SCR 393 at 424-425. Deep
Chand v. State of U.P. [1959] Suppl. 2 SCR p. 8 at
43. Ex-Parte Mclean [1930] 43 C.L.R. 472 at 483 B
and the observations of Justic B.N. Rau in the
Calcutta decision of G.P. Stewart v. B.K. Roy
Choudhury (AIR 1939 Cal. 628 at 634). As Sir B.N.
Rau mentioned in Stewart v. Brogendra Kishore-
the principles deducible from these cases seem to
be-if the dominant law bas expressly or impliedly C
evinced its intention, an intention to cover the whole
field, then a subordinate law in the same field is
repugnant and, therefore, inoperative, whether and
to what extent in a given case the dominant law
evinces such an intention must necessarily depend on D
the language of the particular law.

Applying these tests, it would be apparent, it was submitted by
the appellants that the State Act was repugnant to the Central Act.
E
It was final1y submitted that in any event without prejudice to
other submissions that so far as tobacco was concerned, no service
had in fact been rendered by the market committees nor could they
in law be rendered because of legal constraints imposed by the pro-
visions of the Central Act and, in particular, section 12 and rule 35
of the Tobacco Board Rules, 1976. By virtue of section 12, the F
Market Committees could not auction or deal in tobacco at all
unless these were registered with the Board in accordance with the
Central Act.

It was evident from the letters dated 15.9.1983 and 23.9.1983
at pages 462 and 466 of the Paper Book that the market committees
had not been and even today registered under the Central Act and
were therefore incapable of rendering any service at all. For this
reason there was complete failure of quid-pro-quo and therefore H
there cannot qe any char~e of fees by enacting State le~islation on
tobacco~
276 SUPREME COURT REPORTS (1985] SUPI>L. S.C.R.

It appears that the principles of repugnancy in Indian Consti-
A tution are well-settled. These are as follow :

(1) A legislation, which in its pith and substance, falls
within any of the entries of List I of the Seventh
Schedule to the Constitution, would be exclusively
within the competence of the Parliament.
B
(2) A legislation falling exclusively, in its pith and sub-
stance, within any of the entries in List II of the
Seventh Schedule, would be within the exclusive
competence of the State Legislature.
c (3) A Central law which in its pith and substance, falls
within any entry in List I would be valid even
though it might contain incidental provisions in
List II which may contain ancilliary provisions
which might touch on an entry of List I incidentally.
D
(4) A State law, which in its pith and substance, within
any entry in List II would be valid even though it
might incidentally touch upon a subject falling
within List I.
E
(5) A Central law, which in its pith and substance, dealt
with a subject falling within List II would be bad
and ultra vires the Constitution. Similarly, a State
law which in its pith and · substance dealt with a
matter falling within List I would be invalid and
F ultra vires the Constitution.

(6) The concept of repugnancy arises only with regard
to laws dealing with subjects covered by the entries
falling in List III in respect of which both Parlia-
ment and State Legislature _are competent to legisl·
G
late. Under Article 254 of the Constitution, a State
law passed in respect of a subject matter comprised
in List III would be invalid if its provisions were
repugnant to a law passed on the same subject by
H Parliament. The repugnancy arose only if both the
laws could not exist together. Repugnancy does
not arise simply because Parliament and the States
{lass law on the same subject. There cannot be any
I•T.C. Y, KARNATAKA (S. Mukharji, ),)

repugnancy in respect of State laws passed in respect
of matter falling pith and substance in List II or in A
respect of Central laws passed on subject falling in
List I. Parliament cannot legislate on a State
subject and State cannot legistate on a Central
subject. If either trenches upon the field of the
other, law will be ultra vires~ See in this connection 8
M/s Hoechst Pharmaceuticals Ltd. & Others Etc. v.
State of Bihar and Others (1) etc., Ramesh Chandra
Etc. v. State of U.P, Etc. (supra) at page 135 and
The Calcutta Gas Company (Proprietary) Ltd. v. The
State of West Bengal and Othe;s.(2) Like entry 25 of
List 11-Gas and Gas Works-without any limitation G
entry 28 in List 11-io respect of any legislation
which is in substance and true nature deals with
'markets and fairs' read v. ith entry 66 of the said
List has complete as.::endency and there cannot be
any intrusion of that filed by another entry-See in
this connection the discussion on "Union & State D
Relation under the Indian Constitution"-M.C.
Setalvad-p. 48, 49. In Calcutta Gas Company's
case (supra) by comparison of entry 7 and enty 52 of
List I with entry 25 of List II, this Court upheld
State legislation of take over the Gas industry in E
spite of declaration under entry 52.

