Punjab Dairy Development
Board & Anr Vs. Cepham Milk Specialities Ltd. & Ors  Insc 474 (20 August
S. N. Variava & Arijit
Pasayat (With C. A. Nos.1728-1740/2002 And C. A. No of 2004 [Arising out of
S.L.P. (C) No.18237 of 2003]) S. N. Variava, J.
These Appeals are against the Judgment of the Punjab and Haryana High Court
dated 21st November, 2001.
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.
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.
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.
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 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
Lakhmi Chand' 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.
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.
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 diary farming technology system and to levy cess on the milk plants by
abolishing purchase tax on milk.
1. (1) This Act may be called the Punjab Dairy Development Board Act, 2000.
(2) It shall come into force at once.
2. In this Act, unless the context otherwise requires,-- (a) (b) (c) (d)
`milk plant' means a milk handling, processing or manufacturing unit registered
under the Milk and Milk Products Order, 1992 of the Government of India; and (e
9. The Board shall be a nodal agency for coordinating, planning and
organizing programmes of dairy development in consultation with the State
Government so as to promote dairy sector on modern, scientific and commercially
10. Subject to the provisions of this Act and the rules made thereunder, the
Board shall exercise the following powers and perform the following functions,
namely :-- (i) to effect coordination between all organizations engaged in
dairy sector viz., the Directorate of Dairy Development, the Directorate of
Animal Husbandry, the Punjab Milkfed and other agencies, such as milk plants in
the joint sector as well as in the private sector;
(ii) to uplift professional standards of the dairy industry in all its
aspects through the Directorate of Dairy Development, Punjab, the Directorate of
Animal Husbandry, the Punjab Milkfed and milk plants in the joint sector as
well as in the private sector;
(iii) to coordinate formulation of policies in regard to production of milk
and milk products;
(iv) to develop modern dairy farming technologies and systems for meeting
the local demand of high quality milk and for promotion of the dairy industry
for socio- economic uplift of milk producers;
(v) to establish centres in rural areas for demonstration in the manner in
which programmes can be taken up;
(vi) to plan and formulate policies for quick genetic upgradation and
development of milk animals, where necessary, by arranging for transfer of
technology from abroad with Government of India's prior approval;
(vii) to arrange and import new varieties of fodder seeds to increase the
yield and nutrition of fodder crops and also equipment or machinery for their
harvesting and conservation;
(viii) to take requisite measures to increase consumption of drinking milk
and milk products through proper advertisement and other related channels of
(ix) to provide assistance of any kind to enhance the scope of export of
(x) to plan and execute programmes of high level education, research and
training in dairy technology and husbandry;
(xi) to secure funds from the State Government and the other agencies; and
(xii) to exercise the necessary authority in respect of all matters which are
incidental and ancillary to the aforesaid for attaining the objectives of the
11. (1) The Board may, with the prior approval of the State Government,
create such posts and appoint such officers and other employees thereon, as it
may consider necessary for the efficient discharge of its functions.
(2) The conditions of service of the officers and other employees referred
to in sub-section (1), and their functions and duties shall be such, as may be
determined by the regulations made by the Board under this Act.
12. (1) Subject to the rules made under this Act, there shall be levied for
the purpose of this Act, a cess at the rate of ten paise per litre of the
licenced capacity of a milk plant by abolishing the purchase tax being charged
(2) The cess levied under sub-section (1), shall be paid by the owner of the
milk plant in such manner and to such person or officer as may be prescribed.
(3) The arrears of the cess levied under sub-section (I), shall be
recoverable as arrears of land revenue.
13. (1) There shall be constituted a Fund to be called the `Punjab Dairy
Development Fund', which shall vest in the Board.
(2) The Fund constituted under sub-section (I), shall be administered by the
Member- Secretary of the Board.
(3) The amount of cess paid to the person or officer prescribed under
sub-section (2) of Section 12, shall be credited to the Fund within such period
as may be prescribed and grants from this State Government and local
authorities shall also be credited to this Fund.
