Kerala High Court
M/S.Cochin Refineries Ltd vs Vadavukode Puthencruiz Grama on 18 August, 2007
Author: H.L. Dattu
Bench: H.L.Dattu, K.T.Sankaran
IN THE HIGH COURT OF KERALA AT ERNAKULAM
WA No. 191 of 2004(E)
1. M/S.COCHIN REFINERIES LTD,(NOW KNOWN AS
... Petitioner
Vs
1. VADAVUKODE PUTHENCRUIZ GRAMA
... Respondent
2. STATE OF KERALA, REPRESENTED BY ITS
For Petitioner :SRI.E.K.NANDAKUMAR
For Respondent :SRI.S.SREEKUMAR
The Hon'ble the Chief Justice MR.H.L.DATTU
The Hon'ble MR. Justice K.T.SANKARAN
Dated :18/08/2007
O R D E R
H.L. DATTU, C.J. & K.T. SANKARAN, J.
-------------------------------------
W.A. Nos.191, 23, 78, 160, 246, 345 of 2004,
O.P.Nos.19220/97, 19494/97, 19498/97,
6740/98 and 9985 of 2003
------------------------------------
Dated this, the 18th day of August, 2007.
JUDGMENT
H.L. DATTU, C.J.
The law makers realising the importance of local self governance units in building the nation, brought to the fore by the 73rd amendment to the Indian Constitution the role of Village Panchayats or Village Councils. The 73rd amendment incorporated Part IX in the Constitution and required the States to bring into existence laws for implementation of three tier Panchayat Raj system. After this amendment, the Kerala Panchayats Act, 1960 is repealed and the Kerala Panchayat Raj Act, 1994 is enacted and has been in force for the last 13 years. The Act and the Rules together provide for almost all contingencies arising in the implementation of the Scheme for Local Self Government. The local self governments need funds for the development of village panchayat and grama panchayats. The State Government has framed several rules and regulations, by enforcement of which the local self governments may generate funds for their developmental activities.
2. In these proceedings, the petitioners/appellants are primarily challenging the increase in the licence fee under the provisions of the Kerala Panchayat Raj Act (Issue of licences to Dangerous and W.A. No.191/04 and - 2 - connected cases.
Offensive Trades and Factories) Rules, 1996, hereinafter for the sake of brevity referred to as "Rules, 1996".
3. Since common questions of facts and law are involved in all these writ appeals and original petitions, they are all clubbed, heard and disposed of by this common order.
4. For the purpose of narration of facts, we take up the facts stated in O.P.No.5764 of 1997. The petitioner is a public limited company registered under the Companies Act, and having its registered office at Ambalamughal, Cochin. The company is engaged in the manufacture of Petroleum and related products. It is situated within the jurisdiction of Vadavukode Puthencruz Grama Panchayat area. It has installed several plant and machinery for the purpose of manufacture of its products. At the time of erection and installing plant and machinery, it had taken the permission of the Panchayat. The petitioner has been operating the plant and machinery after obtaining licence from the Panchayat on payment of licence fee prescribed under the Kerala Panchayat Act, 1960 and Rules framed thereunder. The company had commenced its commercial production in the year 1966.
5. The company for the renewal of licence granted earlier had made an application for the renewal of licence for the period 1996-97. The Panchayat had issued a licence to the petitioner company for operating its oil refinery and storing gas and petroleum components and the period of licence is to expire on 31.3.1997 and the fee levied for W.A. No.191/04 and - 3 - connected cases.
the issuance of licence was Rs.487/-. Even before the expiry of the licence issued by the Panchayat dated 8.4.1996, the petitioner was asked by the Panchayat to furnish information regarding the total capacity in horse power of motors/machinery functioning in the company for the purpose of levying licence fee under the provisions of the Dangerous and Offensive Trades and Factories Rules which has come into force with effect from 1.4.1996. Pursuant to the letter so issued, the petitioner furnished the information sought for by the Panchayat and also had made an application for renewal of licence for the period commencing from April 1997 to March 1998. After receipt of the information, the Panchayat had issued a letter, directing the petitioner to pay a sum of Rs.3,27,607/- towards the licence fee and the revision of licence fee is purported to be done under the Kerala Panchayat Raj Act (Licencing of Dangerous and Offensive Trade and Practices) Rules 1996. The petitioner being aggrieved by the demand so made by the Panchayat has filed the Original Petition, inter alia seeking the various reliefs, viz., to declare the Rules to the extent it contravenes Sections 232, 233, 234 and 254 of the Kerala Panchayat Raj Act, 1994 as illegal and ultra vires; to call for the records leading to issuance of demand notice (Ext.P6) and to quash the same by issuing a writ of certiorari or other appropriate writ or direction; to issue a direction commanding the Village Panchayat to consider the petitioner's application for renewal of licence under section 232 of the Act, without insisting on licence fee as W.A. No.191/04 and - 4 - connected cases.
specified in Ext.P7; and lastly to direct the Village Panchayat to consider the petitioner's application for renewal of licence without insisting on licence fee stipulated in the Rules.
