Bombay High Court
M/S. Bharat Cotton Press Company, Arvi ... vs Municipal Council, Arvi And Another on 18 July, 1989
Equivalent citations: AIR1990BOM38, (1989)91BOMLR271, AIR 1990 BOMBAY 38, 1989 MAH LJ 703
ORDER Mookerjee, C.J.
1. Municipal Council. Arvi, respondent No. 1. had framed bye-laws under Ss. 278 and 280 read with S. 322 of the Maharashtra Municipalities Act, 1965, for keeping control over cotton ginning and pressing factories within the limits of the Municipality and for assessment of licence fees. Under bye-law 4 of the said bye-laws, licence fees were payable according to the horse power of the engines or electric motor used by the cotton ginning and pressing factories situated within the Municipal limits of Arvi. The licence fee was Rs. 10 --per horse power up to including 10 horse power engine or motor. In case of factories using engines and motors frorm 10 to 15 horse power the prescribed fee was Rs. 15 - per each horse power. In case of factories using engines and motors over 15 hourse power the fee was Rs. 20/- per each horse power. In exercise of the powers conferred by Section 322(3)(e)(ii) of the Maha-rashtra Municipalities Act, 1965, respondent No. 2-the Collector of Wardha had confirmed the said bye-laws made by respondent No. 1-the Municipal Council. The bye-laws were notified in the Maharashtra Government Gazette No. 12 dated 19th March, 1970. The petitioners claimed that they had their cotton ginning and pressing factories within the Municipal limits of Arvi. The said factories of the petitioners except petitioners Nos. 4 and 5 used electric motors, while the factories of petitioners Nos. 4 and 5 were run on steam engines. By filing the writ petition, the peti-tioners challenge, inter alia, the validity of the licence fees imposed by respondent No. 1 on the owners of cotton ginning and pressing factories.
2. When the said writ petition had come up for hearing before the Division Bench consisting of Mohta and Patel, JJ. the petitioners had relied upon an earlier Division Bench decision in the case of Pradeep Ginning and Deokumar Oil Mills v. Municipal Coun-cil. Karanja, 1978 Mah LJ 11 : (1978 Tax LR 2053) and had contended that the levy for obtaining licence under Section 278 of the Maharashtra Municipalities Act, 1965, was in the nature of a fee and in the absence of any correlation with the services rendered, the said impost was invalid. The learned Counsel for the respondents, on the other hand, had invited the attention of the Division Bench to the decision in the case of Narayandas Sona-lal Oil Mills, Arvi v. The Commissioner, Nagpur Division (Special Civil Appln. No. 1066 of 1955 decided on 9th February, 1960). In the said case the Division Bench had upheld the validity of a similar levy of licence fee under the C. P. and Berar Municipalities Act. 1922, on the ground that it was in the nature of a tax for which correlation with the services rendered was not necessary. According to the Division Bench, there appeared, prima facie, a conflict of judicial views on the point. The point was of great public im-
portance and it was desirable to have the decision of a larger Bench on the point in the interest of certainty. Mohta and Patel, JJ. accordingly made the present reference for deciding the following question:--
"Whether the levy of a regulatory licence fee charged under bye-laws framed under Section 322 of the Act is valid in the absence of the services rendered in return?"
3. We may first briefly set out the submit? sions which have been very ably put forward by Shri S. V. Manohar, the learned Counsel appearing on behalf of the petitioners. His first submission was that the fee prescribed for grant of licence under Section 278 of.the Act was not a tax but in the nature of a fee. In the absence of any correlation between the amount of fee payable by the holders of licences and the services to be rendered on the part of the Municipal Council, the imposition of the licence fees was ultra vires. The learned Counsel for the petitioners has submitted that the Supreme Court decision m the case of Corporation of Calcutta^. Liberty Cinema, , was distinguishable. Act cording to the learned Counsel for the petitioners, the provisions of the Calcutta Muni-cipal Act, 1951, which was considered in Liberty Cinema's case (supra) were materially different from the provisions of the Maharashtra Municipalities Act, 1965, with regard to levy of taxes and fees by the Municipal Councils. There is no scope for reading into Sections 278 and 279 of the Maharashtra Municipalities Act any implied power to impose taxes upon holders of licences granted under the said provisions. Mr. Manohar submitted that powers of Municipal Councils under the Maharashtra Municipalities Act, 1965, to levy taxes are confined to Sections 107 and 108 of the said Act. By authorising the Municipal authorities under the Maharashtra Municipalities Act, 1965, to impose certain taxes and fees, in substance, the said powers have been delegated by the Legisla-ture. Unless the State Legislature itself has legislative competence to levy such taxes or fees, the delegation of power to impose the same cannot be made in favour of the Municipal authorities. The petitioners drew our attention to Entries 46 to 62 of List II of the Seventh Schedule to the Constitution of India and contended that the State Legislature has no power to impose any tax not mentioned either in List II or List III. Only the Union has legislative competence in residuary matters which are not enumerated in List II or List III of the Seventh Schedule to the Constitution of India. According to the learned Counsel for the Petitioners, under Entry 66 of the List II of the Seventh Schedule to the Constitution of India the State can only levy fees in respect of any of the matters in List II excluding fees taken in any Court. Therefore, if upon the true construction the levy is held to be a tax and not a fee, the same would be ultra vires Entry 66. vide Om Prakash v. Giri_Raj Kishori, . We have already noted the other submission of Shri Manohar. the learned Counsel for the Petitioners, that in case the impugned levy was a fee the same was bound to be struck down in the absence of any return on the part of the Municipal Council for payment of the fees by holders of licences under Section 278. It has been further contended that under Section 148 of the Maharashtra Municipalities Act only reasonable fees can be charged. In the instant case the fees charged were unreasonable.
