Rajasekhariah v. Tiptur Agrl. Produce Market Com. & Anr.

1. These petitions raise common questions of law and fact and therefore, shall stand disposed of by this common order.

2. The petitioners are either the ‘sellers’ or ‘buyers’ a defined under the Karnataka Agricultural Produce Marketing (Regulation) Act, 1966, which is hereinafter shortly referred to as ‘the Act’. They have challenged the validity of either sub-sec. (1) or sub-sec. (2) or of both the sub-sections of Sec. 65. Some of the petitioners have also questioned the validity of bye-law 12 framed by the Market Committee fixing the rate of market fee at one per cent of the price of the agricultural produce. We may begin with a brief survey of the salient features in the Act. The Act was intended to eliminate malpractices in the buying and selling of agricultural produce and to provide better facilities for farmers with the establishment and administration of markets in the State of Karnataka. The Act provides for a delimation, by notification, of a market area (Sec. 3). In the market area the notified agricultural produce shall be regulated (Sec. 4). For every market area there shall be a market. For every market there shall be a market yard (Sec. 6). Only licensed traders, commission agents and other market functionaries are allowed to Operate in such markets and their commission and other changes are also fixed. The aim of these regulated markets is the eradication of weighing malpractices, excessive market deductions and collusion among traders. No place in the market or the sub-market, except the market yard, sub-yard or the sub-market yard, as the case may be shall be used for the purchase or sale of notified agricultural produce (Sec. 8). The Act provides for the constitution of Market Committees which is a representative body of agriculturists, traders, commission agents etc. (Secs. 10 & 11). These Committees are statutory legal bodies with designated powers. (Sec. 63). They have to maintain and manage the market yards, provide facilities for marketing of agricultural produce and supervise the traders and licensees. In addition to their regulatory functions, they are granted corporate powers, enabling them to own property, borrow money, acquire facilities, collect fees sue and be sued etc. All moneys deceived or realised by a Market Committee either by way fees or penalty, loans or grants shall form part of a fund called “the Market Fund”. (Sec. 90)

3. We may now refer to the pedigree of the section which is under challenge. Sec. 65(1) as it originally stood, directed the Market Committee to levy and collect market fees from the buyers in respect of agricultural produce brought 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 a may be specified in the bye-laws (which shall not be more than thirty paise per one hundred rupees of the price of the agricultural produce) in such manner and such times as may be specified in the bye-laws. Pursuant to the section, Market Committees levied market fee at the rate varying from 25 paise to 30 paise by framing bye-laws in terms of the model bye-law No. 12.

4. The validity of the aforesaid sub-section was called into question in this Court by several traders in K.N Marulardhya v. Regulated Market Committee, Shimoga(1). After examining the nature of the impost thereunder it was observed that Sec. 65(1) did not authorise the recovery of a fee from every buyer in the areas to which it refers, but empowered the levy of fee and its collection “only from the buyer” in respect of the agricultural produce belonging to and brought by the producer. It was also observed that the fee could be recovered only once and the occasion on which the fee could be collected is the occasion when there is a sale by the producer inside the yard or outside the market.

5. On 20th October, 1973, Sec. 65 was amended by Karnataka Act 20 of 1973 raising the maximum fee leviable by a Market Committee from 30 paise to one rupee. This amendment came in handy to the Market Committees which immediately by appropriately amending the bye-laws fixed the market feel at one rupee for one hundred rupees of the price of the agricultural produce. It was again the turn of the traders to approach this Court questioning the validity of the enhanced rate of market fee. In K.S Vaman Rao v. Agrl. Produce Market Committee Sagar(2), the traders challenged the levy on the ground, among others, that the amended Sec. 65 was unconstitutional and the rate of the fee prescribed thereunder had no correlation to the service rendered by the Market Committees. On 17th December, 1974, this Court dismissed all those petitions holding that Sec. 65(1) was valid and the levy authorised by the section was in the nature of a fee. After scrutinising the estimate of expenditure of each Market Committee spread over a period of 15 years and the amount recoverable by way of fees, this Court also held that there was a correlation between the service rendered and the collection of fees.

6. By Karnataka Act 24 of 1975 which came into force on 19th May, 1975, the aforesaid Sec. 65 was substituted by a new section in the following terms:

“65. Levy of market fees—(1) The market committee 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 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 such rate 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.

(3) Every market committee shall, 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-sec. (1) for being spent for the purpose of construction, repair, improvement and maintenance of rural roads in the State.”

7. The scrutiny of the above section indicates that it is obligatory for every Market Committee under sub-sec. (1) to levy and collect fees from every seller in respect of agricultural produce sold by such seller in the market area. The fee collected thereon shall be credited to another Fund called. “The Karnataka Roads and Bridges Fund”, as provided by sub-sec. (3). Sub-sec. (2) empowers the Market Committee to levy and collect market fees from every buyer in the market area at such rate as may be specified in the bye-laws, but not exceeding one rupee per one hundred rupees of the agricultural produce bought. In order to levy this market fee, the Market Committee must have a bye-law fixing the rate of market fee as a condition precedent, but no such bye-law is required for the levy under sub-sec. (1). Under sub-sec. (1), the Market Committee has no option but to collect from every seller at the rate prescribed thereunder.