In the present case the Karnataka Marketing Act deals with the
subject of market in entry 28 read with entry 66 of List II. Such Acts
are covered by entry 28 of List II exclusively unlike entries 23, 24, 26
and 27. It is important to bear in mind that entry 28 is not subject
to withdrawal into List I by Parliament as under entries 52 and 54 of
List I and entry 33 of List III. The State Act is not on a subject in
List III- nor is the Central Act a law relating to any subject in
List III. Therefore, there cannot be any question of repugnancy.
Section 31 of the Central Act makes it clear that it does not derogate G
from any law but enacts something in addition.

In the High Court, counter-affidavits were filed to establish the
quld·pro·quo and rendering of the services to the traders including H

(1) [1983] 4 s.c.c. 45.
(2} {1962]3 Supp. S.C.R. _1.
278 SUPREME COURT REPORTS (1985) SUPPL. S.C.:R.

tobacco merchants by the respective six market committees. In fact
A before the High Court, no contention, as it appears from the
judgment impugned, was at all aqvanced on the question of services
to tobacco trade in the markets concerned. In fact they are entitled
to the same services as other traders as provided by the Act. The
provisions of the Marketing Act and Tobacco Board Act and the
Rules are not inconsistent.
·B
It is therefore necessary to note the true nature ·and character
of the Acts namely the Karnataka Agricultural Produce Marketing
Act, 1966 and the Central Act. The Marketing Act is an Act as
the preamble states, for the better regulating of buying and selling of
c agricultural produce and establishment and a administration of
markets for agricultural produce and whereas it was th0ught cxpedi·
ent to provide for the better regulation of buying and selling agricul-
ture produce and establishment of markets for agricultural produce
and matters connected therewith that the State Act was passed. I
have noted some of the salient features of the Act. The Act y,as to
.D regulate the sale and purchase of agricultural produce and 'tobacco'
was introduced by Act 17 of 1980 as one of the agricultural produces
and thereby it was sought to be brought within its purview. The
Act constituted different market committees. It laid down the
functions, duties of the market committees and matters incidental
E thereto. It imposed obligations to impose fees for better maintence
of markets, in oth<:"r words for better administration of markets. The
Central Act was an Act to provide for the control of the union of
tobacco industry. How better to control the industry of tobacco
was the object of the Central Act. For this purpose I have noted
the salient features of the Act, the functions and duties of Tobacco
F Board, the regulation of production and disposal of virginia
tobacco.

Clause (cc) of sub-section (2) of section 8 of the Central Act
authorised the Board to establish auction platforms with the approval
of the Central Government for sale of tobacco and for the function-
G ing ofthe Board as an auctioneer and that the platforms established
by or registered with the Board subject to such conditions as may be
specified by the Central Government. Section 12 of the Central Act
provides that no person shall export tobacco or any tobacco products
or function as a packer, auctioneer of, or dealer in, tobacco unless
he registers himself with the Board in accordance with the Rules
made under the Act. Section 13 of the Central Act states that no
registered grower or curer shall sell or cause to be sold virginia
t.T.C. Jl. KARNATAKA (S. Mukherji, J.)

tobacco elsewhere than at an auction platform registered with the
Board in accordance with the rules made under this Act or estab- A
lished by the Board under this Act. Section 31 of the Central Act
specifically mentions that the same is in addition to, and not in
derogation of, the provisions of any other law for the time being in
force. Tobacco was brought within the Marketing Act in 1980 and
section l 3 of the Tobacco Board Act, 1975 was made applicable in
the State of Karnataka only on 31st August, 1984 by the notification
B
refened to hereinbefore. Therefore essentially the Central Act was
for the development of the industry of tobacco and, incidentally,
certain provisions for better sale of tobacco through certain acution
platforms had been made. There is nothing in the Act or in the
Rules which indicate that it is incosistent with or cannot be operated c
along with the marketing regulations. It is true that for this purpose
certain sanction under the Act is required.

Rule 35 of the Tobacco Board Rules provides for registration
as exporter, or packer or auctioneer of or dealer in tobacco and lays
down certain provisions. By virtue of section 12 of the Central Act, D
the market committees cannot auction or deal with tobacco at all
unless they are registered with the Board in accordance with the
Act.