4. The learned Counsel for respondent No. 1 and the learned Advocate-General for respondent No. 2 both attempted to refute the above contentions made on behalf of the petitioners. According to the respondents, the levy of licence fees by respondent No. 1 upon holders of licences for running cotton ginning and pressing factories which was regulatory in nature was intra vires. According to the respondent, the judicial view regarding rendering of services in lieu of payment of regulatory licence fees has undergone in recent times momentous changes. In order to justify levy of regulatory licence fees, it is no longer necessary to establish that there was direct correlation between payment of such fees and services to those who make such payment. Therefore, the levy of licence fees by respondent No. 1 Municipal Council fully satisfies the tests laid down by the recent decisions of the Supreme Court and accordingly this reference ought to be answered in favour of the respondents.
5. For answering the present reference, it is not at all necessary for us to deal at length with the above submissions of the learned Counsel for the petitioners regarding the distribution of legislative powers relating to levy of taxes and fees conferred by the different entries in Lists I, II and III of the Seventh Schedule to the Constitution of India. The subject 'local Government' has been mentioned in Entry 5 of List II of the Seventh Schedule. Therefore, the petitioners cannot dispute that fees for payment to the local Government would be covered by Entry 66 of List II and could be lawfully imposed either by the State or by the local bodies to whom such power may be delegated. We have already referred to Section 148 of the Maharashtra Municipalities Act which, inter alia, lays down :
"148. (1) When any licence is granted under this Act, or when permission is given thereunder for making any temporary erection or for putting on any projection or for the temporary occupation of any public street or other land vested in the Council, the authority granting or giving such licence or permission may charge a reasonable fee for the same as determined by the bye-laws :
Provided xxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxx"
Section 278 of the Maharashtra Municipalities Act confers powers upon the Municipal Councils to control or regulate establishment, alteration, enlargement or extension of factories, workshops or places of business employing steam electricity, water or other mechanical power. The power of the Municipal Council to frame bye-laws under Section 322 of the Act is also not in dispute.
6. Therefore, the pertinent question is whether the licence fees prescribed by the bye-laws framed by respondent No. 1 Council under Section 322 of the Act for grant of licences in respect of cotton ginning and pressing factories were reasonable within the meaning of Section 148 of the said Act.
7. In support of his submission the learned Counsel for the Petitioners had cited a large number of reported decisions of the Supreme Court, vide Corporation of Calcutta v. Liberty Cinema (supra); Nagar Mahapalika, Varanasi v.
Durga Das, ; I. M. and M. Industries v. State of Bihar, ; Govt. of A. P. v. Hindustan Machine Tools, ; Madurai Munici-
pality v. R. Narayanan, ;
Chief Commr., Delhi v. D. C. and G. Mills Co., ; Om Prakash v.Giri Raj Kishori (supra) and Kamaljeet Singh v. Municpal Board, Pil-
Kamaljeet Singh v. Municipal Board, of Pradeep Ginning and Deokumar Oil Mills v. Munici-
pal Council, Karanja (1978 Tax LR 2053).
(supra) the Division Bench of this Court had relied upon the decisions in the cases of Corporation of Calcutta v. Liberty Cinema (supra); Government of A. P. v. Hindustan Machine Tools (supra) and Madurai Municipality v. R. Narayanan (supra).
