OM PARKASH AGARWAL ETC.ETC. versus GIRL RAJ KISHORI & ORS. ETC.ETC.

Citation: [1986] 1 S.C.R. 149 · Decided: 28-01-1986 · Supreme Court of India · Bench: O. CHINNAPPA REDDY · Disposal: Appeal(s) allowed
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Judgment (excerpt)

149 
OM PARXASH AGARWAL ETC.ETC. 
v. 
GIRl RAJ KISHORI & ORS. ETC.ETC. 
JANUARY 28, 1986 
[O. CHINNAPPA REDDY AND E.S. VENKATARAMIAll, JJ.] 
Constitution oflndia, Art. 265, 
266 and List ll, of 
Seventh Schedule - State Legislature - Tax not to be imposed 
under guise of 'fee' - Jurisdiction of Court to scrutinise 
scheme of levy to determine real character. 
-
Haryans Rural Development Fund Act, 1983, s.3-
Lev)' of 
'Cess' under the Act - Not 'fee' but 'tax' - State Legislature 
- Whether competent to enact the Act. 
The Haryana Rural Development Fund Act, 1983 by section 
3 provides that there shall be levied on the dealer for the 
J. purposes of the Act, a cess, on ad valorem basis, at the rate 
of one per centum of the sale proceeds. of agricultural produce 
bought' or sold or brought for processing in the notified 
market area. The dealer is, in his turn, entitled to pass on 
the burden of the cess paid by him to the next purchaser of 
the agricultural produce from him. Section 4(1) of the Act 
provides for the creation of a fund called the Haryana Rural 
Development Fund (hereinafter referred to as 'the Fund') which 
is vested in the State Government. Sub-section (3) of section 
4 of the Act provides that the amount of cess shall be 
credited to the Fund within such period as may be prescribed. 
,sub-section (5) of section 4 of the Act states that the Fund 
shall be applied by the State Government to Dl!et the expendi-
ture incurred in the rural areas, in connection with the 
development of roads, hospitals, means of colllDWlication, 
water-supply, sanitation facilities and for the welfare of 
agricultural labour or for any other scheme approved by the 
State Government for the development of the rural areas. The 
expression 'rural areas' has been defined in section 2(h) of 
the Act as an area the population of which does not exceed 
20,000 persons. 
91. 
The appellants, who are dealers in agricultural produce 
-1 carrying on business 
in certain notified market areas, 
/ questioned the validity of the Act before the High Court of 
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150 
• SUPREME 
COURT 
REPORTS . [1986] 1 s.c.R. 
Punjab & Haryana. The learned single judge found that the Act 
was unconstitutional and struck it down, Aggrieved by the 
·)I.. 
decision of the learned single judge, 
the State of Haryana 
filed a Letters Patent Appeal before the Division Bench of the 
High Court. The Division Bench allowed the appeal, set aside 
the judgment of the learned single judge and upheld the 
constitutional validity of the Act, on the ground that it was 
in the nature of a fee and, therefore, it could be levied as a 
fee imposed on dealers carrying on business within market area 
for services rendered to them by the State Government. Hence .,..... 
these appeals by Special Leave. 
It was contended on behalf of the appellants that the 
cess levied under the Act was in the nature of a tax and it 
did not fall under any of the Entries in List II of the 
Seventh Schedule to the Constitution under which the State 
Legislature could levy a tax. On the other hand, counsel for 
the respondent-State argued (i) that it was in the nature of a 
fee and it was not necessary that there should be a direct 
correlation between the levy and the services to be rendered 
and that such correlation could be of "general character and l 
not of mathematical exactitude"; 
(ii) that there was 
a 
reciprocal relationship between the levy of the fee and the 
services that were being rendered and (iii) that the impugned 
legislation had 
been enacted to fulfill the objectives 
contained in Articles 46,47,48 and 48A of the Constitution and 
the majority of dealers were directly benefited by the objects 
on which the amount collected as ceas was spent. 
Allowing the appeals, 
llELD: l.(i) The llaryana Rural Development Fund Act, 1983 
is unconstitutional, since the State Legislature was not 
competent to enact it. The judgment of the Division Bench of). 
the High Court is set aside and the Act is declared void. 
[163 D-E) 
l(ii) It is constitutionally impermissible for any State 
Government to collect any amount which is not strictly of the 
nature of a fee in the guise of a fee. If in the guise of a 
fee the legislation imposes a tax it is for the court on a 
scrutiny of the scheme of the levy to determine its real 
character. If on a true analysis of 
the provisions levying 
the amount, the court comes to the conclusion that it is, in
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