Full Judgment Text
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PETITIONER:
OM PARKASH AGARWAL ETC.ETC.
Vs.
RESPONDENT:
GIRI RAJ KISHORI & ORS. ETC.ETC.
DATE OF JUDGMENT28/01/1986
BENCH:
VENKATARAMIAH, E.S. (J)
BENCH:
VENKATARAMIAH, E.S. (J)
REDDY, O. CHINNAPPA (J)
CITATION:
1986 AIR 726 1986 SCR (1) 149
1986 SCC (1) 722 1986 SCALE (1)110
CITATOR INFO :
F 1986 SC1930 (17)
RF 1989 SC 100 (14,17,18)
RF 1989 SC 317 (34)
RF 1990 SC1927 (71)
ACT:
Constitution of India, Art. 265, 266 and List II, of
Seventh Schedule - State Legislature - Tax not to be imposed
under guise of ’fee’ - Jurisdiction of Court to scrutinise
scheme of levy to determine real character.
Haryana Rural Development Fund Act, 1983, s.3- Levy of
’Cess’ under the Act - Not ’fee’ but ’tax’ - State
Legislature - Whether competent to enact the Act.
HEADNOTE:
The Haryana Rural Development Fund Act, 1983 by section
3 provides that there shall be levied on the dealer for the
purposes of the Act, a cess, on ad valorem basis, at the
rate of one per centum of the sale proceeds of agricultural
produce bought or sold or brought for processing in the
notified market area. The dealer is, in his turn, entitled
to pass on the burden of the cess paid by him to the next
purchaser of the agricultural produce from him. Section 4(1)
of the Act provides for the creation of a fund called the
Haryana Rural Development Fund (hereinafter referred to as
’the fund’) which is vested in the State Government. Sub-
section (3) of section 4 of the Act provides that the amount
of cess shall be credited to the Fund within such period as
may be prescribed. Sub-section (5) of section 4 of the Act
states that the Fund shall be applied by the State
Government to meet the expenditure incurred in the rural
areas, in connection with the development of roads,
hospitals, means of communication, water-supply, sanitation
facilities and for the welfare of agricultural labour or for
any other scheme approved by the State Government for the
development of the rural areas. The expression ’rural areas’
has been defined in section 2(h) of the Act as an area the
population of which does not exceed 20,000 persons.
The appellants, who are dealers in agricultural produce
carrying on business in certain notified market areas,
questioned the validity of the Act before the High Court of
150
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Punjab & Haryana. The learned single judge found that the
Act was unconstitutional and struck it down. Aggrieved by
the decision of the learned single judge, the State of
Haryana filed a Letters Patent Appeal before the Division
Bench of the High Court. The Division Bench allowed the
appeal, set aside the judgment of the learned single judge
and upheld the constitutional validity of the Act, on the
ground that it was in the nature of a fee and, therefore, it
could be levied as a fee imposed on dealers carrying on
business within market area for services rendered to them by
the State Government. Hence these appeals by Special Leave.
It was contended on behalf of the appellants that the
cess levied under the Act was in the nature of a tax and it
did not fall under any of the Entries in List II of the
Seventh Schedule to the Constitution under which the State
Legislature could levy a tax. On the other hand, counsel for
the respondent-State argued (i) that it was in the nature of
a fee and it was not necessary that there should be a direct
correlation between the levy and the services to be rendered
and that such correlation could be of "general character and
not of mathematical exactitude"; (ii) that there was a
reciprocal relationship between the levy of the fee and the
services that were being rendered and (iii) that the
impugned legislation had been enacted to fulfill the
objectives contained in Articles 46,47,48 and 48A of the
Constitution and the majority of dealers were directly
benefited by the objects on which the amount collected as
cess was spent.
