DELHI RACE CLUB LTD. vs. UNION OF INDIA .

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 6461 OF 2003 DELHI RACE CLUB LTD. — APPELLANT VERSUS UNION OF INDIA & ORS. — RESPONDENTS JUDGMENT D.K. JAIN, J. : th 1. This is an appeal from a judgment, dated 5 February, 2003, rendered by the High Court of Delhi at New Delhi in CWP No.2278/2002. By the JUDGMENT impugned judgment, the High Court has upheld the validity of the Delhi Race Course Licensing (Amendment) Rules, 2001. th 2. On 19 October, 1984, the Central Government in exercise of its powers under Section 2 of the Union Territories (Laws) Act, 1950, extended the Mysore Race Courses Licensing Act, 1952 (for short “the Act”) 1 Page 1 to the Union Territory of Delhi, as it existed then, with certain amendments. The Preamble to the said Act reads thus:

Further, Section 3 of the Act reads as follows: “ 3. Prohibition of horse-racing on unlicensed race- courses - No horse-race shall be held save on a race course for which a licence for horse racing granted in accordance with the provisions of this Act, is in force.” Section 4 which lays down the procedure for issuing the licences for horse racing reads as follows: “ 4. Licences for horse-racing - (1) The owner, lessee or occupier of any race course may apply to the Government for horse-racing on such race- course or for arranging for wagering or betting in such race-course on a horse, race run or some other race-course either within the Union territory of Delhi or Outside the Union territory of Delhi. JUDGMENT (2) The Government may (if in its opinion public interest so requires) withhold such licence or grant it subject to such conditions and for such period as they may think fit. (3) In particular and without prejudice to the generality of the foregoing power, such conditions may provide for- (a) the payment of a licence fee; 2 Page 2 (b) the maintenance of such accounts and furnishing of such returns as are required by the United Provinces Entertainment and Betting Tax Act, 1937 as extended to the Union territory of Delhi;

(e) the measures to be taken to encourage Indian bred horses and Indian Jockeys; (f) the inclusion or association of such persons as the Government may nominate as Stewards or members in the conduct and management of horse-racing; (g) the utilisation of the amount collected by the licensee in the conduct and management of horse-racing; (h) such other matters connected with horse- racing and the maintenance of the race-course for which in the opinion of Government it is necessary or expedient to make provision in the licence. …..” JUDGMENT Sections 5, 6 and 7 respectively enumerate penalties for taking part in horse races on unlicensed race-course and for contravention of conditions of licence. Section 9 envisages that cognizance of the offences under the Act can be taken by a court not inferior to that of a Metropolitan Magistrate. Section 11, the pivotal provision, which empowers the Government to make rules, reads as follows: 3 Page 3 “ 11. Power to make rules -(1) The Government may, by notification in the Delhi Gazette, make rules for the purpose of carrying into effect the provisions of this Act.

(i) the form and manner in which applications for licences are to be made; (ii) the fees payable for such licences; (iii) the period for which licences are to be granted; (iv) the renewal, modification and cancellation of licences.” 3. In furtherance of the power conferred under Section st 11 of the Act, by a notification dated 1 March 1985, the Administration of the Union Territory of Delhi, notified the Delhi Race Course Licensing Rules, 1985 [for short “1985 Rules”]. Rules 4 and 5 of the 1985 JUDGMENT Rules lay down the procedure for submission of application for grant of licence for horse racing and the validity period of such licence respectively. Rule 6 prescribes the rate of ‘Licence fee’. It reads as follows : “ 6. Licence fee- The fee for the grant or renewal of a licence for horse racing on the race course shall be a sum of rupees two thousand 4 Page 4

