Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8
CASE NO.:
Appeal (civil) 2122 of 1999
PETITIONER:
State of Himachal Pradesh & Ors.
RESPONDENT:
M/s. Shivalik Agro Poly Products & Ors
DATE OF JUDGMENT: 14/09/2004
BENCH:
CJI., G. P. MATHUR & C. K. THAKKER.
JUDGMENT:
J U D G M E N T
G.P. MATHUR, J.
1. This appeal, by special leave, has been preferred by the defendants
(State of Himachal Pradesh and three others) against the judgment and
decree dated 10.12.1997 of the High Court of Himachal Pradesh by which
the Second Appeal filed by the appellants was dismissed and the judgment
and decree passed by the District Judge and also Senior Sub-Judge, Solan
decreeing the plaintiff’s suit were affirmed.
2. M/s. Shivalik Agro Poly Products Ltd. and others filed the suit
seeking a declaration that the notification dated 14.4.1969 issued by the
State of Himachal Pradesh under section 78 of the Registration Act be
declared void and ultra vires and for recovery of Rs.27,771/- paid by them
as registration fee for registering the mortgage deed dated 30.10.1978. The
case of the plaintiffs, in brief, was that they were allotted an industrial plot in
Parwanoo by the Himachal Pradesh Housing Board for establishing an
industrial unit. They were sanctioned two loans of Rs. 30 lacs and Rs.27.76
lacs by Himachal Pradesh Financial Corporation and Himachal Pradesh
Mineral and Industrial Development Corporation respectively and in order to
secure the loan, they were required to mortgage and hypothecate the fixed
assets of their leasehold rights in the industrial plot and the machinery
installed therein with the aforesaid Corporations for which a deed of simple
mortgage was required to be executed. At the time of the execution of the
mortgage deed, the plaintiffs were required to pay stamp duty of Rs.45,804/-
and registration charges amounting to Rs.27,760/- in accordance with the
notification issued under sections 78 and 79 of the Registration Act by the
State of Himachal Pradesh. The plaintiffs challenged the vires of the
notification fixing the registration fee by filing Civil Writ Petition No. 105
of 1979 which was summarily dismissed by a Division Bench of the High
Court on 22.5.1979 on the ground that the plaintiffs had an equally
efficacious alternative remedy of filing a civil suit wherein the validity of
the notification could be challenged. After dismissal of the writ petition, the
suit was instituted claiming the reliefs mentioned above. The defendant-
appellants contested the suit on the grounds, inter alia, that the impugned
notification had been issued by the State Government in exercise of the
statutory power conferred by Sections 78 and 79 of the Registration Act
and, therefore, it was a sovereign function of the State for which no suit was
maintainable; that the notification was perfectly legal and valid; that the
registration fee had been charged in accordance with the schedule of fee
fixed by the State Government in the notification for the registration of
documents and that the registration fee charged was perfectly justified.
3. The Senior Sub-Judge, Solan, decreed the suit and declared the
notification dated 14.4.1969 issued by the State Government prescribing the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8
registration fee to be null and void and also passed a decree for refund of Rs.
27,771/- in favour of the plaintiffs, which was affirmed in appeal by the
District Judge and also in Second Appeal by the High Court. The main
ground on which the plaintiffs’ suit has been decreed is that there is a
distinction between tax and fee. Fee is levied for certain services given to
individuals and the amount realized has to be earmarked to meet the
expenses incurred in rendering the services and the amount should not go to
the general pool nor should be spent for any other purposes. The State had
not led any evidence to show that the amount realized by way of registration
fee is deposited under a separate head and that it is exclusively utilized for
the maintenance of the registration department. In absence of any evidence,
the conclusion was inevitable that the amount realized was put in the
Consolidated Fund of the State Government and was being utilized by the
government for general purposes. Placing reliance upon Commissioner
Hindu Religious Endowments Madras vs. Sri Lakshmindra Thirtha Swamiar
of Sri Shirur Mutt AIR 1954 SC 282, (for short ’Shirur Mutt case’) a
conclusion has been drawn that it is a tax and not a fee and consequently the
impugned notification is ultra vires the Registration Act.
