Case: Punjab Dairy Development Board  Vs. Cepham Milk Specialities Ltd.

3. Briefly stated the facts are as followsPrior to July 2000, Companies like the 1sty 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 forcoordination between the organizations engaged inthe 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 milk4. 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 Petition 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 Act5. 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 discriminatory6. The High Court has held that this levy was in effect a tax. The High Court so held following the principles laid down by the Court in the case of M/s Kishan Lal Lakhmi Chand & Others. vs State of Haryana & Others. [(1993) Supp. (4) SCC 461]. The High Court held that there was no special service being provided to the milk plants in thed 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 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.

Court's reasoning:
11. 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 Chands 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 Chands case (supra)12. 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, 195114. 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 oforganizations 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. The 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 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 ore 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 maybe 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 arbitrary15. We also find that the levy is discriminatory. There is no levy on the farmers ande 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 so16. 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 Appellants18. 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 interfere.