6. The grounds urged in support of the prayer in the petition is that, the Rules framed by the State Government is ultra vires the Kerala Panchayat Raj Act. It is further contended that the levy demanded is a fee for the purpose of obtaining a licence and it is well settled law that in order to constitute a levy of fee, the same must confer special benefits on the persons on whom it is imposed. Alternatively, it is contended that, there must be a quid pro quo of services to the payer in return of the levy. As far as the petitioner company is concerned, no such services are rendered by the Panchayat. To sustain the levy as a fee, there must be special benefits to the payer of the fee in addition to what is enjoyed by the members of the general public. The special benefit should be rendered specially for the payer of the fee or to the class of people who pay the same. Apart from the ordinary panchayat services, no special services, whatsoever, is rendered by the Panchayat either to the petitioner or to the factory owners as a class. The levy is not supported by any quid pro quo whatsoever and hence it is totally without jurisdiction and void in law. In support of their assertion, reliance is placed on sub-section (2) of Section 236 of the Act, which says that fees can be fixed only after taking into consideration the expenditure to be incurred for rendering service to the trade for W.A. No.191/04 and - 5 - connected cases.
regulation of the trade. It is further stated, that, the fees levied must bear a reasonable proportion to the expenditure to be incurred for the regulation of the trade and services rendered to it. There must be a co-relation between the levy imposed and the expense incurred for the regulation of the trade. The Panchayat does not offer any service for the regulation of the trade nor does the Panchayat incur any expenditure in lieu thereof. Even assuming that the services are rendered, that the amounts demanded are grossly disproportionate to the services rendered by the Panchayat and therefore, the Rules are illegal, unsustainable and ultra vires the provisions of the Act. The Kerala Panchayat Raj Act does not authorise a levy on the basis of capacity of machinery. Licence is to be obtained under Rule 232 and fee is to be paid for expenditure to be incurred for regulating the trade for which licence is granted. The Act does not authorise a levy on the capacity of a machinery. The levy on the basis of horse power of a machinery is totally illogical. The expenditure to be incurred by the Panchayat, if at all, has no co-relation to the capacity of the machinery. It is next asserted that the Schedule provided under the Rules prescribe a maximum limit for levy of fees. The Panchayat is under a mistaken impression that it is bound to levy the maximum fees prescribed taking into consideration the expenditure to be incurred. In the present case, the Panchayat has acted mechanically and without any application of mind, by imposing the maximum fee leviable under the Act, without any W.A. No.191/04 and - 6 - connected cases.
regard to the services to be rendered by it. Lastly, it is stated that the fee that was being paid by the petitioner company till 1996 was only Rs.487/- per annum and now it is being enhanced to Rs.3,27,607/-, which is exorbitant and excessive, and therefore, the levy is unconscionable.
7. The Village Panchayat has filed its objections resisting the reliefs sought in the petition. It is their defence, that, the original licence was granted under the Panchayat Act, 1960. The Kerala Panchayat Raj Act 1994 was promulgated on 22.3.1994 and the erstwhile Panchayat Act was repealed. As per Section 232, 233, 234 of Act 13 of 1994, the Government had framed and published rules called Kerala Panchayat Raj (Licensing of Dangerous and Offensive Trades and Factories) Rules 1996 and as per resolution No.3 dated 30.12.1996, the Panchayat decided to extend the application of the provisions of the Rules within the Panchayat area with effect from 30.12.1996 and notified the same on 10.1.1997. The respondent being a statutory authority is bound by the Rules framed by the State Government. They have further stated that the Panchayat is rendering various services to the petitioner and also the general public. The Panchayat is providing motorable roads which are periodically maintained. Similarly all basic necessities like electricity and water is provided to the petitioner and the public at large. Various schemes are implemented to provide home for homeless, for maintaining hospitals, public markets, public reading W.A. No.191/04 and - 7 - connected cases.
places, recreation facilities and so on. For all these services rendered, the Panchayat has to expend lakhs and lakhs of rupees, the source of which is the tax/fee levied. The Rules have been framed under the powers conferred under Section 232, 233 and 234 of the Act. Fees can be levied under Schedule II and Schedule III to the Act. There is no uncertainty in levying the fees. The statute is clear regarding the levy of fees and there is no ambiguity or uncertainty as alleged and they conclude by contending that Panchayat has every power to frame rules and it is not ultra vires of the Act and the petitioner company is liable to pay the amounts provided in the Rules.
8. The learned Single Judge has rejected the Original Petition. Aggrieved by the same, petitioners are before us by filing Writ Appeals. Some of the Original Petitions have been referred by the learned Single Judge for consideration and decision by the Division Bench , in view of the pendency of the Appeals. That is how we have both Writ Appeals and Original Petitions before us for consideration and decision.
