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Kapil Sibbal, H.L. Sibbal Advocate General for State of Haryana, J.K. Sibbal, I.S. Goel, S.V. Singh and C.V. & Subba Rao for the appearing Respondents.

The Judgment of the Court was delivered by VENKATARAMIAH, J. The appellants in the above appeals are dealers in agricultural produce carrying on business in certain notified market areas set up under the Punjab Agricultural Produce Markets Act, 1961 in the State of Haryana. They have questioned in these appeals the constitutional validity of the Haryana Rural Development Fund Act, 1983 (Haryana Act No. 12 of 1983) (hereinafter referred to as 'the Act').

The Act received the assent of the Governor of Haryana on the 28th September, 1983 and was published in the State Gazette under the Notification dated September 30, 1983. The Act came into force on its publication. Section 3 of the Act provides that with effect from such date as the State Government may by notification appoint in that behalf, there shall be levied on the dealer for the 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. It, however provides that except in case of agricultural produce brought for processing, no cess shall be leviable in respect of any transaction in which delivery of the agricultural produce bought or sold is not actually made. The cess is payable by the dealer in such manner as may be prescribed to such officer or person as may be appointed or designated by the State Government in that behalf. 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. He may, therefore, add the same in the cost of the agricultural produce or the goods processed or manufactured out of it. me arrears of cess are recoverable as arrears of land revenue. The expression 'dealer' is defined by section 2(c) of the Act. 'Dealer' means any person who within the notified market area sets up, establishes or continues or allows to be continued any place for the purchase, sale, storage or processing of agricultural produce, or in the notified area purchases, sells, stores or processes such agricultural produce. A 'notified market area' means any area notified under section 6 of the Punjab Agricultural Produce Markets Act, 1961 to be a notified market area. 'Agricultural produce' means all produce whether processed or not, of agriculture, horticulture, animal husbandry or forest as may be prescribed. These definitions are found in section 2 of the Act. 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. The Fund is to be administered by such officer or officers of the State Government as may be appointed by it in that behalf. Sub-section (3) of section 4 of the Act provides that the amount of cess paid to the concerned officer by virtue of section 3 of the Act shall be credited to the Fund within such period as may be prescribed. Sub-section (4) of section 4 of the Act provides that any grants made by the State Government and local authorities shall also be credited to the Fund. Sub-section (5) of section 4 of the Act states that the Fund shall be applied by the State Government to meet the expenditure incurred in the rural areas, in connection with the development of roads, hospitals, means of communication, 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 Fund can also be utilised to meet the cost of administering the Fund. Section 5 of the Act provides that any person who contravenes the provisions of the Act or the rules framed thereunder shall be punishable with fine which may extend to five hundred rupees or upto the amount of cess which the dealer is liable to pay, whichever is more. By section 6 of the Act the State Government is empowered to make rules to carry into effect the purposes of this Act. Section 7 of the Act grants protection to State Government or any officer of the State Government or the Haryana State Agricultural Marketing Board or a local authority functioning under the Act against any action that may be taken against it or him in respect of any action taken in good faith under the Act. Section 8 of the Act empowers the State Government to remove any difficulty which may arise in giving effect to the provisions of the Act.

It is convenient to reproduce here the relevant parts of sections 3 & 4 and section 2(h) of the Act.

"3. (1)- With effect from such date, as the State Government may by notification appoint in this behalf, there shall be levied on the dealer for the purposes of this 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 proccessing in the notified market area 4. (1)- There shall be constituted a fund called the Haryana Rural Development Fund and it shall vest in the State Government (3) The amount of cess paid to the officer or the person shall be credited to the Haryana Rural Development Fund within such period as may be prescribed.

As mentioned earlier a cess collected under section 3 of the Act is no doubt required to be credited to the Fund constituted under section 4(1) of the Act. The Fund, however, vests in the State Government and not in the municipality or a marketing committee or any other local authority having limited functions specified in the enactment under which it is constituted. The State Government is entitled under subsection (5) of section 4 of the Act to spend the cess, credited to the Fund, in the rural areas, in connection with the development of roads, hospitals, means of communication, 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. This sub-section authorises the State Government to spend the money credited to the Fund virtually on any object which the State Government considers to be the development of rural areas. The definition of the expression 'rural area' in section 2(h) of the Act which is extracted above is as vague as it can be. It means an area the population of which does not exceed 20,000 person. It need not necessarily be a local area as it is ordinary understood. Ordinarily a local area means a Municipal Corporation, a Town Municipality, a Panchayat, a Notified Area, a Sanitary Board etc. Any geographical area the population of which does not exceed 20,000 persons can be conveniently brought within the scope of section 2(h) of the Act. If it is understood that way even urban areas can be divided into areas with population not exceeding 20,000 and labelled as rural areas. Even if we exclude from the scope of the expression 'rural area', a town or a city having a population exceeding 20,000 persons, the area in which the amount credited to the Fund can be spent is almost 90 per cent of the total area of the State of Haryana. The amount may be spent on any purpose which the State Government considers to be purpose intended for the development of the rural areas. There is no specification in the Act that the amount or a substantial part of the amount collected by way of cess under section 3 of the Act will be spent on any public purpose within the market area where the dealer is carrying on his business. The purposes over which the Fund can be spent are the same purposes on which any amount collected by way of tax is spent by any State and there is nothing which is done specially to benefit the dealer. When any amount is spent from the Fund the interest of the dealers is not at all kept in view even generally. There is no other restriction imposed on the manner in which the Fund can be spent. The cess, therefore, partakes of the character of a part of the common burden which has to be levied and collected only as a tax. A dealer who pays the cess under the Act may as one of the members of the general public derive some benefit from the expenditure of the Fund incurred by the State Government. The benefit so derived by him is merely incidental to the fact that he happens to be person residing in the State of Haryana. It is not the same as the benefit which a dealer in a market area would derive by the expenditure of its funds by a marketing committee or as the benefit which a person living in a town or a city would derive by the expenditure incurred by the municipality concerned. The fact that the Fund is created under the Act is a mere cloak to cover the true character of the levy in question. There is practically no difference between the Consolidated Fund which vests in the State and Fund which also vests in the State. Amounts credited tc the Consolidated Fund and the amounts credited to the Fund can both be spent practically on any public purpose almost throughout the State. In such a situation it is difficult to hold that there exists any correlation between the amount paid by way of cess under the Act and the services rendered to the person from whom it is collected. The impost in these cases lacks the essential qualification of a fee namely 'that it is absolutely necessary that the levy of fees should on the face of the legislative provision, be correlated to the expenses incurred by Government in rendering services' (See Sri Shirur Mutt's case (supra)). In fact there is no correlation at all.