20 August 2004
Supreme Court
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PUNJAB DAIRY DEVELOPMENT BOARD Vs CEPHAM MILK SPECIALITIES LTD. .

Case number: C.A. No.-001741-001753 / 2002
Diary number: 1123 / 2002


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CASE NO.: Appeal (civil)  1741-1753 of 2002

PETITIONER: Punjab Dairy Development Board & Anr., etc.

RESPONDENT: Cepham Milk Specialities Ltd. & Ors., etc.

DATE OF JUDGMENT: 20/08/2004

BENCH: S. N. Variava & Arijit Pasayat

JUDGMENT: J U D G M E N T

(WITH C. A. NOS.1728-1740/2002 AND C. A. NO     OF 2004 [Arising out of S.L.P. (C) No.18237 of 2003])

S. N. VARIAVA, J.

       Leave granted.

       These Appeals are against the Judgment of the Punjab and  Haryana High Court dated 21st November, 2001.

       Briefly stated the facts are as follows.   

       Prior to July 2000, Companies like the 1st Respondent-Company  which are engaged in the production of milk products, like Ghee,  Skimmed milk, Powder, Butter and Cream, were subjected to a  purchase tax at 4% and a surcharge at 10% of the purchase tax.  On  19th July 2000, the Governor of Punjab promulgated the Punjab Dairy  Development Board Ordinance, 2000.  The Ordinance provided for  creation of Punjab Dairy Development Board inter alia for co-ordination  between the organizations engaged in the dairy sector, to uplift  professional standard of the dairy industry in the State and to develop  modern dairy farming technology system.  Under the Ordinance, cess  was levied on milk plants by abolishing purchase tax on milk.

       On 17th August, 2000, the Director, Dairy Development, Punjab,  issued a notice to certain milk companies directing them to pay cess at  10 paise per litre of their licenced capacity for the period 19th July,  2000 to 30th September, 2000.  Many dairy companies filed Writ  Petitions in the High Court.  While these Writ Petitions were pending,  Act No. 20 of 2000 was promulgated.  The Act was published in the  Official Gazette on 20th October, 2000.  All the Petitions were allowed  to be amended challenging the provisions of the Act. The challenge to the Act was on the ground: (a) that the  substance of the levy was a tax on the licenced capacity of an Industry  and that the State Legislature was not competent to levy tax under  any Entry in List II of Schedule VII to the Constitution of India; and  (b) that the impost on the licenced capacity was arbitrary and  discriminatory.

       The High Court has held that this levy was in effect a tax.  The  High Court so held following the principles laid down by this Court in  the case of M/s Kishan Lal Lakhmi Chand & Ors. Vs. State of  Haryana & Ors. [(1993) Supp. (4) SCC 461].  The High Court held  that there was no special service being provided to the milk plants in  the milk-shed areas and that there was no evidence to show that the

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levy would be used for the benefit of the milk plants.  The High Court  notes that the principles laid down in M/s Kishan Lal Lakhmi Chand’  case (supra) have been diluted in subsequent decisions but still prefers  to follow the ratio laid down in that case.  The High Court also holds  the levy to be illegal and invalid as the State Legislature has impinged  upon a field that was already occupied by a Central Legislation,  namely, the Industries (Development and Regulation) Act, 1951.  The  High Court holds that both the Legislations are aimed at improvement  in production and marketing by employing suitable equipments and  materials.  The High Court holds that both the Legislations are aimed  at training personnel for running the facilities.  The High Court holds  that the functions of the Board are not, in pith and substance, any way  different from those assigned to the Development Councils.  The High  Court also holds that as far as the milk plants are concerned, there is  no direct benefit to them and that, therefore, the levy on only those  milk plants having a capacity of more than 10,000 litres is arbitrary  and discriminatory.  The High Court thus quashed the Act.

       It must be mentioned that by the Punjab Dairy Development  Board (Amendment) Act, 2004, with effect from 11th September, 2002  Section 12 of the Act has been deleted.  We are told that after the  deletion of the cess, purchase tax has again been levied on milk.