9. At the time of hearing of the petitions and appeals, the learned counsel Sri.Jayashankar would contend that what was being levied for issuing and renewing the licence is a fee and therefore, quid pro quo is an essential ingredient and therefore, in the absence of any special services rendered to the beneficiary, the fee cannot be sustained. It is further contended that the fee levied should have been fixed with due regard to the expenditure to be incurred for rendering W.A. No.191/04 and - 8 - connected cases.
service to the trade and for regulation of the trade, for which the licence is granted. Alternatively, it was contended that the fee fixed is disproportionate to the service rendered and lastly the reasoning of the learned single Judge that the expenditure to be incurred can be disregarded if the fixation is by the Government is erroneous, for the reason, that, irrespective of the authority which fixes it, the amount levied can only be a fee as otherwise the levy will partake the character of a tax and the State Government is not authorised to levy any such tax.
10. The petitioners learned counsel though initially contended that the increased licence fee is not in the nature of fees, since there is no quid pro quo between the fees charged and the services rendered to the petitioners and therefore, it is in the nature of tax, but this was not seriously pursued in view of the stand taken by the learned counsel for the State Government and the Grama Panchayat. The other contention that was seriously projected was that the enhancement of the licence fee is arbitrary, excessive, exorbitant and highly disproportionate and has no co-relation with the services rendered by the Panchayat to the holders of licence. It was the further submission of the learned counsel, that, since the licence fee is a fee and not a tax, it has to satisfy broadly the basic principles of quid pro quo for its validity. On the facts emerging from the pleadings of the parties, particularly the counter affidavits filed by the respondent, the principle of W.A. No.191/04 and - 9 - connected cases.
quid pro quo is not satisfied. Therefore, the learned counsel submitted the amended rule which introduced revised licence fee should be struck down as illegal and invalid.
11. In aid of his submission, the learned counsel relies on the observations made by the Apex Court in the case of Synthethics & Chemicals Ltd. vs. State of U.P. AIR 1990 SC 1927, A.P.Paper Mills Ltd. vs. Govt. of A.P.(2000) 8 SCC 167, Calcutta Municipal Corporation vs. Shrey Mercantile (P) Ltd., (2005) 4 SCC 245, Jindal Stainless Ltd. vs. State of Haryana (2006) 7 SCC 241, M/s.Gupta Modern Breweries vs. State of Jammu & Kashmir, & Ors. JT 2007 (5) SCC 619, Commissioner of Central Excise vs. Chhata Sugar Co. Ltd. (2004) 3 SCC 466, Kerala Small Financiers' Association vs. State of Kerala 1998 KLJ (Tax Cases) 746 and Thressiamma L. Chirayil v. State of Kerala 2007(1) KLT 303.
12. Per contra, learned counsel appearing for the respondents while supporting the findings and the conclusions reached by the learned Single Judge contended that the quantum of fee collected has nexus with the services rendered by the Panchayat and therefore, the principle of quid pro quo is squarely complied in these cases; the licence fee collected is neither excessive nor disproportionate, since major part of the amount received as licence fee is spent for the services rendered to the factories and the persons working therein; that the W.A. No.191/04 and - 10 - connected cases.
licence fee collected is regulatory in character and therefore, the element of quid pro quo as it is understood in common legal parlance does not apply in this case. In aid of their submission, reliance is placed on the views expressed by the Supreme Court in the case of State of U.P. vs. Sitapur Packing Wood Suppliers (2002) 4 SCC 566; Corporation of Calcutta vs. Liberty Cinema AIR 1965 SC 1107; City Corporation of Calicut vs. Thachambalath Sadasivan and Ors. AIR 1985 SC 756; State of H.P. vs. Shivalik Agro Poly Products(2004) 8 SCC 556 and Khoday Distilleries Ltd. vs. State of Karnataka(1995) 1 SCC 574.
13. Before discussing the merits of the contentions raised by the learned counsel for the parties to the lis, we may first clarify the position, that it is not the case of the petitioners/appellants that the State Government has no power to levy licence fee in question. It is also not contended that the levy suffers from any other illegality or infirmity, except the non-compliance with the principle of quid pro quo and the levy of fee now imposed under the rule is excessive and disproportionate to the service rendered to the holder of licence.
14. The question that arises for determination is, whether the enhancement of licence fee under the Rules is hit by principles of quid pro quo and is excessive, exorbitant and disproportionate? For answering the question, it is necessary to find out whether the element W.A. No.191/04 and - 11 - connected cases.
of quid pro quo is applicable to levy in question and if so, whether a reasonable co-relation between the quantum of fee and services rendered is established on the materials on record.
15. To answer the question that we have framed on the contentions raised on behalf of the parties to the lis, it is necessary to ascertain the nature of the licence fee under the Rules. Is it obligatory in character or is it a levy in lieu of some special services rendered to the payer of the fee.
