Madras High Court
Tamil Nadu Film Exhibitors ... vs The Branch Manager, Films Division, ... on 22 November, 2002
ORDER E. Padmanabhan, J.
1. The petitioner, Tamil Nadu Exhibitors Association, represented by its General Secretary, has prayed for the issue of a writ of mandamus forbearing the respondents from determining, assessing and demanding the rental charges from the members of the association in respect of the short films sought to be exhibited between the period September 1994 to July 1999 during the pendency of the issue before the High Court of Delhi and the Supreme Court of India by retrospectively applying the declaratory judgment of the Supreme Court in Civil Appeal Nos. 3767 to 3771 of 1999 dated 15.7.99 and pass such further or other orders.
2. The petitioner, an association registered under The Tamil Nadu Societies Registration Act, 1975, is having 585 life members and 256 ordinary members. The Tamil Nadu Cinemas Regulation Act read with Rule 41 (2) of The Cinemas Regulation Rules requires the cinematograph exhibitors to make arrangement with the State and Central Government for exhibition at each performance to exhibit short films produced by the said two Governments. The same was one of the conditions for renewal of 'C' form licence as well. The exhibitors were paying the rental charges to the respondent for exhibiting the short films as a part of the condition and the charges were calculated on a fixed percentage of the net collection of the theatre. The said obligation to pay the charges, it is stated is contractual on the part of the exhibitors and the said authorities.
3. Between September 1994 and July 1999, the said stipulation was not being implemented as certain writ petitions were filed by the exhibitors of West Bengal, U.P. and Delhi before the respective High Courts as well as before the Apex Court, were consolidated and transferred to the High Court of Judicature at Delhi in Civil Writ Petition No. 4408/93 and the Delhi High Court by order dated 31.8.95 held that the agreement entered between the film distributors and the films division for supply of approved films and payment of any rental service charge will not have effect as it is unconstitutional and no rental charges can be demanded for exhibition of films division short film in compliance of the condition of licence. As against the decision of the Delhi High Court, appeals were preferred before the Supreme Court in C.A. No. 3767 of 1999 to 3771 of 1991. The Apex Court by judgment dated 15.7.99 set aside the judgment of the Delhi High Court holding that the provisions are valid and upheld the provision relating to the exhibition of short films and collection of rental charges by the films division. Therefore, only on and after 15.7.99 rental charges could be collected. The petitioner has not challenged the collection of rental by the films division after 15.7.99 in terms of the judgment of the Supreme Court.
4. During September 1994 to July 1999, during which period no agreement was entered nor the members of the petitioner association exhibited short films, they are not liable to pay the rental charges. Yet the respondents 1 and 2 issued notice to the members of the association demanding equitable rental charges for the said period. Hence, the present writ petition.
5. It is contended by Mr. Vijayan, learned senior counsel for the petitioner that rental charges, being amount payable pursuant to agreement, it is neither a tax nor a fee, and the respondents cannot demand payment of rental for the said period. That apart, during the said material period, short films were not exhibited and, therefore, no liability arises at all. The judgment of the Supreme Court being declaratory and being prospective, the amount payable is a contractual sum, cannot be collected retrospectively in the absence of a contract entered between the members of the petitioner association and the respondents.
6. On behalf of respondents 1 and 2 it is contended that the writ petition is not maintainable. Section 12(4) of The Cinematograph Act, 1952, enables the State Government to issue direction to licencees relating to the exhibition of any film or class of films so that scientific films intended for education purposes, films dealing with news and current events, documentary films or indigenous films secure an adequate opportunity of being exhibited and such direction has to be carried out and the same shall be deemed to be part of licence conditions and restrictions. Section 6(i) of The Tamil Nadu Cinemas Regulation Act, 1955, provides that the Government may issue direction from time to time to any licencee to exhibit such films or class of films having scientific or educative value or news and current events.
7. Films Division is the largest producer and distributor of approved films in the country. To maintain uninterrupted supply of films, films division produces nearly 52 documentary films on various subjects during a year. Films Division renders the service to the cinema exhibitors throughout the country and it has located ten distribution offices in the country. To cover the regional interest, every film is dubbed in fifteen Indian languages every week. To ensure circulation to a total number of 13,000 cinema theatres in the country, it has to distribute films. The films division takes 400 colour prints of every film and a heavy amount is spent by the films division on production, making of prints in fifteen different languages and arranging steady supply to all the cinema theatres. A recovery of 1% in collection is in practice from the year 1958.
8. The cost of negative, raw stock, cost of taking 400 positive prints in colour, positive raw stock and the funds required to maintain the establishment of ten depots, branch officer to render efficient service to the cinema theatres have increased manifold during the last 42 years. Despite that, nominal rate of 1% is being collected as service charge/rental charges towards supply of approved films. Such 1% rental charge was decided on suggestion from Films Federation of India during 1957. There were subsequent concession as there were certain representations. The maximum length of approved films to be screened by the cinema exhibitors is 2000 feet in 30 mm size or its equivalent in 16 mm and time taken to screen shall not be more than 22 minutes. The Government has a social obligation towards citizens of the country and towards fulfilment of the said obligation compulsory exhibition of approved films was in vogue even prior to independence.
