Full Judgment Text
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PETITIONER:
INDIAN MICA & MICANITE INDUSTRIES LTD.
Vs.
RESPONDENT:
STATE OF BIHAR & ORS
DATE OF JUDGMENT02/04/1971
BENCH:
HEGDE, K.S.
BENCH:
HEGDE, K.S.
SIKRI, S.M. (CJ)
MITTER, G.K.
GROVER, A.N.
REDDY, P. JAGANMOHAN
CITATION:
1971 AIR 1182 1971 SCR 319
CITATOR INFO :
R 1973 SC 724 (30)
AFR 1980 SC 1 (13)
R 1980 SC1008 (18)
R 1981 SC1863 (23,28)
RF 1990 SC1927 (41,67,68,74,88)
RF 1992 SC 165 (50)
ACT:
Bihar and Orissa Excise Act, 1915, s. 90 and rules made
thereunder, r. 111-Levy of licence fee for possession of
liquor-Whether fee commensurate with service rendered by
State-Immunity from prosecution on payment of licence fee-If
quid pro quo.
HEADNOTE:
The appellant was using denatured spirit in the manufacture
of micanite. It challenged the vires of r. III- of the
Rules framed under s. 90 of the Bihar and Orissa Excise Act,
1915, by which a fee for a licence to possess denatured
spirit was imposed. The. High Court upheld the levy as a
fee for services rendered by the Government.
In appeal to this Court,
HELD: (1) Denatured spirit being intoxicating liquor
(though unfit for human consumption), the State Legislature
has power to levy a fee. But, before the levy can be upheld
as a fee it must be shown that the levy was a quid pro quo
for services rendered by the Government. An arithmetic
exactitude is not expected but correlationship of a general
character must be established. [32ID-F]
in the present case, the only services rendered were that
the Excise Department was maintaining an elaborate staff for
the purpose of ensuring that denaturing was done properly by
the manufacturer and for, the purpose of seeing that the
subsequent possession of the denatured spirit was not
misused by converting the denatured spirit into alcohol fit
for human consumption. [326H; 327A-B]
(a) So far as the manufacturing process is concerned the
appellant had nothing to do with it. It was only a
purchaser of the denatured spirit and hence the cost of
supervising the manufacturing process or any assistance
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rendered to the manufacturers could not be recovered from
consumers like the appellant. Further, under, r. 9 the.
actual cost of supervision of the manufacturing process was
required to be born by the manufacturer and there could not
be a double levy in that ergard [327B-C]
(b) Assuming that the possession of the denatured spirit in
the hands of various persons required close and effective
supervision because of the risk being converted into.
potable liquor, in Providing against misuse the State was
not rendering any service to the consumer. [327D]
(c) The appellant had alleged that the State was collecting
the amount without rendering any service in return. The
correlationship between the services rendered and the fee
levied is essentially a question of act. Prima facie in the
present case the levy was excessive, even if the state could
be said to be rendering some service to the licensees. The
State was in possession of material from which ’ the
correlationship between the levy and the services rendered
could be, established at least in a general way, but the
State had not placed’ any material before the Court.
Therefore, the levy under the impugned ’rule could not be
justified, [327E-G]
320
Commissioner, Hindu Religious Endowments, Madras v. Sri
Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, [1954]
S.C.R. 1005, Mahant Sri Jagannath Ramanuj Das & Anr. v.
State of Orissa & Anr., [1954] S.C.R.. 1046, Ratilal
Panachand Gandhi v. State of Bombay & Ors., [1954] S.C.R.
1055, Hingir Rampur Coal Co. Ltd. v. State of Orissa & Ors.,
[1961] 2 S.C.R. 537, H. B. Sudhundra Thirtha Swamiar v.
Commissioner of Hindi,( Religious and Charitable Endowments,
Mysore, [1963] Supp, 2 S.C.R. 302. Corporation of Calcutta &
Anr. v. Liberty Cinema, [1965] 2 S.C.R. 477 and Delhi Cloth
JUDGMENT:
[1970] 2 S.C.R 348, followed.
(2) The High Court erred in observing that when the
manufacturers wanted to keep in their possession a large
quantity of denatured spirit for manufacturing purposes,
they wanted a privilege and immunity from prosecution, that
the payment of the requisite licence fee was for that
purpose and that it operated as the quid pro quo. [325C-D]
(a) The granting of a license generally does not confer any
privilege or benefit on anyone, except in those cases, where
a permit or licence is granted to someone to exploit
Government property. The requirement to take a licence is
prescribed to safeguard public interest by regulating a
trade,. business or profession and not as a source of
revenue. [325F-G]
(b) What is made punishable is either a person’s failure to
take a licence or a breach of the conditions of the licence,
and the Government could not barter away its duty to
prosecute an offender for consideration.. Any fee levied
could only be for services rendered. [325E-F]
[Since the State may suffer considerable financial loss the
matter was. remanded to the High Court with further
opportunity to the State to place the necessary material and
show the correlationship.] [328A]
&
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 770 of 1967.