8. Sub-sec. (3) of Sec. 65 refers to the Fund called. “The Karnataka Roads and Bridges Fund” to which the market fee collected from the seller should be credited. The said Fund has been established by the (Karnataka Motor Vehicles Taxation (Amendment) Act, 1975 (Karnataka Act 14 of 1975) which was brought into force with effect from 1st April, 1975. The surcharge imposed by Section 3A inserted by the said Amending Act shall be credited to the consolidated fund of the State and thereafter that amount is transmitted to the Karnataka Roads and Bridges Fund. Sub-sec. (4) of Sec. 17A states that the amount at the credit of the said Fund shall not be expended except for the purpose of development and maintenance of roads and bridges in the State. There is yet another impost directed to be levied and credited to the same Fund. It is the surcharge on taxes on goods and passengers carried on by road on motor vehicles. The tax on goods and passengers leviable by Karnataka Motor Vehicles (Taxation on Passengers and Goods) Act, 1961 was enhanced with effect from 1st April, 1975, by the levy of surcharge of ten per cent. The surcharge was levied by new Sec. 3A introduced by the Karnataka Motor Vehicles (Taxation on Passengers and Goods) (Amendment) Act, 1975 (Karnataka Act 15 of 1975). The collection so made shall also be credited to the said Fund in the same manner as the surcharge under the Motor Vehicles Taxation Act is credited. It is to this Fund alone, the fee collected under sub-sec. (1) of Section 65 shall also be credited for the purpose of construction, repair, improvement and maintenance of rural roads in the State.

9. We were told that the validity of the present Sec. 65 has been challenged in several writ petitions, some of which have not been referred to a Bench for disposal. To avoid prejudice to the petitioners, we have heard every Counsel who waited to intervene in these petitions. The common contention urged for the petitioners and intervenors related to the nature of the impost under Sec. 65. It was urged that the section authorises multi-point levy on every seller and buyer of a notified agricultural produce on successive sales or purchaser in the same market area and there is no correlation between the fee levied and the service rendered by the Market Committees. As against the levy under sub-sec. (1), there was one more contention. It was urged that levy for construction, repair, improvement and maintenance of rural loads is illegal since it is nut one of the statutory duties of the Market Committees but a part of the responsibility of the State Govt. or the corporate bodies. It was also urged that the construction or improvement of rural roads confers no special benefit on the sellers from whom the market fee is collected under sub-section (1).

10. On behalf of the Market Committee, several contentions - some of them conflicting have been raised in their Statement of Objection. Some of the Market Committees have sought to justify the levy of fees under both the sub-sections as multiple levy that is on each seller or buyer on every sale or purchase of every agricultural produce in the same market area. One of the Market Committees has sought to justify the levy under sub-sec. (1) as a tax, as the Market Committee does not render any service to the sellers by utilising the said collection. Others, however, contended that the levy under both the sub-sections is single point levy on the first sale or purchase in every market.

11. The shifts in the stand taken by the State was also not free from confusion or contradiction. In the Statement of Objections filed on 13th Jan, 1976, the State sought to justify the impost under sub-sec. (2) on the principles enunciated by this Court in Marularadhya's case In that case, it was held that Sec. 65(1) as it then stood corresponding to the present Sec. 65(2), empowered the levy of market fee only on the person who buys from the producer and not on every buyer of agricultural produce. If this contention had been pursued to its logical end, there would have been some difficulty to establish correlation between the fee levied and the service rendered. The learned Advocate General velly wisely averted the Market Committees leading themselves to such difficulties. He came forward with an Additional Statement of Objections on 4th August, 1978, in which it was inter alia, contended that the reference in Marularadhya's case in the first Statement of Objections in justification of the levy under sub-sec. (2) was made by inadvertance and the validity of the new Section must be considered without reference to old Sec. 65. It was also stated that the new Sec. 65 intends to levy fee on every seller, be it a producer-seller or trader-seller and also on every buyer, but does not authorise multi-point levy on the successive sales or purchase in the same market area. It was further stated that the section has to be interpreted on its own language and also having regard to the amendments brought about after the decision in Marularadhya's case.

12. In view of the clear stand taken on behalf of the State, the Counsel for the Market Committees also, (though reluctantly) submitted that they would fall in line with the position taken by the learned Advocate General on the scope of Section 65.

13. We may now turn to the validity of the market fee levied on the sellers under sub-sec. (1) of Sec. 65. For a proper decision on this question, it will be necessary to remember the well accepted distinction between a tax and a fee. Without parading the all too familiar learning on the subject and the long line of decisions thereon, we may briefly refer to the main distinguishing features. In Cornmr., HRE, Madras v. Lakshmindra Thirtha Swamiar(3), B.K Mukherjea, speaking for the Supreme Court, summarised the principles in the following terms:

“….A ‘fee’ is generally defined to be a charge for a special service rendered to individuals by some governmental agency. The amount of fee levied is supported to be based on the expenses incurred by the Govt. in rendering the service, though in many cases the costs care arbitrarily as lessed…. Of course, in some cases whether a man would come within the category of a service receiver may be a matter of his choice, but that by itself would not constitute a major test which can be taken as the criterion of this species of imposition. The distinction between a tax and a fee lies primarily in the fact that a tax is levied as a part of a common burden, while a fee is a payment for a special benefit or privilege.”