4. The principal question which requires consideration in the present
appeal is whether the notification issued by the State Government on
14.4.1969 prescribing the registration fee on a graduated form on the basis
of value of subject matter of the instrument is in accordance with the spirit
of section 78 of the Registration Act and is valid in law.
5. By the very nature of things recognition of rights or title over
immovable property and transactions therein give rise to manifold problems.
Movable property, depending upon its size or dimension, can be kept in
absolute control in possession of its owner and a third party may not be in a
position even to know where the same has been kept. But this is not so for
an immovable property which lies in the open attached to the earth at a
particular place and the owner may be residing at a far away place. The
owner may give the property on lease or licence to someone else who may
get physical possession thereof and enjoy the usufruct thereof. In order to
get over this difficulty, a system of registration of title to immovable
property has been evolved which is followed in many countries. In the
United States the legal position has been described as under in Vol. 76
Corpus Juris Secundum Page 525:
"Systems looking toward the registration of titles to
land, as distinguished from the practice under recording acts
generally of recording or registering the evidence of such title,
are in effect by virtue of statute in several of the United States,
and the courts are bound by such provisions rather than by any
doctrine of the common law which is in contravention thereof.
These systems are quite generally known as "Torrens
systems" and the statutes providing therefore as "Torrens
acts" from the name of the author of the Australian Act of
1857, the underlying principle of which they follow. These
systems are limited in their application to titles to land.
The predominant object of such legislation is the
establishment of a method whereby the title to a particular
tract or parcel of real estate will always be ascertainable by
reference to a register of conclusive veracity, maintained by
the designated public official. In other words, the purpose of
these laws is to simplify the transfer of real estate, and to
render titles thereto safe and indefeasible through the
registration of such titles, the bringing together in one place
of all of the facts relative to the title to each particular tract
which is registered, and the use of certificates which shall
conclusively show at all times the state of such title and the
person in whom it is vested. The Torrens system serves a
broader purpose than merely to notify the record owner of
instruments affecting the title; it is notice to all the world of
the condition of the title.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8
\005\005\005\005\005\005\005\005\005\005\005\005\005\005."
6. The position in the United Kingdom has been described in Vol.26
Halsbury’s Laws of England Paras 701 and 705 as under:
"701. Legislation referable to centrally maintained
register. The legislation relating to registration of the title is
directed to the manner in which the law and practice of
conveyancing are to be adapted to the use of a centrally
maintained register of title to land. As the use of the register
has been extended, so the successive statutes mark the
historical development of a system of conveyancing,
commonly known as registered conveyancing , which
approached maturity as part of the real property legislation of
1925.
The result of that legislation, as respects registered
land, is to produce on first registration a state insured record
of entitlement to legal estates in land, open to public
inspection, which is to be kept up to date in respect of
subsequent transactions in accordance with the conveyancing
technique for which the legislation provides.
Indirect reference to the earlier legislation is found at
the commencement of the Land Registration Act 1925 in the
provision that requires the Chief Land Registrar to continue to
keep a register of title to freehold and leasehold land.
705. The Land Registry Act 1862. The Land Registry Act
1862 marked the first attempt to introduce registration of title
as distinct from registration of deeds by memorial.
Registration was on a voluntary basis and subject to
conditions, which included conditions (1) that a marketable
title should be shown; (2) that the boundaries of the land
should be officially determined and defined as against
adjoining owners; and (3) that partial interests should be
disclosed and registered. The Act continues to apply to
estates registered under it as if the Land Registration Act 1925
had not been passed, until such time as those estates are
registered pursuant to the Act of 1925. The intention that the
registration of such estates is to be transferred to the modern
register is confirmed by power given to the Lord Chancellor to
provide by order that all titles registered under the Land
Registry Act 1862 should be registered under the Land
Registration Act 1925 without cost to the parties interested."
