SUPREME COURT OF INDIA
Vijayalashmi Rice Mill
Vs
Commercial Tax Officers, Palakol
Civil Appeal Nos. 5120-5132 of 1999 With C.A. Nos. 5133, 5134-5137, 5138-5140, 5141, 5142-5143, 5144-5146, 5147 & 5148 of 1999
(Ashok Bhan and Markandeya Katju, JJ)
07.08.2006
MARKANDEY KATJU, J.
1. Civil Appeal Nos. 5120-5132 of 1999 have been filed against the Judgment and
Order dated 25-9-1998 of the High Court of Andhra Pradesh passed in Writ
Petition Nos. 19213, 19299, 19384, 19385, 19387, 19388, 19389, 19523, 19526,
19707, 19709, 19915 and 22448 of 1998, by which the Constitutional validity of
the Andhra Pradesh Rural Development Act, 1996 has been upheld.
2. Heard Shri M. N. Rao, learned Senior counsel for the appellants, and Shri
Rakesh Dwivedi, learned Senior counsel for the respondents.
3. Most of the petitioners-appellants are registered firms, while some of them
are individual traders engaged in the business of rice milling. It is alleged
that they are regularly submitting returns to the Commercial Tax Authorities
reflecting their turnovers of purchase of paddy as well as sale of rice every
year and accordingly they pay purchase and sales tax. They are challenging the
levy of cess under the Andhra Pradesh Rural Development Act, 1996 (hereinafter
referred as "the Act") which levies cess in addition to the purchase
or sales tax being paid by them. It is alleged that the aforesaid cess under
the Act does not fall under any of the entries in List-II or List-III of the
Seventh Schedule to the Constitution. Hence it is alleged that the aforesaid
levy of cess is invalid.
4. Entry 54 of List-II of the Seventh Schedule no doubt empowers the State
Legislatures to levy tax on purchase or sale of goods, but since the goods in
question have been declared as declared goods under the Central Sales Tax Act,
it is submitted by the appellant that the maximum sale or purchase tax can be
4% and the appellants have already paid more than that as sale/purchase tax.
Hence it is contended that the levy of cess under the Act is invalid.
5. On the other hand, Shri Rakesh Dwivedi, learned Senior counsel for the State
of Andhra Pradesh, has submitted that the cess in question is in fact a fee,
and hence it comes under Entry 66 of List-II of the Seventh Schedule to the
Constitution.
6. Shri Rao, learned Senior counsel for the appellants contended that there was
no quid -pro quo in the levy of the cess, and hence it cannot be said to be a
fee. He has invited our attention to the allegation in para 5 of the affidavit
in support of the writ petition, where it has been alleged "The cess is
collected from a dealer and nothing is done specially to benefit the dealer.
The cess partakes the character of a tax".
7. A copy of the Andhra Pradesh Rural Development Act, 1996 has been annexed as
annexure P-l. In the Statement of Objects and Reasons of the Act, it is stated
-
"It is observed that the development in the rural areas in the State has
not been accelerated due to paucity of funds. The Government are of the
view-that there is an imperative need to provide financial assistance for the
development of rural areas in the State by creating infrastructure facilities,
so that the economic activities in the rural areas will increase and thereby
contribute for the growth of the economy. With a view to generating funds for
the purpose of development of the rural areas, it is considered desirable to
levy a cess @ 5% on the ad valorem basis on the quantity of the purchase of
goods specified in the Schedule appended to the Bill."
8. Section 3 of the Act empowers the State Government by notification to
establish the Andhra Pradesh Rural Development Board.
9. Section 7(1) states : There shall be levied and collected by the Government
a cess @ 5% on the ad volerem on the quantum of purchase of goods".
10. Section 8 establishes a fund to be called "The Andhra Pradesh Rural
Development Fund" which vests in the Board.
The purpose of this fund has been mentioned in Section 9 which states
"9 Purpose for which the Fund may be applied : The Fund shall be applied
for the purposes herein specified –
(i) to provide and accelerate comprehensive rural development including the
construction of rural roads and bridges;
(ii) to augment storage facilities for storing agricultural produce; and
(iii) for maintaining and strengthening of Public Distribution System".
11. The question in the present case is whether the impost in question is a fee
or a tax. If it is a tax, then it will have to be held to be unconstitutional
because it does not come in any of the Entries in List-IE of the Seventh
Schedule to the Constitution. However, if it is a fee, then it comes under
Entry 66 of List-II.
12. Ordinarily, a cess means a tax which raises revenue, which is applied to a
specific purpose. Thus in Guruswamy and Co. v. State of Mysore .
Hidayatullah, J. in his dissenting judgment observed –
"The word 'cess' is used in Ireland and is still in use in India although
the word rate has replaced it in England. It means a tax and is generally used
when the levy is for some special administrative expense which the name (health
cess, education cess, road cess, etc.) indicates. When levied as an increment
to an existing tax, the name matters not for the validity of the cess must be
judged of in the same way as the validity of the tax to which it is an
increment."
