JUDGMENT

K. RAMASWAMY, J.—Special leave granted.

2. The vires of the Haryana Rural Development Act 6 of 1986 for short the Act was assailed but repelled by the Full Bench of the Punjab and Haryana High Court reported in Subhash Chander Kamlesh Kumar v. State of Punjab {AIR 1990 P&H 259} against which these appeals were laid by leave. Initially the Haryana Rural Development Act 12 of 1983 was made of which ultimately this court in Om Prakash Agarwal v. Giri Raj Kishori {1986) 1 SCC 722} held that Section 3 was unconstitutional on the ground of legislative incompetence as the levy of cess under Section 3 was in the nature of tax and not fee, quid pro quo being absent. Purporting to have removed the defects as pointed out therein, the Act came to be made and the full Bench put its seal of approval on its validity.

3. Shri Shanti Bhushan the learned senior counsel for the appellants in his usual vehemence contended that the agricultural produce is a declared goods under Article 286(2) of the Constitution. This Court declared in Kewal Krishan Puri v. State of Punjab {(1980) 1 SCC 416} that constitutionally it is impermissible to levy market fee in excess of 2 per cent. The state legislature is incompetent to levy sales tax in excess of 4 percent on sale of goods. The State Legislature of Haryana therefore found the Act a Camouflage and colourable device to circumvent the constitutional mandates effected cosmetic changes in the Act and imposed 1 percent fee as development fund to by pass the mandate of the Constitution and the law is a colourable exercise of the power by the State Legislature and the Act cannot be brought under any of the Entries 45 to 63 of List II of the Seventh Schedule to the Constitution. Imposition and collection of the fee by operation of Section 5 of the Act, is not expended in any particular by market or market area but to general development in rural area. The principle of quid pro quo in the region of at least 2/3 or 3/4 as envisaged in Kewal Krishan Puri Case {(1980) 1 SCC 416 } is totally absent. The traders as a class and appellants in particular are not deriving any benefit therefrom.

Resultantly there is total lack or correlation between the fund collected and the service intended to be rendered to the dealers. The impost part takes the character of the tax falling within the teeth of the ratio laid in Om Prakash Agganval case.{1986) 1 SCC 722} The Act, therefore, is ultra, vires. Shri Harish Salve, the learned senior counsel for the State resisted the contentions.

4. Entry 28 read with Entry 66 in List II of the Seventh Schedule and other related entries empowers the State Legislature under Article 246(3) of the Constitution to make the Act. The Act was made to augment agricultural production and improving its marketing and sale by expending the fund realised by imposition and collection of fee envisaged in Section 5(1) of the Act. The rate of fee on ad valorem basis was determined at 1 per cent of the sale/purchase of agricultural produce bought or sold or brought for processing in the notified market area.

5. The market area was defined to mean any area defined under Section 6 of the Punjab Agricultural Produce Markets Act, 1961. The principal market yard and sub-market yard were also demarcated in Section 7 thereof. The market also was similarly defined to mean market established and regulated under that Act for the notified market are including market proper, principal market yard and sub-market yard Section 6(5) of the Act enjoins the Haryana Rural Development Fund Administration Board established and constituted under Section 3 of the Act to apply the fund "to meet the expenditure incurred in the rural areas in connection with the development of roads, establishment of dispensaries making arrangements for water supply, sanitation and other public facilities, welfare of agricultural labour, conversion of the notified market areas falling in rural area as lefined under this Act into model market area