9. The Motion Picture Association and others challenged the rental provisions and exhibition of short films and in particular Section 12(4) of the Cinematograph Act. The Delhi High Court sustained the challenge by its judgment dated 31.8.1995. On appeal by the Union of India before the Supreme Court, the Apex Court by judgment dated 15.7.99 reversed the judgment of the Delhi High Court and allowed the appeals by upholding the provisions of The Cinematograph Act, 1952 and the rules with regard to the exhibition of approved and notified films and collection of rentals. Hence the members of the petitioner Association are under statutory obligation and are bound to pay the fees at the rate of 1% from the date of judgment of the High Court till the date and in future also. After the judgment of the Supreme Court, the parties are restored back to the original position and on the principle of doctrine of relation, the petitioner is bound to pay the fees irrespective of the agreement supposed to be made by individual exhibitors with the Films Division. The Apex Court upheld the charging of 1% of net collection of each cinema theatre. Identical challenge was made before the Andhra Pradesh High court where such challenge has been repelled holding that the demand of rental is justified for the period from 1.10.95 to 15.7.99.
10. It is contended that there are no merits in the writ petition and the law laid down by the Supreme Court once reversed the judgment of the Delhi High Court, the collection of rent, which was in suspended animation, eclipses and the members of the petitioner association are liable to pay. It is incorrect to contend that Films division has no right to demand or collect any rentals for the said period. The respondent prayed for dismissal of the writ petition.
11. The counsel for the respondents drew the attention of this Court to an unreported judgment of the Andhra Pradesh High Court in W.P. No. 21402/00, etc., where the exhibitors challenged the identical action taken by the respondents herein. G. Bikshapathy, J., while referring to the pronouncement of the Apex Court in UNION OF INDIA VS. MOTION PICTURE ASSOCIATION , sustained the action taken by the respondents. The learned Judge held thus :-
"The statutory requirement contemplates the exhibition of approved films. It is not the case of exhibitors that in substitution of the approved films, they have exhibited other films approved by the competent authority. It is only their case that since there was no agreement between the parties and since the approved films are not exhibited, they are not liable to pay the rentals. This does not lie on the mouth of the exhibitors in view of the provisions contained in the State Act and also the rules made thereunder with reference to the conditions imposed in the licence issued to the exhibitors. If the exhibitors contend that they have not exhibited any approved films, it would amount to violation of the terms and conditions of licence for which they are liable for penal consequences, including the cancellation of licence. But in the place of approved films, which ought to have been exhibited, if it is stated that they have exhibited other approved films though not supplied by the Films Division, then the burden lies on the exhibitors to substantiate their contention with reference to the data to be supplied by them. It is always open for the exhibitors to say that during the relevant period, they have exhibited other approved films by giving details of such approved films. It is the case of the Films Division that all the exhibitors in the State of Andhra Pradesh have been supplied with the approved films and they have also exhibited, but they have not paid one percent rentals on account of the judgment of the Delhi High Court and now it is cleared by the judgment of the Supreme Court. In such a situation, the mandatory requirement as imposed on the exhibitors can only be discharged by satisfactorily showing that they have exhibited films other than those supplied or made available to them for exhibition by the Films Division. Thus, they cannot say that they have not violated the conditions of licence and at the same time they cannot also say that they are not liable to pay the rentals, which are due to the Films Division."
12. It is not necessary to rely upon the said pronouncement as the learned Judge has approached the issue from a different stand point and also proceeded on the basis that the exhibitors avail the short pictures and no material to the contra has been placed before him, less that will result in violation of statutory Rule. That is not the case here. However, this Court has to consider the point in issues independently and decide the contentions advanced by Mr. Vijayan, learned senior counsel for the petitioner.
13. The points that arise for consideration in this writ petition are :-
"A) Whether the judgment of the Apex Court in UNION OF INDIA VS. MOTION PICTURE ASSOCIATION is a Declaratory Judgment ? Whether the said pronouncement operates prospectively as contended by the petitioner ?
B) Whether for the period between 31.8.95 and 15.7.99 the exhibitors are liable to pay rental charges or fees to the Films Division, though there was no agreement nor there was actual supply of films to the exhibitors consequent to the judgment of the Delhi High Court and till the Supreme Court reversed the judgment ?
C) To what relief, if any ?"
14. The provision that theatre owners or exhibitors have to exhibit news reel or other short films distributed by the respondents is not in dispute. Such an obligation is part of the licence condition and the licencee has to exhibit notified films of such length as is approved and directed by the State and such exhibition of films, either scientific or educational or news or documentary are part of the licence condition. The provisions of the licence condition was challenged as violative of Article 19(1)(a) and on other grounds. The Apex Court reversed the judgment of the Delhi High Court. The Apex Court, in UNION OF INDIA V. MOTION PICTURE ASSOCIATION , while sustaining the statutory provision and statutory Rule as well the licence condition dismissed the writ petitions. In that context, the Apex Court ruled thus:-
"20. The main challenge of the exhibitors to these provisions is, however, under Article 19(1)(g) of the Constitution. In fact, this was the only challenge before the Delhi High Court. The basic purpose of the impugned laws which deal with licensing of cinema halls, and prescribing conditions subject to which such licences can be granted, is to regulate the business activity of the exhibitors of cinematograph films. Obtaining a licence for running such cinema theatres is for the purpose of regulating this business. This purpose has a direct nexus with Articles 19(1)(g) and 19(6) of the Constitution. The source of legislation under this head can be traced to Entry 33 of List II which entitles the States to legislate on "theatres and dramatic performances; cinemas subject to the provisions of Entry 60 of List I; sports, entertainments and amusements"
That is why State laws have been framed for regulating the terms and conditions on which a licence for exhibiting films at cinema theatres can be obtained. Part III of the Cinematograph Act, 1952 which applies to Union Territories is also in the exercise of the legislative powers under Entry 33 of List II. Since Delhi was a Union Territory and is now National Capital Territory since 1991 by virtue of the Constitution 69th Amendment Act, 1991, Parliament has the power to legislate under this entry also [see Article 246(4) and the relevant provisions of Article 239-AA]. Entry 60 List I on the other hand deals with "sanctioning of cinematograph films for exhibition". Censorship provisions, for example, would come under Entry 60 of List I and these would directly relate to Article 19(1)(a) and Article 19(2) of the Constitution. The basic purpose of these impugned provisions is, therefore, to regulate the business of exhibiting films in cinema theatres under Entry 33 List II.
