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TMI Blog2000 (9) TMI 1047X X X X Extracts X X X X X X X X Extracts X X X X ..... o state that the main grounds on which the revised licence fee was challenged were : (i) that the Factories Act, 1948 (hereinafter referred to as the Act ) does not impose licence fee as there is no charging section; (ii) that the fee imposed amounts to a fee on production of goods and therefore it is a tax . The State has no power to levy the tax; (iii) that the Rules or the Act do not provide any criteria or guidelines for fixation of the licence fee; (iv) that collection of exorbitant fee to meet the State budget is a colourable exercise of power; so there is legal mala fide in enhancing the licence fee; (v) that the State has no power to impose or enhance the licence fee for any alleged services rendered or proposed to be rendered under other legislations other than the Act, as the power is delegated under the Act only; (vi) that the proposed strengthening of the Department and additional activities which are to be approved by the State Government cannot be a ground for revising the licence fee prior to increasing such expenditure. The proposal of strengthening the Department is with reference to other enactments also; and(vii) the classification shown in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uidelines are provided in the Act ? 5. Whether there is a delegation of power by Parliament to the State Government and the same is excessive, unguided and in violation of the provisions of the Constitution of India ? The High Court observed the first and foremost point to be considered in this batch of writ petitions is - whether the fee levied amounts to tax . After discussing in detail the legal positions with reference to several decisions of this Court, the High Court summed up its conclusion on the point in the following words : We can safely say that the distinction between a 'tax' and a 'fee' lies primarily in the fact that a 'tax' is imposed for public purposes and is not, and need not be supported by any consideration of service rendered in return; whereas a fee is levied essentially for services rendered and as such there is an element of quid pro quo between the person who pays the fee and the public authority which imposes it. Thus in 'fees' there is always an element of quid pro quo, which is absent in a 'tax'. Testing the facts of the case in the light of the principles noted above, the High Court came to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the respondents, on the other hand supported the judgment of the High Court. He contended that the quantum of fee collected has a nexus with the services rendered by the Department of the State Government in charge of enforcement of different laws governing factories in the State and keeping in view the large number of industrial units, particularly heavy industries which have come up in the State, the workload of the Directorate of Factories and the administrative department of the State Government has increased manifold requiring expansion of their establishments. In the circumstances submitted the learned counsel, the principle of quid pro quo is squarely complied with in the case. Before discussing the merits of the contentions raised on behalf of the parties we may clarify the position that it was not the case of the appellants that the State Government has no power to levy the licence fee in question. It was also not contended on their behalf that the levy suffers from any other illegality or infirmity except the non-compliance with the principle of quid pro quo.On the contentions raised on behalf of the parties as noted above the question that arises for determination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 111 - obligations of workers, Section 111-A - rights of workers, Section 112 - general power to make rules, etc. In Section 112 of the Act it is laid down that the State Government may make rules providing for any matter which, under any of the provisions of the Act, is to be or may be prescribed or which may be considered expedient in order to give effect to the purposes of this Act.The Andhra Pradesh Factories Rules, 1950 were framed in exercise of the power conferred under Section 112 of the Act. In Rule 4 thereof it is laid down that the occupier of every factory shall submit to the Inspector an application in the prescribed Form 2 in duplicate for registration of the factory and the grant of licence thereof. In Rule 5 in which provisions are made for grant of licence it is laid down in sub-rule (3) that an occupier shall not use any premises as a factory or carry on any manufacturing process in a factory unless a licence has been issued in respect of such premises and is in force for the time being, provided, that, if a valid application for grant of licence has been submitted and the required fee has been paid, the premises shall be deemed to be fully licensed unt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered and decision regarding applicability or otherwise of the principle has been taken. The point has been dealt with in umpteen cases, but we propose to notice only a few of them. In the case of Commr., H.R.E. v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt 1954 AIR(SC) 282 : 1954 SCR 1005) which is commonly referred to as Shirur Mutt case 1954 AIR(SC) 282 : 1954 SCR 1005) a Constitution Bench of this Court bringing out a distinction between a tax and other forms of impositions made the following observations : A neat definition of what 'tax' means has been given by Latha, C.J. of the High Court of Australia in Matthews v. Chicory Marketing Board ( 1938 (60) CLR 263 ). 