7A. It is not necessary to deal separately with each one of these reported decisions because the root authority for the reported decisions noted above is the majority judgment of the Supreme Court in the case of Commr., Hindu Religious Endowments y. Sri Lakshmindra Tirtha Swamiar (commonly known as Shirur Math case), . Mr. Justice Mukherjea (as he then was), relying upon several authorities including the opinions expressed by authors of several treatises on Public Finance, had indicated the indicia for distinguishing a fee from a tax proper. According to the majority judgment in Shirur Math's case (supra), fees were generally defined to be charges for special services rendered to individuals by some Government agency. The amount of a fee was to be based on the expenses incurred by the Government in rendering services. The majority judgment in Shirur Math's case (supra) had further observed that the distinction lay between the tax and the fee in that the tax was levied as a part of common burden while fee was a payment for a special benefit or privilege accruing to the individual which was the reason for payment in case of fees. The aforesaid tradi-
tional concept of rigid correlation between payment of a fee and rendering of service in return for the said payment has gradually undergone considerable changes. In fairness we may, however, point out that Mukherjea. J. who delivered the majority judgment in Shirur Math's case (supra) himself had recognised that there was no generic difference between a tax and a fee both of which were compuslory impositions. The taxing power might manifest itself in three different forms viz., special assessments, fees and taxes. For legislative purposes, our Constitution has made differentiation between taxes and fees. Further, Mukherjea. J. in Shirur Math's case (supra) had made it clear at page 1041 of 1954 SCR (at p. 295 of AIR) that the characteristics of 'fees' pointed out in his judgment were same of the general characteristics, "but as there may be various kinds of fees, it is not possible to formulate a definition that would be applicable to all cases." Thus the said statement of law made by the majority judgment regarding the nature of fees were not all-exhaustive. Articles 110(2) and 199(2) of the Constitution of India, inter alia, recognise' that fees could be for licences and also for services rendered. Fees charged by the State for granting a privilege or for enjoying a special benefit are distinct from fees charged for granting regulatory licence. The primary object of such a regulatory licence is not so much to grant a privilege or special favour but to exercise control, supervision and restrictions in the larger interest of the community over certain activities like establishment and carrying on of particular trades, industries, occupations, etc. The predominant consideration in granting or refusing such licences-is public interest and not realisation of a price p'r payment for services rendered or benefit conferred upon the holders of such regulatory licences.
8. We have already mentioned that the classical ideas about the fees and taxes have gradually undergone alterations by reason of subsequent Supreme Court decisions. In their subsequent reported decisions, the Supreme Court gradually relaxed the rigidity of the tests of licence laid down in Shirur Math's case (supra). The said end was discernible even in some of their earlier reported decisions. Thus the Supreme Court in the case of Hingir Rampur Coal Co. v. State of Orissa, , while accepting the statement of law made by the majority decision in Shirur Math's case (supra) at pages 465-466, had recognised that while rendering specific services to a specified area or to a specified class of persons, trade or business, services may indirectly be provided to the public in general. In increase of D'.C. and G. Mills Co. v. Chief Commr., Delhi, and in the case of I. M. and VI. Industries v. State of Bihar (supra), the Court held that a reasonable relation between payment of fees and rendering of services would be enough. Arithmetical exactitude was not required. The subsequent Supreme Court decisions did not adhere to the strict view expressed in the case of Nagar Mahapalika, Varanasi v. Durga Das, (supra) about requirement of sufficient quid pro quo between the fee and the service to be rendered. The decision in the case of Nagar Mahapalika, Varanasi v. Durga Das (supra) cannot, therefore, any longer be considered as a relevant one. Thus, in the case of Shri Admar Mutt v. Commr., Hindu Religious and Charitable Endowments Dept., , Chandrachud, C. J. while emphasising the necessity of a broad relationship between the services rendered and the fees charged, has disapproved attempts to go into minute details to discover meticulously whether there was mathematical equality between the amount of fees and the services rendered. A fair correspondence would be enough. In the case of Southern Pharmaceuticals and Che-micals v. State of Kerala, A. P. Sen, J. had more succinctly pointed our the shift in the judicial view about the requirements of correlationship between the fees paid and the services rendered.
