Authority: High Court of Uttarakhand at Nainital

Order Date: 30 September 2026

Case Overview

  • Parties: Petitioners – Ashirwad Agro Industries and other manufacturers; Respondents – State of Uttarakhand and associated authorities.
  • Nature of Proceeding: Writ petitions (M/B) Nos. 244‑269, 318‑329, 420‑526 of 2025 and W.P. No. 135 of 2026 challenging the constitutional validity of the first proviso to Section 27(c)(v) of the Uttarakhand Agricultural Produce Marketing (Development and Regulation) Act, 2011, and the consequent demand of development cess.
  • Background: Petitioners operate manufacturing units in Uttarakhand and import agricultural produce (paddy, wheat, maize, legumes, wood, etc.) for processing into products such as atta, suji, maida, rice, corn‑starch liquor, gluten, paper, boards, laminates, plywood, etc. They argue that the produce is brought solely for manufacturing, not for sale within the market area, and therefore should not attract development cess.
  • Petitioners’ Submissions:
  • The first proviso of Section 27(c)(v) is substantively similar to Section 27(c)(iii), which the Supreme Court struck down in Gujarat Ambuja Exports Ltd. v. State of Uttarakhand (2016) 3 SCC 601.
  • Citing ITC v. Karnataka (2005) and APMC Yashwantpura v. Selva Foods (2022), they contend that mere import of agricultural produce for processing does not create a market fee liability absent a sale or purchase within the market area.
  • They rely on principles of fiscal statutes requiring clear, unambiguous charging provisions and reference several Supreme Court decisions on legislative competence.
  • Respondents’ Submissions:
  • The Act is within the State’s competence under Entries 28 and 66 of List II and Entry 24 (subject to Entries 7 and 52 of List I) of the Constitution.
  • Section 27(c)(v) and its proviso are distinct from Section 27(c)(iii); the former only levies development cess, not market fee, and is justified by the use of market‑area infrastructure.
  • The Division Bench judgment in Maa Uma Agri Food (P) Ltd. v. State of Uttarakhand (2014) upheld the amended provisions, and the Supreme Court’s decision in Gujarat Ambuja did not expressly strike down Section 27(c)(v).
  • Legislative History:
  • Original Section 27(c)(iii) (2011) imposed market fee and development cess on “First Arrival” of agricultural produce for sale, storage, processing or transaction, but excluded manufacturing.
  • After challenges, the amendment (2012) inserted “manufacturing” into Section 27(c)(iii) and introduced Section 27(c)(v) with a proviso treating such arrivals as “Other Secondary Arrival” – market fee exempt, development cess payable.
  • Subsequent judgments (BST Textile Mills 2013, Century Pulp and Paper 2013, Maa Uma 2014) upheld the amended provisions until the Supreme Court’s Gujarat Ambuja decision struck down Section 27(c)(iii) for lack of legislative competence.
  • Supreme Court Precedent:
  • In Gujarat Ambuja the Court held that levying market fee and development cess on agricultural produce brought solely for manufacturing exceeds the State’s competence, as the primary object of market legislation is to regulate buyer‑seller transactions.
  • The Court did not expressly address Section 27(c)(v), but emphasized that the levy must be tied to a sale or purchase within the market area.
  • Analysis by the High Court:
  • The Court examined constitutional entries: Entry 28 of List II (Markets and Fairs), Entry 66 of List II (levying fees), Entry 52 of List I (Industry), and the interplay with Entry 33 of List III.
  • It concluded that the mere physical entry of agricultural produce into a market area for manufacturing does not constitute a “market” activity within the meaning of Entry 28, and therefore the State lacks competence to impose development cess under the proviso.
  • The distinction that the proviso only levies development cess (excluding market fee) does not cure the constitutional infirmity, as the substance of the levy remains the same as struck down in Gujarat Ambuja.
  • The Court rejected the respondents’ argument that infrastructure usage justifies the levy, stating that the purpose of the levy is distinct from the source of legislative power.
  • Conclusion:
  • The first proviso to Section 27(c)(v) is beyond the legislative competence of the Uttarakhand State Legislature.
  • All notices and demands for development cess based solely on the import of agricultural produce for manufacturing or processing are quashed.
  • The judgment clarifies that market fee or development cess may still be levied where a taxable sale or purchase transaction within the market area is established, under other valid charging provisions of the Act.

Final Outcome

  • The first proviso to Section 27(c)(v) is declared unconstitutional and struck down.
  • All development‑cess notices and demands against the petitioners are set aside.
  • No order as to costs; writ petitions are disposed of.

Topics: Constitutional validity, State taxation, Agricultural marketing