14. There are three ??? elements in the levy of a fee although the distinction between a fee and a tax is not always observed with nicety in judicial decisions. First, the levy must be in consideration of certain services which the individuals accept either willingly or unwillingly. Second, the amount collected must be earmarked to meet the expenses for rendering services and must not go to the general revenue of the State to be spent for general public purposes. (See State of Maharashtra v. The Salvation Army)(4). Thirdly, the levy must clearly confer special benefit to the person on whom it is imposed. See Corporation of Calcutta v. Liberty Cinema(5). A fee is thus a payment for special benefit of privilege which the individual receives. It is also regarded as a sort of return or consideration for services rendered. It should therefore be correlated to the expenses incurred in rendering the services. See State of Rajasthan v. Sajjanlal Panjawat(6). With all these principles, the Legislature, however, is not competent to make the public to contribute by way of fees to the increase of general public revenue. See Govt. of Madras v. Zenith Lamps(7). “The payment would be a tax, if it is exacted by the State or its municipal sub-divisions as a contribution benefits derived from their performance is merged in the general benefit.”(8)

15. Having regard to these principles, we shall now proceed to consider the first question on the validity of sub-section (1) of Sec. 65. The levy thereunder is on every seller of agricultural produce in the entire market area for the purpose of construction, repair, improvement and maintenance of rural roads in the State. The market area in all these case undisputedly extends either to the entire District or to the entire Taluk concerned. The Act, however, does not confer any duty on the market committees to construct rural roads in the market area. Such duty extends only to the area covered by the market yard which is usually a compact area. But the roads in the market yard are not rural roads as envisaged by sub-section (3) of Sec. 65. The rural roads referred to thereunder are of the entire State, the construction or the maintenance of which is the primary responsibility of the State or the ??? of the State. This is clear from the following provisions.

16. Sec. 67 of the Karnataka Land Revenue Act, 1964, declares that all public road, streets, lanes and paths etc. which are not the property of individuals or of aggregate of persons legally capable of holding property are the property of the State Govt. Sec. 266 and 267 of the Karnataka Municipal Corporations Act, 1976, make it obligatory for the Corporation to construct, maintain and repair the public streets in the Corporation reserved under the control of Govt. Such streets shall vest in the Corporation as provided by Sec. 265. Sec. 81 of the Karnataka Municipalities Act, 1964 (Act No. 22 of 1964) provides that all public streets which have not been specifically reserved by the State Govt. shall be vested in and belong to the Municipal Council. Sec. 87(i) of the said Act states that constructing, altering and maintaining public streets, culverts, etc., is the obligatory function of the Municipal Council. Similar provisions are also found in the Karnataka Village Panchayats and Local Board Act, 1959. Sec. 42(a) of the said Act states that the construction, repair and maintenance of village roads, drains, bunds and bridges is the obligatory function of the Panchayat. Sec. 52 provides that the Panchayat shall have control of all village roads and bridges thereon, except those which do not belong to private persons, Taluk Board, Municipal Council or Govt. Complementary to this, Sec. 130(1)(i) in the same Act states that it is the duty of the Taluk Board to construct, repair and maintain public roads and other mean of communication which are not under the control of any other local authority or of the Govt. Section 134 provides that every road, or other work constructed by a Taluk Board from the Taluk Board Fund shall be vested in such Board, except such portion of the road as may lie within the jurisdiction of a Municipal Council or a Town Area Committee. To make the picture complete, we may also refer to Sec. 5 of the Karnataka Highways Act, 1964. It deals with the powers and duties of the Highway Authorities. It provides that subject to the general or special orders which the State Govt. may make, it shall be lawful to a Highway Authority to undertake the construction, maintenance, development or improvement of Highways.

17. From the aforesaid provisions, what emerges is this: The Corporation shall construct, repair and maintain the public roads within the Corporation Area; The Municipal Council shall construct and maintain the public roads within the Municipal Area; the Taluk Board and the Panchayat shall construct, repair and maintain the public roads within their respective jurisdictions. But if it is a Highway, then ordinarily the Highway Authority undertakes the constructions and maintenance.