The aforesaid observations has been referred to by the Constitution Bench
decision of this Court in India Cement Ltd. & Ors. v. State of Tamil Nadu
& Ors. vide para 19.
13. Hence ordinarily a cess is also a tax, but is a special kind of a tax.
Generally tax raises revenue which can be used generally for any purpose by the
State. For instance, the Income Tax or Excise Tax or Sales Tax are taxes which
generate revenue which can be utilized by the Union or State Governments for
any purpose, e.g. for payment of salary to the members of the armed forces or
civil servants, police, etc. or for development programmes, etc However, cess
is a tax which generates revenue which is utilized for a specific purpose. For
instance, health cess raises revenue which is utilized for health purposes e.g.
building hospitals, giving medicines to the poor etc. Similarly, education cess
raises revenue which is used for building schools or other educational
purposes.
14. However, in such matters nomenclature is not very important and we have to
see the nature of the levy. Hence, what is called a cess may be in reality a
fee depending on its nature.
15. It is well settled that the basic difference between a tax and a fee is
that a tax is a compulsory exaction of money by the State or a public authority
for public purposes, and is not a payment for some specific services rendered.
On the other hand, a fee is generally defined to be a charge for a special
service rendered by some governmental agency- In other words there has to be
quid pro quo in a fee vide Kewal Krishan Puri v. State of Punjab.
16. The earlier view of the Supreme Court was that to sustain the validity of a
fee some specific service must be rendered to the particular individual from
whom the fee is sought to be realized. However, subsequently in Sreenivasa
General Traders v. State of Andhra Pradesh , Supreme Court observed –
"The traditional view that there must be actual quid pro quo for a fee has
undergone a sea change in the subsequent decisions. The distinctions between a
tax and a fee lies preliminary in the faet that a tax is levied as part of a
common burden, vide a fee is for payment of a specific benefit or privilege
although the specific advantage is secondary to the primary motive of
regulation in public interest. If the element of revenue for general purpose of
the State predominates, the levy becomes a tax. In regard to fees there is, and
must always be, correlation between the fee collected and the service intended
to be rendered There is no generic difference between a tax and a fee. Both are
compulsory exaction of money by public authorities."
17. Similarly in City Corporation of Calicut v. Thachambalath Sadasivan ,
which has placed reliance on an earlier decision of the Supreme Court in Amar
Nath Om Prakash v. State of Punjab it was held that –
"It is thus well settled in numerous recent decisions of this Court that the traditional concept in a fee of quid pro quo is undergoing a transformation and that though the fee must have relation to the services rendered, or the advantages conferred, such relation need not be direct, and a mere casual relation may be enough. It is not necessary, to establish that those who pay the fee must receive direct benefit of the services rendered for which the fee is being paid. If one who is liable to pay receives general benefit from the authority levying the fee the element of service required for collecting fee is satisfied. It is not necessary that the person liable to pay must receive some special benefit or advantage for payment of the fee."
18. Subsequently, also the same view has been reiterated that there has been a
sea change in the concept of a fee and now it is no longer regarded necessary
that (i) some specific service must be rendered to the particular individual or
individuals from whom the fee is being realized, and what has to be seen is
whether there is a broad and general correlation ship between the totality of
the fee on the one hand, and the totality of the expenses of the services on
the other, vide State of Himachal Pradesh v. M/s. Shivalik Agro Poly Products,
; (ii) there need not be an exact or mathematical correlation between the
amount realized as a fee and the value of the services rendered. A broad
correlation between the two is sufficient to sustain the levy.
19. In the present case, there is no averment by the petitioner in the writ
petition that there is no broad correlation between the amount realized as a
cess and the amounts spent for the purposes mentioned in Section 9 of the Act,
namely, to provide and accelerate rural development including the construction
of rural road and bridges and storage facilities for storing growth and for
maintaining and strengthening of the Public Distribution System. All that has
been alleged by the petitioner in para 5 of the affidavit to the writ petition
is that no specific benefit is given to the dealer from whom the cess is
collected.
20. Thus the factual averment in the writ petition is limited to the plea that
there is no specific service rendered to a particular dealer from whom the fee
is realized. There is no factual averment that there is no broad correlation
between the total amount of cess realized and the total value of the service
being rendered to the people living in the rural areas.
21. As already stated above, the concept of fee has undergone a sea change, and
hence the writ petition is liable to fail on the mere ground that the writ
petition was drafted under a total misconception about the legal position. As
already stated above, the concept of fee has undergone a sea change, while the
writ petition has been drafted in the light of the old concept of fee and not
the new concept which was subsequently developed by the Supreme Court.
22. In Sona Chandi Oal Committee v. State of Maharashtra 2005 AIR(SC)
635, this Court observed as under –
"The traditional concept of quid pro quo in a fee has undergone
considerable transformation. So far as the regulatory fee is concerned, the
service to be rendered is not a condition precedent and the same does not lose
the character of a fee provided the fee so charged is not excessive. It was not
necessary that service to be rendered by the collecting authority should be
confined to the contributories alone. The levy does not cease to be a fee
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 a direct relation to the
actual service rendered by the authority to each individual who obtains the
benefit of the service. Quid pro quo in the strict sense was not always a sine
qua non for a fee. All that is necessary is that there should be a reasonable
relationship between the levy of fee and the services rendered and it is not
necessary to establish that those who pay the fee must receive direct or
special benefit or advantage of the services rendered for which the fee was
being paid. It was held that if one who is liable to pay, receives general
benefit from the authority levying the fee, the element of service required for
collecting the fee is satisfied."