       The relevant provisions of the Act need to be set out at this  stage.  They read as follows:- "To provide for the creation of Punjab Dairy  Development Board for coordination between the  organizations engaged in dairy sector to uplift  professional standard of the dairy industry in the  State and to develop modern diary farming  technology system and to levy cess on the milk  plants by abolishing purchase tax on milk.

1.      (1) This Act may be called the Punjab  Dairy Development Board Act, 2000.

       (2) It shall come into force at once.

2.      In this Act, unless the context otherwise  requires,--

(a)

(b)

(c)

(d) ‘milk plant’ means a milk handling,  processing or manufacturing unit registered under  the Milk and Milk Products Order, 1992 of the  Government of India; and  

(e

9.      The Board shall be a nodal agency for     coordinating, planning and organizing  programmes of dairy development in consultation  with the State Government so as to promote dairy  sector on modern, scientific and commercially  viable lines.

10.      Subject to the provisions of this Act and  the rules made thereunder, the Board shall

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exercise the following powers and perform the  following functions, namely :--

(i)     to effect coordination between all  organizations engaged in dairy sector viz.,  the Directorate of Dairy Development, the  Directorate of Animal Husbandry, the  Punjab Milkfed and other agencies, such  as milk plants in the joint sector as well as  in the private sector;

(ii)    to uplift professional standards of the  dairy industry in all its aspects through the  Directorate of Dairy Development, Punjab,  the Directorate of Animal Husbandry, the  Punjab Milkfed and milk plants in the joint  sector as well as in the private sector;

(iii)   to coordinate formulation of policies in  regard to production of milk and milk  products;

(iv)    to develop modern dairy farming  technologies and systems for meeting the  local demand of high quality milk and for  promotion of the dairy industry for socio- economic uplift of milk producers;

(v)     to establish centres in rural areas for  demonstration in the manner in which  programmes can be taken up;

(vi)    to plan and formulate policies for  quick genetic upgradation and  development of milk animals, where  necessary, by arranging for transfer of  technology from abroad with Government  of India’s prior approval;

(vii)   to arrange and import new varieties  of fodder seeds to increase the yield and  nutrition of fodder crops and also  equipment or machinery for their  harvesting and conservation;

(viii)  to take requisite measures to  increase consumption of drinking milk and  milk products through proper  advertisement and other related channels  of media;

(ix)    to provide assistance of any kind to  enhance the scope of export of dairy  products;

(x)     to plan and execute programmes of  high level education, research and training  in dairy technology and husbandry;

(xi)    to secure funds from the State  Government and the other agencies; and

(xii)   to exercise the necessary authority  in respect of all matters which are

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incidental and ancillary to the aforesaid for  attaining the objectives of the Board.

11.     (1) The Board may, with the prior  approval of the State Government, create such  posts and appoint such officers and other  employees thereon, as it may consider necessary  for the efficient discharge of its functions.           (2) The conditions of service of the officers  and other employees referred to in sub-section  (1), and their functions and duties shall be such,  as may be determined by the regulations made by  the Board under this Act.

12.     (1) Subject to the rules made under this  Act, there shall be levied for the purpose of this  Act, a cess at the rate of ten paise per litre of the  licenced capacity of a milk plant by abolishing the  purchase tax being charged on milk.

          (2) The cess levied under sub-section (1),  shall be paid by the owner of the milk plant in  such manner and to such person or officer as may  be prescribed.

          (3) The arrears of the cess levied under  sub-section (I), shall be recoverable as arrears of  land revenue.

13.     (1) There shall be constituted a Fund to be  called the ‘Punjab Dairy Development Fund’,  which shall vest in the Board.

         (2) The Fund constituted under sub-section  (I), shall be administered by the Member- Secretary of the Board.

        (3) The amount of cess paid to the person  or officer prescribed under sub-section (2) of  Section 12, shall be credited to the Fund within  such period as may be prescribed and grants from  this State Government and local authorities shall  also be credited to this Fund.