Allowing the appeals,
^
HELD: l.(i) The Haryana Rural Development Fund Act,
1983 is unconstitutional, since the State Legislature was
not competent to enact it. The judgment of the Division
Bench of the High Court is set aside and the Act is declared
void. [163 D-E]
1(ii) It is constitutionally impermissible for any
State Government to collect any amount which is not strictly
of the nature of a fee in the guise of a fee. If in the
guise of a fee the legislation imposes a tax it is for the
court on a scrutiny of the scheme of the levy to determine
its real character. If on a true analysis of the provisions
levying the amount, the court comes to the conclusion that
it is, in fact, in the nature of a tax and not a fee, its
validity can be justified only by bringing it under any one
of the Entries
151
in List II of the Seventh Schedule to the Constitution under
which the State can levy a tax. [163 B-C]
In the instant case, the State Government has failed to
do so. The levy is not a fee as claimed by the State but it
is a tax not leviable by it. The levy of the cess under
section 3 is, therefore, liable to be quashed. Section 3
being the charging section and the rest of the sections of
the Act being just machinery or incidental provisions, the
whole Act is liable to be quashed. [163 C-D]
l(iii) The fact that the Act is claimed to have been
enacted pursuant to the Directive Principles of State Policy
contained in Articles 46,47,48 and 48A of the Constitution
and that the dealers are permitted by the Act to pass on the
cess to the purchasers of the Agricultural produce from them
have no bearing on the question involved here. [158 A-B]
2. The distinction between a tax and a fee is
recognised by the constitution. In determining a levy as a
fee the true test must be whether its primary and essential
purpose is to render specific services to a specified area
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or class, it being of no consequence that the State may
ultimately and indirectly be benefited by it Entry 66
empowers the State to levy fees in respect of any of the
matters in List II. It is no doubt true that under Entry 66
of the List II it is permissible for the State to levy any
amount by way of fees in respect of any of the matters in
that List. The relevant Entry in the present case is entry
28 dealing with Markets and Fairs’ but the amount so levied
should be truly a fee and not a tax with the mask of a fee.
The primary meaning of taxation is raising money for
purposes of Government by means of contributions from
individual persons, a compulsory exaction of money by a
public authority for public purposes enforceable at law and
not a payment for services rendered. [158 C; 158 D-H]
Matthews v. Chicory Marketing Board, 60 C.L.R 263,276
and The Commissioner, Hindu Religious Endowments, Madras v.
Sri Lskshmindra Thirtha Swamiar of Sri Shirur Mutt, [1954]
S.C.R. 1005 relied upon.
Sreenivasa General Traders & Ors. etc. v. State of
Andhra Pradesh & Ors. etc., [1983] 3 S.C.R. 843, Municipal
Corporation of Delhi and Ors. v. Mohd. Yasin etc., [1983] 2
S.C.R. 999 and Southern Pharmaceuticals & Chemicals Trichur
Ors. etc. v. State of Kerala & Ors. etc., [1982] 1 S.C.R.
519 distinguished.
152
Sreenivasa General Traders & Ors. etc. v. State of
Andhra Pradesh & Ors., [1983] 3 S.C.R. 843 referred to.
In the instant case, the Fund, vests in the State
Government and not in the municipality or a marketing
committee or any other local authority having limited
function specified in the enactment under which it is
constituted. The definition of the expression ’rural areas’
in section 2(h) of the Act is as vague as it can be. It
means an area the population of which does not exceed 20,000
persons. It need not necessarily be a local area as it is
ordinary understood. Ordinarily a local area means a
Municipal Corporation, a Town Municipality, a Panchayat, a
Notified Area, a Sanitary Board etc.... Any geographical
area the population of which does not exceed 20,000 persons
can be conveniently brought within the scope of section 2(h)
of the Act. If it is understood that way even urban areas
can be divided into areas with population not exceeding
20,000 and labelled as rural areas. Even if a town or a city
having a population exceeding 20,000 persons, is excluded
from the scope of the expression ’rural areas’, the area in
which the amount credited to the Fund can be spent is almost
90 per cent of the total area of the State of Haryana. There
is no specification in the Act that the amount or a
substantial part of the amount collected by way of cess
under section 3 of the Act will be spent on any public
purpose with in the market area where the dealer is carrying
on his business. The purposes over which the Fund can be
spent are the same purposes on which any amount collected by
way of tax is spent by any State and there is nothing which
is done specially to benefit the dealer. When any amount is
spent from the fund the interest of the dealers is not at
all kept in view even generally. There is no other
restriction imposed on the manner in which the Fund can be
spent. The cess, therefore, partakes of the character of a
part of the common burden which has to be levied and
collected only as a tax. A dealer who pays the cess under
the Act may as one of the members of the general public
derive some benefit from the expenditure of the fund
incurred by the State Government. The benefit so derived by
him is merely incidental to the fact that he happens to be a
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person residing in the State of Haryana. It is not the same
as the benefit which a dealer in a market area would derive
by the expenditure of its funds by a marketing committee or
as the benefit which a person living in a town or a city
would derive by the expenditure incurred by the municipality
concerned. [161 A; 162 A-B]
153
3. There is practically no difference between the
Consolidated Fund which vests in the State and the Fund
which also vests in the State. Amounts credited to the
Consolidated Fund and the amounts credited to the Fund can
both be spent practically on any public purpose almost
throughout the State. In such a situation it is difficult to
hold that there exists any correlation between the amount
paid by way of cess under the Act and the services rendered
to the person from whom it is collected. The impost in these
cases lacks the essential qualification of a fee namely
’that 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 services’. In fact, there is no correlation at
all. [162 C-E]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 2808
of 1985 etc.