21. In the case of R.M. Seshadri v. District Magistrate, Tanjore this Court was required to examine under Article 19(1)(g) the conditions attached to a licence to exhibit cinematograph films in cinema theatres requiring the licensee to exhibit at every performance one or more approved films of such duration as the Provincial Government or the Central Government may, by general or special order, direct. The Court said that neither the length of the film nor the duration for which the film had to be shown were prescribed. No maximum limit was placed on the time to be taken in showing such films. Looking to the unguided discretion given to the Government in this regard, the restrictions placed were unreasonable and arbitrary and could not be considered as reasonable restrictions under Article 19(6). The Court expressly excluded from its consideration the question whether educational or instructional films could be thus shown.
22. In Brij Niwas Das v. Chief Commr., Ajmer the Rajasthan High Court upheld conditions in the licence which required that educational and instructional slides should be shown for a duration of 15 minutes, and approved films should be shown for a duration which was 1/5th of the total time. Looking to the specific provisions, the Court upheld these provisions under Article 19(1)(g) read with Article 19(6). The Court also upheld Section 12(4) of the Cinematograph Act, 1952. The Court, however, said that the requirement in one of the impugned conditions that films produced in India should be shown in this fashion without specifying the categories of such films was not valid. The Chief Commissioner, Ajmer came in appeal before this Court. This Court by its judgment and order reported in Chief Commr., Ajmer v. Brijni was Das held the condition applicable to films produced in India as also valid, the purpose being to promote indigenous films.
23. Time and place constraints on cinema halls have also been upheld as regulatory provisions in Minerva Talkies v. State of Karnataka. In the present case, the restrictions sought to be imposed are specific and tailored to fit the public purpose behind the restrictions. The length of the film to be shown, the duration for which it is to be shown and the nature of the films which are to be shown, are specified and are designed to further the public purpose of disseminating information and knowledge so that the general public can be educated on a number of issues of national or general importance to enable them to function effectively in the democratic framework of this country with adult franchise. These restrictions, therefore, have to be upheld as reasonable."
15. While dealing with the contention whether the collection of charges by the Films Division at the rate agreed to, the Apex Court held that it is a fee and not a tax, besides holding that it is an agreed payment and it is not unreasonable. In this respect the Apex Court in UNION OF INDIA V. MOTION PICTURE ASSOCIATION , held thus :-
"31. The exhibitors also contend that the charge of one per cent on the net recoveries is a compulsory exaction in the form of a tax. Neither the Act nor the provisions of the licence stipulate payment of any such tax. Hence imposition of this amount is in violation of Article 265 of the Constitution. It is true that neither the relevant Act nor the notification nor the rules nor the terms and conditions of the licence stipulate the payment of any rental. This amount is required to be paid under an agreement which the exhibitors individually enter into with the Films Division for the supply of these films. It is a payment under the terms of a contract between the two parties. It cannot, therefore, be viewed as a tax at all. The exhibitors contend that because they are required to enter into these agreements, any payment under the agreement is a compulsory exaction and is, therefore, tax. We do not agree. Under the terms of the agreement, the Films Division has to supply certain prints to the theatre owners at stated intervals. The Films Division is required to maintain a distribution network for this purpose. It is required to pack these films and is required to allow the exhibitors to retain these films in their possession for a certain period. The films are to be returned to the Films Division thereafter. The charge is termed in the agreement as rental for the films. It covers charges for preparing the prints of the films for distribution, and for packing them for delivery. These are clearly services rendered by the Films Division for which it is paid one per cent of the net collection as a rental. As stated earlier, the total cost of preparing prints, packing them and distributing them is much higher than the total recovery made by the Films Division by way of rental from all the exhibitors. There is a clear nexus between the services rendered and the payment to be made. The payment, therefore, is in the nature of a fee rather than a tax though there may not be an exact quid pro quo. Nevertheless the element of quid pro quo is very much present.
32. The exhibitors relied upon a number of cases which distinguish a tax from a fee. We will only refer to some of them. In the case of District Council of the Jowai Autonomous Distt. v. Dwet Singh Rymbai this Court held that a compulsory exaction for public purposes would amount to a tax while a payment for services rendered would amount to a fee. On the facts in that case, the Court said that there was no element of quid pro quo which will justify the imposition of royalty as a fee. In Commr., H.R.E. v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt this Court as far back as in 1954, laid down the distinction between a tax and a fee. This Court has described a tax as a compulsory exaction for public purposes which does not require the taxpayer's consent; while fee is a charge for specific service to some, and it must have some relation to the expenses incurred for the service. In Ahmedabad Urban Development Authority v. Sharadkumar Jayantikumar Pasawalla this Court has said that an express authorisation for the levy of a fee is necessary. In the present case, however, the rental is charged by the Films Division by virtue of an agreement between the Films Division and the individual exhibitor. This is in consideration of the Films Division supplying films to the exhibitor, packing the film and arranging for its delivery. This is clearly an agreed fee charged for rendering services. It cannot be viewed as a compulsory exaction or as a tax. There is a statutory obligation which is cast on the exhibitors to exhibit certain films. To carry out this statutory obligation, if the exhibitors enter into an agreement with the Films Division and agree to pay a certain amount of rental for procuring the films from the Films Division to comply with the statutory obligation, the levy must, since it is correlated with the Films Division discharging certain obligations under the contract, be viewed, at the highest, as a fee and not as a tax. It is an agreed payment, and is not unreasonable. The High Court has rightly negatived the contention of the respondent exhibitors."