7. The law relating to transfer of immoveable property in India is
contained in the Transfer of Property Act 1882. Section 54 of this Act
defines "sale" and it provides that transfer of ownership in the case of
intangible immoveable property of the value of one hundred rupees and
upwards can be made only by a registered instrument. Section 107 provides
that a lease of immoveable property from year to year, or for any term
exceeding one year or reserving a yearly rent, can be made only by a
registered instrument. Similarly, section 123 provides that a gift of
immoveable property must be effected by a registered instrument. Section
17 of the Registration Act gives a long list of instruments for which
registration is compulsory and clause (b) of sub-section (1) provides that
non-testamentary instruments which purport or operate to create, declare,
assign, limit or extinguish, whether in present or in future, any right, title or
interest, whether vested or contingent, of the value of one hundred rupees
and upwards, to or in immoveable property must be registered. These
statutory provisions indicate the importance of registration of documents. In
fact, it will be impossible to have any transaction relating to immoveable
property in any manner like transfer, gift, giving on lease or creating a
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8
mortgage, etc. without a system of registration of documents. For smooth
functioning of the system, the Registration Act has cast certain duties and
obligations upon the State Government. Section 3 enjoins that the State
Government shall appoint an officer to be called the Inspector General of
Registration. Section 5 enjoins that for the purpose of the Act, the State
Government shall form districts and sub-districts and the districts and sub-
districts so formed together with the limits thereof, and also every alternation
of such limits, shall be notified in the Official Gazette. Section 7 enjoins that
the State Government shall establish in every district an office to be styled
the office of the Registrar and in every sub-district an office or offices to be
styled the office of the Sub-Registrar. Section 6 enjoins the State
Government to appoint Registrars and Sub-Registrars. Section 16 enjoins
the State Government to provide for every registering officer the books
necessary for the purposes of the Act and further in each district suitable
provision for the safe custody of the records connected with the registration
of documents in such districts. By amending Act No. 48 of 2001, section
16A (1) has been inserted in the Act. This section provides that
notwithstanding anything contained in section 16, the books provided under
sub-section (1) of that section may also be kept in computer floppies or
diskettes or in any other electronic form in the manner and subject to the
safeguards as may be prescribed by the Inspector General with the sanction
of the State Government. The office of Sub-Registrar has naturally to be
provided with other staff like clerks and other persons for carrying on
various kinds of works which are associated with the registration of
documents, which involve recording the contents thereof in the register
maintained for the purpose, issuing certified copies and giving replies to the
search applications. The State Government has to incur considerable
expenditure in maintaining the offices of Sub-Registrars which are normally
located at the headquarters of a sub-division in a district and in payment of
salaries to the staff functioning therein.
8. The District Court and also the High Court have decreed the suit on
the finding that the registration fee charged for registration of the documents
is a tax and not fee and, therefore, it is ultra vires Section 78 of Registration
Act and for holding so reliance has been placed upon the decision of this
Court rendered in Shirur Mutt case (AIR 1954 SC 282).
In the said decision the indicia of fee was explained as under in paras
44 and 45 of the reports :
"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."
And the distinction between a tax and fee was stated in the following
manner in para 45 of the reports :
"The distinction between a tax and a fee lies primarily
in the fact that a tax is levied as a part of a common burden,
while a fee is a payment for a special benefit or privilege.
Fees confer a special capacity, although the special advantage,
as for example in the case of registration fees for documents
or marriage licences, is secondary to the primary motive of
regulation in the public interest, vide Findlay Shirras on
’Science of Public Finance’, Vol I, page 202. Public interest
seems to be at the basis of all impositions, but in a fee it is
some special benefit which the individual receives. As
Seligman says, it is the special benefit accruing to the
individual which is the reason for payment in the case of fees;
in the case of a tax, the particular advantage if it exists at all
is an incidental result of State action."
