IMPORTANT POINT
Levy of cess on milk plants under the provisions of the Punjab Dairy Development Board Act, requires to be struck down as being arbitrary and discriminatory.

Headnote:Punjab Dairy Development Board Act, 2000-Punjab Dairy Development Board Amendment) Act, 2004-Levy of cess on milk companies-Validity challenged-Prior to July 2000, companies engaged in production of milk products were subjected to purchase tax at 4% and a surcharge at 10% of purchase tax-Promulgation of Ordinance levying cess on milk plants by abolishing purchase tax on milk-Issuance of notice to certain milk companies directing them to pay cess at 10 paise per litre of their licensed capacity-Enactment of Act-Writ petitions filed challenging validity of the Act-High Court held that this levy was in effect a tax-High Court quashed the Act-After the deletion of the cess, purchase tax has again been levied on milk-Whether High Court was justified in holding that the levy, even if it be a fee, is arbitrary and discriminatory-(Yes).
Held : 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 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. (Para 14)

JUDGMENT

S.N. Variava, J.-Leave granted.

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

3. 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.

4. 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.

5. 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.

6. 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 Lakshmi 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 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 Lakshmi Chand s 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.

7. 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.

8. 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 dairy farming technology system and to levy cess on the milk plants by a

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Judicial Analysis

SupremeToday

2004 Supreme(SC) 912

IMPORTANT POINTLevy of cess on milk plants under the provisions of the Punjab Dairy Development Board Act, requires to be struck down as being arbitrary and discriminatory.

Cases Referred (11)

Judicial Analysis

IMPORTANT POINT
Levy of cess on milk plants under the provisions of the Punjab Dairy Development Board Act, requires to be struck down as being arbitrary and discriminatory.