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CASE NO.: Appeal (civil)  7488-7492 of 2001

PETITIONER: Commissioner of Central Excise,Lucknow   

RESPONDENT: M/s Chhata Sugar Co. Ltd.

DATE OF JUDGMENT: 27/02/2004

BENCH: S.B. Sinha.

JUDGMENT: J U D G M E N T

W I T H

CIVIL APPEAL NOS. 7494-7499  OF   2001, 999  OF 2000,  1974  OF  2000, 7493  OF 2001,  6807 OF 1999 & 7500-7514 OF 2001

S.B. SINHA, J :

       ’Taxation’ is defined in clause (28) of Article 366 of  the Constitution of India to mean :

"taxation" includes the imposition of  any tax or impost, whether general or  local or special, and "tax" shall be  construed accordingly;"

       The Constitution of India postulates either a tax or a  fee.  However, the use of expression ’tax’ or ’fee’ in a  statute is not decisive; as on a proper construction thereof  and having regard to its scope and purport, ’fee’ may also  be held to be a tax.         The definition of ’tax’ in terms of Clause (28) of  Article 366 of the Constitution is wide in nature.  The said  definition may be for the purpose of the Constitution; but  it must be borne in mind that the legislative competence  conferred upon the State Legislature or the Parliament to  impose ’tax’ or ’fee’ having been enumerated in different  entries in the three lists contained in the Seventh Schedule  of the Constitution of India, the same meaning of the  expression "tax" unless the context otherwise requires,  should be assigned.

       Having regard to the fact that different legislative  entries have been made providing for imposition of ’tax’ and  ’fee’ separately, indisputably the said expressions do not  carry the same meaning.  Thus, a distinction between a tax  and fee exists and the same while interpreting a statute has  to be borne in mind.

   A distinction must furthermore be borne in mind as  regard the sovereign power of the State as understood in  India and the doctrine of Police Power as prevailing in the  United States of America.  In some jurisdictions a  distinction may exist between a police power and a power to  tax but as in the Constitution of India, the word ’tax’ is  defined, it has to be interpreted accordingly.    

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                The expression ’regulatory fee’ is not defined. Fee,  therefore, may be held to be a tax if no service is  rendered.  While imposing a regulatory fee, although the  element of quid pro quo, as understood in common parlance,  may not exist but it is trite that regulatory fee may be in  effect and substance a tax. [See The Corporation of Calcutta  and Another vs. Liberty Cinema, AIR 1965 SC 1107].

In Municipal Corporation, Amritsar vs. The Senior  Superintendent of Post Offices, Amritsar Division and Anr.  [JT 2004 (1) SC 561], it was held :

"The question, whether the demand so  made was by way of ’service charge’ or  ’tax’ need not detain us any longer.   The demand so made was with regard to  the services rendered to the  respondents’ department, like water  supply, street lighting, drainage and  approach roads to the land and  buildings.  In the counter, the  respondents averred that they are paying  for the services rendered by the  appellant-Corporation by way of water  and sewerage charges and power charges  separately.  It is also categorically  averred that no other specific services  are being provided to the respondents  for which the tax in the shape of  service charges can be levied and  realized from the respondents.  There is  no provision in the Municipal  Corporation Act for levying services  charges.  The only provision is by way  of tax.  Undisputedly, the appellant- Corporation is collecting the tax from  general public for water supply, street  lighting and approach roads etc.  Thus,  the ’tax’ was sought to be imposed in  the garb of ’service charges..."   