        (4) The accounts of the Fund shall be  audited annually by the Examiner, Local Fund  Accounts,Punjab."              

       Before us lengthy arguments have been made on whether the  levy was a tax or a fee.  Large numbers of authorities were cited by  both sides in support of their respective contentions.  On behalf of the  Appellants, it was submitted that the levy was a fee, which had been  imposed under Entries 15 and 27 of List II of the Constitution of India  and was imposed in order to preserve, protect and improve stock and  prevent animal diseases and give veterinary training and practice and  for improving production, supply and distribution of goods.  It was  submitted that Section 10, which laid down the powers of the Board,  clearly indicated that the cess was being levied under the above  mentioned Entries.  It was submitted that Entry 66 of List II permitted  fees to be levied in respect of such items.  It was further submitted  that the ratio set out in M/s Kishan Lal Lakhmi Chand’s case (supra)  has been held by this Court to be obiter and that the High Court was  wrong in relying upon the ratio laid down in that case.  In support of

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this, reliance was placed upon a case of Krishi Upaj Mandi Samiti &  Ors. Vs. Orient Paper & Industries Ltd. [(1995) 1 SCC 655].   Reliance was also placed upon in B.S.E. Brokers’ Forum, Bombay &  Ors. Vs. Securities and Exchange Board of India & Ors. [(2001) 3  SCC 482].  Reference was made to the cases of Sreenivasa General  Traders & Ors. Vs. State of Andhra Pradesh & Ors. [(1983) 4 SCC  353], City Corporation of Calicut Vs. Thachambalath Sadasivan  & Ors. [(1985) 2 SCC 112], and Sirsilk Ltd. Vs. Textiles Committee  & Ors. [(1989) Supp.(1) SCC 168].                   

       On the other hand, on behalf of the 1st Respondent it was  submitted that the High Court has correctly held it to be a tax and not  a fee.  Reliance was placed upon in The Commissioner, Hindu  Religious Endowments, Madras Vs. Sri Lakshmindra Thirtha  Swamiar of Sri Shirur Mutt [1954 SCR 1005], M.P.V.  Sundararamier & Co. Vs. The State of Andhra Pradesh & Anr.  [1958 SCR 1422] and Municipal Corporation of Delhi & Ors. Vs.  Mohd. Yasin [(1983) 3 SCC 229].  It was submitted that on the basis  of the principles laid down in these cases the High Court has correctly  held that the levy was a tax.         In our view, the law is quite well settled.  As the High Court has  itself noticed the principles laid down in M/s Kishan Lal Lakhmi Chand’s  case (supra) have been diluted by subsequent decisions.  It has been  held that the observations in the above case are obiter.  This being the  position, the High Court was not correct in following the principles laid  down in M/s Kishan Lal Lakhmi Chand’s case (supra).         Even otherwise we find that the High Court was wrong in  concluding that the field was already occupied by a Central Legislation,  namely, the Industries (Development and Regulation Act, 1951.  As  laid down in the case of Ch. Tika Ramji & Ors., etc. Vs. The State  of U.P. & Ors. reported in [1956 SCR 393] and Belsund Sugar Co.  Ltd. Vs. State of Bihar & Ors. reported in [(1999) 9 SCC 620]  repugnancy must exist as a fact and not as a mere possibility.  In the  absence of any specific order or provision the question of repugnancy  cannot arise.  Admittedly, the Central Legislation levies no cess or fee.   Thus, there can be no question of repugnancy if a fee were to be  levied.                 While the High Court was wrong in these conclusions, the  question would still remains whether the levy was a tax or a fee.  In  the view which we are taking, and which is set out hereinafter, it is not  necessary for us to decide this question.   We leave the question open.           We find that the High Court was, however, right in concluding  that the levy, even if it be a fee, is arbitrary and discriminatory.  The  levy is ostensibly for the purpose of co-ordination between  organizations engaged in dairy sector and to develop modern dairy  farming technology. However, the levy is on milk plants at the rate of  10 paise per litre of the licenced capacity.  The term "milk plant" has  been defined under Section 2(d) to mean a milk handling, processing  or manufacturing unit registered under the Milk and Milk Products  Order, 1992 of the Government of India.  This Order has been issued  under the Essential Commodities Act.  Under this Order, only milk  plants having an installed capacity for handling milk in excess of  10,000 litres per day or milk products in excess of 500 tones per  annum require registration.  Thus, only such milk plants, i.e. milk  plants which have an installed capacity to handle 10,000 litres per day  or who produce milk products in excess of 500 tones per annum have  to pay cess.  Further, the levy is not on the basis of actual production  but on the licenced capacity of their plants.  Thus if a milk plant had a  licenced capacity of 40,000 litres, even though the actual consumption  was only 10,000 litres, they would still have to pay cess at the rate of  10 paise per litre on 40,000 litre.  It could not be denied that milk  production and consumption vary from month to month and from  season to season.  Irrespective of such variation and without any  regard to the actual production or consumption, the levy is on the  installed capacity only.  The levy was for the purposes of uplifting the