16. As regards the activities of the Films Division and the obligation on the part of the licencee is to exhibit the short films and to get no objection, it has been held to be a statutory obligation and such a statutory restriction or regulation is valid. In that context the Apex Court in UNION OF INDIA V. MOTION PICTURE ASSOCIATION , held thus :-
"18. Undoubtedly, the exhibitors, in order to fulfil the conditions of the licence, are required to enter into an agreement with the Films Division, Government of India. This is not because of any statutory compulsion but because of the fact that the Films Division is the only organisation which produces such short films in sufficient quantities for regular distribution to the cinema exhibitors. The requirement of approval of such films is to ensure that the films, in fact, comply with the requirements specified in the statute. None of the provisions referred to make it mandatory for the exhibitors to procure such films only from the Films Division. The reason why they do so is because of a lack of adequate alternative sources.
19. The exhibitors contend that before their licence is renewed, it is necessary for them to obtain a "no-objection" certificate from the Films Division. The purpose of this is to ensure that the statutory requirements have been complied with by the licensee in the previous year. If, however, any licensee is in a position to procure such approved films from any other source, there is nothing in the statutes which prohibits him from doing so. These provisions, therefore, do not violate Article 19(1)(a) of the Constitution. They are not in restraint of free speech and expression. Therefore, Article 19(2) is not attracted."
17. Though the Delhi High Court invalidated the provisions and the connected licence condition, the same has been reversed by the Supreme Court in UNION OF INDIA V. MOTION PICTURE ASSOCIATION . The resultant position is that the provisions and the conditions of licence as well as the various State rules have been held to be valid. Though the Supreme Court upheld the statutory provisions, statutory Rule and Licence conditions, it is sought to be contended by Mr. Vijayan, learned senior counsel, as if it is declaratory. Mr. Vijayan, contended that the judgment of the Supreme Court is declaratory and, therefore, it is prospective in its operation. Both the contentions cannot be countenanced. The Apex Court by judgment has not only reversed the judgment of the Delhi High Court, but also upheld the validity of the provisions and licence conditions as stipulated in the statute book. Therefore, the contention that the judgment operates prospectively is a misconception. It is not as if the Supreme Court has invalidated the enactment, but it has held that the statutory provision is in conformity with the constitutional guarantees. Therefore, it follows that the provision is valid from its inception. When the decision of the Delhi High Court is reversed, the invalidity so declared by the Delhi High Court stands effaced as a result of which the statutory provisions and licence conditions are valid from its inception and continue to be valid as well. The judgment rendered by the Supreme Court upholding the constitutional validity of the provision is not a declaratory judgment. It is not a judgment, which simply declares the rights of the parties. The contention to the contra cannot be countenanced.
18. The Delhi High Court has invalidated the said provisions as unconstitutional and invalid, but on the Supreme Court allowing the appeal and reversing the judgment of the Delhi High Court, it cannot be contended that in the interregnum period the invalidity as declared by the Delhi High court continued or was in force. Such a contention cannot be countenanced as the law declared by the Supreme Court, in terms of Article 141 of the Constitution being binding, and on the reversion of the Delhi High Court judgment, the consequence being the statutory provision and the licence condition, etc., being held to be constitutionally valid, the mandamus issued by the Delhi High Court is rendered ineffective. Therefore, it follows that the statutory provisions and the licence conditions were always in force and as if it is operative throughout.
19. In SHENOY & CO., VS. COMMERCIAL TAX OFFICER , Khalid, J., (as he then was), speaking for the Bench, held thus :-
"23. The judgment in the Hansa Corporation caserendered by one of us (Desai, J.) concludes as follows :
As we are not able to uphold the contentions which found favour with the High Court in striking down the impugned Act and the notification issued thereunder and as we find no merit in other contentions canvassed on behalf of the respondent for sustaining the judgment of the High Court, this appeal must succeed. Accordingly, this appeal is allowed and the judgment of the High Court is quashed and set aside and the petition filed by the respondent in the High Court is dismissed with costs throughout.
To contend that this conclusion applies only to the party before this Court is to destroy the efficacy and integrity of the judgment and to make the mandate of Article 141 illusory. But setting aside the common judgment of the High Court, the mandamus issued by the High Court is rendered ineffective not only in one case but in all cases.
24. A writ or an order in the nature of mandamus has always been understood to mean a command issuing from the Court, competent to do the same, to a public servant amongst others, to perform a duty attaching to the office, failure to perform which leads to the initiation of action. In this case, the petitioners-appellants assert that the mandamus in their case was issued by the High Court commanding the authority to desist or forbear from enforcing the provisions of an Act which was not validly enacted. In other words, a writ of mandamus was predicated upon the view that the High Court took that the 1979 Act was constitutionally invalid. Consequently the Court directed the authorities under the said Act to forbear from enforcing the provisions of the Act qua the petitioners. The Act was subsequently declared constitutionally valid by this Court. The Act, therefore, was under an eclipse, for a short duration; but with the declaration of the law by this Court, the temporary shadow cast on it by the mandamus disappeared and the Act revived with its full vigour, the constitutional invalidity held by the High Court having been removed by the judgment of this Court. If the law so declared invalid is held constitutionally valid, effective and binding by the Supreme Court, the mandamus forbearing the authorities from enforcing its provisions would become ineffective and the authorities cannot be compelled to perform a negative duty. The declaration of the law is binding on everyone and it is therefore, futile to contend that the mandamus would survive in favour of those parties against whom appeals were not filed. .
