1973 (2) TMI 9 - HC - Income Tax

Textiles Committee Act, 1963 - Textiles Committee Rules, 1965 - Whether levy of fees by textiles committee prior to fixation of standards for inspection is valid and whether collection of fees and expenditure is to be for each class separately

Summary

Issues Involved:
1. Legality of fee levy without established standards.
2. Requirement of quid pro quo for fee validity.
3. Separate treatment of fee classes.

Detailed Analysis:

1. Legality of Fee Levy Without Established Standards:
The appellant, a public limited company, challenged the levy of fees by the Textiles Committee, arguing that the Committee had not established standard qualities of textiles or provided standards for textile machinery as required under the Textiles Committee Act, 1963. The appellant contended that without such standards, the levy of fees for inspection was illegal. The court reviewed the background of the Act and noted that the Committee was tasked with ensuring standard qualities of textiles for both internal marketing and export purposes. The court found that no standards had been fixed for the internal consumption of textiles, and the inspection conducted was only in connection with the exporter's claim for import entitlement, not related to the appellant's manufactured goods. Consequently, the court concluded that the levy of fees without establishing standards was illegal and without jurisdiction.

2. Requirement of Quid Pro Quo for Fee Validity:
The appellant argued that the levy of fees should be correlated to the services rendered, and in the absence of quid pro quo, the levy would not qualify as a fee but rather an excise duty. The court examined the distinction between a fee and a tax, referencing several Supreme Court decisions. The court noted that the fees collected under the Act were intended to cover the cost of inspection and examination services provided by the Committee. However, the court found that the fees were being levied on the entire production of textiles without any actual inspection or services rendered to the appellant. Therefore, the court held that the levy lacked the necessary element of quid pro quo and was invalid.

3. Separate Treatment of Fee Classes:
The appellant contended that fees should be fixed separately for each class of textiles and textile machinery, and the expenditure for inspection should be commensurate with the services rendered to each class. The court acknowledged this contention but noted the impracticality of treating each class separately due to the common testing facilities and officers employed for all types of textiles and machinery. The court found that treating the three classes together was not illegal, given the circumstances and the variety of services rendered by the Committee.

Conclusion:
The court allowed the appeal, holding that the levy and collection of fees without established standards were illegal. The court issued a writ of prohibition, restraining the respondents from collecting fees before establishing the required standards. The appellant was awarded costs of Rs. 500.