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TMI Blog2015 (9) TMI 1213X X X X Extracts X X X X X X X X Extracts X X X X ..... virtue of the Act of 1976, on the activities for which the Three Star hotels or auditoriums, covered under the impugned enactment are taxed. Any amenity or service provided in a hotel, auditorium or kalyanamantapam where the rate of charges for such amenity or service is above a specified limit; are deemed to be luxury and is taxed under Entry 62. The tax levied is on the aspect of luxury enjoyed. The fees now sought to be levied, tracing the power to Entry 66 List II and correlating it with Entry 62, cannot be sustained in view of the specific intention professed for providing marriage assistance to the under-privileged. This is not to say that good intentions of the Government alone could sustain the levy. Taxing the 'haves' to enrich the 'have-nots' though an extolled virtue; it has certain restrictions when applied to a system built on rule of law. While exercising powers of taxation under a constitutional framework, State can ill afford to put on the mantle of a Robin Hood. The primary object and the essential purpose of the levy as also the ultimate result is the constitution of a fund; 'Mangalya Nidhi', to assist the under-privileged women, in getting married. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e heard the learned counsel appearing in the various writ petitions as also the learned Special Government Pleader (Taxes). Both have placed decisions before this Court, which would be discussed in the course of the judgment and the minimal facts, which are necessary for the disposal of these writ petitions, are referred to from W.P.(C). No. 4555 of 2014. 3. The petitioners are all owners of auditoriums/hotels and the individuals who conducted marriages of their wards; obliged to pay the cess brought out by the Kerala Finance Act, 2013. The extract of the Act, with the impugned provisions, is produced as Exhibit P8. The Rules prescribed, much later, are produced at Exhibit P9. The petitioners also raise a contention in so far as the collection and levy of cess being not operative during the interregnum, when there were no rules; for lack of machinery provisions to levy and collect the cess. The main challenge, however, is with respect to the constitutionality of the levy and the same being not within the competence of the State Legislature as also the blatant arbitrariness and the obvious discrimination. 4. It is contended by the learned counsel for the petitioners that, most ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear discrimination in having excluded all weddings conducted other than in a Three Star hotel or an auditorium having a capacity of more than 500 seats. The petitioners pointedly refer to the weddings conducted in other hotels/auditoriums and inter alia in religious institutions and open areas with temporarily erected shamianas and so on and so forth. Furthermore, the renting of auditoriums and hotels are made for various purposes and there is no reason why 'weddings' alone should be singled out. The instant levy cannot be sustained as a tax; nor could it be upheld as a fee, is the argument. 7. The learned Special Government Pleader (Taxes), would, on the basis of the counter affidavit, assert that the levy is a fee under Entry 66 of List II of the Seventh Schedule to the Constitution. The learned Special Government Pleader goes one step further to contend that the levy is a fee for use of an auditorium for the purpose of marriage and attempts to correlate the fee with Entry 49 and Entry 62 of List II of the Seventh Schedule and alternatively under Entry 47 correlated with Entry 5 of List III of the Seventh Schedule. 8. Looking at the charging section, the levy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re should definitely be a connection, however remote, when such fees are compensatory in nature. In the case of regulatory fees, essentially there should be an amount of regulation and the quantum of the levy should have some nexus with the expenditure incurred by the State, in making operative such regulations. Though a number of judgments of the Hon'ble Supreme Court and this Court have been cited, for the purpose of deciding the particular issue, reference to the decision in Delhi Race Club Ltd. v. Union of India: (2012) 53 VST 1 (SC)] would first suffice. The entire gamut of decisions have been referred to, in the said decision, while upholding the licence fee imposed on race courses; as a regulatory fee. 10. The challenge in Delhi Race Club Ltd. (supra) was on two counts; one being the delegation, of fixation of licence fee, to the rule making authority as being excessive delegation, in so far as there being absolutely no guidance in the statute as to how such rate be fixed. The second challenge was on the ground that the fee levied is in fact a tax and, therefore, ultra vires Entry 66 List II of the Seventh Schedule. The first ground of challenge would not be relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould remain confined to the persons from whom the fee has been collected. Availability of indirect benefit and a general nexus between the persons bearing the burden of levy of fee and the services rendered out of the fee collected is enough to uphold the validity of the fee charged... . (emphasis supplied) Hence, in considering the sustainability of the levy, the primary object and the essential purpose of the levy must be distinguished from its ultimate or incidental results. The fact that incidentally or ultimately the State or the public in general benefits from the levy would not denude the State of the authority to make such levy so long as some specific services are rendered in a specified area or to a specified class of persons or trade or business, wherein or to whom such service is extended by the State. 