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8
Later, in paragraphs 46 and 47, it was observed that there is really no
generic difference between the tax and fees and as said by Seligman, the
taxing power of a State may manifest itself in three different forms known
respectively as special assessments, fees and taxes. Since a fee is regarded
as a sort of return or consideration for services rendered, it is absolutely
necessary that a levy of fee should, on the face of the legislative provision,
be correlated to the expenses incurred by Government in rendering the
services. If the money thus paid is set apart and appropriated specifically for
the performance of such work and is not merged in the public revenues for
the benefit of the general public, it could be counted as fees and not a tax.
9. After independence of the country the Governmental functions
increased manifold and various legislations were enacted and schemes were
introduced for upliftment of the society. Many measures were introduced
which contained provisions for imposing compensatory and regulatory fees.
It was realized that the indicia of fee indicated in Shirur Mutt case was too
technical and rigid and was not in tune with the requirement of the prevailing
social conditions. The characteristics of tax and fee were then examined in
considerable detail by a three Judge Bench in Sreenivasa General Traders.
vs. State of Andhra Pradesh AIR 1983 SC 1246 and in paragraphs 30 and
31 of the judgment, the Court held as under:
"The traditional view that there must be actual quid pro
quo for a fee has undergone a sea of change subsequent to
decision in AIR 1980 SC 1008. 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 between 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
realized that merely because the collections for the services
rendered or grant of a privilege 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 realized that the element
of quid pro quo in the strict sense is not a sine quo non for a
fee."
It is necessary to mention here that the observation made in para 47 of
the judgment in the Shirur Mutt case that "If the money thus paid is set apart
and appropriated specifically for the performance of such work and is not
merged in the public revenues for the benefit of the general public, it could
be counted as fee and not a tax" may not be very accurate at least where the
fee is being realized by the Government, Central or State, in view of a
constitutional provision. Article 266 of the Constitution provides that all
revenues received by Government of India, all loans raised by that
Government by the issue of treasury bills, loans or ways and means advances
and all moneys received by that Government in repayment of loans shall
form one consolidated fund to be entitled "the Consolidated Fund of India",
and all revenues received by the Government of a State, all loans raised by
that Government by the issue of treasury bills, loans or ways and means
advances and all moneys received by that Government in repayment of
loans shall form one consolidated fund to be entitled "the Consolidated Fund
of the State". In view of this specific provision any amount realized by way
of fee by the Central Government or State Government has to be credited to
Consolidated Fund of India or of the concerned State, as the case may be,
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8
and will thus necessarily get merged in the public revenues and cannot be set
apart.
10. In Sreeniwasa General Traders (supra) the Court took note of the fact
that presumably the attention of the Bench hearing Shirur Mutt case was not
drawn to Article 266 of the Constitution. It was further observed therein that
the Constitution nowhere contemplates it to be an essential element of fee
that it should be credited to a separate fund and not to a consolidated fund.
11. In Municipal Corporation of Delhi and others vs. Mohd. Yasin AIR
1983 SC 617, it was held that compulsion is not the hallmark of the
distinction between a tax and a fee. That the money collected does not go
into a separate fund but goes into the consolidated fund does not also
necessarily make a levy a tax. Though a fee must have relation to the
services rendered, or the advantages conferred, such relation need not be
direct; a mere casual relation may be enough. It was further held that it is
neither necessary nor expedient to weigh too meticulously the cost of the
services rendered etc., against the amount of fees collected so as to evenly
balance the two. A broad correlationship is all that is necessary. Quid pro
quo in the strict sense is not the one and only true index of a fee; nor is it
necessarily absent in a tax.
12. The same question was again examined in considerable detail in Krishi
Upaj Mandi Samiti and others vs. Orient Paper & Industries Ltd. 1995 (1)
SCC 655. Here, it was held that it is not always possible to workout in
mathematical precision the amount of fee required for the services to be
rendered each year and to collect just that amount which was sufficient for
meeting the expenditure in that year. Every correlationship between the
levy and the services rendered is one of general character and not a
mathematical exactitude. All that is necessary is that there should be a
reasonable relationship between the levy of fee and the services rendered.
