M/s Gujarat Ambuja Exports Ltd v. State of Uttarakhand
Background
Uttarakhand amended its agricultural produce marketing law in 2012 so that market fee and development cess became payable on produce that first arrives in a market area for "sale, storage, processing, manufacturing, transaction or other commercial purposes" from outside the State. Manufacturers who brought farm produce in for processing challenged the charge, arguing that no sale took place and that manufacturing falls under the Union's industry power. The High Court upheld the amendment.
Decision Breakdown
The Court held that manufacturing is covered by the Union's Entry 52 (industries), which the Court read as covering manufacture or production, so the State had no power to levy market fee and cess on produce brought in for manufacture rather than for sale. It struck down Section 27(c)(iii) as amended, and quashed the demand notices issued under it. It upheld Section 27(c)(iv), which covers produce that has already paid fee in another market area in the State and so is not charged again. It also made clear that a buyer claiming the interstate-arrival treatment must prove that the produce came from another State in an interstate sale under the Sale of Goods Act, 1930.
Lesson Learnt
A State can only levy a fee or cess that falls within its own legislative powers, and a charge that goes beyond them can be struck down along with the demands made under it. Businesses that bring goods across State lines for manufacturing should check whether they fall under a levy that the courts have now held invalid.