16. The Kerala Panchayat Act, 1960 is replaced by the Kerala Panchayat Raj Act, 1994. Even under the earlier enactment, the legislature had enacted Kerala Panchayats (Licensing of Dangerous And Offensive Trades and Factories) Rules,1963 in exercise of the powers conferred by Section 96, 97, 98 and 129 of the Kerala Panchayat Act, 1960. Schedule II and III of the Rules provided different amount of licence fee depending on the installed horse power. The maximum fee that was leviable was Rs.350/- for every horse power and twenty five paise for every additional horse power subject to maximum of Rs.450/-.
17. Chapter XX of Kerala Panchayat Raj Act, 1994 provides for public safety, convenience and health. Under this Chapter, there is yet another sub-heading, which provides the Dangerous and Offensive Trades and Practices. Section 232 of the Act authorises the village panchayat to notify that no panchayat area shall be used for any of the purposes specified in the rules made in that behalf, being W.A. No.191/04 and - 12 - connected cases.
purposes which in the opinion of the Government are likely to be offensive or dangerous to human life or health or property without a licence issued by the Secretary of the Panchayat and except in accordance with the conditions specified in such licence.
18. Section 233 of the Act prescribes that without the permission of the Village Panchayat and except in accordance with the conditions specified in such permission, no person shall construct or establish any factory, workshop or workplace in which it is proposed to employ steam power, water power or other mechanical power or electrical power.
19. Section 234 of the Act empowers the State Government to make rules in respect of the grant and renewal of licences and permissions. The said provision is as under:
"234. Power of Government to make rules in respect of the grant and removal of licences and permission.- (1) The Government may make rules, -
(a) prohibiting or regulating the grant or renewal of licences under section 232 and the period for which such licences shall be valid;
(b) as to the time within which application for such licences or renewals thereof shall be made;
(c) prohibiting or regulating the grant of permission under section 233.
(2) Rules made under clause (c) of sub-section (1) may empower the Village Panchayat to set apart specified places in the Panchayat area for industrial purposes and W.A. No.191/04 and - 13 - connected cases.
provide for refusal of permission under section 233 in respect of any factory, workshop, workplace or premises outside such places and also for the removal to such places of any factory, workshop or workplace which has been already established at any place, or any machinery which has already been installed in any premises situated outside the specified places;
Provided that no such rule shall authorise the removal of any factory, workshop or workplace or machinery installed in any premises in the occupation or under the control of the Central or State Government or of a Market Committee established under the Madras Commercial Crops Markets Act, 1993 or any other law.".
20. Under Section 254 of the Act, the State Government is also empowered to make rules generally to carry out the provisions of the Act. The rules made by the State Government which purports to give effect to any of the provisions would be within the four corners of the Act. Sub-section (2) of Section 254 provides that apart from the general powers given to the State Government to make rules for the purposes of the Act, it is empowered to make rules for the purposes of levy of tax and the fees. Section 254 (2)(xlii) provides for levy of taxes under the Act and the forums for filing of revision and appeals against the orders of assessments passed under the Act. Section 254 (2) (xliii) provides as to the form of and the fees to be in respect of any of the matters mentioned in the Act.
W.A. No.191/04 and - 14 - connected cases.
21. The State Government in exercise of its powers conferred by Sections 232, 233 and 234 of the Kerala Panchayat Raj Act, 1994 read with Section 254 of the Act has framed the Kerala Panchayat Raj (Issue of Licence to Dangerous and Offensive Trades and Factories) Rules, 1996 ("Rules" for short). Rule 3 authorises the State Government, that for the purposes of Section 232, the matters which in the opinion of the State Government are likely to be offensive or dangerous to human life, health or property by specifying the same in the First Schedule appended to the Rules. Rule 4 provides for publication of notification regarding dangerous and offensive trades. Rule 5 provides for filing of application for grant of licence for the use of places notified in Rule 4 of the Rules. Rule 7 provides for levy of licence fee. Under this rule, the Village Panchayat may for every licence issued by the President levy amounts not exceeding the rates mentioned in Schedule II. Rule 12 provides for filing of application for constructing or establishing factory, workshop or workplace wherein steam power or other power is to be used. Under Rule 15, the Secretary of the Village Panchayat is authorised to enter any factory, workshop or workplace. Rule 17 speaks of levy of licence fee for granting permission under Section 233 for installing on a land any machinery or manufacturing plant operated by electricity and the same shall not exceed the maximum specified in Schedule III appended to the Rules. Rule 18 provides for levy of maximum fee for the place where machinery or W.A. No.191/04 and - 15 - connected cases.
manufacturing plant operated by electricity is used and the same shall not exceed the maximum specified in Schedule III appended to the Rules. Rule 20 provides for the fee that may be charged for granting permission under Section 233 of the Act for the installation on any land, any machinery or manufacturing plant operated by any power other than electricity and the same shall not exceed the maximum specified in Schedule III appended to the Rules. Rule 21 of the Rules provides for levy of maximum fee for granting or renewing licence for one year under Section 232 for the place where the machinery or manufacturing plant operated other than electricity is used, and the same shall not exceed the maximum specified in Schedule IV appended to these rules.