       We may furthermore notice that a seven-Judge Bench of  this Court in Synthetics and Chemicals Ltd. and Others vs.  State of U.P. and Others [(1990) 1 SCC 109], while  considering the question as to whether the levy on  industrial alcohol by the State is justifiable, inter alia,  held that when revenue earned out of the impost is  substantial, the same would not be justifiable as fee.          In Liberty Cinema (supra), this Court, while  interpreting Section 548 of the Calcutta Municipal  Act  providing for grant of a licence, observed :               "...The reference to the heading of  Part V can at most indicate that the  provisions in it were for conferring  benefit on the public at large. The  cinema house owners paying the levy  would not as such owners be getting that  benefit. We are not concerned with the  benefit, if any, received by them as  members of the public for that is not  special benefit meant for them. We are

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clear in our mind that if looking at the  terms of the provision authorising the  levy, it appears that it is not for  special services rendered to the person  on whom the levy is imposed, it cannot  be a fee wherever it may be placed in  the statute. A consideration of where  Ss. 443 and 548 are placed in the Act is  irrelevant for determining whether the  levy imposed by them is a fee or a  tax."

       It was further observed :

"19.The last argument in this  connection which we have to notice was  based on Ss. 126 and 127 of the Act.  Section 126 deals with the preparation  by the Chief Executive Officer of the  Corporation called Commissioner, of the  annual budget. The budget has to include  an estimate of receipts from all  sources. These receipts would obviously  include taxes, fees, licence fees and  rents. Under S. 127(3) the Corporation  has to pass this budget and to  determine, subject to Part IV of the  Act, the levy of consolidated rates and  taxes at such rates as are necessary to  provide for the purposes mentioned in  sub-section (4). Sub-section (4)  requires the Corporation to make  adequate and suitable provision for such  services as may be required for the  fulfillment of the several duties  imposed by the Act and for certain other  things to which it is not necessary to  refer. The first point made was that  these sections showed that the Act made  a distinction between fees and taxes. It  does not seem to us that anything turns  on this as the only question now is  whether the levy under S. 548 is a fee.  The other point was that clauses (3) and  (4) of Section 127 showed that the  Corporation could fix the consolidated  rates and taxes and that the  determination of rates for these had to  be in accordance with the needs for  carrying out the Corporation’s duties  under the Act. It was said that as the  licence fee leviable under Section 548  did not relate to any duty of the  Corporation under the Act, it being  optional for the Corporation to impose  terms for grant of licences for cinema  houses, the rate for that fee was not to  be fixed in reference to anything except  rendering of services. We are unable to  accept this argument and it is enough to  say in regard to it that it is not right  that Section 443 does not impose a duty  on the Corporation. We think it does so,  though in what manner and when it will

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be exercised it is for the Corporation  to decide. It is impossible to call it a  power, as the respondent wants to do,  for it is not given to the Corporation  for its own benefit. The Corporation has  been set up only to perform municipal  duties and its powers are for enabling  it to perform those duties. Furthermore  there is no doubt that an estimate of  the licence fee has to be included in  the budget and therefore the word ’tax’  in Section 127(3) must be deemed to  include the levy under Section 548. The  words "subject to the provisions of Part  IV" in Section 127(3) must be read with  the addition of the words "where  applicable"...   20. The conclusion to which we then  arrive is that the levy under S. 548 is  not a fee as the Act does not provide  for any services of special kind being  rendered resulting in benefits to the  person on whom it is imposed. The work  of inspection done by the Corporation  which is only to see that the terms of  the licence are observed by the licencee  is not a service to him. No question  here arises of correlating the amount of  the levy to the costs of any service.  The levy is a tax. It is not disputed,  it may be stated, that if the levy is  not a fee, it must be a tax."    

A regulatory statute may also contain taxing  provisions.   

The decisions of this Court point out towards the need  of existence of the element of quid pro quo for imposition  of fee; be it to the person concerned or be it to a group to  which he belongs; irrespective of the fact as to whether the  benefit of such service is received directly or indirectly.  

The point at issue is required to be considered  keeping in view the aforementioned legal position.

By reason of the provisions of the U.P. Sheera  Niyantran Adhiniyam, 1964 (hereinafter referred to as ’the  UP Act’), the trade carried out by the respondents is sought  to be regulated.   