'A tax', according to the learned Chief Justice, 'is a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment for services rendered . This definition brings out, in our opinion, the essential characteristics of a tax as distinguished from other forms of imposition which, in a general sense, are included within it. It is said that the essence of taxation is compulsion, that is to say, it is imposed under statutory power without t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining whether a levy is a fee or a tax, the true test must be whether its primary and essential purpose is to render specific services to a specified area or class; it may be of no consequence that the State may ultimately and indirectly be benefited by it. The power of any legislature to levy a fee is conditioned by the fact that it must be 'by and large' a quid pro quo for the services rendered. However, correlationship between the levy and the services rendered is one of general character and not of mathematical exactitude. All that is necessary is that there should be a reasonable 'relationship' between levy of the fee and the service rendered. There is no generic difference between a tax and a fee : both are compulsory exactions of money by public authorities. Compulsion lies in the fact that payment is enforceable by law against a person in spite of his unwillingness or want of consent. A levy in the nature of fee does not cease to be of that character merely because there is an element of compulsion or coerciveness present in it, nor is it a postulate of a fee that it must have direct relation to the actual service rendered by the authority to each individ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AIR(PC) 36(PC) this Court quoted with approval the observation that : If licences are granted it appears to be no objection that fees should be charged in order either to defray the costs of administering the local regulation or to increase the general funds of the Province or for both purposes. ... It cannot, as their Lordships think, be an objection to a licence plus a fee that it is directed both to the regulation of trade and to the provision of revenue. In the case of Delhi Cloth General Mills Co. Ltd. v. Chief Commr., Delhi ( 1969 (3) SCC 925 : 1970 (2) SCR 348) a three-Judge Bench of this Court considered the question whether the fee charged for annual renewal of licence to run a factory is in reality a tax or fee and further whether maintenance of Inspectors provides quid pro quo for fee, this Court observed : In the return which was filed in the High Court to the writ petition it was stated in paragraph 8 that the fees was being charged for the running of the whole establishment including the Factory Inspectorate which in its turn 'provides free inspection and expert technical advice etc. to factory owners in matters connected with safety, health, welfar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fee imposed must not be, in the circumstances of the case, excessive. In support of the view reliance was placed on Corpn. of Calcutta Liberty Cinema 1965 AIR(SC) 1107 : 1965 (2) SCR 477). This Court in para 18 of the judgment made the following observations : 18. The High Court in the impugned judgment has drawn a distinction between fees charged for licences, i.e., regulatory fees and the fees for services rendered as compensatory fees. The distinction pointed out by the High Court can be seen in clause (2) of Article 110 : '110. (2) A Bill shall not be deemed to be a Money Bill by reason only that it provides for the imposition of fines or other pecuniary penalties, or for the demand or payment of fees for licences or fees for services rendered, or by reason that it provides for the imposition, abolition, remission, alteration or regulation of any tax by any local authority or body for local purposes.' The High Court has quoted from this Court's decision in Corpn. of Calcutta v. Liberty Cinema 1965 AIR(SC) 1107 : 1965 (2) SCR 477), which was based on a Privy Council judgment in George Walkem Shannon v. Lower Mainland Dairy Products Board [1938] A.C. 708 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not really open to the respondent for Section 548 does not use the word fee , it uses the words licence fee and those words do not necessarily mean a fee in return for services. In fact in our Constitution fee for licence and fee for services rendered are contemplated as different kinds of levy. The former is not intended to be a fee for services rendered. This is apparent from a consideration of Article 110(2) and Article 199(2) where both the expressions are used indicating thereby that they are not the same. In George Walkem Shannon v. Lower Mainland Dairy Products Board [1938] A.C. 708 : (107) L.J. P.C. 115 : 1939 AIR(PC) 36(PC) it was observed : If licences are granted, it appears to be no objection that fees should be charged in order either to defray the costs of administering the local regulation or to increase the general funds of the Province or for both purposes .... It cannot, as their Lordships think, be an objection to a licence plus a fee that it is directed both to the regulation of trade and to the provision of revenue. It would, therefore, appear that a provision for the imposition of a licence fee does not necessarily lead to the conclusion that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licensees to ensure that they comply with the terms and conditions of the licence. Dealing with such regulatory fees, this Court in Vam Organic Chemicals Ltd. v. State of U.P. ( 1997 (2) SCC 715 ) observed that in the case of a regulatory fee, no quid pro quo was necessary but such fee should not be excessive. The same distinction between regulatory and compensatory fees has been made in the case of P. Kannadasan v. State of T.N. ( 1996 (5) SCC 670 ) as well as State of Tripura v. Sudhir Ranjan Nath ( 1997 (3) SCC 665 ). From the conspectus of the views taken in the decided cases noted above it is clear that the impugned licence fee is regulatory in character. Therefore, stricto sensu the element of quid pro quo does not apply in the case. The question to be considered is if there is a reasonable correlation between the levy of the licence fee and the purpose for which the provisions of the Act and the Rules have been enacted/framed. As noted earlier, the High Court has answered the question in the affirmative. We have carefully examined the provisions of the Act and the Rules and also the pleadings of the parties. We find that the High Court has given cogent and valid reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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