18. Here it is necessary to examine the rights on all public roads and streets. Strangely, there is a lot of misconception on these rights. We deliberately used the word “strangely” because every day we see the misuse of these rights and obligations. When once the road is constructed by the State or the instrumentalities of the State, every citizen has a right to use it without impinging upon the like rights of others. The State or the corporate bodies shall hold the public road as trustees for the benefit of the public. The members of the public are entitled as beneficiaries to use them. When every member of the public is held to have such right caution requites that none should overstep his limits. On these principles B.K Mukherjea, J., speaking for the Supreme Court in Saghir Ahmad v. State of U.P(9) referred to with approval the following observation on Venkatarama Ayyar, J. of the Madras High Court in C.S.S Motor Service v. State of Madras(10):

“The true position, then is, that all public streets and roads vest in the State, but that the State holds them as trustees on behalf of the public. The members of the public are entitled a beneficiaries to use them as a matter of right and this right is limited only by the similar right possessed by every other citizen to use the pathways. The State as trustees on behalf of the public is entitled to impose all such limitations on the character and extent of the user as may be requisite for protecting the rights of the public generally;….but subject to such limitations the right of a citizen to carry on business in transport vehicles on public pathways cannot be denied to him on the ground that the State owns the highways.”

19. The learned Judge also observed that the State only controls and regulates the right of the public on public road for the purpose of ??? safety, peace of life and good morals of the public, and a member of the public is entitled to ply motor vehicles on the public roads as an incident of his right of passage. One has, therefore, no better right than the other. All must be subject to such restrictions which call for the proper use of the roads.

20. This takes us to the rural roads, the construction or maintenance of which is the justification for the impost under sub-section (1). Under this sub-section, the Market Committee levies and collect market fees from every seller of agricultural produce, but does not spend anything from that collection for the purpose for which it is levied. The fee that is collected, is credited to the ‘Karnataka Roads and Bridge Fund’ and it merges with the tax earmarked for construction of roads not excluding the rural roads. Assuming that the State has been judiciously spending that market fees for the construction or maintenance of rural roads although it has not produced any statement of marketwise allocation of fund in proportion to the collection of fees, we fail to see how that could be a legal justification for the levy. The Act does not require the Market Committee to provide roads in the market area. The construction or maintenance of such roads is one of the obligatory function of the State or the Corporate bodies. The expenses incurred by these bodies are generally met by the imposition of a variety of taxes as road are meant for the general bent fit. The State cannot exact the market fees from a section of the public as a contribution towards the cost of maintaining Governmental functions.

21. Dealing with almost a similar question in Govt. of A.P v. Hindustan Machine Tools Ltd.,(11) the Supreme Court observed.

“One cannot take into account the sum total of the activities of a public body like a Gram Panchayat to seek justification for the fees imposed by it. The expenses incurred by a Gram Panchayat or a Municipality in discharging its obligatory functions are usually met by the imposition of a variety of taxes. For justifying the imposition of fees the public authority has to show what services are rendered, or intended to be rendered individually to the particular person on whom the fee in imposed. The Gram Panchayat here has not even prepared an estimate of what the intended services would cost it.”

22. It was further observed:

“Learned counsel for the appellant contended that the Gram Panchayat lays roads for providing access to new buildings, that it provides for drainage and lights and that it scrutinises the plans submitted for intended constructions and if necessary, it advises the applicants in order that the proposed construction may conform to the regulations. We are unable to accept that these service are rendered individually to the respondent. The laying of roads and drainage or the supply of street lights are a statutory function of public authorities and it is difficult to hold, in the absence of any material, that an of such service as have been mentioned to us have in fact been rendered to the respondent.”

23. The learned Advocate General, however, contended that the construction of rural roads would help the producers or grower to take their produce to the market or market yard and it would thus confer a benefit on them. But we are unable to agree that the construction or maintenance of rural roads confers any special benefit on the producer which is one of the fundamental requirements for the imposition of a fee. We have earlier stated that when roads are constructed, every member of the public has a right to use it. It is not only those who use the public roads that get the benefits, but, in the broader sense, the network of roads in a country benefits the whole country; otherwise, the means of transportation, and perhaps communication also, would be lacking and the country will be divided into isolated pocket. The other aspect of the matter is that the market fee is not levied only on the sellers who are producers. According to the contention urged for the State, it is also levied on a trader-seller of urban area for whom the rural roads are of little use or benefit. Therefore, on the face of the legislative provisions, this essential character of the fee is lacking.

24. A Division Bench of this Court in K.S Vaman Rao v. Agricultural Produce Market Committees Sagar while considering the nature of the impost under the unamended Sec. 65(1), has also taken the same view. It was observed:

“The Market Committee can spend money for conduction of roads in the market yards provided the market yard is established on the land belonging to the Market Committee. But so far as the rural road are concerned, it is the responsibility of the State Govt. to maintain the same and the Market Committee cannot expend from the Market Fund for construction or maintenance of rural roads.”

25. The learned Advocate General, however, strongly relied upon the decision of the Supreme Court in the Higher-Rampur Coal Co. Ltd. v. State of Orissa(12) in support of his contention that it is open to the Market Committee to levy market fee for the construction of rural roads. In the said case, the Supreme Court considered the validity of the cess levied under Sec. 4 of the Orissa Mining Areas Development Fund Act. (Act No. 27 of 1952). The Act provided a scheme for the development of mining areas in the State and for rendering service to a specified area and to a class of persons who were subjected to the levy of fees. The special service rendered was proved primarily for a specified class or area, by developing mineral areas. Even the element of quid pro quo in the scheme was established. Having regard to these features of the Act, the levy involved in that case was held to be a fee. The same is not the position in the present case, and therefore, the said case cannot be relied upon to sustain the import under sub-section (1).