power of inspection and states as under: “ 12. Inspection - The District Officer or any other officer not below the rank of Entertainment Tax Inspector shall have access to the licensed race course at all reasonable times with a view to satisfy himself that the provisions of the Act and these Rules are being complied with and that the conditions of the licence are duly observed.” th 4. On 7 March 2001, in exercise of the powers conferred under Section 11 of the Act, the Lt. Governor of the National Capital Territory of Delhi enacted the Delhi Race Course Licensing (Amendment) Rules, 2001 (for JUDGMENT short “2001 Rules”) and enhanced the aforesaid licence fee rates to Rs.20,000/- and Rs.5,000/- respectively. st 5. On 31 January, 2002, Commissioner of Excise, Entertainment & Luxury Tax (respondent no.3 in this appeal) issued a demand letter to Delhi Race Club, a body corporate, the appellant in this appeal, informing 5 Page 5 them that the licence fee deposited by them was short by Rs.17,80,000/- for the year 2001-02 and by Rs.18 Lacs for the year 2002-03. Validity of the

th grounds that both the notifications, dated 19 th October, 1984 and 7 March, 2001 were illegal in as much as : (i) delegation of powers under Section 11 of the Act to the Lt. Governor, to fix the licence fee without any guidelines is excessive delegation of legislative power and is therefore, ultra vires , (ii) in the absence of an element of quid pro quo, the licence fee charged was not in the nature of a fee but a tax and (iii) the ten fold increase in licence fee was highly JUDGMENT excessive. However, it appears that based on the arguments advanced by the learned counsel, the High Court framed two key questions viz. (i) Is the licence fee under Rule 6 of the 1985 Rules a “fee” or not ? and (ii) If it is a fee, is it excessive or not? 6. Answering both the questions against the appellant, the High Court concluded that the licence fee in 6 Page 6 question is not a compensatory fee and consequently there was no requirement of a quid pro quo ; the licence fee is in the nature of a regulatory fee and

Rs.2,000/- and Rs.500/- in the year 1984 was not regarded by the appellant as being excessive, keeping in mind the high rate of inflation between 1984 and 2001, the enhanced rates of Rs.20,000/- and Rs.5,000/- in the year 2001 could not be said to be excessive. Hence, the appellant’s writ petition having been dismissed, they are before us in this appeal. 7. At the outset, Mr. S. K. Bagaria, learned senior counsel appearing for the appellant, submitted that he would JUDGMENT confine his submissions only to the two issues relating to the excessive delegation of power in the matter of fixation of licence fee and that the fee levied is in fact a tax and therefore, ultra-vires entry 66 of List II in the Seventh Schedule of the Constitution of India and would not press the issue that the fee levied is excessive. 7 Page 7 8. Learned counsel strenuously urged that Section 11(2) of the Act confers unguided, uncontrolled and unfettered power on the Administrator to fix licence

and ultra-vires. Learned counsel traced the evolution of law in this regard by referring to several decisions of this Court. The main thrust of his submissions was based on the decision of this Court in Corporation of 1 Calcutta & Anr. Vs . Liberty Cinema , wherein it was held that the function of fixing the rate of tax is not an essential function and can be delegated, but such delegation has to be under some guidance. He invited our attention to the case of Devi Das Gopal 2 Krishnan & Ors. Vs. State of Punjab & Ors. , JUDGMENT wherein while explaining the ratio of the decision in Liberty Cinema (supra) and emphasising the necessity of some guidance while delegating the power to fix the rate of tax, it was observed that the doctrine of constitutional and statutory needs would not afford reasonable guidelines in the fixation of such 1 AIR (1965) SC 1107 2 1967 (3) SCR 557 8 Page 8 rates of tax. Reliance was also placed on The Municipal Corporation of Delhi Vs. Birla Cotton, 3 Spinning and Weaving Mills, Delhi & Anr. ,

be present while delegating a legislative function, discussed various forms of such guidance depending upon the facts of each delegation, and held that the form of guidance to be given in a particular case, depends on a consideration of the provisions of the particular Act in question including the nature of the body to which the function has been delegated. Lastly, reference was made to the case of Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. Vs. The Assistant JUDGMENT 4 Commissioner of Sales Tax & Ors. , wherein the above mentioned principles were reiterated. According to the learned counsel, Section 4(3) of the Act merely provides for the conditions, subject to which a licence may be granted but does not contain any guidance or policy relating to fixation of the licence fee. Similarly, Rule 13(2) of the 2001 Rules confer power of 3 AIR (1968) SC 1232 4 (1974) 4 SCC 98 9 Page 9 inspection of the licensed race course and has nothing to do with the licence fee or its rates. Thus, the learned senior counsel asserted that in the present

