Uttarakhand’s development cess on produce brought in solely for processing or manufacture without a local sale is unconstitutional, High Court rules

The petitioners operated manufacturing units in Uttarakhand and brought notified agricultural produce from outside the State for processing or manufacture.

The State demanded development cess under the first proviso to Section 27(c)(v) of the Uttarakhand Agricultural Produce Marketing (Development and Regulation) Act, 2011, on the basis that the produce constituted “Other Secondary Arrival,” although the demand was founded on its entry for processing or manufacture rather than a sale or purchase within the market area.

The petitioners challenged the proviso and the consequential notices, relying principally on *M/s Gujarat Ambuja Exports Ltd. v. State of Uttarakhand*, which had struck down Section 27(c)(iii).

The State relied, among other things, on the proviso’s separate treatment of development cess and the earlier Division Bench ruling in *Maa Uma Agri Food (P) Ltd. v. State of Uttarakhand*.

1. Whether the first proviso to Section 27(c)(v) is within the State Legislature’s competence insofar as it imposes development cess merely because agricultural produce is brought from outside Uttarakhand for processing or manufacture, without a sale or purchase in the market area.

2. Whether that levy is distinguishable from the levy invalidated under Section 27(c)(iii) in *Gujarat Ambuja* because the proviso imposes development cess alone and classifies the arrival as “Other Secondary Arrival”.

Section 27(c)(v) of the Uttarakhand Agricultural Produce Marketing (Development and Regulation) Act, 2011, including its first proviso, was assessed against the legislative fields in Entries 24, 26, 27, 28 and 66 of List II and Entry 33 of List III of the Seventh Schedule.

Entry 66 of List II does not independently confer legislative power to impose a fee; the levy must relate to a matter within the State’s legislative competence.

In *M/s Gujarat Ambuja Exports Ltd. v. State of Uttarakhand*, (2016) 3 SCC 601, the Supreme Court held that Section 27(c)(iii) could not impose market fee and development cess on produce brought into a market area from outside the State for manufacture or further processing where there was no sale or purchase within that area.

The constitutional validity of a levy turns on its substance and incidence, not its label or the use to which its proceeds are put.

The Court found that the impugned proviso attached development cess to substantially the same event addressed in *Gujarat Ambuja*: bringing agricultural produce from outside the State into a market area for manufacture or processing without a sale or purchase there.

Limiting the impost to development cess, rather than market fee, and describing the movement as “Other Secondary Arrival” did not alter its substance or cure the lack of legislative competence.

Nor could the asserted use of the proceeds for market infrastructure supply the missing legislative authority; the purpose for which revenue is spent is distinct from the source of power to impose the levy.

The Court therefore held that the contrary reasoning in *Maa Uma*—that the act of bringing produce for manufacture was itself a sufficient, separable transaction—could not survive *Gujarat Ambuja*.

It quashed the impugned notices and consequential demands to that extent, while clarifying that a levy may still be imposed where the requirements of another valid charging provision are independently met, including on a sale or purchase within a market area.

The petitions were disposed of with no order as to costs.