26. We are, therefore, of the opinion that the levy of market fees under sub-sec. (1) cannot be sustained and has to fail.

27. This takes us to the next question as to the validity of the levy under Sec. 65(2) of the Act, Sec. 65(2) was substituted in place of former Sec. 65(1) by Karnataka Act 24 of 1975. The substituted, sub-section inter alia, provides that 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 such rate as may be specified by the bye-laws in such manner and at such times as may be specified in the bye-laws. The import of the expression “at such times as may be specified in the bye-laws” which also occurred in the former Sec. 65(1) has been fully explored and clearly explained in Marularadhya's case, as not authorising a plurality of the impost, but only providing for the intervals or the points of time at which the fee, properly leviable, could be collected.

28. The contentions urged by learned Counsel for the petitioners in support of their challenge to the provisions of Section 65(2) may be formulated thus:

That consistent with the objects and purposes of the legislation, the old Sec. 65(1) authorised recovery of market fees only in respect of the first sale of agricultural produce by the producer-seller; that the person Sec. 65(2) envisages a multiple-stage levy inasmuch as the expression “buyer” has now come to be qualified by the expression “every”; and that Sec. 65(2) which authorises such multistage or multi-point levy is invalid. That the levy ceased to partake of the nature of a ‘fee’ and assumes, in substance, the character of a tax.

29. In support of this stand, learned Counsel for the petitioners relied on certain observations in Marularadhya's case, and in particular, the following observations at paras 34 and 38:

“34. When we proceed to understand the provisions of that section in that way, it would be observed that section does not authorise the recovery of a fee from every buyer in the areas to which refers but empowers the levy of the fee and its collection ‘from the buyer in respect of agricultural produce’……”

“38. The conclusion which emerge from this discussion is that under Sec. 65 the levy of the market fee is on the first sale by the producer inside the yard or outside the market as the case may be to a trader or any other person and that once the agricultural produce has been sold in that manner no market fee could be recovered from a buyer who buys the agricultural produce subsequenlty…..”(Underlining (italics) supplied).

30. On the strength of the above observation, it was urged that Section 65(1), as it then stood, was held to envisage a single stage levy on account of the significant omission “every” prefixing “buyer” in the said Section 65(1) and now the legislature which must be presumed to have had the knowledge of the law laid down in Marularadhya's case, having introduced the expression “every” in the substituted section, it must clearly admit of the interpretation that a multiple stage levy is contemplated. If it is really a multiple-stage levy, the argument proceeded on the a sumption that Sec. 65(2) would be bad as the impost thereunder would be really in the nature of a tax as it would rope in a trade-seller as dis tinguished from a producer-seller the sale at whose instance alone could be made exigible to the levy.

31. There appears to be a fallacy in the first part of the above contention. Assuming that Sec. 65(2) would authorise multiple levy on ever buyer, the impost ipso facto cannot be deemed to be a tax. It depends upon the service rendered to such buyers and the rate at which the market fee is levied on them. However, it is not necessary to pursue this part of the contention, in view of the submission made by learned Advocate General that Sec. 65 authorises the levy of fee on every seller or buyer, including a producer-seller or trader-seller, but does nut authorise multi-point levy on the ??? sales or purchases in the same market area. On the second part of the contention that no fee could be levied on trader-seller, it is necessary to examine the economic philosophy informing this legislation and the scope of the relevant legislative entries in List II of the Seventh Schedule to the Constitution. The legislation in question falls within entries 26 and 28 of List II, which deals with “Trade and Commerce” within the State and “Markets and Fairs” respectively. It is stated that the State of Karnataka in its agricultural development plan has stressed improved marketing particularly, development of modern regulated markets to increase competition and improve efficiency. The improved marketing facilities are stated to be particularly important for the 7 lakhs small-farmers, who hold less than 2 hectares each, and whose bargaining power is stated to be less than the large farmers. It is also stated that such regulation would permit trade, to be conducted more efficiently and result in smoother overall marketing methods, the major quantifiable economic benefits of the market being said to consist in reduced congestion, municipal overheads and product losses. Regulated Market it essentially a meeting place for buyers and sellers with facilities of handling large quantities of produce under system that assures maximum competition, efficient handling and a minimum of wantage. The method of sale are designed to assure fair-trading practices and competitive prices. It is said that though the first regulated market in India was in the late 19th Century, however there were only a few regulated markets in the country until 1950. By Jan 1970, legislation covering the regulation of over 2,100 to 3,400 major primary-markets had been passed, though the implementation thereof is said to have varied considerably from State to State. In the appraisal of “Mysore Agricultural Whole pie Market Project” made by the International Bank for re-construction and development ((International Development Association) to which our attention was invited there is advertence to the importance of these market regulations. The report says:

“Since 1965 India has placed greater emphasis on development of agriculture compared to other sectors. As a result, priority has teen given in recent years to accelerating the introduction of the new agricultural technology, through increasing the availability of improved inputs, by providing economic incentive to farmers and by concentration, on improved marketing. The new agricultural strategy has brought encouraging results. The increased use of high yielding seed varieties and fertilize, particularly when combined with irrigation, has contributed to a significant increase in farm production….Thus a favourable long-term trend in agricultural production evident and improved marketing facilities are essential for the trend to be maintained.