fix the licence fee without a minute shred of guidance of any manner and hence is beyond the limits of permissible delegation and therefore, deserves to be struck down as unconstitutional. 9. Mr. Bagaria also submitted that in the absence of any element of fee, as no services were being provided to the appellant against the fee charged, licence fee cannot be demanded, in as much as it lacked any

5 (1970) 2 SCC 172 6 (1980) 1 SCC 416 7 (1999) 2 SCC 274 10 Page 10

JUDGMENT 10. Per contra, Mr. T.S. Doabia, learned senior counsel appearing on behalf of respondent nos.2 and 3, submitted that the Act does not suffer from the vice of excessive delegation as the scheme of the Act provides enough guidelines to fix the rate of licence fee. To buttress his argument, he relied upon the 8 (2000) 8 SCC 167 9 (2001) 3 SCC 482 11 Page 11 Preamble and the text of Section 4 of the Act as also Rule 13(2) of the 1985 Rules. Drawing support from Liberty Cinema (supra) and Municipal Corporation of Delhi (supra) learned counsel contended that the nature and extent of guidance is to be ascertained from the broad features and objects sought to be achieved by a particular statute and not on the touchstone of a rigid uniform rule. According to the learned counsel, Section 4(3) of the Act, relating to the conditions of licence, itself provides the parameters to be kept in view while fixing the licence fee and are thus, sufficient guidelines in the matter of fixation of such licence fee. Rebutting the submissions of the appellant that the levy cannot be demanded as there

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11. Learned counsel also urged that the fact that the levy had been challenged after a long delay was by itself sufficient for the High Court to dismiss the writ petition. 12. Before addressing and evaluating the rival submissions on the first issue, it would be useful to 13 Page 13 first survey the decisions heavily relied upon by the learned counsel, wherein the question as to the limits of permissible delegation of legislative power by a

13. Liberty Cinema (supra), on which heavy reliance was placed by Mr. Bagaria, related to a levy imposed on cinema houses under the Calcutta Municipal Act, 1951. The levy was quashed by a learned Single Judge on the grounds that : (i) the levy being in the nature of a licence fee and not a tax, did not pass the test of legality on account of there being no correlation between the amount charged from the theatre owners and the services rendered to them or the expenses JUDGMENT incurred by the Municipality in regard to the issue of licences and (ii) Section 548(2) of the said Act, which authorised the Corporation to levy a tax, is unconstitutional as suffering from the vice of excessive delegation as it laid down no principle; indicated no policy and afforded no guidance for determining the basis or the rate on which the tax was 14 Page 14 to be levied and is, therefore, void. Corporation’s appeal before the Division Bench being unsuccessful, the matter reached this Court. By majority,

of levy, speaking for the majority, Sarkar, J. observed that when the power to fix rates of tax is left to another body, the legislature must provide guidance for such fixation. Nevertheless, the validity of the guidance cannot be tested by a rigid uniform rule and must depend on the object of the Act which delegated the power to fix the rate. Thus, it was held that the power to fix the rate of tax can be delegated but some guidance has to be specified in the Act. JUDGMENT 14. A similar question arose in Devi Das (supra) where the Constitution Bench, while endorsing the opinion rendered in Liberty Cinema (supra), held that there can be no general principle that the doctrine of constitutional and statutory needs would always afford reasonable guidelines in the fixation of rates of taxation. Each statute has to be examined to find out 15 Page 15 whether there are guidelines therein which prevent delegation from being excessive. The Constitution Bench summarised the law on the subject of excessive