Appeal from the judgment and order dated September 14, 1966
of the Patna High Court in Civil Writ Jurisdiction Case No-
887 of 1965.
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Sarjoo Pravad, K. K. Sinha and B. B. Sinha, for the
appellant.
S. C. Agarwala, R. K. Garg, V.J. Francis, Narayana Netter
and S. P. Singh, for the respondents.
The Judgment of the Court was delivered by
Hegde J. In this appeal by certificate. the vires of Rule
III of the Rules framed under Section 90 of the Bihar and
Orissa Excise Act, 1915 is in issue. ’The. appellant,
Indian Mica & Micanite Industries contends that the said
Rule is ultra vires the Constitution. The High Court of
Patna rejected that contention.
In the High Court various contentions came up for considera-
tion. The High Court has come to the conclusion that the
levy made under the impugned rule is a fee. That finding
was not
321
challenged before us by any of the parties. Therefore all
that we have to see is whether the fee levied is, within the
permissible limit. In other words whether there, is
sufficient quid pro quo for the levy in question.
The appellant is a consumer of denatured spirit. It
purchases denatured spirit from the wholesalers or the
manufacturers for the purpose of manufacturing micanite.
The Bihar and Orissa Excise Act, 1915 (Bihar & Orissa Act 2
of 1915) came into force on January 19, 1916. In pursuance
of the provisions of that Act the impugned Rule was framed
by the Board of Revenue for levying licence fee. The fee
for the licence to possess denatured spirit in 1919 was only
Rs. 2 per annum irrespective of the quantity in the
possession of a person. This’ rate continued to be in force
till 1937. At this stage it may be remembered that under
sub-section (2) of Section 143 of the Government of India
Act, 1935, the Provinces were authorised to continue to levy
tax, duties, cesses or fees which were being lawfully levied
prior to the commencement of that Act. Under the 1935 Act
as under our present Constitution, the power to levy duties
on alcoholic liquor fit for human consumption was allocated
to the Provincial Legislature whereas the power to levy duty
on alcoholic liquor not fit for human consumption was
allocated to the Central Legislature. Denatured spirit
though an alcoholic liquor is not fit for human
’consumption. The power to levy duty on the same was and is
given to the Central Legislature. But the same being
intoxicating liquor, the Provincial Legislature under the
1935 Act and at present the State Legislature has power to
levy fee. The power of- any Legislature to levy fee is
conditioned by the fact that it must by and large a quid pro
quo for the services rendered. If a levy purporting to be a
fee is found to be an exaction without doing any service, or
if it is found that the levy is wholly disproportionate to
the services rendered then the levy becomes invalid.
The distinction between fee and levy’ came up for the first
time for consideration by this Court in The Commissioner,
Hindu Religious Endowments’ Madras v. Sri Lakshmindra
Thirtha Swamiar of Sri Shirur Mutt(1). Therein this Court
speaking through Mukherjea, J. (as he then was) quoted with
approval the definition of ’tax’ given by Latham C. J. of
the High Court of Australia in Matthews v. Chicory,
Marketing Board.(2) In that case the learned Chief Justice
observed :
" "A tax" is a compulsory exaction of money by
public authority for public purposes
enforceable by law and is not payment for
services rendered."
(1) [1954] S.C.R. 1005. (2) 60
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C.L.R. 263.
21-1 S. C. India/71
Dealing with the distinction between "tax" and
"fee" Mukherjea J. observed thus in the above-
mentioned case.
"It is said that the essence of taxation is
compulsion, that is to say, it is imposed
under statutory power without the tax-payer’s
consent and the payment is enforced by law.
The second characteristic of tax is that it is
an imposition made for public purpose without
reference to any special benefit to be
conferred on the payer of the tax. This is
expressed by saying that the levy of tax is
for the purposes of general revenue, which
when collected forms part of the public
revenues of the State. As the object of a tax
is not to confer any special benefit upon
any particular individual, there is, as it is
said no element of quid pro quo between the
tax payer and the public authority. Another
feature of taxation is that as it is a part of
the common burden, the quantum of imposition
upon the tax payer depends generally upon his
capacity to pay.
Coming now to fees, a "fee" is generally
defined to be a charge for a special service
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 service, though in
many cases the costs are arbitrarily assessed.
Ordinarily, the fees are uniform and no
account is taken of the varying abilities of
different recipients to pay. These are
undoubtedly some 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.
If, as we hold, a fee is regarded as a sort of
return or consideration for services rendered,
it is absolutely necessary that the levy of
fees should on the face of the legislative
provision, be correlated to the expenses
incurred by government in rendering the
services."