22. For the purpose of this case, we need to notice only Schedule III appended to the Rules and therefore, it is extracted and the same is as under:
"SCHEDULE III (See Rules 18 and 1) Capacity of the machine in Horse Power Maximum fee that may be levied (Rupees) Rectifier machines necessary for cinema, without 25 considering Horse power Other machines of not more than one Horsepower 10 Other machines of more than one Horse power but 50 not more than five Horse power W.A. No.191/04 and - 16 - connected cases.
Other machines of more than five Horse power but 100 not more than ten Horse power Other machines of more than ten Horse power but 200 not more than twenty Horse power Other machines of more than twenty Horse power but 300 not more than thirty Horse power Other machines of more than thirty Horse power but 400 not more than forty Horse power Other machines of more than forty Horse power but 500 not more than fifty Horse power Other machines of more than fifty Horse power but 1000 not more than hundred Horse power Those of more than hundred Horse power but up to 2000 two hundred Horse power For every successive Horse power additional ten rupees each.".
23. In these proceedings, primarily the petitioners are challenging the increase in the licence fee for running the factories and industries in the Panchayat area. The licence fee had been fixed under the repealed rules in the year 1963. Nearly for four and half decades, there was no increase in the licence fee. In the rules framed under Kerala Panchayat Raj Act, 1994, the rates of the licence fee is increased and that again varies depending on the capacity of the machine in Horse Power. The grievance that is made out is even after four and a half decades, there is no reason for the State Government to increase the licence fee and the rates prescribed are higher than the W.A. No.191/04 and - 17 - connected cases.
rates in force earlier.
24. Now, let us notice the case laws on the point. The term 'fee' has been nowhere defined in the Constitution. The courts have endeavoured to define the term in contradiction to the term tax. In Commissioner, H.R.E. vs. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, AIR 1954 SC 282, one of the earliest cases dealing with the question whether the levy is a fee or tax. In the said case, Section 76 of the Madras Religious Endowment Act, 1927 which provided for a contribution at the rate of 5% of the income of a Religious institution and an additional levy of 1=% where such income exceeds Rs.1000/- to meet the cost of services and auditing, was challenged as imposing not a fee but tax in reality. Justice Mukherjea speaking for the court, adopted the definition of what 'tax' means given by Latham, C.J. of the High Court of Australia in Mathews vs. Chicory Marketing Board, 60 CLR 263. A 'tax', according to the learned Judge, "is a compulsory exaction of money by a public authority for public purposes enforceable by law and is not a payment for services rendered. Taxes are paid for the participation in such common benefits as organised society, and a person cannot object to a tax on the score that he receives no direct benefit from the application of the proceeds of the tax or the benefit he receives is small in comparison with the benefits received by the other tax payers. A fee, on the other hand, is generally defined to be a charge W.A. No.191/04 and - 18 - connected cases.
for special services rendered, to individuals by some governmental agency. The amount of fee levied is supposed to be based on the expenses incurred by the Government in rendering the services, though in many cases, the costs are arbitrarily assessed. Ordinarily, the fees are uniform and no account is taken of the varying activities of different recipients to pay. These are undoubtedly, some of the general characteristic, as far may be, of various kinds of fee. It is not possible to formulate a definition that would be applicable to all cases. The court further observed:
"The distinction between a tax and a fee lies primarily in the fact that a tax is levied as a part of the common burden, while a fee is a payment for a special benefit or privilege. Fees confer a special capacity, although the special advantage, as for example, in the case of registration fee for documents or marriage licences, is primary motive of regulation in the public interest".
Regarding the first element, compulsion, the court held that this feature was common to both tax and fee, as even in the case of fee, a person cannot escape payment by refusing to avail himself of the benefit or services rendered. The learned Judge observed that a fee was payment for special privilege or benefit derived by the person by whom it was payable. It was held that when regarded as return for services rendered, the levy must be correlated to the expenses incurred, that is W.A. No.191/04 and - 19 - connected cases.
to say there must be quid pro quo between the persons who pay the fee and the public authority. It was held that if the money paid was set apart for meeting the expenses of such service and was not merged in the public revenue for the benefit of public, it would be accounted as 'fee' and not tax.
25. The Apex Court in the case of Corporation of Calcutta vs. Liberty Cinema AIR 1965 SC 1107, after referring to the constitutional provisions making a distinction between a fee and a tax also went on to say that in our consideration, fees for licences and fees for services rendered are contemplated as different kinds of levy. The former is not intended to be a fee for services rendered. This is apparent from a consideration of Article 110(2) and Article 119(2) where both the expressions are used indicating thereby that they are not the same.