12. With respect to the need for 'quid pro quo', the necessity of only a broad correlation between the impost and the services rendered was emphasized; following the judgment in Sreenivasa General Traders v. State of Andhra Pradesh: (1983) 4 SCC 353]. The Hon'ble Supreme Court in the said decision deviated from the traditional view, in the following word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent kinds of levy and the former is not intended to be a fee for services rendered. In granting licences and thereby bringing in regulations, the fee charged would necessarily be, to defray the cost of administering such regulatory measure. If that would enrich the coffers of the State, which money would also be used for public purposes, unrelated to the regulatory measure; that alone cannot result in the levy being struck down. Hence, when a fee is charged for rendering specific services, quid pro quo is existent; but there need not be any mathematical exactitude between the services rendered and the fee charged. The service rendered need not also be confined to the persons or class of persons on whom the levy is made; but there should be an element of service to persons who have the liability. When the fees are essentially regulatory, despite there being no service rendered, the same would be sustainable and there would be absolutely no necessity for any 'quid pro quo' [Secunderabad Hyderabad Hotel Owners' Association v. Hyderabad Municipal Corporation: (1999) 2 SCC 274]. The other principles as in 'service' would equally apply in a 'regulatory' measu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion only places the concept of 'cess' in the proper perspective insofar as declaring it to be a compulsory levy imposed either for special administrative expense or as an increment or increase on the existing tax and its sustainability being entitled to be adjudicated, just as the validity of a tax. 17. A Constitution Bench of the Hon'ble Supreme Court in Jindal Stainless Ltd. v. State of Haryana: AIR 2006 SC 2550] reiterated that a 'fee', 'tax' as also 'compensatory tax', the latter being a judicially evolved concept; were all compulsory extractions from the public. In considering the parameters of compensatory tax, the difference between a 'tax', 'fee' and a 'compensatory tax' was succinctly stated so:- 38. Tax is levied as a part of common burden. The basis of a tax is the ability or the capacity of the taxpayer to pay. The principle behind the levy of a tax is the principle of ability or capacity. In the case of a tax, there is no identification of a specific benefit and even if such identification is there, it is not capable of direct measurement. xxx xxx xxx 39. On the other hand, a fee is ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phrased in G.K. Krishnan and Ors. v. State of T.N. and Ors.: (1975) 1 SCC 375] in the observation that the very idea of a compensatory tax is service more or less commensurate with the tax levied . 19. Entry 66 of List II specifically speaks of fees in respect of any of the matters in this List , for the purpose of which the learned Special Government Pleader correlates it to Entry 49 and Entry 62 of List II. Entry 49 refers to taxes on lands and buildings and what is argued is that, since the levy is on the use of auditoriums or Three Star hotels, the levy is one on buildings . The decision on which reliance was placed by the learned Special Government Pleader, in fact, goes against the said argument. India cements Ltd. (supra), as was noticed, levied a cess on royalty. The State sought to sustain the same on the ground that it is a levy on land, relatable to Entry 49 of List II. The Hon'ble Supreme Court, in para 23, refused to accept such contention and held so:- It is, therefore, not possible to accept Mr. Krishnamurthy Iyer's submission and that a cess on royalty cannot possibly be said to be a tax or an impost on land. Mr. Nariman is right that royalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to the under-privileged. The beneficiaries are not related to any service which has any remote connection to the persons on whom such levy is made. There is no regulatory exercise or administrative effort on the part of the Government; which if present could have possibly sustained the levy on the ground of defraying of expenses. 21. The State hence, does not provide any service or incur any administrative expense and the amount received on levy and collection is sought to be applied for the purpose of mobilizing a Matrimony Fund (Mangalya Nidhi) to finance poor girls; specifically as marriage assistance. So much is evident, only from the Budget Speech of the Minister and does not emanate from either the Act or the subsequent Rules framed. It is also pertinent that till date the Government has not thought it fit to frame a scheme for such distribution of largesse in the form of financial assistance to the poor sections of the community. This is not to say that good intentions of the Government alone could sustain the levy. Taxing the 'haves' to enrich the 'have-nots' though an extolled virtue; it has certain restrictions when applied to a system built on rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney, it should have the power so to do. Social responsibility though could be enforced under the fields of legislation, it should be relatable to a specific entry under the lists of the Seventh Schedule. 25. Koluthara Exports Ltd. v. State of Kerala: (2002) 2 SCC 459] was a case in which a welfare fund constituted for the fishermen, by the Kerala Fishermen Welfare Fund Act, 1985, was sought to be sustained as a regulatory measure under Entry 23 of List III. The impost was made on exporters of marine products. The Hon'ble Supreme Court referred to the observations of Alagiriswami, J. in Mangalore Ganesh Beedi Works v. Union of India: (1974) 4 SCC 43]:- Nobody can dispute the need for setting right those evils. But good intentions should not result in a legislation which would become ineffective and lead to a lot of fruitless litigation over the years . The burden, of the impost for the welfare of fishermen, under Entry 23 of List III, was held to be possible of placement, only in situations wherein there is a relationship of employer and employee, between the contributor and the beneficiary. 26. The primary object and the essential purpose of the levy as also t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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