From the Judgment and Order dated 20.5.1985 of the
Punjab and Haryana High Court in L.P.A. No. 1055 of 1984.
V.M. Tarkunde, Shankar Ghosh, P.N. Puri, S.C. Khunger,
O.P. Gill, S.K. Mittal, Bhal Singh Malik, Vishal Malik, G.K.
Bansal, B.S. Gupta, S.D. Sharma, P.C. Kapur, K.G. Bhagat,
Sunil Kr. Jain, A.K. Goel, Ajit Pudissery, K.B. Rohtagi,
L.K.Pandey, Sarv Mitter, R.P. Gupta, P.N. Puri, R.A. Gupta,
K.K. Mohan and D.N. Mishra for the appearing Appellants.
Kapil Sibbal, H.L. Sibbal Advocate General for State of
Haryana, J.K. Sibbal, I.S. Goel, S.V. Singh and C.V. & Subba
Rao for the appearing Respondents.
The Judgment of the Court was delivered by
VENKATARAMIAH, J. The appellants in the above appeals
are dealers in agricultural produce carrying on business in
certain notified market areas set up under the Punjab
Agricultural Produce Markets Act, 1961 in the State of
Haryana. They have questioned in these appeals the
constitutional validity of the Haryana Rural Development
Fund Act, 1983 (Haryana Act No. 12 of 1983) (hereinafter
referred to as ’the Act’).
The Act received the assent of the Governor of Haryana
on the 28th September, 1983 and was published in the State
Gazette under the Notification dated September 30, 1983. The
154
Act came into force on its publication. Section 3 of the Act
provides that with effect from such date as the State
Government may by notification appoint in that behalf, there
shall be levied on the dealer for the purposes of the Act, a
cess, on ad valorem basis at the rate of one per centum of
the sale proceeds of agricultural produce bought or sold or
brought for processing in the notified market area. It,
however provides that except in case of agricultural produce
brought for processing, no cess shall be leviable in respect
of any transaction in which delivery of the agricultural
produce bought or sold is not actually made. The cess is
payable by the dealer in such manner as may be prescribed to
such officer or person as may be appointed or designated by
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the State Government in that behalf. The dealer is, in his
turn, entitled to pass on the burden of the cess paid by him
to the next purchaser of the agricultural produce from him.
He may, therefore, add the same in the cost of the
agricultural produce or the goods processed or manufactured
out of it. me arrears of cess are recoverable as arrears of
land revenue. The expression ’dealer’ is defined by section
2(c) of the Act. ’Dealer’ means any person who within the
notified market area sets up, establishes or continues or
allows to be continued any place for the purchase, sale,
storage or processing of agricultural produce, or in the
notified area purchases, sells, stores or processes such
agricultural produce. A ’notified market area’ means any
area notified under section 6 of the Punjab Agricultural
Produce Markets Act, 1961 to be a notified market area.