26. In Indian Mica Micanite Industries vs. State of Bihar, (1971) S SCC 236 at Page 241, the Court has observed:
"The requirement to take a licence is prescribed to safeguard public interest and not as a source to gather revenue. What is made punishable is either a person's failure to take the required licence or the breach of the conditions of the licence, otherwise there would be no sanction behind the rule requiring to take a licence. Generally speaking by granting a licence the State does not confer any privilege or benefit on any one. All that it does W.A. No.191/04 and - 20 - connected cases.
is to regulate a trade, business or profession in public interest. There may be cases where a Government which is the owner of a particular property may grant permit or licence to someone to exploit that property for his benefit. Such a right may be given for consideration. It is only in those cases that a licence or a permit is a conferment of a benefit or a privilege and not in the case of grant of a licence for carrying on any ordinary trade, business or profession.".
27. In Krishi Upaj Mandi Samiti vs. Orient Paper & Industries Ltd., (1995) 1 SCC 655, the Court has observed:
"It is not a postulate of a fee that it must have relation to the actual service rendered. However, the rendering of service has to be established. The service, further, cannot be remote. The test of quid pro quo is not to be satisfied with close or proximate relationship in all kinds of fees. A good and substantial portion of the fee must, however, be shown to be expended for the purpose for which the fee is levied. It is not necessary to confer the whole of the benefit on the payers of the fee but some special benefit must be conferred on them which has a direct and reasonable corelation to the fee. While conferring some special benefits on the payers of the fees, it is permissible to render service in the general interest of all concerned. The element of quid pro quo is not possible or even necessary to be established with arithmetical exactitude. But it must be established broadly and reasonably that the amount is being spent for rendering services to those on whom the burden of W.A. No.191/04 and - 21 - connected cases.
the fee falls. There is no postulate of a fee that it must have a direct relation to the actual services rendered by the authorities to each individual to obtain the benefit of the service. The element of quid pro quo in the strict sense is not always a sine qua non for a fee. The element of quid pro quo is not necessarily absent in every tax. It is enough if there is a broad, reasonable and general corelationship between the levy and the resultant benefit to the class of people on which the fee is levied though no single payer of the fee receives direct or personal benefit from those services. It is immaterial that the general public may also be benefited from some of the services if the primary service intended is for the payers of the fee.".
28. In Delhi Municipality vs. Mohd.Yasin (1983) 3 SCC 229, the Apex Court has observed:
"Though a fee must have relation to the services rendered, or the advantages conferred, such relation need not be direct, a mere casual relation may be enough".
29. The Supreme Court in City Corporation, Calicut vs. T.Sadasivan, (1985) 2 SCC 112, has observed:
"It is well settled that though the fee must have relation to the services or the advantages conferred, such relation need not be direct, a mere casual relation may be enough". W.A. No.191/04 and - 22 -
connected cases.
30. Re-contention (a): That the licence fee is not in the nature of fees, since there is no quid pro quo between the levy and services rendered:
The chief test in the determination of the character of a levy is that the amount collected should be proportionate to the services rendered. The concept of a welfare state is that the State is entitled to make a levy even against the wish of the person sought to be benefited, since a person against whom fee is levied cannot refuse payment on the score that he does not require such services, the only remedy available to him is to prove that the collections far exceed the actual expenses. According to Seligman, the test whether collections exceed the cost of a particular service can apply only to those fees paid in return for some positive work done by the Government. In some cases, what the Government gives is only a permission to do something, a permission which costs almost nothing, and for which a considerable fee may be extracted. In the very nature of things, there cannot be a precise or mathematical co-relation. What is to be sought is not a mathematical precision but only a broad approximation in regard to the object for which the levy is contemplated.
In the present case, it is the contention of the State Government and the Panchayat at the time of hearing, that the fees charged are not just for the services rendered, but they also have a large element of a regulatory fee levied for the purpose of maintaining W.A. No.191/04 and - 23 - connected cases.
the activity of licencees to ensure that they comply with the terms and conditions of the licence. Dealing with such regulatory fees, the Apex Court in Vam Organic Chemicals Ltd. vs. State of U.P., (1997) 2 SCC 715 at page 726, has stated as follows:
"The High Court in the impugned judgment has drawn a distinction between fees charged for licences, i.e. regulatory fees and the fees for services rendered as compensatory fees. The distinction pointed out by the High Court can be seen in clause (2) of Article 110.
"110 (2): A bill shall not be deemed to be a Money Bill by reason only that it provides for the imposition of fines or other pecuniary penalties, or or the demand or payment of fees for licences or fees for services rendered, or by reason that it provides for the imposition, abolition, remission, alteration or regulation of any tax by any local authority or body for local purposes".
