Patna High Court
Jaiswal Medical Hall vs Union Of India (Uoi) And Ors. on 18 August, 1987
Equivalent citations: AIR1988PAT266, (1988) BLJ 460, (1988) 1 FAC 201, (1988) EFR 107, AIR 1988 PATNA 266, 1988 FAJ 383, 1988 BBCJ 315, 1988 BLT (REP) 5, (1988) PAT LJR 243, (1987) EASTCRIC 784
Author: S.B. Sinha
Bench: S.B. Sinha
ORDER S.B. Sinha, J.
1. This writ petition is directed against a notification bearing No. C.S.R. 779 New Delhi, dated the 18th July, 1980 as contained in Annexure 1 to the writ petition whereby and whereunder the Central Government in exercise of its power conferred upon it under sections 12, 18 and 33 of the Drugs and Cosmetics Act, 1940 (hereinafter called and referred to as the said Act) framed an amending rule known as Drugs and Cosmetics (2nd Amendment) Rules, 1980 as also the notices as contained in Annexures-2 and 3 to the writ petition.
2. By reason of Annexure 1 the inter alia fees payable in respect of an application for renewal of a licence granted under the provision of the aforementioned Act has been enhanced.
3. By reason of Annexure 2, the State Drugs Controller, Bihar, Patna in his letter addressed to the respondent No. 3 directed that the aforementioned amending rule as contained in Annexure 1 be enforced. By copies of the said letter addressed to the Chemists and Druggists Association and all medical stores in the district of Ranchi were instructed to comply with the direction as contained in Annexure-2 as otherwise the licences held by the licencee would be deemed to be cancelled. By reason of Annexure 3 the respondent No. 3 by his letter dt. 10-2-82 addressed to the petitioner informed it that as it had not deposited the renewal fee at the enhanced rate his licence granted under the said Act shall stand cancelled.
4. The facts of the case lie in a very narrow compass.
5. The said act was enacted to regulate the import manufacture distribution and sales of drugs and cosmetics. By reason of section 12 of the Act a rule making power has been conferred upon the Central Government for the purpose of Chapter III, which mainly provides for matter connected with regards to the standard and quality of drugs imported for the use and consumption.
6. Under section 18 of the Act, the State Government has been empowered to grant licence for manufacture for sale, or stock or exhibit for sale or distribute in accordance with conditions of licence issued under the rule made thereunder.
7. By reason of section 33 of the Act the State Government has been empowered to make rules after consultation with or in the recommendations of, the Board and after previous publication by notification in official gazette for the purpose of giving effect to the provision of Chapter IV of the Act, which inter alia provide for and prescribe the form of licence for the manufacture, for sell, for the distribution of drugs, the conditions upon which such licence may be issued, the authority empowered to issue the licence and the fee payable thereto.
8. In terms of Rule 59 of Sub-rule (2) of Drugs and Cosmetics Rules, 1945 and application for grant of licence was to be made in Form 19 or Form 19-a and was required to be accompanied with a fee of Rs. 20/-. If an application for renewal of licence was filed after its expiry but within six months therefrom the fee payable for renewal of such licence was to be Rs. 20/- and an additional fee at the rate of Rs. 20/- per month or part thereof.
9. By reason of the impugned amendment as contained in Annexure 1 to the notification the fee of Rs. 20/- has been enhanced to a sum of Rs. 40/- and additional fee at the rate of Rs. 30/- per month.
10. The main ground upon which this application is based is that no service is rendered by the respondents and as such the respondents were not justified in increasing the fee in the manner aforementioned by amending the rule in terms of Annexure 1 to the writ petition.
11. In this case although the amending rule was framed by the respondent No. 1 (Union of India) no counter-affidavit has been filed on its behalf justifying the enhancement of the fee.
12. However a counter-affidavit has been filed on behalf of respondents Nos. 2 to 5 (who are all employees of the State of Bihar), the affidavit in support whereof has been sworn by one Ram Sewak Verma allegedly an assistant working in the office of the respondent No. 3.
13. An assistant working in the office of Civil Surgeon at Ranchi cannot be said to have any knowledge whatsoever as to whether in the facts and circumstances of the case, the Central Government was required to enhance the fee payable in respect of the renewal of licence and/or the reasons therefor. In my opinion, therefore, no reliance can be placed on the said counter-affidavit. The counter-affidavit should have been and could have been filed by the Union of India alone who issued the notification in question and as such was in possession or in power of all the materials for justifying the enhancement of the fees.