The State of Mysore with an area of about 192,000 km. is located in the south-western part of the Deccan Plateau. It has a coastline of about 300 km. Population is about 29.3 million (provisional figures of 1971 population census) representing some 5.5 per cent of the total population of India. Among the various States of India, Mysore ranks sixth and eighth in area and population, respectively. About 76 per cent of the population live in rural areas (29,500 villages). The remaining 24 per cent live in the State's 245 towns, about one-half (12 per cent) in the 11 principal centres of over 100,000 people. For administrative purposes, the State is divided into 4 divisions, 19 districts, and 175 Talukas (administrative units).

Some 6.7 million person are engaged in agriculture, representing 65 per cent of the total working population. The total land area in the State is spine 19.0 million ha, and of this some 62 per cent is cultivated (of which about one seventh is fallow); 15 per cent forested; and 23 per cent barren, uncultivated or used for non-agricultural purposes. The State produce a wide diversity of crops (paras 2, 12-2, 14).

……In order to eliminate malpractices the State has taken steps to regulate the trade under the Agricultural Produce Marketing (Regulation) Act 1966……..”

32. In Arunachala Nadar v. State of Madras(13) the Supreme Court referred to the background of this kind of legislation thus:

“6. There is a historical background for this Act. Marketing legislation is now a well settled feature of all commercial countries. The object of such legislation is to protect the producers of commercial crops from being exploited by the middle-men and profiteers and to enable them to secure a fair return for their produce ………

7. The Act, therefore, was the result of a long exploratory investigation by experts in the field, conceived and enacted to regulate the buying and selling of commercial crops by providing suitable and regulated market by eliminating middlemen and bringing face to face the producer and the buyer so that they may meet on equal terms, thereby eradicating or at any rate reducing the scope for exploitation in dealings. Such a statute cannot be said to create unreasonable restrictions on the citizen's right to do business unless it is clearly established that the provisions are too drastic, unnecessarily harsh and overreach the scope of the object to achieve which it is enacted.”

33. If control has to be effective in the interest of the agricultural producer, it will be necessary also to control transactions between traders and trader. Dealing with not a dissimilar situation under the Bombay Agricultural Produce Markets Act (22 of 1939), the Supreme Court in Muhammadbhai v. State of Gujarat(14), observed:

“(20). Next it is urged that the provisions in the Act also affect transactions between traders and trader and also affect produce not grown within the market area if it is sold in the market area. That is undoubtedly so. But if control has to be effective in the interest of the agricultural producer such incidental control of produce grown outside the market area, and brought into the market yard for sale is necessary as otherwise the provision of the Act would, be evaded by alleging that the particular produce sold in the market yard was not grown in the market area. For the same reasons transactions between traders and traders have to be controlled, if the control in the interest of agricultural producer and the general public has to be effective.”

34. We must therefore point out that the view taken by this Court in Marularadhya's case that Sec. 65(1), as it then stood, authorised the levy of fee on the first sale by the producer-seller was apparently based on a construction of the said section and did not stem from any limitation on the competence of the legislature to make a more comprehensive legislation on the topic. As the section now stands, and having regard to the objects and purpose of the Act, it may not be correct to contend that it is only the sale by producer-seller that could attract the levy. The legislation on the topic cold be more comprehensive and could affect transaction is between traders and traders as well and also affect produce not grown within the same market-area.

35. Even otherwise, it appears to us that on a plain construction, there is nothing in Sec. 65(2) to compel the view that it ??? at multi-point levy. According to us, the true purpose of the word “every” qualifying the word “buyer” in Sec. 65(2) was to identify the “buyer” as not merely the producer-seller but also a trade-seller. It does not connote ??? levy on every successive sale of the same agricultural produce in the same market area. A buyer may, in a market-areas, buy different item of notified agricultural commodity and each of these transactions—and not successive transactions in the same market-area of the same commodity—attracts the levy. The language of the sub-section also admits of and does not exclude a levy on the same commodity, if it were brought and sold in another market area, provided the second market committee also render service for marketing.

36. It was not contended before us that Sec. 65(2) would be otherwise bad, even if the levy envisagd by it is a single point or single stage levy. We, accordingly, hold that the attack on the validity of Sec. 65(2) of the Act must fail.