The same view was reiterated by this Court in Mahant Sri
Jagannath Ramanuj Das and anr. v. The State of Orissa and
anr.0 and in Ratilal Panchand Gandhi v. The State of Bombay
and ors. (2).
The nature of "a fee" again came up for consideration before
this Court in The Hingir Rampur Coal Co. Ltd. and ors. v.
The State of Orissa and ors.(3) Therein this Court observed
that
(1) [1954] S.C.R. 1046. (2) [1954] S.C.R. 1055.
(3) [1961] 2 S.C.R. 537.
323
-although there can be no generic difference between a tax
and a fee since both are compulsory exactions of money by
public authorities, there is this distinction between them
that whereas a tax is imposed for public purposes and
requires no consideration to support it, a fee is levied
essentially for services rendered and there must be an
element of quid pro quo between the person who pays it and
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the public authority that imposes it. While a tax
invariably goes into the consolidated fund, a fee is
earmarked for the specified services in a fund created for
the purpose. Whether a cess is one or the other would
naturally depend on the facts of each case. If in the guise
of a fee, the Legislature imposes a tax, it is for the Court
on a scrutiny of the scheme of the levy, to determine its
Teal character. The distinction is recognised by the
Constitution which while empowering the appropriate
Legislatures to levy taxes under the Entries in the three
lists refers to their power to levy fees in respect of any
such matters, except the fees taken in court, and tests have
been laid down by this Court for determining the ,character
of an impugned levy. In determining whether a levy is a fee
the true test must be whether its primary and essential
purpose is to render specific services to a specified area
or class, it being of no consequence that the State may
ultimately and indirectly be benefited by it.
In H. H. Sudhundra Thirtha Swamiar v. Commissioner for
,Hindu Religious and Charitable Endowments, Mysore,(1) this
Court was called upon to consider whether the levy impugned
in that case could be justified as a fee. It upheld the
levy which was an annual contribution levied under the
amended Section 76(1) of the Madras Religious Endowments
Act, 1951 on the ground that those contributions when
collected went into a separate fund and not to the
consolidated fund of the State and were earmarked for
defraying the expenses for the services rendered. .Further
they were not even payable to the government but payable to
the Commissioner and were levied not as a tax but only as a
fee. Therein this Court further observed that a fee does
not cease to be of that character merely because there is an
element of compulsion in it, nor is it a postulate of a fee
that it must have direct relation to the actual service
rendered. Absence of uniformity is not a criterion on which
alone it can be said that the levy is of the nature of a
tax.
In Corporation of Calcutta and anr. v. Liberty Cinema the
validity of the levy made under Section 548 (2) of the
Calcutta Municipal Act 1951 came up for consideration.
Therein this ,Court held that the levy in question is not a
"fee and return for services" as the Act does not provide
for any services of a special
(1) [1963] Supp. 2 S.C.R. 302. (2) [1965] 2 S.C.R. 477.
324
kind being rendered resulting in benefits to the person on
whom it ’is imposed. Section 527 (43) permits by-laws to be
framed for regulating the inspection, supervision and
control, among others, of cinema houses but it is not
obligatory to make such by-laws and therefore, there maybe
no services to render. Even the bylaw made provides only,
for inspection, and the work of inspection done by the
appellant was only to see that the terms of the licence were
observed by the licensee-, It was not a service to him,.
and so, no question arises of correlating the, amount of
levy to the costs. of any service. The levy therefore is
not a fee and must be tax.
In Delhi Cloth & General Mills Co. Ltd. v. Chief Commis-
sioner, Delhi and ors.,(1) the validity of a levy as a fee
came up for consideration by this Court. Therein this Court
speaking through Grover, J. (one of us) laid down that in
each case when the question arises whether the levy is in
the nature of a fee the entire scheme of the statutory
provisions, the duties and obligations imposed on the
inspecting staff and the nature of the work done by them
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will have to be examined for the purpose of determining the
rendering of the services which would make the levy a fee.
After examining the various provisions of the Factories Act,
1948 and the rules framed this Court came to the conclusion
that a large number of provisions of the Act, particularly
in the Chapters dealing with safety involve a good deal of
technical knowledge and in the course of their discharge of
duties and obligations the Inspectors are expected to give
proper advice and guidance so that there may be due
compliance with the provisions of the Act. On certain
occasions the factory owners are bound to receive a good
deal of benefit by being saved from the consequences. of the
working of dangerous machines or employment of such
processes as involve danger to human life by being warned at
the proper time as to the defective nature of the machinery
or of the taking of precautions which are enjoined under the
Act. Similarly if a building or a machinery or plant is in
such a condition that it is dangerous to human life or
safety the Inspector by serving a timely notice on the
manager saves the factory owner from all the consequences of
proper repairs not being done in time to the building or
machinery. In that case the High Court found that 60% of
the amount of licence fees which were being realised was
actually spent on services rendered to the factory owners.