14. However, Mr. S. B. Gadodia, learned counsel appearing on behalf of respondents Nos. 2 to 5 when questioned, as to whether any service is rendered by the respondents or not or whether there was any justification for enhancement of the renewal fee or not drew my attention to the statements made in para 11 of the counter-affidavit. The aforementioned para 11 of the counter-affidavit reads as follows :
"That with regard to the statements made in para 13 of the writ petition it is stated that the question of not rendering any service to the licencees by the licensing authority or the Inspecting Officer or any other officer appointed by the Government does not arise. The authorities concerned grant the licence of the petitioner as against the licence and registration fee which itself amounts to rendering of service. The special benefit given to the petitioner by the authorities is grant/renewal of licence."
15. From a perusal of the entire counter-affidavit it appears that it is admitted by the respondents Nos. 2 to 5 that no service is rendered by the respondents and the performance of the statutory duty to grant licence has been stated to be amounting to rendering the services.
16. The Supreme Court of India in the Commr. of Hindu Religious Endowments, Madras v. Shri Lakshmindra Thirtha Swamiar reported in AIR 1954 SC 282 quoted with approval the decision in Mathews v. Chicory Marketing Board reported in 60 CLR 263 wherein the distinction between 'fee' and 'tax' has been succinctly stated.
17. Mr. S. B. Gadodia, learned counsel appearing on behalf of the respondents Nos. 2 to 5 however placed great reliance upon the decision of the Supreme Court in the Delhi Cloth and General Mills Co. Ltd. v. Chief Commr., Delhi reported in AIR 1971 SC 344 as also the decision of Municipal Corpn. of Delhi v. Md Yasin reported in AIR 1983 SC 617.
18. In the case of Delhi Cloth General Mills (supra), the Supreme Court quoted with approval its earlier decision in H. H. Sudhindra Tirtha Swamiar v. Commr. for Hindu Religious and Charitable Endowments, Mysore reported in AIR 1963 SC 966 and held that if with a view to provide a specific service, levy is imposed by law and expenses for maintaining the service are met out of the amounts collected, there being a reasonable relation between the levy and the expenses incurred for rendering the service, the levy would be in the nature of a fee and not in the nature of a tax.
19. However, from a perusal of the aforementioned judgment itself it would appear that the respondents of the said case filed a return before the High Court wherein it was specifically averred that the fees were being charged for running of the whole establishment including the Factory Inspectorate which in its turn provides free inspection and expert technical advice etc. to factory owners in matters connected with safety, healthy we I fare and the allied matters in respect of compliance with the provision of the Factories Act.
20. In the instant case as has been pointed out hereinbefore that no counter-affidavit has been filed by the Central Government nor in the return filed by the respondents Nos. 2 to 5 any statement has been made that any service is being rendered to the licencees. Further in the instant case, what is under challenge is not the levy of the fees but enhancement thereof in terms of the notification as contained in Annexure 1 to the writ petition whereby and whereunder fee has been enhanced and as such it was obligatory on the part of the rule making authority to satisfy this Court that it was necessary in the facts and circumstances of the case to enhance the fees in the manner as has been sought to be done.
21. In Municipal Corporation, Delhi's case (AIR 1983 SC 617) (supra), the Supreme Court after reviewing its earlier decisions held that there is no generic difference between a tax and a fee but in the said decision itself it has been held that though a fee must have a relation to the services rendered or the advantages conferred, such relation need not be direct and a mere casual relation may be enough. In that case the Supreme Court was considering the question of enhancement of fee by the Delhi Municipal Corporation for slaughtering animals in its slaughter houses.
22. In the aforementioned decision the enhancement of fee was held to be justified after taking into consideration the facts and figures in relation thereto placed before the Court.
23. In the said decision also a counter-affidavit was filed by the Delhi Municipal Corporation showing the amount of expenditure likely to be incurred by it in maintaining its slaughter houses as also for maintaining the supervisory staff like a full time Veterinary Officer, a Municipal Health Officer, Deputy Health Officer, Zonal Health Officer etc. a considerable part of whose duties are in connection with the slaughter houses.
24. In that case further enhancement of fees was held justified as there were made provisions for expansion and improvement of slaughter house facilities and there were several other items of expenditure the whole or part of which was attributable to slaughter houses.