’Agricultural produce’ means all produce whether processed
or not, of agriculture, horticulture, animal husbandry or
forest as may be prescribed. These definitions are found in
section 2 of the Act. Section 4(1) of the Act provides for
the creation of a fund called the Haryana Rural Development
Fund (hereinafter referred to as ’the Fund’) which is vested
in the State Government. The Fund is to be administered by
such officer or officers of the State Government as may be
appointed by it in that behalf. Sub-section (3) of section 4
of the Act provides that the amount of cess paid to the
concerned officer by virtue of section 3 of the Act shall be
credited to the Fund within such period as may be
prescribed. Sub-section (4) of section 4 of the Act provides
that any grants made by the State Government and local
authorities shall also be credited to the Fund. Sub-section
(5) of section 4 of the Act states that the Fund shall be
applied by the State Government to meet the
155
expenditure incurred in the rural areas, in connection with
the development of roads, hospitals, means of communication,
water-supply, sanitation facilities and for the welfare of
agricultural labour or for any other scheme approved by the
State Government for the development of the rural areas. The
Fund can also be utilised to meet the cost of administering
the Fund. Section 5 of the Act provides that any person who
contravenes the provisions of the Act or the rules framed
thereunder shall be punishable with fine which may extend to
five hundred rupees or upto the amount of cess which the
dealer is liable to pay, whichever is more. By section 6 of
the Act the State Government is empowered to make rules to
carry into effect the purposes of this Act. Section 7 of the
Act grants protection to State Government or any officer of
the State Government or the Haryana State Agricultural
Marketing Board or a local authority functioning under the
Act against any action that may be taken against it or him
in respect of any action taken in good faith under the Act.
Section 8 of the Act empowers the State Government to remove
any difficulty which may arise in giving effect to the
provisions of the Act.
A reading of the Act shows that it imposes a cess on ad
valorem basis at the rate of one per centum of the sale
proceeds of the agricultural produce bought or sold or
brought for processing in the notified market area on the
dealer carrying on business within the notified market area.
m e cess is in the nature of a compulsory exaction. The
arrears of cess if any, can be recovered as arrears of land
revenue, and any person who contravenes the provisions of
the Act is liable to be prosecuted for an offence punishable
under section 5 of the Act. The Act, however, provides that
the cess collected under it shall be credited to the Fund
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for being spent as provided in sub-section (5) of section 4
of the Act in the rural areas in connection with the
development of roads, hospitals, means of communication,
water-supply, sanitation facilities and for the welfare of
agricultural labour or for any other scheme approved by the
State Government for the development of rural areas. The
expression ’rural area’ has been defined in section 2(h) of
the Act as an area the population of which does not exceed
20,000 persons. These are the principal features of the Act.
The appellants who became liable to pay the cess on the
coming into force of the Act questioned its validity before
the High Court of Punjab & Haryana. The petitions filed by
them were first heard in the High Court by a single Judge.
The
156
learned single Judge found that the Act was unconstitutional
and struck it down. Aggrieved by the decision of the learned
single Judge the State of Haryana filed a Letters Patent
Appeal for the Division Bench of the High Court. The
Division Bench allowed the appeal, set aside the judgment of
the learned single Judge and upheld the constitutional
validity of the Act. The writ petitions which had been filed
by the appellants were dismissed. These appeals by special
leave are filed against the judgment of the Division Bench
of the High Court.
It is convenient to reproduce here the relevant parts
of sections 3 & 4 and section 2(h) of the Act.
"3. (1)- With effect from such date, as the State
Government may by notification appoint in this
behalf, there shall be levied on the dealer for
the purposes of this Act, a cess on ad valorem
basis, at the rate of one per centum of the sale-
proceeds of agricultural produce bought or sold or
brought for proccessing in the notified market
area 4. (1)- There shall be constituted a fund
called the Haryana Rural Development Fund and it
shall vest in the State Government
(3) The amount of cess paid to the officer or the
person shall be credited to the Haryana Rural
Development Fund within such period as may be
prescribed.
(4) To the credit of the Fund shall be placed -
(a) all collections of cess under section 3, and
(b) grants from the State Government and local
authorities.
(5) The Fund shall be applied by the State Govern-
ment to meet the expenditure incurred, in the
rural areas, in connection with the development of
roads, hospitals, means of communication, water-
supply, sanitation facilities and for the welfare
of agricultural labour or for any other scheme
approved by the State Government for the
development of rural areas. The Fund may also be
utilised to meet the cost of administering the
Fund.