25. The fallacy of the argument can be better illustrated by looking at the submissions made from a slightly different angle. Assume for argument's sake that the mandamus in favour of the appellants survived notwithstanding the judgment of this Court. How do they enforce the mandamus ? The normal procedure is to move the Court in contempt when the parties against whom mandamus is issued disrespect it. Supposing contempt petitions are filed and notices are issued to the State. The State's answer to the Court will be : "Can I be punished for disrespecting the mandamus, when the law of the land has been laid down by the Supreme Court against the mandamus issued, which laws is equally binding on me and on you ?". Which Court can punish a party for contempt under these circumstances ? The answer can be only in the negative because the mandamus issued by the High Court becomes ineffective and unenforceable when the basis on which it was issued falls, by the declaration by the Supreme Court, of the validity of 1979 Act."
20. The Delhi High Court declared Sections 12 (4) and (16) and Section 18 of the Delhi Cinematograph Rules prescribing the conditions for grant of licence to exhibit Cinematograph Films stipulated under the rules, besides condition Nos. 15 and 22 as unconstitutional and offending Article 19(1)(a) and (2) of the Constitution. The Apex Court reversed the judgment of the Delhi High Court and held that the said provisions are valid. This is the law laid down by the Supreme Court under Article 141. Applying the doctrine of merger, which is neither a doctrine of constitutional law nor a doctrine statutorily recognised, being a common law doctrine founded on principles of propriety under the hierarchy of justice delivery system, the logic underlying the doctrine of merger is that there cannot be more than one decree or operative orders governing the same subject matter at a given point of time. Once the superior court dispose of the lis before it either way, where it sets aside the order of the inferior court or modify or simply confirm, it is the order of the superior court, which is final and binding and operative order wherein merges the order of the High Court. Therefore, it follows that the order of judgment of the Delhi High Court is effaced as the judgment of the Supreme Court being the law of the land, the statutory provision and condition has been held to be valid. Such judgment means the statutory provision and conditions are valid from its inception and enforceable. Therefore, the obligation or rights, if any, is governed right through by virtue of the statutory provisions as well as the licence conditions and fees, if any, has to be paid on the same basis. It is not correct to contend that the pronouncement of the Apex Court is prospective in operation. It is equally a misconception to contend that the said pronouncement is a declaratory judgment. The first point is answered against the petitioner.
21. Nextly it may be during the said interregnum period the members of the petitioner association were not utilising the services of the Films Division and the judgment of the Delhi High Court has enabled them not to exhibit the Films Division pictures, though the exhibition of which Films Division pictures is a licence condition. Therefore, the consequence of the Supreme Court reversing the judgment, the obligation to secure a licence by making arrangement with the Films Division and payment of necessary fees to the Films Division being a continuing obligation, the petitioner cannot contend that they are not liable to pay the said fees. When once the provision has been declared valid, the consequence would be that all the obligation or condition stipulated is deemed to have been in force and even if the members of the petitioner association has not availed the services of the respondent Films Division, they cannot contend that they are not liable to pay the fee payable during the material period.
22. Admittedly, the respondents has been maintaining the depots or distribution centres with sufficient stock of the short films, be it informative or educative or scientific as the case may be throughout India and such maintenance or distribution of short films by the Films Division is a continuing process as the same is being maintained in public interest. It may be that the theatre owners might not have been compelled to comply with the condition, but yet the Films Division, which has been functional for more than 50 years has been keeping all short films ready for exhibition in theatres and also it has invested substantial amount not only in maintaining the distribution centres or Divisional Office, but also in shooting the required films on a regular basis for public purpose and in public interest. In the counter affidavit, the same has been detailed, and deserves to be accepted. The maintenance of depots and distribution being a continuous activity, has been maintained right through at huge expense, though the members may not have utilised the same.
23. The Supreme Court in UNION OF INDIA V. MOTION PICTURE ASSOCIATION has held that the levy or collection of amount as fees by the Films Division and distribution and exhibition of such short films is part of the licence conditions and licencee of each theatre or exhibitor has to make arrangement in this respect, which is one of the mandatory conditions for grant of licence as well as for renewal thereof without which the exhibitors will not be granted a licence nor it could be renewed and such condition is mandatory and it has been declared to be valid and enforceable. The Apex Court held that what is being collected is fees and in that context held thus :-
"31. The exhibitors also contend that the charge of one per cent on the net recoveries is a compulsory exaction in the form of a tax. Neither the Act nor the provisions of the licence stipulate payment of any such tax. Hence imposition of this amount is in violation of Article 265 of the Constitution. It is true that neither the relevant Act nor the notification nor the rules nor the terms and conditions of the licence stipulate the payment of any rental. This amount is required to be paid under an agreement which the exhibitors individually enter into with the Films Division for the supply of these films. It is a payment under the terms of a contract between the two parties. It cannot, therefore, be viewed as a tax at all. The exhibitors contend that because they are required to enter into these agreements, any payment under the agreement is a compulsory exaction and is, therefore, tax. We do not agree. Under the terms of the agreement, the Films Division has to supply certain prints to the theatre owners at stated intervals. The Films Division is required to maintain a distribution network for this purpose. It is required to pack these films and is required to allow the exhibitors to retain these films in their possession for a certain period. The films are to be returned to the Films Division thereafter. The charge is termed in the agreement as rental for the films. It covers charges for preparing the prints of the films for distribution, and for packing them for delivery. These are clearly services rendered by the Films Division for which it is paid one per cent of the net collection as a rental. As stated earlier, the total cost of preparing prints, packing them and distributing them is much higher than the total recovery made by the Films Division by way of rental from all the exhibitors. There is a clear nexus between the services rendered and the payment to be made. The payment, therefore, is in the nature of a fee rather than a tax though there may not be an exact quid pro quo. Nevertheless the element of quid pro quo is very much present.