37. The next contention relates to the quantum of levy. It was urged that having regard to the nature and extent of the services rendered and the expenditure incurred by the market committees the levy of a fee at the rate of 1 per cent advaloram on the value of the notified agricultural produce, fixed by Bye-law 12 is unsupportable and the levy has to fail for want of quid-pro-quo. It was stated by the learned Counsel that Bye-law 12 specifying the fee and the rate thereof is in terms common to all the Agricultural Produce Market Committees concern in these batch of writ petitions, viz., of Tiptur, Gulbafrga, Mangalore, Sagar, Koppal, Bangalore (Yeshwanthapur). All these market Committees, except the Committees of Bangalore and Koppal, were parties to WP No. 537 of 1974 and connected, petitions (2) in which the enhancement of the market fee from 30 paise to one rupee was challenged. In the said case, this Court, after scrutinising the statements of incomes and expenditure furnished by the Market Committees held that there was requisite correlation between, the levy and service and upheld Bye-law 12. Even though the present petitioners may not have been parties to the said proceedings, yet we are of the opinion that unless they are able to show by satisfactory and acceptable material that the basis on which this Court upheld the validity of Bye-law 12 of the Marked Committees of Tiptur, Gulbarga, Mangajore, Shimoga and Sagar were palpably erroneous, it would not be impermissible to draw an inference in favour of the evitence of the correlation. The petitioners have made no such attempt to show how the factual bass of the previous finding is bad. Therefore, we would not be justified in recording any finding on the point in derogation of the one recorded in WP 537 of 1974 in this behalf. Accordingly, Bye-law 12 framed by the Market Committees of Tiptur, Gulbarga, Mangalore, Shimoga and Sagar cannot be held to be invalid.

38. This leave us with the question of the validity of Bye-law 12 of the Agricultural Produce Market Committee of Bangalore which was not a party to WP 537 of 1974. So far as Koppal Market Committee is concerned, petitioners have not challenged Section 65(2) or Bye-law 12 imposing the levy. They have challenged the validity of Sec. 65(1) only.

39. We may now examine the justification of the levy from the point of view of the existence of the requisite correlation between the fee and the services rendered so far as the Market Committee of Bangalore is concerned. It is stated that there is no generic difference between a tax and a fee both being compulsorily exaction of money by public authorities but whereas a tax is imposed for public purposes and is not, and need not be supported by any consideration of service rendered in return a fee is levied essentially for the services rendered and as such there is an element of quid-pro-quo between the person who pays the fee and the public authority which imposes it. Thus, in regard to ‘fee’ there is, and must always be a correlation between the fee collected and the services intended to be rendered. As a matter of principle the extent of the service should be correlated to the fee raised. It is not, however, necessary to establish correlation with any mathematical accuracy: but what is necessary to be shown is a broad correlation.

40. In Delhi Cloth and General Mills Co., Ltd. v. Chief Commissioner Delhi(15) the point for consideration was whether the amount payable for renewal of licence to run a factory in question was fee or a tax. The Supreme Court observed:

“….The High Court further found which finding being of fact, must be considered as final that 60 per cent of the amount of licence fees which were being realised was actually spent on services rendered to the factory owners. It can, therefore, hardly be contended that the levy of the licence fee was wholly unrelated to the expenditure incurred out of the total realisation……”

41. In State of Maharashtra v. Salvation Army(16), the Supremo Court referring to the percentage of expenditure which can be considered as a broad correlation stated:

“18……Calculating on that basis, the percentage will come to about 62. On the basis of the decision of this Court in Delhi Cloth & General Mills case ((1970) 2 SCR 348 : (1970) 2 SCC 172 : AIR 1971 SC 344), (Supra) the levy was in the nature of the fee as the expenditure was 62 per cent of the contributions levied and as there was approximate correlation.

23. As we said, the fee must, be as far practically as possible, be commensurate with the services rendered. One should not seek for any mathematical accuracy in these matters but be content with rough approximations.”

42. It is in the light of these principles that the impost of 1 per cent advalorem envisaged by Bye-law 12 requires to be considered. It may be relevant to state that this 1 per cent advalorem was fixed after the International Bank for reconstruction and development (International Development Association) made a careful assessment of all the relevant factors operating in the Agricultural Market Committees in the State and recommended that rate of levy. So far as the Agricultural Produce Market Committee, Bangalore, is concerned, it has filed a number of statements of accounts and some project reports to establish the correlation. The initial statement filed by it was an estimate of receipts and expenditure projected for a period of 15 years. This included a number of items of expenditure on proposed developmental activities in the future including the proposed “sub-market yard at Benaganahalli” and the proposed “Vegetable markets” near Binny Mill”. The estimate also included certain capital out-lays on construction of shop-cum-godowns in the market yard and for acquisition of land for future development of the market yard at Yeshwantpur. Learned Counsel for the petitioners contended that these estimates tended to play-up the expenditure and play-down the items on the receipt side. A number of items of expenditure were called into question as having really no relation to services to be rendered. Thereafter, Sri B.G Sridharan, learned Counsel appearing for the APMC, Bangalore filed a memo d/- 14-8-1978 annexing thereto statements of accounts for the years 1973-1974, to 1977-1978, in which several items of proposed capital expenditure contained in the original estimates were deleted and the items of expenditure confined to what according to the committee, represented permissible items of expenditure in this behalf. So far as the capital items included in the latter set of statements are concerned, they are stated to show only expenditure incurred or to be incurred in respect of the present market yard at Yeshwantpur. The statements of account filed on 14-8-78 show that for the years 1973-1974, 1974-1975, 1975-1976, 1976-1977 and 1977-1978 the percentage of expenditure on service works out to 42, 58, 89, 107 and 201 per cents respectively. The correctness of these figures as finally furnished in the statements annexed to the memo d/14-8-78 were not seriously disputed by the petitioners but their learned Counsel had only one point to make against them. That point was that in assessing the value of services for the purpose of estimating correlation, the items of expenditure of a revenue nature to an extent of at least 60 per cent should be established. Certain observations in the judgment of the Supreme Court in State of Maharashtra v. Salvation Army were sought to be relied upon in support of the contention.