The High Court has quoted from this Court's decision in Corpn. of Calcutta v. Liberty Cinama, which was based on a Privy Council judgment in George Walkem Shannon v. Lower Mainland Dairy Products Board. This Court said in the Corpn. of Calcutta v. Liberty Cinema:
"In fact, in our Constitution, fee for licence and fee for services rendered are contemplated as different kinds of levy. The former is not intended to be a fee for services rendered. This is apparent from a consideration of Article 110(2) and Article 199(2) where both the expressions are used indicating thereby that they are not the same."
The High Court has taken the view that in the case of regulatory fees, like the licence fees, existence of quid pro quo is not necessary although the fee imposed must W.A. No.191/04 and - 24 - connected cases.
not be, in the circumstances of the case, excessive. The High Court further held that keeping in view the quantum and nature of the work involved in supervising the process of denaturation and the consequent expenses incurred by the State, the fee of 7 paise per litre was reasonable and proper.".
In P.Kannadasan vs. State of Tamil Nadu (1996) 5 SCC 670 at para 36, the Supreme Court has observed:
"The sixth contention of the learned counsel for the appellants-petitioners is premised upon the supposition that Parliament is bound to utilise the taxes realised under the impugned Act only for the purpose of regulation of mines and mineral development. It is on this supposition, it is argued, that inasmuch as the Union has not established that impugned levy is required for the purpose of said regulation and development, the imposition is incompetent. In our opinion, the very supposition is misplaced. What is levied under the impugned enactment is a tax/cess and not a fee. Even in the matter of fees, it is not necessary that element of quid pro quo should be established in each and every case, for it is well settled that fees can be both regulatory and compensatory and that in the case of regulatory fees, the element of quid pro quo is totally irrelevant. (See Corpn. of Calcutta v. Liberty Cinema). Taxes are raised for augmenting the general revenues of the State and not for any particular purpose - much less for rendering a particular service."
W.A. No.191/04 and - 25 -
connected cases.
In State of Tripura vs. Sudhir Rajan Nath (1997) 3 SCC 665 at 673, the Apex Court has observed:
"The distinction between compensatory fee and regulatory fee is well established by several decisions of this Court. Reference may be made to the decision of the Constitution Bench in Corpn. of Calcutta v. Liberty Cinema. It has been held in the said decision that the expression 'licence fee' does not necessarily mean a fee in lieu of services and that in the case of regulatory fees, no quid pro quo need be established. The following observations may usefully be quoted:
"This contention is not really open to the respondent for Section 548 does not use the word 'fee'; it uses the words 'licence fee' and those words do not necessarily mean a fee in return for services. In fact, in our Constitution, fee for licence and fee for services rendered are contemplated as different kinds of levy. The former is not intended to be a fee for services rendered. This is apparent from a consideration of Article 110(2) and Article 199(2) where both the expressions are used indicating thereby that they are not the same. In George Walkem Shannon v. Lower Mainland Dairy Products Board, it was observed:
"if licences are granted, it appears to be no objection that fees should be charged in order either to defray the costs of administering the local regulation or to increase the general funds of the Province or for both purposes.....It cannot, as their Lordships think, be an objection to a licence plus a fee that it is directed both to the regulation of trade and to the provision of revenue"
It would, therefore, appear that a provision for the W.A. No.191/04 and - 26 - connected cases.
imposition of a licence fee does not necessarily lead to the conclusion that the fee must be only for services rendered.".
In Secunderabad Hyderabad Hotel Owners Association vs. Hyderabad Municipal Corporation, (1999) 2 SCC 274, it is observed that "it is 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 services rendered and the fee charged, so that the licence fee is commensurate with the cost of rendering the services 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 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 the levy of such fees is not required although such fees cannot be excessive".
The Supreme Court in the case of State of U.P. and others vs. Sitapur Packing Wood Suppliers and Others, (2002) 4 SCC 566, has stated that, the distinction between tax and fee is well settled and need not be restated herein. It is clear from the aforesaid provisions of the Act and the Rules that the transitory fee is regulatory in nature. The question of quid pro quo is necessary when a fee is W.A. No.191/04 and - 27 - connected cases.
compensatory. It is well established that for every fee, quid pro quo is not necessary. The transit fee being regulatory, it is not necessary to establish the factum of rendering service. Thus, there is no question of levy of transit fee being invalidated on the ground that quid pro quo has not been established.
The Supreme Court in the case of State of Himachal Pradesh vs. Agro Poly Products, (2004) 8 SCC 556, has observed:
"It will be thus seen that the statement of law made in Shirur Mutt case, regarding the attributes of fee has undergone a sea change. The consistent view now is that there is no generic difference between a tax and a fee which are both compulsory exaction of money by public authorities. The correlationship between the levy and the services rendered should be one of general character and not of mathematical exactitude. Further, the broad and general correlationship between the totality of the fee on the one hand and the totality of the expenses of the services on the other, will be sufficient to justify the levy. The levy will not fail only on the ground that the measure of its distribution on the persons or incidence is disproportionate to the actual services rendered by them. The true test being the comprehensive level of the value of the totality of the services set off against the totality of the receipts. The character of the fee is thus established. The vagaries in its distribution amongst the class do not detract from the concept of a fee as such".