(4) The accounts of the Fund shall be audited annually by the Examiner,
Local Fund Accounts,Punjab." Before us lengthy arguments have been made on
whether the levy was a tax or a fee. Large numbers of authorities were cited by
both sides in support of their respective contentions. On behalf of the
Appellants, it was submitted that the levy was a fee, which had been imposed
under Entries 15 and 27 of List II of the Constitution of India and was imposed
in order to preserve, protect and improve stock and prevent animal diseases and
give veterinary training and practice and for improving production, supply and
distribution of goods. It was submitted that Section 10, which laid down the
powers of the Board, clearly indicated that the cess was being levied under the
above mentioned Entries. It was submitted that Entry 66 of List II permitted
fees to be levied in respect of such items. It was further submitted that the
ratio set out in M/s Kishan Lal Lakhmi Chand's case (supra) has been held by
this Court to be obiter and that the High Court was wrong in relying upon the
ratio laid down in that case. In support of this, reliance was placed upon a
case of Krishi Upaj Mandi Samiti & Reliance was also placed upon in B.S.E.
Brokers' Forum, Bombay & SCC 482]. Reference was made to the cases of
Sreenivasa General & Ors. [(1989) Supp.(1) SCC 168].
On the other hand, on behalf of the 1st Respondent it was submitted that the
High Court has correctly held it to be a tax and not a fee. Reliance was placed
upon in The Commissioner, Hindu Swamiar of Sri Shirur Mutt [1954 SCR 1005],
Mohd. Yasin [(1983) 3 SCC 229]. It was submitted that on the basis of the
principles laid down in these cases the High Court has correctly held that the
levy was a tax.
In our view, the law is quite well settled. As the High Court has itself
noticed the principles laid down in M/s Kishan Lal Lakhmi Chand's case (supra)
have been diluted by subsequent decisions. It has been held that the
observations in the above case are obiter. This being the position, the High
Court was not correct in following the principles laid down in M/s Kishan Lal
Lakhmi Chand's case (supra).
Even otherwise we find that the High Court was wrong in concluding that the
field was already occupied by a Central Legislation, namely, the Industries
(Development and Regulation Act, 1951. As of U.P. & Ors. reported in [1956
SCR 393] and Belsund Sugar Co.
repugnancy must exist as a fact and not as a mere possibility. In the
absence of any specific order or provision the question of repugnancy cannot
arise. Admittedly, the Central Legislation levies no cess or fee.
Thus, there can be no question of repugnancy if a fee were to be levied.
While the High Court was wrong in these conclusions, the question would
still remains whether the levy was a tax or a fee. In the view which we are
taking, and which is set out hereinafter, it is not necessary for us to decide
this question. We leave the question open.
We find 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.
We also find that the levy is discriminatory. There is no levy on the
farmers and co-operative societies, who produce the milk and/or milk plants
whose capacity is less than 10,000 litres per day. No explanation is given
which justified this discrimination. Faced with this situation, it was
submitted that this Court could read down the Act. It was submitted that from
the definition of the term "milk plant" in Section 2(d) of the Act,
the words "which was registered under the Milk and Milk Products Order,
1992" be deleted. It was submitted that the words "licenced
capacity" in Section 12 be also deleted. It was submitted that it is
settled law that wherever it is possible to uphold legislation by reading it
down the Court must do so.
There can be no dispute with the principle that if possible the provision of
the Statute must be saved by, if necessary, reading them down. However, in this
case, we are unable to accept this submission.
As stated above, the Act has been amended in 2004. This levy is already
abolished. At present, the purchase tax is again being levied.
For the period during which the Act subsisted, it is not possible for us to
read it down inasmuch as it would now affect persons, who never went to Court
because during the period it existed it did not apply to them. Such parties are
not before Court. We thus see no reason to delete the words as suggested on
behalf of the Appellants.
It was next submitted that the ground that the Act is discriminatory and
violative and, therefore, liable to struck down, has not been taken in the Writ
Petitions. We are unable to accept this submission. In our view, the Writ
Petitions contain the necessary averments and these have also been met in the
reply of the Respondents.
Thus, even though the reasoning of the High Court may be erroneous, the
ultimate result is that the levy of cess requires to be struck down as being
arbitrary and discriminatory. In this view of the matter, we see no reason to
The Appeals shall stand dismissed with no order as to costs.