157
2. (h)’rural area’ means an area the population of
which does not exceed twenty thousand persons."
The principal contention urged by the appellants before us
is that the cess levied under the Act is in the nature of a
tax and it does not fall under any of the Entries in List II
of the Seventh Schedule to the Constitution under which the
State Legislature can levy a tax. Although when the
proceedings were pending in the High Court an attempt was
made on the part of the State to sustain the cess as a tax
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leviable under Entry 52 of the List II of the Seventh
Schedule to the Constitution which authorises a State
Legislature to levy "taxes on the entry of goods into a
local area for consumption, use or sale therein", neither
the learned single Judge nor the Division Bench accepted the
said contention. In these appeals the said contention is not
pressed before us. The ground on which the Division Bench
upheld the constitutional validity of the cess was that it
was in the nature of a fee and, therefore, it could be
levied as a fee imposed on dealers carrying on business
within market area for services rendered to them by the
State Government. The very same contention is urged before
us in these appeals on behalf of the State Government. In
support of its contention the State Government has relied
upon the decisions of this Court in Sreenivasa General
Traders & Ors. etc. v. State of Andhra Pradesh & Ors. etc.,
[1983] 3 S.C.R. 843., Municipal Corporation of Delhi and
Ors. v. Mohd. Yasin etc., [1983] 2 S.C.R. 999., and Southern
Pharmaceuticals & Chemicals Trichur & Ors. etc. v. State of
Kerala & Ors. etc., [1982] 1 S.C.R. 519 and it is argued
that it is not necessary that there should be a direct
correlation between the levy and the services to be rendered
and that such correlation could be of "general character and
not of mathematical exactitude". It is argued that in the
instant cases there is a reciprocal relationship between the
levy of the fee and the services that are being rendered. It
is submitted on behalf of the State Government that the
impugned legislation had been enacted to fulfil the
objectives contained in Articles 46, 47, 48 and 48A of the
Constitution, that the dealer from whom the cess is
collected is only a collecting agent and the burden of the
cess is passed on the next purchaser and that since out of
91 notified areas in the State of Haryana 61 are located in
the rural areas, the majority of dealers were directly
benefited by the objects on which the amount collected as
cess is spent.
158
The fact that the Act is claimed to have been enacted
pursuant to the Directive Principles of State Policy
contained in Articles 46, 47, 48 and 48A of the Constitution
and that the dealers are permitted by the Act to pass on the
cess to the purchaser of the agricultural produce from him
have no bearing on the question involved here. In these
appeals we are relieved of the necessity of finding out
whether the cess in question is a tax leviable by the State,
since such a claim is not made before us. The only question
which remains to be considered is whether the cess levied
under the Act is of the nature of fee levied or leviable on
a dealer in a market area. The distinction between a tax and
a fee is recognised by the Constitution which while
empowering Parliament and the State Legislature to levy
taxes under the relevant Entries in List I and List II
respectively also refers to the power of the appropriate
legislature to levy fees in respect of matters specified in
the said Lists and also in the Concurrent List and tests
have been laid down by this Court for determining the true
character of a levy. In determining a levy as 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. As observed in M.P.V.
Sundararamier & Co. v. The State of Andhra Pradesh & Anr.,
[1958] S.C.R. 1422., in List II of the Seventh Schedule to
the Constitution Entries 1 to 44 form one group mentioning
the subjects on which the States can legislate and Entries
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45 to 63 in that List form another group dealing with taxes
that may be levied by States. Entry 64 refers to offences
against laws with respect to any of the matters in List II
and Entry 65 refers to jurisdiction of courts. Entry 66
empowers the State to levy fees in respect of any of the
matters in List II. Unless the cess in question can be
brought under any of the Entries from 45 to 63 it cannot be
levied as a tax at all. It is no doubt true that under Entry
66 of List II it is permissible for the State to levy any
amount by way of fees in respect of any of the matters in
that List. The relevant Entry in the present case is Entry
28 dealing with ’Markets and Fairs’ but the amount so levied
should be truly a fee and not a tax with the mask of a fee.