JUDGMENT 16 Page 16 (Emphasis supplied by us) 15. Our attention was also invited to a seven Judge Bench decision in Municipal Corporation of Delhi (supra)

functions, but while delegating such functions, there must be a clear legislative policy which serves as guidance for the authority on which the function is delegated. As long as a legislative policy can be culled out with sufficient clarity or a standard is laid down, Courts should not interfere with the discretion that undoubtedly rests with the legislature in determining the extent of delegation necessary in a particular case. On a review of a number of decisions on the point, JUDGMENT 10 including In re. Delhi Laws Act, 1912 , Liberty Cinema (supra) and Devi Das (supra), Wanchoo C.J. (speaking for himself and Shelat, J.) observed that what guidance should be given and to what extent and whether guidance has been given in a particular case at all depends on a consideration of the provisions of the particular Act with which the Court has to deal with 10 AIR 1951 SC 332 17 Page 17 including its preamble. It was also observed that the nature of the body to which delegation is made is also a factor to be taken into consideration in determining

take is again a matter which cannot be stated in general terms. It will depend upon the circumstances of each statute under consideration; in some cases guidance in broad general terms may be enough; in other cases more detailed guidance may be necessary . In the same decision, Shah J. (speaking for himself and Vaidialingam J.) after analyzing the cases on the point of delegation of legislative function by the Legislature, culled out the following principles: JUDGMENT “(i) Under the Constitution the Legislature has plenary powers within its allotted field; (ii) Essential legislative function cannot be delegated by the Legislature, that is, there can be no abdication of legislative function or authority by complete effacement, or even partially in respect of a particular topic or matter entrusted by the Constitution to the Legislature; (iii) Power to make subsidiary or ancillary legislation may however be entrusted by the Legislature to another body of its choice, provided there is enunciation of policy, principles, or standards either expressly or by implication for the guidance of the delegate in that behalf. Entrustment of power without guidance amounts to excessive delegation of legislative 18 Page 18

16. From the conspectus of the views on the question of nature and extent of delegation of legislative functions by the Legislature, two broad principles emerge, viz. (i) that delegation of non essential legislative function of fixation of rate of imposts is a necessity to meet the multifarious demands of a welfare state, but while delegating such a function JUDGMENT laying down of a clear legislative policy is pre- requisite and (ii) while delegating the power of fixation of rate of tax, there must be in existence, inter-alia, some guidance, control, safeguards and checks in the concerned Act. It is manifest that the question of application of the second principle will not arise unless the impost is a tax. Therefore, as long as the legislative policy is defined in clear 19 Page 19 terms, which provides guidance to the delegate, such delegation of a non essential legislative function is permissible. Hence, besides the general

judgments, which were vociferously relied upon before us, will have no bearing unless the levy involved is tax. 17. Therefore, the pivotal question to be determined is the nature of the impost in the present case. The characteristics of a fee, as distinct from tax, were explained by this Court, as early as in The Commissioner, Hindu Religious Endowments, Madras Vs. Sri Lakshmindra Thirtha Swamiar JUDGMENT 11 of Sri Shirur Mutt (commonly referred to as the ‘Shirur Mutt’s Case’). The ratio of this decision has been consistently followed as locus classicus in subsequent decisions dealing with the concept of ‘fee’ and ‘tax’. A Constitution Bench of this Court in Hingir Rampur Coal Co. Ltd. Vs. State of 11 AIR 1954 SC 282 20 Page 20 12 Orissa was faced with the challenge of deciding upon the constitutional validity of the Orissa Mining Areas Development Fund Act, 1952, levying cess on the colliery of the petitioner therein. The Bench

12 1961 (2) SCR 537 21 Page 21

(Emphasis supplied by us)