32. The exhibitors relied upon a number of cases which distinguish a tax from a fee. We will only refer to some of them. In the case of District Council of the Jowai Autonomous Distt. v. Dwet Singh Rymbai this Court held that a compulsory exaction for public purposes would amount to a tax while a payment for services rendered would amount to a fee. On the facts in that case, the Court said that there was no element of quid pro quo which will justify the imposition of royalty as a fee. In Commr., H.R.E. v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt this Court as far back as in 1954, laid down the distinction between a tax and a fee. This Court has described a tax as a compulsory exaction for public purposes which does not require the taxpayer's consent; while fee is a charge for specific service to some, and it must have some relation to the expenses incurred for the service. In Ahmedabad Urban Development Authority v. Sharadkumar Jayantikumar Pasawalla this Court has said that an express authorisation for the levy of a fee is necessary. In the present case, however, the rental is charged by the Films Division by virtue of an agreement between the Films Division and the individual exhibitor. This is in consideration of the Films Division supplying films to the exhibitor, packing the film and arranging for its delivery. This is clearly an agreed fee charged for rendering services. It cannot be viewed as a compulsory exaction or as a tax. There is a statutory obligation which is cast on the exhibitors to exhibit certain films. To carry out this statutory obligation, if the exhibitors enter into an agreement with the Films Division and agree to pay a certain amount of rental for procuring the films from the Films Division to comply with the statutory obligation, the levy must, since it is correlated with the Films Division discharging certain obligations under the contract, be viewed, at the highest, as a fee and not as a tax. It is an agreed payment, and is not unreasonable. The High Court has rightly negatived the contention of the respondent exhibitors." .
24. Being a fee, the next question is whether even during the period when the judgment of the Delhi High Court was in operation, the respondents could call upon the petitioner to pay without the service being actually availed. The licence fee may be either regulatory or compensatory, the Apex Court also held that an element of quid pro quo for the levy of such fee, although such fee cannot be excessive. In SECUNDERABAD HYDERABAD HOTEL OWNERS' ASSN. V. HYDERABAD MUNICIPAL CORPN., , the Apex Court held thus:-
"9. It is, by now, well settled that a licence fee may be either regulatory or compensatory. When a fee is charged for rendering specific services, a certain element of quid pro quo must be there between the service rendered and the fee charged so that the licence fee is commensurate with the cost of rendering the service although exact arithmetical equivalence is not expected. However, this is not the only kind of fee which can be charged. Licence fees can also be regulatory when the activities for which a licence is given require to be regulated or controlled. The fee which is charged for regulation for such activity would be validly classifiable as a fee and not a tax although no service is rendered. An element of quid pro quo for the levy of such fees is not required although such fees cannot be excessive.
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12. In the present case, however, the fees charged are not just for services rendered but they also have a large element of a regulatory fee levied for the purpose of monitoring the activity of the licensees to ensure that they comply with the terms and conditions of the licence. Dealing with such regulatory fees, this Court in Vam Organic Chemicals Ltd. v. State of U.P. (SCC at p.726) observed that in the case of a regulatory fee, no quid pro quo was necessary but such fee should not be excessive. The same distinction between regulatory and compensatory fees has been made in the case of P. Kannadasan v. State of T.N. (SCC in para 36) as well as State of Tripura v. Sudhir Ranjan Nath."
25. While explaining the scope of regulatory fees either in terms of a statutory regulation or a statutory contract or a non-statutory contract, the Apex Court held that rendering service is not a condition precedent nor need it be confined to others, who have actually availed the services. Therefore, it follows that actually availing the service may not be essential, but the respondent has always kept its services ready for being availed. This fact is not in dispute. The contents of the counter affidavit in this respect filed on behalf of the respondents has not been controverted and it has to be accepted.
26. In B.S.E. BROKERS' FORUM, BOMBAY V. SECURITIES AND EXCHANGE BOARD OF INDIA , Santosh Hedge, J., speaking for the three Judges Bench, held thus :-
"28. Based on these judgments, the petitioners contend that the Board after collecting huge sums of money by way of impugned fee, was not rendering them services corelatable to the levy but was utilising the same for the benefit of the persons who were not contributories to the levy and the levy in question being a compulsory exaction having penal consequences, the same is not a fee but a tax in the garb of fee.
29. A lot of ice has melted in the Himalayas after rendering the judgments in the above-cited cases so also there has been a sea change in the judicial thinking as to the difference between a tax and a fee since then.
30. This Court in the case of Sreenivasa General Traders v. State of A.P. has taken the view that the distinction between a tax and a fee lies primarily in the fact that a tax is levied as part of a common burden, while a fee is for payment of a specific benefit or privilege although the special advantage is secondary to the primary motive of regulation in public interest. This Court said that in determining whether a levy is a fee or not emphasis must be on whether its primary and essential purpose is to render specific services to a specified area or class. In that process if it is found that the State ultimately stood to benefit indirectly from such levy, the same is of no consequence. It also held that there is no generic difference between a tax and a fee and both are compulsory exactions of money by public authorities. This was on the basis of the fact that the compulsion lies in the fact that the payment is enforceable by law against a person in spite of his unwillingness or want of consent. It also held that a levy does not cease to be a fee merely because there is an element of compulsion or coerciveness present in it, nor is it a postulate of a fee that it must have a direct relation to the actual service rendered by the authority to each individual who obtains the benefit of the service. It also held that the element of quid pro quo in the strict sense is not always a sine qua non for a fee, and all that is necessary is that there should be a reasonable relationship between the levy of fee and the services rendered. That judgment also held that the earlier judgment of this Court in Kewal Krishan Puri v. State of Punjab is only an obiter.
