1971 (4) TMI 93 - SC - Central Excise

Whether the levy made under the impugned rule Rule III of the Rules framed under Section 90 of the Bihar and Orissa Excise Act, 1915 is a fee? Whether the fee levied is, within the permissible limit? Held that - It is clear that before any levy can be upheld as a fee, it must be shown that the, levy has reasonable correlationship with the services rendered by the Government. In other words the levy must be proved to be, a quid pro quo for the services rendered. But in these matters it will be impossible to have an exact correlationship.The correlationship expected is one of a general character and not as of arithmetical exactitude. In this Court Counsel for the State prayed for an opportunity to place material to show that the levy in question is not disproportionate to the value of the services rendered by the State. Ordinarily we would not have acceded to that request coming at such a late stage, particularly in view of fact that the legal position had been clarified by a long chain of decisions of this Court. There is no doubt that the State has failed to place the necessary material before the Court to justify the levy. But the fact remains that because of the negligence of those in-charge of the defence of the State, the State may suffer considerable, financial loss, if we hold that the impugned Rule is void. Hence we are constrained to give the State a further chance to prove its case. In the result we allow the appeal, sat aside the order of the High Court and remit the case to the High Court for disposal according to law in the light of this decision. A further opportunity be given to the State to place material before that court to show that the value of the services rendered by the State has reasonable correlationship with the fee charged

Issues Involved:
1. Vires of Rule III of the Rules framed under Section 90 of the Bihar and Orissa Excise Act, 1915.
2. Whether the levy under the impugned rule is a fee or a tax.
3. Whether there is sufficient quid pro quo for the levy in question.
4. Whether the High Court's reasoning for upholding the levy is valid.
5. Whether the State has provided adequate material to justify the levy.

Issue-wise Detailed Analysis:

1. Vires of Rule III of the Rules framed under Section 90 of the Bihar and Orissa Excise Act, 1915:
The appellant, Indian Mica & Micanite Industries, contends that Rule III is ultra vires the Constitution. The High Court of Patna rejected this contention. The Supreme Court examined whether the fee levied is within permissible limits and if there is sufficient quid pro quo for the levy in question.

2. Whether the levy under the impugned rule is a fee or a tax:
The High Court concluded that the levy made under the impugned rule is a fee, a finding not challenged before the Supreme Court. The distinction between a fee and a tax was elaborated by citing previous judgments, including The Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, and others. A fee is generally defined as a charge for a special service rendered to individuals by a governmental agency, while a tax is a compulsory exaction of money by public authority for public purposes.

3. Whether there is sufficient quid pro quo for the levy in question:
The Supreme Court emphasized that for a levy to be upheld as a fee, it must be shown that there is a reasonable correlation with the services rendered by the government. The Court noted that the correlationship expected is one of a general character and not of arithmetical exactitude. The Court examined whether the State rendered any service to the appellant in lieu of the fee levied and whether there was a reasonable correlation between the services rendered and the fee charged.

4. Whether the High Court's reasoning for upholding the levy is valid:
The High Court upheld the levy on the ground that obtaining a licence to possess denatured spirit provided immunity from prosecution, which was considered a special benefit or privilege. The Supreme Court found this reasoning flawed, stating that the government cannot barter away its duty to prosecute an offender for consideration. The requirement to take a licence is prescribed to safeguard public interest and not as a source to gather revenue.

5. Whether the State has provided adequate material to justify the levy:
The State failed to place material before the Court to show the services rendered by it to the appellant and other similar licensees, the costs incurred for rendering those services, and the amount realized as fees. The Supreme Court noted that the correlationship between the services rendered and the fee levied is essentially a question of fact. The State's failure to provide necessary material led to the conclusion that the levy under the impugned Rule could not be justified. However, the Court allowed the State a further opportunity to prove its case, given the potential financial loss to the State.

Conclusion:
The Supreme Court allowed the appeal, set aside the order of the High Court, and remitted the case back to the High Court for disposal according to law in light of this decision. The State was given a further chance to place material before the Court to show that the value of the services rendered has a reasonable correlation with the fee charged. The appellant was to be given an opportunity to rebut any additional evidence provided by the State. The State was ordered to pay the costs of the appellant both in the Supreme Court and in the High Court and bear its own costs up to this stage.

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