13 (2004) 10 SCC 201 22 Page 22

necessary in public interest to control the act of betting JUDGMENT and wagering as well as to promote the sport in the Indian context. To achieve this purpose, licences are issued subject to compliance with the conditions laid down therein, which inter alia include maintenance of accounts and furnishing of periodical returns; amount of stakes which may be allotted for different kinds of horses; the measures to be taken for the training of the 23 Page 23 persons to become jockeys, to encourage Indian bred horses and Indian jockeys; the inclusion and association of such persons as the government may nominate as

licence or the Act is penalised under the Act besides a provision for cognizance by a court not inferior to a Metropolitan Magistrate. To ensure compliance with these conditions, the 1985 Rules empower the District Officer or an Entertainment Tax Officer to conduct inspection of the race club at reasonable times. Thus, the nature of the impost is not merely compulsory exaction of money to augment the revenue of the State but its true object is to regulate, control, manage and JUDGMENT encourage the sport of horse racing as is distinctly spelled out in the Act and the 1985 Rules. For the purpose of enforcement, wide powers are conferred on various authorities to enable them to supervise, regulate and monitor the activities relating to the race course with a view to secure proper enforcement of the provisions. Therefore, by applying the principles laid down in the 24 Page 24 aforesaid decisions, it is clear that the said levy is a ‘fee’ and not ‘tax’.

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Hyderabad Hotels Owners’ Association case ( supra ) 15 AIR 1939 PC 36 28 Page 28 where the existence of two types of fee and the distinction between them has been highlighted as follows:

23. Dealing with such regulatory fees, this Court in Vam JUDGMENT Organic Chemicals Ltd. & Anr. Vs. State of U.P. & 16 Ors. ; observed that in case of a regulatory fee, like the licence fee, no quid pro quo is necessary, but such fee should not be excessive. The same distinction between regulatory and compensatory fees has been highlighted 17 in P. Kannadasan Vs. State of T.N. ; State of 16 (1997) 2 SCC 715 17 (1996) 5 SCC 670, para 36 29 Page 29 18 Tripura Vs. Sudhir Ranjan Nath ; B.S.E. Brokers’ Forum case ( supra ) and followed in several later decisions.

learned Judges of this Court was called upon to examine the validity of the revision of licence fee under the Andhra Pradesh Factories Rules, 1950. The levy of licence fee was challenged inter-alia on the grounds that the fee imposed being in fact a tax, the State had no power to levy the same; the Rules or the Factories Act, 1948, did not provide any criteria or guidelines for fixation of licence fee and that the State had no power to impose or enhance the licence fee for any alleged services rendered or proposed to be rendered under JUDGMENT other legislations other than the concerned Act, as the power is delegated under that particular Act only. On an analysis of the provisions of that Act and the Rules made thereunder, the Court came to the conclusion that the licence fee in this case was a regulatory fee and not a fee for any special services rendered; there was no mention of any special service to be rendered to the payer of the 18 (1997) 3 SCC 665, 673 30 Page 30 licence fee in the provisions and the purpose of the licence was to enable the authorities to supervise, regulate and monitor the activities relating to factories

provisions made it clear that for proper enforcement of the statutory provisions, persons possessing considerable experience and expertise were required. On the question whether the element of quid pro quo , as it is understood in common legal parlance, was applicable to a regulatory fee, as in that case, speaking for the bench, D.P. Mohapatra, J. , concluded thus : “ 32. From the conspectus of the views taken in the decided cases noted above it is clear that the impugned licence fee is regulatory in character. Therefore, stricto sensu the element of quid pro quo does not apply in the case. The question to be considered is if there is a reasonable correlation between the levy of the licence fee and the purpose for which the provisions of the Act and the Rules have been enacted/framed. As noted earlier, the High Court has answered the question in the affirmative. We have carefully examined the provisions of the Act and the Rules and also the pleadings of the parties. We find that the High Court has given cogent and valid reasons for the findings recorded by it and the said findings do not suffer from any serious illegality. It is our considered view that the licence fee has correlation with the purpose for which the statute and the rules have been enacted.” JUDGMENT 31 Page 31 25. Thus, it is clear that a licence fee imposed for regulatory purposes is not conditioned by the fact that there must