31. In the case of City Corpn. of Calicut v. Thachambalath Sadasivan this Court reflected the change that is taking place in the judicial thinking as to the difference between a tax and a fee. It held that the traditional concept of quid pro quo in a fee is undergoing transformation, though the fee must have relation to the services rendered, or the advantages conferred, it is not necessary to establish that those who pay the fee must receive direct or special benefit or advantage of the services rendered for which the fee is being paid. It held that if one who is liable to pay receives general benefit from the authority levying the fee the element of service required for collecting fee is satisfied.
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37. In Secunderabad Hyderabad Hotel Owners' Assn. V. Hyderabad Municipal Corpn., this Court after considering the earlier judgments, to some of which we have already made reference, held that a licence fee may be either regulatory or compensatory. When a fee is charged for rendering specific services, a certain element of quid pro quo must be there between the service rendered and the fee charged so that the licence fee is commensurate with the cost of rendering the service although the exact arithmetical equivalence is not expected. It held, however, that it is not the only kind of fee which can be charged. Licence fees can also be regulatory when the activities for which a licence is given require to be regulated or controlled. The fee which is charged for regulation of such activity would be validly classifiable as a fee and not a tax although no service is rendered. An element of quid pro quo for levy of such fee is not required although such fees cannot be excessive."
27. The emphasis in this respect be in case of regulatory fees like the licence fee, existence of quid pro quo is not necessary although the fee imposed shall not be excessive. In the present case, one of the licence conditions being the exhibitor has to make arrangement with the Films Division for the exhibition of short films and such a condition is part of the licence in terms of the statutory regulation. The condition is part of the statutory regulation, but the fee, as pointed out by the respondent, is not stipulated by the regulation or licence condition, but pursuant to an earlier arrangement entered between the Motion Picture Association and Union of India where 1% is agreed to be paid towards the said fee. There is no quarrel that the rate of fee is only nominal and it is not even sufficient for the respondents to maintain their services. Even though the exhibitors and the respondents entered into a contract in this respect, the said contract is pursuant to the statutory regulation and the statutory licence. It contains the character of a statutory contract entered by a public authority with the exhibitor.
28. Supply of short films or circulation of short films has to be maintained and then only the exhibitor could comply with the requirement of licence, which is one of the mandatory conditions subject to which the exhibitor is granted the 'C' Form licence. This is something which is done to control the licencees activities and to make the exhibitors observe the conditions of the licence, lest it is open to cancellation of the licence or refusal to renew, which was highlighted in CORPORATION OF CALCUATTA VS. LIBERTY CINEMA reported in 1965 SC 1107. In the said decision, the Calcutta Municipality levied a licence fee on cinema house, which was sought to be increased from Rs.400/= to Rs.6,000/= from year end 1958. The same was challenged and ultimately the Supreme Court, the majority in the said case held thus:-
"19) ..... The Corporation has been set up only to perform municipal duties and its powers are for enabling it to perform those duties. Furthermore there is no doubt that an estimate of the licence fee has to be included in the budget and therefore the word 'tax' in Section 127(3) must be deemed to include the levy under Section 548. The words "subject to the provisions of Part IV" in Section 127(3) must be read with the addition of the words "where applicable". If that levy cannot be a fee because there is no provision for service being rendered in respect of it, it would indisputably be a tax. As such again, its rate can be determined under Section 127(3) to provide for the discharge of at least the other undisputed duties of the Corporation. We would, therefore, reject this last argument also."
29. In KEWAL KRISHAN PURI & ANOTHER VS. STATE OF PUNJAB & ANOTHER , while considering an identical position under Punjab Agricultural Produce Markets Act, 1961, with respect to collection of fees, a five Judges Bench of the Apex Court laid down that a fee is a charge for a special service rendered to individuals by a Government agency, for the levy quid pro quo has to be provided, but services does not mean any personal or domestic service, but it means service in relation to the transactions, property or the institution in respect of which he is made to pay the fees, thereby charge the fee for the service. It is further held that each case has to be judged from reasonable and practical point of view.
30. In B.S.E. BROKERS' FORUM, BOMBAY V. SECURITIES AND EXCHANGE BOARD OF INDIA , the Apex Court laid down thus :-
"40. Therefore, it contends that it will be erroneous on the part of the petitioners to contend that the Board is levying any amount in excess of its requirement. While examining the reasonableness of the quantum of levy, the same will not be done with a view to find out whether there is a corelatable quid pro quo to the quantum of levy, because as noticed hereinabove, the quid pro quo is not a condition precedent for the levy of a regulatory fee. Such examination will have to be made in the context of the levy being either excessive or unreasonable for the requirement of the authority for fulfilling its statutory obligations. With this principle in mind, we have noticed earlier that apart from the requirement of registration of brokers and other intermediaries, the statute also mandates that the Board should regulate the business of stock exchanges and other securities markets. It also mandates that the Board shall promote and regulate self-regulatory organisations prohibiting fraudulent trade practices and insider trading, promote investors' education and training of intermediaries, regulate the acquisition of shares and takeover of companies, undertake inspection, inquiries and audits of the stock exchanges, mutual funds and other persons associated with the securities market, conduct research in furtherance of the obligations cast on the Board and over and above all, it has the obligation to perform such functions as are delegated to it by the Central Government under the SCR Act, 1956. It is seen that in furtherance of these requirements of the statute, the Board requires substantial sums of money towards capital expenditure in the form of acquiring office premises, residential premises, office equipments and to provide the necessary facilities for inducting the information technology in its day-to-day functions. It is to be noticed that the Board has to control and regulate 23 stock exchanges all over India which have more than 10,000 listed companies, 9500 brokers, 5500 sub-brokers, 250 merchant brokers with similar number of registrars to the issue, share-transfer agents, more than 300 depository participants and other categories of intermediaries. From the material supplied