W.A. No.191/04 and - 28 -
connected cases.
31. Section 254 of the Act specifically authorises the State Government to levy and collect taxes and similarly to levy and collect fees. Section 234 of the Act authorises the State Government to make rules in respect of the grant and renewal of licences and permissions. In exercise of this power, the State Government has framed Dangerous and Offensive Trade and Factories Rules, 1996. The State Government in order to provide local bodies with funds has given them the power to levy fee for the purpose of granting licences to the industries specified in the first schedule to the rules. The purpose of levy of licence fee, for us, it appears, regulatory in nature. In the normal course, the levy imposed is to defray the expenses incurred for rendering the services to the payer of the fee. The Constitution Benches in Andra Pradesh vs. Hindustan Machine Tools (1975) 2 SCC 274 and Kewal Krishnan Puri vs. State of Punjab, (1980) 1 SCC 416, stressed the requirement that the service should be rendered to the persons from whom the fee is collected. However, the present view of the Apex Court appears to be, it would be sufficient if there is broad correlation between the fee collected and the services rendered. In our view, the fee charged are not only for the services rendered, but it also has a large element of regulatory character for the purpose of monitoring the activity of the licencees to ensure that they comply with the terms and conditions of the licence. Neither in the Act, nor in the W.A. No.191/04 and - 29 - connected cases.
Rules, that, there is any mention of any special service to be rendered to the payer of fee. The purpose of levying licence fee, to us it appears, is to enable the authorities to supervise, regulate and monitor the activities relating to factories with the main object to secure proper enforcement of the provisions. Therefore, the licence fee levied under the Rules has all the characteristics of 'Regulatory fee' rather than tax or compensatory fee. The fee is charged for rendering specific services. An element of quid pro quo for the levy of such fees is not required.
32. re-contention (b):- The licence fee that is sought to be levied is exorbitant, excessive and disproportionate to the services rendered:
The ordinary method of regulation of a trade, business or other activity is by issue of licence and generally fee is levied when licence is issued. A licence fee stands on a different footing and in such type of levy the aspect of service rendered is nearly absent. The expenses to meet the regulation or to conduct inspection to insist compliance with the conditions set out in the licence are in law understood as services rendered to the licensee. The State under its police power has the power to regulate any trade, business or occupation by the issue of licence in order to protect health and welfare of general public. In such cases, it is usual to levy fee to cover the reasonable expenses of such regulation. The licence fee differs from an ordinary fee as the imposition is intended to meet expense of W.A. No.191/04 and - 30 - connected cases.
regulation and not to render any service. In spite of this, the licence fee should be reasonable and the collections should not exceed the cost of regulation. In the present case, learned counsel for the Panchayat has filed a detailed statement/data showing the revenue received by the Panchayat and the expenditure made for several past years. The licence fee collected under the Dangerous and Offensive Trade Rules by the Panchayat for the period 1997-98 to 2003-04 was Rs.14,60,755/-. The services rendered by the Panchayat of which petitioners/appellants is also benefited and the expenditure under various heads such as lighting, water, street light, cleaning, public health, medical service, social welfare, public works, library, etc., would work out to Rupees Seven Crore Fifty Thousand Nine Hundred. The expenditure works out more than the licence fee collected. This, in itself, would be sufficient to support the levy. Apart from this, when an industrial activity is involved, in a local area, special sanitary precautions, special supervising agency or such like expenditure would be involved. It is reasonable to take into account the expenditure involved in fixing the amount of fee. In the absence of strong evidence as to unreasonableness or disproportionality, there is nothing wrong in levying fee for different purposes, because quid pro quo is between the total collection and the total expenses and the individual payee of the licence fee is not at all in the picture. Therefore, we are not inclined to hold the levy of this fee is excessive or exorbitant or disproportionate to the levy of licence fee W.A. No.191/04 and - 31 - connected cases.
imposed and collected from the industries situate within Village Panchayat or Grama Panchayat area.
33. Before parting with the case, we intend to place it on record that the reliance placed by the learned counsel Sri.Jayashankar on some of the decisions was though useful to understand the meaning of the expression 'tax' and 'fee', it may not assist him to persuade us to take a different view in the matter.
34. In view of the above discussion, the Original Petitions and the Writ Appeals requires to be rejected and accordingly, they are rejected with no order as to costs.
Consequently, all pending stay/direction petitions are also dismissed.
Sd/-
H.L.DATTU, CHIEF JUSTICE.
Sd/-
K.T. SANKARAN,
DK. JUDGE.
(True copy)