The primary meaning of taxation is raising money for
purposes of Government by means of contributions from
individual persons, a compulsory exaction of money by a
public authority for public purposes enforceable at law and
not a payment for services rendered. "A tax is a
159
compulsory exaction of money by public authority for public
purposes enforceable by law and is not a payment for
services rendered" is a famous statement of Latham C.J. in
Matthews v. Chicory Marketing Board., 60 C.L.R. 263, 276.
The above statement truly brings out the essential
characteristics of a tax. This statement has been quoted
with approval by our Court in The Commissioner, Hindu
Religious Endowments, Madras v. Sri Lakshmindra Thirtha
Swamiar of Sri Shirur Mutt., [1954] S.C.R. 1005. Mukherjea,
J. who delivered the opinion of the Constitution Bench in
the above case observed at pages 1040-41 thus:
"A neat definition of what ’tax’ means has been
given by Latham C.J. Of the High Court of
Australia in Matthews v. Chicory Marketing Board.
’A tax’, according to the learned Chief Justice,
’is a compulsory exaction of money by public
authority for public purposes enforceable by law
and is not payment for services rendered’. This
definition brings out in our opinion, the
essential characteristics of a tax as
distinguished from other forms of imposition
which, in a general sense, are included within it.
It is said that the essence of taxation is
compulsion, that is to say, it is imposed under
statutory power without the taxpayer’s consent and
the payment is enforced by law. The second
characteristic of tax is that it is 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."
The three principal characteristics of a tax noticed by
Mukherjea, J. in the above passage are: (i) that it is
imposed under statutory power without the tax-payer’s
consent and the payment is enforced by law; (ii) that it is
an imposition made for public purposes without reference to
any special benefit to be conferred on the payer of the tax;
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and (iii) that it is
160
apart of the common burden, the quantum of imposition upon
the tax-payer depending generally upon the capacity of the
tax payer to pay. As regards fees Mukherjea, J. Observed in
the above decision thus:
"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.
x x x x x x x x x x x x x
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."
In Sreenivasa General Traders & Ors. (supra) the fee
which was collected was payable to the marketing committee
and it was to be spent by the marketing committee on
purposes for which it was established. In Municipal
Corporation of Delhi & Ors. v. Mohd. Yasin etc. (supra) the
amount collected by the Municipal Corporation was spent on
the limited purposes for which it had been established. In
Southern Pharmaceuticals & Chemicals Trichur & Ors. (supra)
it was held that there was a broad correlation between the
fee collected and the cost of the establishment needed for
the enforcement of the Abkari Act which came up for
consideration in that case insofar as the licences were
concerned. In none of these three cases it has been stated
that a fee may be validly imposed when no services either
directly or indirectly are rendered to the person from whom
it is collected. These cases are indeed distinguishable from
the present case. In each of these cases it was held that
the levy satisfied the tests of a fee.
161
As mentioned earlier a cess collected under section 3
of the Act is no doubt required to be credited to the Fund
constituted under section 4(1) of the Act. The Fund,
however, vests in the State Government and not in the
municipality or a marketing committee or any other local
authority having limited functions specified in the
enactment under which it is constituted. The State
Government is entitled under subsection (5) of section 4 of
the Act to spend the cess, credited to the Fund, in the
rural areas, in connection with the development of roads,
hospitals, means of communication, water-supply, sanitation
facilities and for the welfare of agricultural labour or for
any other scheme approved by the State Government for the
development of the rural areas. This sub-section authorises
the State Government to spend the money credited to the Fund
virtually on any object which the State Government considers
to be the development of rural areas. The definition of the
expression ’rural area’ in section 2(h) of the Act which is
extracted above is as vague as it can be. It means an area
the population of which does not exceed 20,000 person. It
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need not necessarily be a local area as it is ordinary
understood. Ordinarily a local area means a Municipal
Corporation, a Town Municipality, a Panchayat, a Notified
Area, a Sanitary Board etc. Any geographical area the
population of which does not exceed 20,000 persons can be
conveniently brought within the scope of section 2(h) of the
Act. If it is understood that way even urban areas can be
divided into areas with population not exceeding 20,000 and
labelled as rural areas. Even if we exclude from the scope
of the expression ’rural area’, a town or a city having a
population exceeding 20,000 persons, the area in which the
amount credited to the Fund can be spent is almost 90 per