43. We are unable to subscribe to any such broad proposition that the value of the services to be rendered in respect of a fee should necessarily exclude out-lays on capital works made by the public authorities raising the fee. The matter, in our opinion, must necessarily rest upon the nature of the services envisaged in any particular scheme. The component of capital expenditure in the value of services cannot altogether be excluded from consideration in assessing the correlation. Indeed to the extent the capital outlay is consistent with and necessary for or incidental to the scheme it has to be considered a relevant item. What portion of the expenditure should relate to revenue items and what portion of the expenditure is permissible on capital works must, in our opinion, depend upon the facts of each case and the nature and purposes of the scheme. The only general proposition that can be enunciated is that no general proposition valid for all cages can be made.

44. Indeed, in many areas the line of distinction between what is ‘capital’ and what is ‘revenue’ is very thin and in the nature of things something which cannot be static and fixed but must be dynamic to accord with the changing patterns of economic life and in border line cases a conclusion one way or the other, may, with equal propriety be reached. The distinguishment between ‘capital’ and ‘revenue’ in law, it is stated, is “frequently one of difficulty just as it is difficult to indicate exactly where darkness ends and dawn begins or black and white lose their distinctive features and become neutral”.

45. The establishment and administration of regulated markets and the services contemplated thereby undoubtedly involve investments of a capital nature. Having regard to the nature and objects of the present legislation and consistent with the nature of services to be rendered, it is not possible to accept the contention that in considering the existence of the requisite correlation between the fee and the services rendered, the revenue items of expenditure alone should be taken into account of that a certain percentage alone of that expenditure should be of capital nature and the rest of revenue nature. Such a proposition is neither good sense nor good-law. In the State of Maharashtra v. Salvation Army the Supreme Court observed:

“….When there is surplus it cannot immediately be said that the surplus must necessarily go in reduction of the rate of contribution to be levied thereafter. We think that it would neither be expedient nor prudent to lay down any abstract proposition that whenever there is surplus in a particular year or a number of years, that surplus must always be taken into consideration and the rate of the contribution should be reduced for the next year or subsequent years. An organisation like the one in question may have to incur capital expenditure for the better administration of the trusts and it might not be able to forsee all the contingencies in which such expenditure will have to be incurred for the more efficient working of the organisation…….But at the same time when it is seen that after taking into account the capital and other expenditure necessary for the efficient functioning of the organisation for the better administration of the trusts, a larges surplus is still left, then the question will arise whether it is permissible for the organisation to continue the levy at the same rate which will only result in further surplus and to invent this Surplus solely for earning income or to divert the surplus for other objects, though charitable in nature. We do not think any such levy for investment or diversion of the surplus would be consistent with the-principle behind the levy of a fee…..No hard and fast rule applicable in all contingencies can be formulated. The Court will have to draw a line somewhere when the surplus must be taken ??? consideration for reducing the levy of contribution. In drawing the line, the Court will have to look into the nature of the organisation, the potentiality for its growth, the multiplication in its work consequent on its expansion for rendering the services visualized, 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….”

46. The above observations of the Supreme Court support the view we take of the matter.

47. We, therefore, hold that the Agricultural Produce Market Committee, Bangalore, has established the broad correlation to support the levy and the validity of Bye-law 12 of the Agricultural Produce Market Committee, Bangalore, requires to be upheld.

48. In the result, these petitions are allowed in part. While upholding the validity of sub-sec. (2) of Sec. 65 and Bye-law 12 of the Bye-laws framed by the Market Committees, we strike down sub-secs. (1) and (3) of Section 65 of the Act.

49. There will be no order as to costs. At this stage, learned Counsel for the petitioners submitted that this Court should make a consequential direction asking the Market Committees to refund the fees collected under Sec. 65(1) of the Act, since the sub-section has been held to be invalid. Learned Advocate General opposed that prayer. He submitted that it is open to the petitioners to file separate suits to recover the said amount.

50. We do not think that it is necessary to drive the petitioners to another set of litigation. Having regard to the order made in the writ petitions, the consequential direction shall follow as the petitioners are entitled to the refund of the market fees paid by them under Sec. 65(1) of the Act. There shall be therefore, an order against the respective Market Committees to refund to the petitioners the said fees, if any, levied and collected from them under sub-section (1) of Section 65