25. The decisions referred to above by Mr. S. B. Gadodia, therefore, have no application to the facts and circumstances of this case.
26. In the Indian Mica and Micanite Industries v. State of Bihar reported in AIR 1971 SC 1182 a Constitution Bench of the Supreme Court has held that in order to uphold a levy as a fee, it must be shown that it has a reasonable co-relationship of a general character (though not with arithmatical exactitude) with the service rendered by the " Government. The co-relationship between the services rendered and the fee levied is an essential question of fact. It is useful to quote here the ratio of that decision appearing in paragraphs 14 and 17 thereof.
"14. The implication of this observation is somewhat astounding. These observations imply that the Government can barter away its duty to prosecute an offender for consideration. 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 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 some one 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. If it is otherwise the State can sell the right to practise the profession of law in courts or to practise the profession of medicine or any of the other numerous professions, at exorbitant prices or may even put up those rights for auction to be given to the highest bidder. Nothing so bad can be within the contemplation of our laws. We are inclined to think that the learned Judges of the High Court have misunderstood the observation of Seligman quoted in 1954 SCR 1005 : AIR 1954 SC 282 (supra) to the effect that it is a special benefit accruing to the individual which is the reason for the payment of fee.
17. According to the finding of the High Court the only services rendered by the Government to the appellant and to other similar licensees is that the Excise Department have to maintain an elaborate staff not only for the purposes of ensuring that denaturing is done properly by the manufacturer but also for the purpose of seeing that the subsequent possession of denatured spirit in the hands either of a wholesale dealer or retail seller or any other licensee or permit-holder is not misused by converting the denatured spirit into alcohol fit for human consumption and thereby evade payment of heavy duty. So far as the manufacturing process is concerned, the appellant or other similar licensees have nothing to do with it. They are only the purchases of manufactured denatured spirit. Hence the costof supervising the manufacturing process or any assistance rendered to the manufacturers cannot be recovered from the consumers like the appellant. Further under Rule 9 of the Board's Rules, the actual cost of supervision of the manufacturing' process by the Excise Department is required to be borne by the manufacturer. There cannot be a double levy in that regard. In the opinion of the High Court the subsequent transfer of denatured spirit and possession of the same in the hands of various persons such as wholesale dealer, retail dealer or other manufacturers also requires close and effective supervision because of the risk of the denatured spirit being converted into potable liquor and thus evading heavy duty. Assuming this conclusion to be correct, by doing so, the State is rendering no service to the consumer. It is merely protecting its own rights. Further in this case, the State which was in a position to place material before the Court to show what services had been rendered by it to the appellant and other similar licencees, the costs or at any rate the probable costs that can be said to have been incurred for rendering those services and the amount realised as fees has failed to do so. On the side of the appellant, it is alleged that the State is collecting huge amount as fees and that it is rendering little or no service in return. The co-relationship between the services rendered and the fee levied is essentially a question of fact. Prima facie, the levy appears to be excessive even if the State can be said to be rendering some service to the licensee. The State ought to be in possession of the material from which the co-relationship between the levy and the services rendered can be established at least in a general way. But the State has not chosen to place those materials before the -Court.
Therefore, the levy under the impugned Rule cannot be justified/' The aforementioned decision of the Supreme Court applies on all fours to this case.
27. In the instant case has been found hereinbefore the respondents have not stated that whether any service is rendered by the government or not. Nor the co-relationship between the services rendered and the fee levied has been justified by placing facts before this Court.
28. The Supreme Court in the aforementioned case remitted the matter back to this Court for a fresh decision in accordance with law and the decision of this Court (after remand) is reported in 1974 BBCJ 698.
29. In the aforementioned judgment after taking into consideration all aspects of the matter it was held by a Bench of this Court that there was no co-relationship between the levy and the services rendered by the State.
30. It will not be out of place to mention here that in the aforementioned case the Supreme Court and the Division Bench of this Court were considering the question of levy of fee in respect of licence.