cent of the total area of the State of Haryana. The amount
may be spent on any purpose which the State Government
considers to be purpose intended for the development of the
rural areas. There is no specification in the Act that the
amount or a substantial part of the amount collected by way
of cess under section 3 of the Act will be spent on any
public purpose within the market area where the dealer is
carrying on his business. The purposes over which the Fund
can be spent are the same purposes on which any amount
collected by way of tax is spent by any State and there is
nothing which is done specially to benefit the dealer. When
any amount is spent from the Fund the interest of the
dealers is not at all kept in view even generally. There is
no other restriction imposed on the manner in which the Fund
can be spent. The cess, therefore, partakes of the
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character of a part of the common burden which has to be
levied and collected only as a tax. A dealer who pays the
cess under the Act may as one of the members of the general
public derive some benefit from the expenditure of the Fund
incurred by the State Government. The benefit so derived by
him is merely incidental to the fact that he happens to be
person residing in the State of Haryana. It is not the same
as the benefit which a dealer in a market area would derive
by the expenditure of its funds by a marketing committee or
as the benefit which a person living in a town or a city
would derive by the expenditure incurred by the municipality
concerned. The fact that the Fund is created under the Act
is a mere cloak to cover the true character of the levy in
question. There is practically no difference between the
Consolidated Fund which vests in the State and Fund which
also vests in the State. Amounts credited tc the
Consolidated Fund and the amounts credited to the Fund can
both be spent practically on any public purpose almost
throughout the State. In such a situation it is difficult to
hold that there exists any correlation between the amount
paid by way of cess under the Act and the services rendered
to the person from whom it is collected. The impost in these
cases lacks the essential qualification of a fee namely
’that 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 services’ (See Sri Shirur Mutt’s case (supra)). In
fact there is no correlation at all.
Reliance is, however, placed on behalf of the State
Government on the decision of this Court in The Hingir-
Rampur Coal Co. Ltd. & Ors. v. The State of Orissa & Ors.,
in which the validity of the Orissa Mining Areas Development
Fund Act, 1952 was upheld. In that case the question was
whether the cess levied thereunder was a fee or a duty of
excise on coal within Entry 84 of List I of the Seventh
Schedule to the Constitution. This Court case to the
conclusion that it was an amount levied essentially for
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services rendered in the areas which were declared as mining
areas in the State of Orissa. In that case the mining area
involved was about 3341.79 acres, i.e. about 5.5. sq. miles.
me cess collected in that Act could be spent on improving
the communication, by constructing good roads, supply of
water and education to the labour force in order to attract
workmen to the mining area in question. The case before us
is entirely different from the above said case. As mentioned
earlier, the amount collected by way of cess under the Act
can be spent by the State Government at its
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will on any purpose which it considers to be the development
of almost the entire rural area of the State of Haryana.
It is constitutionally impermissible for any State
Government to collect any amount which is not strictly of
the nature of a fee-in the guise of a fee. If in the guise
of a fee the legislation imposes a tax it is for the Court
on scrutiny of the scheme of the levy to determine its real
character. If on a true analysis of the provisions levying
the amount, the Court comes to the conclusion that it is, in
fact, in the nature of a tax and not a fee, its validity can
be justified only by bringing it under any one of the
Entries in List II of the Seventh Schedule to the
Constitution under which the State can levy a tax. The State
Government has failed in this case to do so. The levy
according to us not a fee as claimed by the State but it is
a tax not leviable by it. The levy of the cess under section
3 is, therefore, liable to be quashed. Section 3 being the
charging section and the rest of the sections of the Act
being just machinery or incidential provisions, the whole
Act is liable to be quashed. We, therefore, declare the
entire Act, i.e. the Haryana Rural Development Fund Act,
1983 as unconstitutional on the ground that the State
Legislature was not competent to enact it.
These appeals, therefore, succeed. The judgment of the
Division Bench of the High Court is set aside and the Act is
declared void. A writ shall issue to the State Government in
these appeals directing the State Government notto enforce
the Act against the appellants. There shall, however, be no
order as to costs.
M.L.A. Appeals allowed.
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