In a letter written on 15.9.1983 in respect of an application E
made by the Marketing Committee, Honsur, State of Karnataka, the
Tobacco Board refused the application on certain grounds mentioned
in that letter. That indicated that it was thought tbat the Market
Committees should apply to the Tobacco Board for registration, yet
on 13th of October, 1983, Tobacco Board applied to the Market
committee for the grant of licence to it. The position is not clear- F
but it is fully manifest that both Acts can operate in their respective
fields and there is no repugnancy if both the Acts are considered in
the light of their respective true nature and character. While giving
due weight to Centre's supremacy in the matters of legislation, the
States' legitimate sphere of legislation should not be unnecessarily G
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 Parlia-
mentary legislations. If in spite of declaration under entries 7 and
54 of List I in respect of Gas, the State Legislature can still legis- H
lata for the nationalisation of Gas industry as was held in Calcutta
Co. (P;op.) Ltd. v. State of West Bengal (supra) because entry 25 of
280 SUPREME COURT REPORTS [1985] SUPPL. S.C.'R,

List II, it cannot be said that no legislation regulating the market
A can be done by the State of Karnataka in spite of entry 28 read with
entry 66 of List II because of declaration under entry 52 of List I in
respect of tobacco industry. That would be inconsistent and
illogical See also P.D. Shamdaswami v. Central Bank of India.(!)

B While it is true that in the spheres very carefully delineated the
Parliament has supremacy over Slate Legislatures, supremacy in the
the sense that in those fields, Parliamentary legislation would hold
the field ands not the State legislation-but to denude the State
Legislature of its power to legislate where the legislation in question
in pith and substance i.e. in its true nature and character, belongs to
a the State field, one should be chary to denude the State of its powers
to legislate and mobilise resources-because that would be destructive
of the spirit and purpose (lf India being a Union of States. States
must have power to raise and mobilise resources in their exclusive
fields. In the instant case by complying with the State Act, the
Central Act can function to serve the purpose and object of the
D
Central Act, but if only the Central Act was to prevail, the State Act
of marketing for coffee would become non est-wholly unnecessary
and undesirable result. The Marketing Act is essentially an Act to
regulate the marketing of agricultural produce, control of coffee
industry would not be defeated if the marketing of coffee is done
E within the provisions of the Marketing Act. lt must therefore be held
that the State Act should prevail. One should avoid corroding the
State•s ambit of powers of legislations which will ultimately lead to
erosion of India being a Union of States.

The contentions on behalf of the appellants therefore, on this 1
point have to be rejected. As to who should obtain licence or as to
F
who would have to be registered, the Market Committee or the
Tobacco Board is ::J. question which should be settled by proper
adjudiction.

Some argument has been built upon the fact that though more
G
or less identical in nature, in respect of the Cardamom Act, 1965,
it was held that the State Legislature was not competent to tnact the
Cardamom Act, 1965 in view of the declaration under entry 52 of
List I of the Seventh Schedule. It was therefore suggested that it
H would not be correct to take inconsistent views in respect of this Act

(1) [1952) S.C.R, 391 at 394.
t.t.c. l'. KAllNATAII.A (S. Mukharji, J.) 28i

as against the Tobacco Board Act. As noticed before, the contention
of validity of the Cardamom Act on the ground of entry 28 of A
List II of the Seventh Schedule was not canvassed. Furthermore, it
was held that the rules under the C rdamom Act which were framed
were in variance with the present Act. The Government had
accepted the findings of the High Court so far as Cardamom Act is
concerned. Had it been otherwise and had it been examined by this
Court for the reasons which are noted herein, what would have been
B
the result it is.difficult to state. In any event, in this background that
cannot be any reason far less a compelling reason to hold that
Tobacco Board Act was within the competence of the State Legis-
lature for the reasons indicated in this judgment. Therefore that
cannot be any argument for consideration at all. c
In so far as the High Court directed the refund as indicated
before, the appeals by the Government are allowed to that extent
and the orders of the High Court are set aside. The other appeals
by the parties, are, for the reasons mentioned hereinbefore,
dismissed. Parties will bear and pay their own costs throughout. D

In view of the majority decision, all the civil appeals, special
leave petitions and writ petition except civil appeal No. 629 of 1983
(Karnataka Market Fee matters) are dismissed without any order as
to costs. E
Civil appeal No. 629 of 1983 (I.T.C.) however is allowed and
the judgment of the High Court is set aside. There will, however
be no order as to costs in this case and any fee realised will not be
refunded.
F
M.L.A. Appeals and Petitiol'ls dismissed.