9. Again in the case of Sreenivasa General Traders v. State of A. P., , A. P. Sen, J. in paragraphs 30 and 31 of his judgment had observed that the traditional view that there must be actual quid pro quo for a fee has undergone a sea change subsequent to decision in the case of Kewal Krishan v. State of Punjab, Correlationship between the levy and the services rendered/expected is one of general character and not of mathematical exactitude. All that is necessary is that there should be a "reasonable relationship" between the levy of the fee and the services rendered. Moreover, there is no generic difference bet-ween a tax and a fee. Both are compulsory exactions of money by public authorities. Compulsion lies in the fact that payment is enforceable by law against a person in spite of his unwillingness or want of consent. A levy in the nature of a fee does not cease to be of that character 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 direct-relation to the actual service rendered by the authority to each individual who obtains the benefit of the service. It is now increasingly realised that merely because the collections for the services rendered or grant of a privllege of licence are taken to the consolidated fund of the State and not separately appropriated towards the expenditure for rendering the service is not by itself decisive. It is also increasingly realised that the element of quid pro quo in the strict sense is not a sine qua non for a fee.
10. In the later case Om Prakash v. Giri Raj Kishori (supra) the Supreme Court did not differ from the said statement of law but upon the facts of the case found that under sub-section (5) of section 4 of the Haryana Rural Development Fund Act) the State Government was authorised to spend money credited to the Fund virtually on any object which the State Government considers to be the development of rural areas. Therefore, the Court found that it was difficult to hold that there existed any correlation between the amount paid by way of cess under the said reported decision and the services rendered to the person from whom it was collected.
11. Without further lengthening our judgment by referring to other reported cases, we set out the present position in law :
(1) A 'fair correspondence' or a broad relationship between the fee charged and the cost of services rendered would be sufficient.
(2) Such relationship may be even casual.
(3) Incidence of fees on services rendered need not be uniform.
(4) Benefit may be derived not only by those who pay the fees but by also others.
(5) The quid pro quo need not be necessarily lost merely because the statute prescribes a minimum rate.
(See discussion in Durga Das Basu's Shorter Constitution of India, Tenth Edition, p. 766.)
12. Now we take up the question whether the fees prescribed by the bye-laws by respondent No. 1 for grant of licences under Section 278 of the Act were ultra vires. We have already previously referred to Section 148 of the Act which, inter alia, authorises the Municipal authorities to prescribe reasonable fees for grant of licences. We hold that the fees on a gradual scale according to horse power of engines or machines for running cotton ginning and pressing factories were reasonable. There was nothing unfair or arbitrary in imposing higher licence fee upon those factories which employed greater horse power because the same indicated that the factories using higher horse power motors or engines were larger factories. Respondent No. 1 in paragraph 9 of the return to the Writ Petition denied that the fee prescribed was a tax on profession, trade or calling. Respondent No. 1 further averred :
"The ginning and pressing factories are located in the Municipal area under the control of the Municipal Council. The Municipal Corporation has been laying down and maintaining roads, sanitation, health and also lighting. There is an inspectorial staff and it looks after the sanitation, assessment, buildings, etc. These services had always been rendered and costs of services are going up every year. The Petitioners also get the benefit from general services like education, health, sanitation. These services are correlated with the factories which are lying under the Municipal limits."
These statements in the return filed by respondent No. 1 were not disputed by filing of any rejoinder. In our view, establishment of cotton ginning and pressing factories within the Municipal limits of respondent No. 1 clearly created greater burden on the Municipality in the matter of maintenance of roads, sanitation, etc. The owners of these factories had availed of these services like roads, drainage, sanitation, etc. We hold that in the facts of the present case the Petitioners who are owners of the cotton ginning and pressing factories situated within Arvi town cannot evade their liability to pay licence fee under Section 278 of the Act by merely pleading that maintenance of roads, drainage, sanitation, etc. was part of statutory duties of respondent No. 1. By establishing cotton ginning and pressing factories within Municipal limits of Arvi the Petitioners have been availing of additional Municipal services resulting in greater expenditure from Municipal funds.
13. Imposition of licence fees for recovering costs of services engaged by the Petitioners was fair and reasonable and, therefore, valid. The two Division Bench decision mentioned in the order of reference to the Full Bench were decided according to the State of law prevailing at the relevant time. We have set out the subsequent alterations in the legal concepts relating to tax and fee which in one of their reported decisions the Supreme Court described as "sea change."
14. We answer the reference made to the Full Bench accordingly as follows: that the fees prescribed by the bye-laws framed by respondent No. 1 Council for grant of regulatory licences under Section 278 of the Maharashtra Municipalitips Act, 1965, were valid because the Municipality was providing services indirectly both to the owners of cotton ginning and pressing factories and also to other residents of the Municipal area. The Rule may now be placed before the Division Bench for disposal.
15. Order accordingly.