That finding was accepted by this Court and on the basis of
that finding this Court upheld the validity of the levy.
From the above discussion it is clear that before any levy
can be upheld as a fee, it must be shown that the, levy has
reasonable correlationship with the services rendered by the
Government. In
(1) [1970] 2 S.C.R. 348.
325
other words the levy must be proved to be, a quid pro quo
for the services rendered. But in these matters it will be
impossible to have an exact correlationship.The
correlationship expected is one of a general character and
not as of arithmetical exactitude.
Let us now proceed to consider whether the levy under the
impugned rule can be justified as a fee on the basis of the
law as enunciated by this Court.
But before doing so, it is necessary to dispose of one of
the grounds on which the High Court upheld the levy. In
paragraph 8 of the High Court’s judgment, it is observed:
"........ when a manufacturer wants to keep in
his possession large quantity of denatured
spirit for manufacturing purposes, he wants a
special privilege or concession of immunity
from prosecution. For that purpose he has to
obtain a licence or a pass on payment of
requisite fees. ’There is thus a quid pro quo
element and the immunity from prosecution is
in the nature of a special benefit or
privilege."
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
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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. If
it is otherwise the State can sell the right to practice the
profession of law in courts or to practice 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 observations of Seligman quoted in
the Commissioner, Hindu Religious Endowments,
326
Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur
Mutt(1) to the effect that it is a special benefit accuring
to the individual which is the reason for the payment of
fee.
Let us now consider whether in the present case the State is
proved to have been rendering any service to the appellant
in lieu of the fee levied and further whether if it does
render any service whether there is reasonable
correlationship between the services rendered and the fee
levied. In other words whether the fee levied can be
considered as a quid pro quo for the services rendered.
The averments of the respondents in their counter-affidavit
that are relevant on this aspect of the case are those found
in paragraph 10 of the counter-affidavit. They read :
" To denature spirit and issue it to
Licensees, proper supervision and control is
needed vide Board’s rules 63 to 68 at page 177
to 181 of Excise Manual Volume 11. There is
every risk that any person may attempt to
render denatured spirit fit for human
consumption which is punishable under section
49 of the Excise Act.
Besides the above rules of the Board certain
instructions have been issued in paragraph 187
to 196 of the Excise Manual, Volume III (page
67-71) for the process of denaturing and issue
of denatured spirit to the licensees. State
Government have to employ supervisory staff
and chemical examiner to carry out these
obligations of Supervision and control.
It may be added that Excise Department does
not only supervise and control these
intoxicating liquors in the interest of public
policy but renders services to the petitioner
by getting alcohol manufactured at the
distillery by supplying raw materials like
molasses and coal to these distilles at
controlled cheap rates. This is the only
reason of getting spirit distillery at a very
cheap cost by the licensees including the
petitioner. And hence levy of fee by the
Excise authorities is not a duty or tax but it
is clearly fee in return for services rendered
as well as for proper supervision, control and
regulation of an activity which the
legislature desires to control."
According to the finding of the High Court the only services
rendered by the Government to the appellant and to other
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similar licensees is that the Excise Department have to
maintain an elaborate staff not only for the purposes of
ensuring that denaturing
(1) [1954] S.C.R. 1005.
327
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 purchasers of manufactured denatured
spirit. Hence the cost of supervising the manufacturing
process or any assistance rendered to the manufacturers can-
not be recovered from the consumers like the appellant.
Further under rule 9 of the Board’ rules, the actual cost of
supervision of the manufacturing process by the Excise
Department is required to be home 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 whole-sale 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
duy. 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 licensees, 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 correlationship 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
licensees. The State ought to be in possession of the
material from which the correlationship 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.
In this Court Counsel for the State prayed for an
opportunity to place material to show that the levy in
question is not disproportionate to the value of the
services rendered by the State. Ordinarily we would not
have acceded to that request coming at such a late stage,
particularly in view of fact that the legal position had
been clarified by a long chain of decisions of this Court.
There is no doubt that the State has failed to place the
necessary material before the Court to justify the levy.
But the fact remains that because of the negligence of those
in-charge of the defence of the
328
State, the State may suffer considerable, financial loss, if
we hold that the impugned Rule is void. Hence we are
constrained to give the State a further chance to prove its
case.
In the result we allow the appeal, sat aside the order of
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the High Court and remit the case to the High Court for
disposal according to law in the light of this decision. A
further opportunity be given to the State to place material
before that court to show that the value of the services
rendered by the State has reasonable correlationship with
the fee charged. If the State adduces additional evidence,
the appellant be given an opportunity to rebut the same. As
the further enquiry is necessitated because of the
negligence of the State, it should pay the costs of the
appellant both in this Court and in the High Court and bear
its own costs up to this stage.
V.P.S. Appeal allowed.
329