23. In State of West Bengal v. Kesoram Industries Ltd. & Ors. 2004
(10) SCC 201 a Constitution Bench of the Supreme Court (vide para 140) observed
–
"The imposition of cess envisaged through the SAD A Act and the Rules was
a step towards developing the special area. It is a matter of common knowledge,
and does not need any evidence to demonstrate, that mining activity carried on
the land within the special area involves extraction, removal,
loading-unloading and transportation of the minerals accompanied by its natural
consequences entailed on the environment and the infrastructure such as roads,
water and power supply etc. within the special area. The impugned cess can,
therefore, be justified as a fee for rendering such services as would improve
the infrastructure and general development of the area, the benefits whereof
would be availed even by the stone-crushers. Entry 66 in List II is available
to provide protective constitutional coverage to the impugned levy as
fee."
24. In Shiv Dayal Singh Ors. v. State of Haryana & Others 1987 Indlaw PNH 79, the Punjab and Haryana High Court has
upheld the validity of the Haryana Rural Development Act, which is similar to
the Act in question. We are in respectful agreement with the view taken by the
Punjab and Haryana High Court in the aforesaid decision. A similar view was
also taken by the Supreme Court in M/s. Kishan Lai Lakhmi Chand & Ors. v.
State of Harvana & Others 5.
25. Learned counsel for the appellant has relied on the Constitution Bench
decision of this Court in Jindal Stainless Ltd. & Anr. v. State of Haryana
& Ors. 2006 (4) JT 611 and he relied on para 39 of the said judgment
which refers to "the principle of equivalence". In our opinion the
aforesaid decision cannot be interpreted to mean that the sea change which has
taken place in the concept of fee (as noted above) has vanished, and that by
this decision the old concept of fee has been restored, and that now it has to
be established that the particular individual from whom the fee is being
realized must be rendered some specific services.
26. It may be noted that the decision in Jindal Stainless (supra) was given in
connection with Article 301 of the Constitution, and it was not regarding the
nature of a fee. Hence, it cannot be regarded as an authority explaining the
nature of a fee. In our opinion the decisions of this Court in Sreenivasa
General Traders v. State of A.P. (supra), City Corporation of Calicut v.
Thachambalath (supra), State of Himachal Pradesh v. M/s. Shivalik Agro Poly
Products (supra), etc. still hold the field regarding the nature of a fee.
27 In our opinion the cess in question is in substance a fee as it is being
levied for rendering to the rural public the service of rural development for
the purposes stated in para 9 of the Act. Clearly roads, bridges and storage
facilities have to be built in rural areas for progress, and naturally this
will require generating funds. Thus even if no specific service is rendered to
any particular individual from whom the fee has been realized, the cess in
question is nevertheless a fee, for the reasons already mentioned above.
Services are being rendered to the people in the rural areas as mentioned in
Section 9 of the Act.
28. No doubt, as stated above, there has to be a broad correlation between the
total amount of fees generated by the impugned cess and the total value of the
services rendered, but there is no specific averment in the writ petition that
there is no such broad correlation. It is true that if, say, Rs. 100 crores
revenue is generated every year by this cess, it is not necessary that this
entire amount of Rs. 100 crores must be spent for the purposes mentioned in
Section 9, and it will suffice if a substantial part of this Rs. 100 crores is
spent for such purposes. At the same time we would like to clarify that if,
say, Rs. 100 crores is generated by the cess in question and only Rs. 1 crore
or Rs.50 lacs is spent for the purpose mentioned in Section 9, obviously there
would not be in such a case a broad correlation between the fees being realized
and the service rendered.
29. Hence, while we uphold the validity of the Act, we leave it open to the
petitioners (or any other person concerned) in the special circumstances of the
case, to file a fresh petition, wherein he can make a specific averment that
there is no broad correlation between the total amount of cess being realized
every year under the Act and the total value of the services being rendered every
year in accordance with Section 9. If the appellants (or any other concerned
person) files such a fresh petition, the State of Andhra Pradesh will have to
give facts and figures in their counter affidavit showing that there is a broad
correlation between the total amount of cess being realized and the total value
of the services rendered. If it is found that there is no such broad
correlation then obviously a suitable mandamus can be issued by the High Court,
as is required by the circumstances of the case.
30. With the aforesaid observations these appeals are dismissed. No costs.
Civil Appeal Nos. 5133/1999, 5134-5137/1999, 5138-5140/1999, 5141/1999,
5142-5143/1999, 5144-5146/1999, 5147/1999 & 5148/1999
31. In view of the decisions in Civil Appeal Nos. 5120-5132 of 1999 these
appeals are accordingly dismissed. No costs.
J