2004 (12) TMI 677 - SC - Indian Laws

Whether the fee of the nature impugned as a matter of fact, a tax in the guise of fee and whether it is so excessive or unreasonable as to loose the character of fee?

Summary

Issues Involved:
1. Validity of Section 9-A of the Bombay Money Lenders Act, 1946.
2. Distinction between tax and fee.
3. Quid pro quo requirement for fees.
4. Retrospective application of the inspection fee.
5. Allegations of arbitrariness and violation of Article 14 of the Constitution.

Detailed Analysis:

1. Validity of Section 9-A of the Bombay Money Lenders Act, 1946:
The appellants challenged the validity of Section 9-A, asserting it was ultra vires the Constitution as it imposed an inspection fee for the renewal of money lender's licenses. They argued that this fee was essentially a tax, which the State Legislature was not authorized to levy under Entry 30 of List II of the Seventh Schedule of the Constitution. The High Court upheld the provision, stating that the fee was regulatory and aimed at controlling money lending practices to protect debtors.

2. Distinction between Tax and Fee:
The appellants contended that the inspection fee was a tax disguised as a fee, as there was no quid pro quo. They argued that fees must be for services rendered, whereas taxes are compulsory exactions for public purposes. The Supreme Court reiterated that taxes are compulsory and for public purposes, while fees are for specific services rendered. The Court noted that the fee in question was regulatory, serving to control and supervise money lending, thus protecting debtors.

3. Quid Pro Quo Requirement for Fees:
The appellants argued that there was no quid pro quo, making the fee a tax. The Supreme Court, referencing past judgments, clarified that quid pro quo is not always necessary for regulatory fees. It suffices if there is a reasonable relationship between the fee and the services rendered. The Court observed that the inspection of accounts before renewing licenses constituted a direct service to money lenders, fulfilling the requirement of quid pro quo.

4. Retrospective Application of the Inspection Fee:
The appellants challenged the retrospective application of the inspection fee for the period 1.8.1991 to 31.7.1992, as the amendment came into effect on 28.4.1992. The Supreme Court did not find merit in this argument, emphasizing the regulatory nature of the fee and its role in ensuring compliance with the Act.

5. Allegations of Arbitrariness and Violation of Article 14:
The appellants claimed that the maximum levy of Rs. 5,000 was arbitrary and violated Article 14 of the Constitution. They argued that the fee was disproportionate and not related to any specific service. The Supreme Court dismissed this claim, noting that the fee was necessary for regulating money lending and protecting debtors. The Court also highlighted that the fee was not excessive, given the increase in government expenses and the need for regulatory infrastructure.

Conclusion:
The Supreme Court upheld the validity of Section 9-A of the Bombay Money Lenders Act, 1946, affirming that the inspection fee was regulatory and not a tax. The Court emphasized that quid pro quo is not a strict requirement for regulatory fees and that the fee served a larger public interest by controlling money lending practices and protecting debtors. The appeal was dismissed with no order as to costs.