by the Board, it is to be noticed that the total market capitalisation is over 8,00,000 crores. Apart from this, it is the case of the Board that it has to regulate 39 mutual funds involving 300 schemes with a net asset value (NAV) of Rs 1 lakh crores. The Board has also to deal with the entities which raise money through collective investment schemes at present involving 642 companies which have raised Rs 2680 crores from the public. From the pleadings of the Board, it is to be seen that a large number of cases to the tune of nearly 800 are pending in various courts in India which in due course are likely to increase, thereby burdening the Board with heavy expenditure. That apart, it has the responsibility of protecting the interests of investors as well as undertake investors' education among other duties specified in Section 11 of the Act. The Board has placed material before us to show that the Government of India has already delegated to the Board the functions under the SCR Act, the Depositories Act as also some of the functions under the Companies Act. To discharge all these duties, the Board has contended before us, which cannot be controverted, that it requires substantial staff members and it has to induct professional persons at various levels, apart from modernising the working with the induction of latest modern technology. The Board has also contended that it has to invest huge sums of money in providing proper and necessary office space as also adequate housing facilities to the staff without which it would be extremely difficult for the Board to employ and retain its technically-trained staff in its employment. To meet all these expenses, according to the Board, it has no other source of income apart from the levy contemplated under Sections 11(2)(k) and 12 of the Act, except a certain sum loaned by the Government of India which is repayable, hence, the Board certainly requires substantial sums of money. What the petitioners contend in this regard is that most of these expenses are in the nature of capital expenditure for which provisions ought to be made by the Government and they cannot be saddled with the burden of providing these infrastructures of the Board. This argument of course is based on the ground that the capital expenditure cannot be met out of the fee to be levied on them and also on the ground that a substantial amount of levy is being utilised not for their benefit but for the benefit of other persons involved in the stock market. Once we come to the conclusion that the fee in question is primarily a regulatory fee then the argument that the service rendered by the Board should be confined to the contributories alone, cannot be accepted. What the court has to investigate while examining a challenge of this nature is to see what is the primary object of the Regulations for which the fee is being collected and find out whether the Regulations in question are in public interest or not. Once the levy is in public interest and connected with the larger trade in which the contributories are involved then confining the services only to the contributories does not arise, as has been held by this Court in City Corpn. of Calicut8. Applying the said principle, we are of the opinion that since the amount collected under the impugned levy is being spent by the Board on various activities of the stock and securities market with which the petitioners are directly connected, the fact that the entire benefit of the levy does not accrue to the contributories i.e. the petitioners would not make the levy invalid." .
31. Mr. Vijayan, learned senior counsel relied upon the Division Bench judgment of this Court in RAJAH V.V. SEETHARAMAYYA BAHADUR VS. THE ASST. COMMISSIONER OF URBAN LAND TAX, MADRAS, reported in 1998 LW 96, where in the said decision the provisions of the Tamil Nadu Urban Land Tax Act was challenged as having violated Article 14 and 19 of the Constitution. The Division Bench of this Court struck down Section 6 of that Act and, therefore, no assessment could be validly made under the Act. On appeal, the Apex Court set aside the decision of the High Court and upheld the validity of the Act. Thereafter, the Act was amended by the State Legislature. As per the amended Act assessment was made. The assessment was objected to for the period prior to the date of the amendment of the Act as the writ of prohibition issued by this Court in one of the writ petition has not been challenged by filing an appeal before the Supreme Court and, therefore, no assessment could be made for the period prior to the date of the pronouncement by the Supreme Court. The Division Bench in the light of the pronouncement of the Apex Court in MADAN MOHAN PATHAK VS. UNION OF INDIA held that the binding nature of writ of prohibition issued already by this Court is operative and, therefore, Section 7-A of the Act does not take away the efficacy of the writ of prohibition issued. While considering the legal position as well as the effect of Section 7-A, the Division Bench held that the said Section 7-A does not contain a non obstante clause nullifying the decision of this Court and, therefore, the assessees contention was sustained holding that there could be no assessment for the period prior to the date of the Supreme Court judgment. The said pronouncement of the Division Bench has no application to the present case and the point decided by the Division Bench is totally different. The reliance placed upon the Division Bench judgment cannot be countenanced.
32. Therefore, in the light of the above pronouncements, whether the members of the petitioner association, namely, exhibitors have availed the services or not, such short films have to be necessarily made available, kept ready for circulation or transportation throughout India at heavy cost, besides there should be an addition of new films by shooting of such short films in the interest of the public by way of updating. As detailed in the counter affidavit, what is being paid is only a nominal sum and it is not even sufficient to meet the portion of the expenditure involved in maintaining the depots, distribution centres, transportation, shooting of new films, keeping correspondence and making other connected arrangements for day-to-day expenditure of such short films. Admittedly, the respondents kept their services always ready and in equity the exhibitors have to pay the charges. As the judgment of the Delhi High Court has been reversed and in terms of the licence condition, the legal position being that every exhibitor should have or has to exhibit the short film by availing the services of the respondents, and being regulatory in nature as one of the licence conditions to make arrangement with the Films Division and provide for continuous exhibition of such short films, the exhibitors are liable to pay the fee as demanded by the respondents. Only for assessing the fees payable during the relevant period, the respondents has called for particulars. The members of the petitioner association were directed to pay and they have to pay it consequent to the judgment of the Supreme Court. Hence, the demand by the respondents cannot be held to be illegal or unlawful and the plea advanced by Mr. Vijayan, learned senior counsel to the contra cannot be sustained. The second point is also answered against the petitioner.
33. In the result, this writ petition is dismissed. Parties shall bear their respective costs. Consequently, connected miscellaneous petition is also dismissed.