It would again not be possible to work out with arithmetical equivalence the amount of fee which could be said to be reasonable or otherwise. If there is a broad correlation between the expenditure which the State incurs and the fees charged, the fees could be sustained as reasonable. 26. As noted above, in the present case, the object of the Act, as synthesized from its provisions, is to regulate, monitor, control and encourage the sport of horse-racing. JUDGMENT For this purpose, licences are issued subject to certain conditions. The compliance with the licence conditions is inevitable for renewal of the licences as well as significant to avoid any penalty under the Act. To ensure such compliance, as aforesaid, district officers/ entertainment tax officers are entrusted with the duty of inspection. The nature of inspection enjoined by the Act 32 Page 32 is not of a general nature but requires expertise and training and also constant vigil on the activities of the race course. The expenses incurred in carrying out such

is a regulatory fee and need not necessarily entail rendition of specific services in return but at the same time should not be excessive. In any case, the appellant has not challenged the amount of the levy as unreasonable and expropriatory or excessive. The argument on behalf of the appellant that inspection does not constitute a service rendered in lieu of the fee charged, based upon the observations in the Liberty Cinema case (supra) is equally fallacious. In Delhi

“….In each case where 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 work done by them will have to be examined for the purpose of 19 (1969) 3 SCC 925 33 Page 33 determining the rendering of the services which would make the levy a fee. It is quite apparent that in the Liberty Cinema case it was found that no service of any kind was being or could be rendered and for that reason the levy was held to be a tax and not a fee….”

Mills (supra) apply squarely to the instant case. The scheme of the Act; its object as elucidated in its provisions and Rules made therein; nature of conditions imposed in the licences; inspection to ensure its compliance and non- renewal of the licence as well as penalty in case of contravention of the licence conditions, make the Act fall in the category of imposts where contributions are required to be made for the purpose of maintaining an Authority and the staff for supervising and controlling a public activity viz. the horse racing. Besides, the presence of a large JUDGMENT institution like the race course enjoins additional burden on the civic authorities to maintain and develop the surrounding area for the convenience of the public at large. This Court echoed a similar view in the Secunderabad Hyderabad Hotels Owners’ Association case (supra) as follows: 34 Page 34

27. Thus, the licence fee levied in the present case, being regulatory in nature, the Government need not render some defined or specific services in return as long as the fee satisfies the limitation of being reasonable. We may reiterate here that the amount of licence fee charged from the appellant has not been challenged as JUDGMENT being excessive. Thus, in light of the above observations relating to inspection and other provisions of the Act, we hold that the licence fee charged has a broad co-relation with the object and purpose for which the Act and the 2001 Rules have been enacted. 35 Page 35 28. As noted above, challenge to the constitutionality of Section 11(2) of the Act was based on the premise that no guidance, check, control or safeguard is specified in

fixation of rate of tax and not a fee. As we have held that the levy involved in the present case is a fee and not tax, the ratio of the above-mentioned cases, relied upon by the learned Senior Counsel, will have no application in determining the question before us. The scheme of the Act clearly spells out the object, policy and the intention with which it has been enacted and therefore, the Act does not warrant any interference as being an instance of excessive delegation. JUDGMENT 29. Before we part with the judgment, it is pertinent to note that the challenge to the validity of Section 11(2) of the Act was raised after almost 15 years of its coming into force. The appellant, since the commencement of the Act, had been regularly paying the licence fee and the present challenge was made only when quantum of the licence fee was increased by the Government on 36 Page 36 account of non revision of the same since the commencement of the Act. Evidently, the inflation during this period was taken as the criterion for increasing the

Government in carrying out the regulatory activities for attaining the object of the Act would have proportionately increased. It is also relevant to note that an institution of the size of the Race Course should not cloak their objection to an increase in the rate of licence fee and present them as a challenge to the constitutionality of the charging section. 30. In view of the aforegoing discussion, we are in agreement with the High Court that Section 11(2) of the JUDGMENT Act as well as 2001 Rules do not suffer from any legal infirmity. This appeal, being bereft of any merit, is dismissed accordingly, with costs, quantified at Rs.50,000/-. …………………………….J. (D.K. JAIN) …………………………….J. (ANIL R. DAVE) NEW DELHI; 37 Page 37 JULY 13, 2012. ARS JUDGMENT 38 Page 38