31. A Division Bench of this Court again in Birendra Kumar Sinha v. State of Bihar reported in 1980 BLJR 349 held that enhancement of registration fees by a notification issued under the Bihar Shops and Establishment Rules was ultra vires as no service is rendered to the licencee and there is absence of the element of quid pro quo. In the aforementioned judgment Hari Lal Agrawal, J. (as his Lordship then) by a separate but concurring judgment held as follows : --
"3. The petitioner has challenged this imposition on the ground that as the State is not to render any service to the licensees, the provisions cannot be resorted to for augmenting the State revenue as in the case of a tax. The distinction between a 'tax' and a 'fee' has been pointed out by the Courts in India times without number and there are innumerable decisions on the point, some of which have already been noticed in the judgment of my learned brother. The Supreme Court in the case of Har Shankar v. Deputy Excise and Taxation Commr., (AIR 1975 SC 1121) observed as follows :
"The distinction which the Constitution makes for legislative purposes between a 'tax' and a 'fee' and the characteristic taxation of money by public authority for public purposes enforceable by law and is not a payment for service rendered. A fee is a charge for special services rendered to individuals by some Government agency and such a charge has an element in it of quid pro quo."
4. The allegation of the petitioner that no service was being rendered to the petitioner's establishments justifying any imposition of the fee has not been controverted, rather in the counter-affidavit the allegation has been conceded. The fee however has been sought to be defended in the counter-affidavit on the plea that the Act was "to provide for the regulation of conditions of work and employment in shops and other establishments and for certain other purposes. This Act is a social service legislation and it serves as a check against the illegal exploitation of man power. For this purpose an enforcement machinery is maintained which from time to time checks and safeguards the employees against their exploitation by their employers." The defence set up by the State was on the line of maintenance of the supervisory machinery for checking and compliance of the provisions of the Act and not rendering any service in lieu of the imposition on the petitioner's establishment. Mr. Tarkeshwar Dayal, Government Pleader No. 2, who appeared for the State in view of the above statements in the counter-affidavit, fairely and in my opinion also rightly conceded that he could not defend the increase of the fees."
32. Again a Division Bench of this Court in Rajni Ranjan v. State of Bihar reported in 1983 Pat LJR 321 quashed a notification dt. 7-1-76 issued by the State of Bihar in exercise of its power conferred upon it under Section 9 of the Bihar Cinema (Regulations) Act, whereby and whereunder an amendment in the Bihar Cinema (Regulation) Rules, 1974 was made in order to increase the licence fees.
33. In the aforementioned decision reliance has been placed by this Court in the, decision of the Supreme Court in Municipal Council, Madurai v. R. Narayanan reported in AIR 1975 SC 2193.
34. The aforementioned judgment has also recently been followed by this Court in C.W.J.C. No. 439/81 (Veena Theatre v. State of Bihar).
35. Recently this Court again in Ranchi Thock Khadya Vyapari Sangh v. State of Bihar reported in 1987 Pat LJR 46 quashed a notification whereby and whereunder a licence fee was enhanced under the provision of the Bihar Trade Articles (Licence's Unification) Order, 1984 on the ground that the respondents did not disclose the nexus, the enhancement had with the service rendered or proposed to be rendered to the licencees.
36. In Kewal Krishan v. State of Punjab reported in AIR 1980 SC 1008 a constitution bench of the Supreme Court held on the basis of the materials placed before it. that raising of market fee from Rs. 2 to Rs. 3 was not justified.
37. This aspect of the matter has again been fully considered in Om Prakash Agrawal v. Giri Raj Kishori reported in AIR 1986 SC 726 wherein the Supreme Court again reiterated that the elements of quid pro quo is a condition precedent for imposition/ enhancement of any fee.
38. I, therefore, hold that as the respondents have singularly failed to show that there is any element of quid pro quo justifying the enhancement of fees in fact any service is or proposed to be rendered to the licencees by them.
39. From the discussions made above it would appear that the judgment of the Supreme Court relied upon by Section B. Gadodia has no application in the facts and circumstances of the case and the other judgments referred to hereinbefore fully apply to the facts of this writ petition.
40. However even assuming that there is some conflict in the decisions cited by Mr. Gadodia and other decisions referred to hereinbefore I feel bound to follow the decision of the constitutional bench of the Supreme Court in preference to the decisions cited by Mr. Gadodia which have been rendered by Division Benches.
41. It is now well settled that the High Court is bound to follow the decisions of the constitutional bench in preference to the decisions of the Division Bench. Reference in this connection may be made to recent Full Bench decision of this Court reported in 1987 BLT (Rep) 47 : (AIR 1987 Patna 175) and AIR 1987 Patna 191.
42. In the result this writ petition is allowed and the notification as contained in Annexure 1 and the directions as contained in Annexures 2 and 3 are hereby quashed.
43. However, in the facts and circumstances of the case there will be no order as to costs.