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standards of the Dairy Industry.  Yet there is no levy on the farmers or  co-operative societies, who produces the milk, nor on plants whose  installed capacity is less than 10,000 litres per day.  No rational  explanation could be given as to why the levy was only on these  plants.  The only explanation given was that these plants could apply  for reduction of the installed capacity in case they were not capable of  using their entire capacity. It was stated that on such an application  being made they would be allowed to reduce their installed capacity.   We are not impressed by this explanation.  One fails to understand  why a milk plant should apply for reducing its capacity.  It may  consume, as per its capacity in seasons when that quantity of milk is  available, but it may not be able to consume, as per its capacity in  seasons or at times when milk of that quantity is not available.   Further, due to temporary closure of some machines for purposes of  repairs or maintenance, they may be consuming less during a  particular period.  Further, even if there is no production/consumption  and even if the plant is shut down the cess would still have to be paid.   This would be so even if the closure is for more than six months in any  particular year.  Irrespective of what their consumption/production is,  these plants would have to continue to pay cess at the rate of 10 paise  per litre of their installed capacity.  We find that such a levy is  arbitrary.   We also find that the levy is discriminatory. There is no levy on  the farmers and co-operative societies, who produce the milk and/or  milk plants whose capacity is less than 10,000 litres per day.  No  explanation is given which justified this discrimination.  Faced with this  situation, it was submitted that this Court could read down the Act. It  was submitted that from the definition of the term "milk plant" in  Section 2(d) of the Act, the words "which was registered under the  Milk and Milk Products Order, 1992" be deleted.  It was submitted that  the words "licenced capacity" in Section 12 be also deleted.  It was  submitted that it is settled law that wherever it is possible to uphold  legislation by reading it down the Court must do so.  There can be no dispute with the principle that if possible the  provision of the Statute must be saved by, if necessary, reading them  down.  However, in this case, we are unable to accept this submission.   As stated above, the Act has been amended in 2004. This levy is  already abolished.  At present, the purchase tax is again being levied.   For the period during which the Act subsisted, it is not possible for us  to read it down inasmuch as it would now affect persons, who never  went to Court because during the period it existed it did not apply to  them.  Such parties are not before Court.  We thus see no reason to  delete the words as suggested on behalf of the Appellants.         It was next submitted that the ground that the Act is  discriminatory and violative and, therefore, liable to struck down, has  not been taken in the Writ Petitions.  We are unable to accept this  submission.  In our view, the Writ Petitions contain the necessary  averments and these have also been met in the reply of the  Respondents.         Thus, even though the reasoning of the High Court may be  erroneous, the ultimate result is that the levy of cess requires to be  struck down as being arbitrary and discriminatory.  In this view of the  matter, we see no reason to interfere.

  The Appeals shall stand dismissed with no order as to costs.