First Proviso to Section 27(c)(v) of Uttarakhand Agricultural Produce Marketing Act Struck Down; Demands for Development Cess on Non-Sale Movements Quashed
In a landmark judgment dated September 30, 2026, the Uttarakhand High Court (Division Bench) invalidated the first proviso to Section 27(c)(v) of the Uttarakhand Agricultural Produce Marketing (Development and Regulation) Act, 2011, to the extent that it imposes a development cess on agricultural produce brought from outside Uttarakhand into the State's market area solely for processing or manufacturing, without any sale or purchase transaction occurring within the market area.
The petitioners, Ashirwad Agro Industries and others, operate manufacturing units in Uttarakhand. They import agricultural produce such as paddy, wheat, maize, and legumes from outside the State for processing into products like atta, suji, maida, rice, and paper. Despite no sale or purchase within the market area, the State authorities issued notices demanding payment of development cess on the basis of the first proviso to Section 27(c)(v), which treats such arrivals as "Other Secondary Arrival" liable to development cess.
The petitioners challenged the constitutional validity of this levy, relying heavily on the Supreme Court's 2016 decision in M/s Gujarat Ambuja Exports Ltd. v. State of Uttarakhand, which struck down a similar provision, Section 27(c)(iii), for lack of legislative competence. The Supreme Court had held that mere bringing of agricultural produce into a market area for manufacturing without any sale or purchase does not constitute an event that State market legislation can validly tax. The petitioners also cited authoritative precedents from various High Courts and Supreme Court judgments which reiterate that fiscal statutes must be clear and that levies must be imposed only on taxable transactions clearly covered by legislative competence.
The State defended the levy contending that the development cess is distinct from market fee and is justified for maintenance and development of infrastructure such as roads and bridges in the market areas, utilized by manufacturing units and producers alike. The State also argued that Section 27(c)(v) is a separate charging provision, independent of the struck down Section 27(c)(iii), and that the Supreme Court had not expressly invalidated Section 27(c)(v).
The Court, however, rejected these contentions following a detailed analysis of the legislative entries under the Seventh Schedule of the Constitution, the purpose of market legislation, and the Supreme Court's jurisprudence. The Court observed that:
- The primary object of market legislation is regulating buyer-seller relationships to ensure fair returns to producers.
- Mere physical entry of agricultural produce into a market area for manufacturing or processing, without sale or purchase, is not an event related to "markets and fairs" under Entry 28 of List II of the Seventh Schedule.
- Legislative competence cannot be expanded by labeling the movement as "Other Secondary Arrival" or by removing market fee while retaining development cess.
- The State cannot justify the levy based on the use of infrastructure because the source of legislative power for imposing levies must be the taxable event itself, not the purpose for which proceeds are used.
- The Supreme Court's prior ruling in Gujarat Ambuja controlling the competence to levy on such transactions applies equally to the first proviso of Section 27(c)(v).
Consequently, the Court held that the first proviso to Section 27(c)(v) is beyond the legislative competence of the State to the extent it imposes development cess solely on agricultural produce brought from outside the State for manufacture or processing without any sale or purchase within the market area. The impugned demand notices and consequential demands were quashed accordingly.
However, the Court clarified that this ruling does not preclude levy of market fee or development cess where a valid taxable transaction involving sale or purchase within the market area exists under any other applicable provision of the Act.
This judgment reinforces the constitutional boundaries within which State legislatures may levy fees and cess on agricultural produce and clarifies that the mere movement of goods for manufacturing purposes outside a market transaction does not attract market-related levies. It aligns Uttarakhand's law with the Supreme Court's authoritative precedent, ensuring that manufacturers are not unduly burdened by levies beyond legislative competence.
Bottom Line:
Agricultural Produce Market Law - State Legislature has no legislative competence to levy development cess merely on notified agricultural produce brought from outside Uttarakhand into a market area for processing or manufacturing, in absence of sale or purchase within the market area - First proviso to Section 27(c)(v) of the Uttarakhand Agricultural Produce Marketing (Development and Regulation) Act, 2011 held unconstitutional to that extent and consequential demand notices quashed.
Statutory provision(s):
Section 27(c)(v) of Uttarakhand Agricultural Produce Marketing (Development and Regulation) Act, 2011; Section 27(c)(iii) (referenced); Article 265 of the Constitution of India; Entries 24, 26, 27, 28, and 66 of List II of the Seventh Schedule of the Constitution of India
Ashirwad Agro Industries v. State of Uttarakhand, (Uttarakhand)(DB) : Law Finder Doc Id # 2988961