There is no postulate of a fee that it must have a direct relation to the actual
services rendered by the authority to each individual to obtain the benefit of
a service. It was further observed that it is now increasingly realized that
merely because the collections for the services rendered or for grant of a
privilege or 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 of the nature of the levy whether it is a fee or a tax.
13. Secretary to Government of Madras and another vs. P.R. Sriramulu
and another 1996 (1) SCC 345 is a decision rendered by a Bench of three
learned Judges and the appeal was directed against the judgment of the High
Court of Madras wherein Schedule (1) to the Tamil Nadu Court Fees and
Suits Valuation Act, 1955 and sub-rule (1) of Rule 1 of Order II of the High
Court Fees Rules, 1956 based on Article (1) of Schedule (1) of Madras Act
No. XIV of 1955 were held to be invalid in so far as they related to the levy
of court fees on ad valorem scale. The Court observed that the
administration of justice is one of the main functions of the State. It is also a
fact that the function of the State in the modern time has become too
expensive in encompassing a large area of activity. The State has not only to
maintain a system of administration of justice, but also the maintenance of
law and order. It has also to provide a system to enable its citizen to canvass
their rights against the wrong done to them as well as to the State itself. It is
for these reasons that the State came forward to levy fee by legislative
amendments in order to cover up the expenses towards pay, allowances and
pensions of judicial officers and establishment staff, their residential
accommodations, court buildings, repairs and maintenance as well as other
expenses under various heads mainly engaged and employed for the
administration of justice. After taking note of the observation in Om Prakash
Agarwal vs. Giri Raj Kishori 1986 (1) SCC 722, that in determining a levy
as fee the true test must be whether its primary and essential purpose is the
rendering of specific services to a specified area or class, it being of no
consequence that the State may ultimately and indirectly be benefited by it, it
was held that if a broad and general correlation between the totality of the fee
on the one hand and the totality of the expenses of the services on the other is
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8
established, the levy will not fail in its essential character of a fee on the
ground alone that the measure of its distribution on the persons or incidence
is disproportionate to the actual services obtainable by them. The test of the
correlationship is not in the context of the individual contributors, the test is
on the comprehensive level of the value of the totality of the services, set off
against the totality of the receipts. Accordingly, it was held that the test of
correlation is to be reckoned at the aggregate level and not at the individual
level. On these principles the appeal was allowed and the judgment of the
High Court was set aside.
14. In a recent judgment rendered in Bombay Stock Exchange Brokers’
Forum vs. Securities and Exchange Board of India 2001 (3) SCC 482 by a
Bench of three learned Judges, the challenge levelled against the registration
fee levied by the Securities and Exchange Board of India on Stock Brokers
came up for consideration. The Bench after review of a number of earlier
decisions, including Constitution Bench decision in Shirur Mutt case (supra),
took note of the fact that in determining whether a levy is a fee or not,
emphasis must be on whether its primary and essential purpose is to render
specific services to a specified area or a class and if in that process it is found
that the State ultimately stood to benefit indirectly from such levy, the same
is of no consequence. After examination of the relevant Act and the
Regulations, the Court held that since the amount collected under the levy
account in the said case was being spent by the Board on various activities of
the Stock and Securities market with which the petitioners are directly
connected, the fact that the entire benefit of the levy does not accrue to the
contributors i.e. the petitioners, would not make the levy invalid.
15. It will be thus seen that the statement of law made in Shirur Mutt case
(supra) regarding the attributes of fee has undergone a sea change. The
consistent view now is that there is no generic difference between a tax and a
fee which are both compulsory exaction of money by public authorities. The
correlationship between the levy and the services rendered should be one of
general character and not of mathematical exactitude. Further, the broad and
general correlationship between the totality of the fee on the one hand and
the totality of the expenses of the services on the other, will be sufficient to
justify the levy. The levy will not fail only on the ground that the measure of
its distribution on the persons or incidence is disproportionate to the actual
services rendered by them. The true test being the comprehensive level of
the value of the totality of the services set off against the totality of the
receipts. The character of the fee is thus established. The vagaries in its
distribution amongst the class do not detract from the concept of a fee as
such.
