2011 (11) TMI 405 - SC - Indian Laws

Constitutional validity of the Cess Act - Tax versus Fee - The High Court has held that The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 (for short the BOCW Act ); The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Central Rules, 1998, (for short the 1998 Central Rules ); The Building and Other Construction Workers Welfare Cess Act, 1996 (for short the Cess Act ) and The Building and Other Construction Workers Welfare Cess Rules, 1998 (for short the Cess Rules ) are constitutionally valid and within the competence of the Parliament as the levy under the impugned enactments is a fee , referable to Entry 97 of List-I of the Seventh Schedule of the Constitution of India. Held that - the inevitable conclusion is that in the instant case there does exist a reasonable nexus between the payer of the Cess and the services rendered for that industry and therefore, the said levy cannot be assailed on the ground that being in the nature of a tax , it was beyond the legislative competence of Parliament. The levy by the impugned Act is in effect a fee and not a tax - Decided in favor of revenue

Issues Involved:
1. Constitutional validity of the Building and Other Construction Workers Welfare Cess Act, 1996 (Cess Act).
2. Legislative competence of the Parliament to enact the Cess Act.
3. Whether the levy under the Cess Act is a 'fee' or a 'tax'.

Detailed Analysis:

1. Constitutional Validity of the Cess Act:
The primary issue in these appeals was the constitutional validity of the Building and Other Construction Workers Welfare Cess Act, 1996 (Cess Act). The High Court of Delhi had previously upheld the validity of the Cess Act, along with the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 (BOCW Act), and the associated rules, declaring them constitutionally valid and within the competence of the Parliament.

2. Legislative Competence of the Parliament:
The appellant challenged the legislative competence of the Parliament to enact the Cess Act, arguing that the levy imposed by the Cess Act is essentially a tax and not a fee, and therefore falls under Entry 49 of List II (State List) concerning taxes on lands and buildings, which is beyond the legislative competence of the Parliament. The respondents, however, defended the legislation, asserting that the Cess Act is within the legislative competence of the Parliament under Entry 97 of List I (Union List) of the Seventh Schedule of the Constitution.

3. Whether the Levy is a 'Fee' or a 'Tax':
The core issue was whether the levy under the Cess Act is a 'fee' or a 'tax'. The Court examined the definitions and provisions under the BOCW Act and the Cess Act, and the purpose and application of the funds collected under these statutes. The Court noted that the primary object of the Cess Act is to augment the Welfare Fund under the BOCW Act, which is directed towards the welfare of building and construction workers. The funds collected are not merged into the general public revenues but are specifically appropriated for the welfare of the workers, establishing a quid pro quo between the levy and the services rendered.

The Court referred to several precedents, including the Shirur Mutt case and Hingir Rampur Coal Co. Ltd. case, to delineate the distinction between a 'tax' and a 'fee'. It emphasized that a 'fee' is a compulsory exaction of money by public authorities for specific services rendered, whereas a 'tax' is imposed for public purposes without any direct benefit to the payer. The Court concluded that the levy under the Cess Act is a 'fee' because it is specifically earmarked for the welfare of building and construction workers and not for general public use.

The Court also addressed the argument regarding the absence of a direct quid pro quo between the payer (contractors) and the beneficiary (workers). It clarified that while an exact quid pro quo is not necessary, a reasonable relationship between the levy and the services rendered is sufficient to classify the levy as a 'fee'. The Court found that such a reasonable nexus exists in this case.

Conclusion:
The Supreme Court upheld the constitutional validity of the Cess Act, affirming that the levy under the Cess Act is a 'fee' and not a 'tax'. Consequently, the Parliament had the legislative competence to enact the Cess Act under Entry 97 of List I. The appeals were dismissed with costs of Rs. 25,000/- in each set of appeals.

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