16. The subject matter of challenge in the present case is registration fee
which has been fixed by the State Government in exercise of power
conferred by Section 78 of the Registration Act. The said provision reads as
under:
"78. Fees to be fixed by State Government. The State
Government shall prepare a table of fees payable --
(a) for the registration of documents;
(b) for searching the registers;
(c) for making or granting copies of reasons, entries
or documents, before, on or after registration;
and of extra or additional fees payable --
(d) for every registration under section 30;
(e) for the issue of commissions;
(f) for filing translations;
(g) for attending at private residences;
(h) for the safe custody and return of documents; and
(i) for such other matters as appear to the State
Government necessary to effect the purposes of
this Act".
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8
17. The fixation of registration fee under Sub-section (a) on a graduated
scale depending upon the value or consideration for which the instrument
has been executed may be on the higher side. However, the fee for various
other items enumerated in sub-sections (b) to (i) is very small, though the
State has to incur a considerable amount of expenditure for the same. The
high value transactions are generally in big cities where the value of the
property is high and not in small towns or in rural areas. Nevertheless, the
State Governments have to maintain offices of Sub-Registrars in small sub-
divisional towns and post staff which has to be paid salaries. Rules have
been framed by various State Governments which lay down elaborate
procedure for maintenance of Books and Registers wherein copies of
registered documents have to be kept. This necessarily requires trained
manpower entailing expenditure in payment of their salary.
18. There is no material on record to show that the overall amount
received by the Government by way of fee from the Registration department
far exceeds the overall expenditure incurred in maintaining the said
department. The High Court and also the District Court merely took into
consideration the registration fee paid by the plaintiffs and did not at all
examine whether there was any substantial discrepancy between the total
amount of fee realized by the registration department and the total amount of
expenditure incurred by the government in the maintenance and functioning
of the department. The notification issued by the State Government could
not be struck down merely by taking into consideration the registration fee
paid by the plaintiffs and quantification of the value of services rendered to
them.
19. Learned counsel for the respondents has placed reliance upon The
Delhi Cloth and General Mills Co. Ltd. and others vs. the Chief
Commissioner, Delhi and another AIR 1964 Punjab 492, State of Uttar
Pradesh vs. The District Registrar, Meerut and another AIR 1971 Allahabad
390 and The Chief Commissioner, Delhi and another vs. The Delhi Cloth
and General Mills Co. Ltd. and others AIR 1978 SC 1181 (which is a
decision by a bench of two learned Judges in appeal preferred against the
judgment reported in AIR 1964 Punjab 442) in support of his contention
that the notification issued by the State Government prescribing the
registration fee in tabulated form is illegal. It is not necessary to examine
these cases in detail as in all these cases reliance has been placed upon
Shirur Mutt case (supra) for holding that there must be an element of quid
pro quo and that the fee realized must be correlated and must be spent for the
purposes of imposition. As discussed above, the view taken in Shirur Mutt
case (supra) has undergone a considerable change by subsequent decisions
of this Court. Moreover, having regard to the express language used in
Article 266 of the Constitution, it is not possible for the State Government to
keep the fee realized in a separate fund other than the Consolidated Fund of
the State. In view of the subsequent decisions of this Court, the view taken
in the decisions relied upon by learned counsel for the plaintiff-respondents
cannot be considered to be good law and they are hereby overruled.
20. For the reasons discussed above, the appeal is allowed with costs.
The judgment and decree passed by the High Court and also by the District
Judge and Senior Sub-Judge, Solan, are set aside and the suit filed by the
plaintiff-respondents is dismissed.