Some service, therefore, was required to be rendered by  the State or the statutory authority to the owners of the  factory producing molasses or the molasses industries  generally if an impost by way of ’fee’ was to be levied.

A Constitution Bench of this Court in The State of West  Bengal vs. Kesoram Indusries Ltd. and Ors. [2004 (1) SCALE  425]  referring to Synthetics and Chemicals (supra),  observed :  

"It may be seen that the power to levy  sales tax on industrial alcohol was  available to the State but for the

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provisions of the Ethyl Alcohol (Price  Control) Orders on account of which the  State could not charge sales tax on  industrial alcohol.  The State could  levy any fee based on quid pro quo..."

                                               [Emphasis supplied]

       In the aforementioned case, it was observed by one of  us :  

"In ascertaining the subject matter, or the  scope or purpose of the legislation, the Court  is entitled to give due regard to its economic  effect.  (See The King Vs. Barger (1908) 6 CLR  41 and Attorney-General for Alberta Vs. Attorney  General for Canada (1939) AC at pp. 130-132)   The aforementioned decisions have been referred  to in The State of South Australia and Another  Vs. the Commonwealth and Another, [(1942) 65  C.L.R. 373].

       Excise duty is considered to be an indirect tax. The  Supreme Court of United States in Hylton, Plaintiff in Error  vs. The United States [US SCR 1 Law. Ed. Dallas 169]  observed :

"The term taxes, is generical, and was made use  of to vest in Congress plenary authority in all  cases of taxation.  The general division of  taxes is into direct and indirect.  Although the  latter term is not to be found in the  constitution,  yet the former necessarily  implies it.   Indirect stands opposed to direct.   There may, perhaps, be an indirect tax on a  particular article, that cannot be comprehended  within the description of duties, or imposts, or  excises, in such case it will be comprised under  the general denomination of taxes.  For the term  tax is the genus, and includes,

1.      Direct taxes. 2.      Duties, imposts, and excises. 3.      All other classes of an indirect kind, and  not within any of the classifications enumerated  under the preceding heads."

We may notice that the validity of U.P. Act came to be  considered by a Full Bench of the Allahabad High Court in  M/s. Shriram Industrial Enterprises Ltd. Vs. The Union of  India and others [AIR 1996 (Allahabad) 135], wherein one of  us V.N. Khare, J (as the Hon’ble Chief Justice of India then  was) speaking for the Bench upheld the vires thereof, inter  alia, on the ground that the same has been enacted in terms  of Entry 33, List III of the Constitution of India.  The  said Act is, therefore, held to be regulatory in nature.   

When a statute deals with an essential commodity in

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terms whereof the price of a commodity is fixed thereunder,  the sale price must be determined having regard to the price  fixed under the statute and any other sum.  [See  Neyvelilignite Corporation Ltd. vs. Commercial Tax Officer,  Cuddalore and Another, (2001) 9 SCC 648 and Commissioner of  Central Excise, Delhi vs. Maruti Udyog Ltd., (2002) 3 SCC  547].  The administrative charges payable by the buyer under  the U.P. Act, thus, being in addition to the sale price, the  same cannot be a fee.   

Furthermore, one of the tests for determining as to  whether the impost is a ’tax’ or ’fee’ would, in my opinion,  be whether the burden can be passed to the end user.  Under  the State Act, the same is permissible. A ’fee’ in a  situation of this nature cannot be passed on to the end  user, a ’tax’ can be.      In any event  regulatory fee imposed for the purpose of  regulating the industry producing molasses, in my opinion,  cannot be passed on to the buyers as they are not subjected  to any regulation under the Act. The nature of impost is  such that burden thereof is to be borne by the buyers and  the respondents herein are merely the agents for collecting  the same on behalf of the State.  The impost, therefore,  cannot be termed as a ’fee’ so as to deprive the respondents  of the benefit of deduction of the tax for the purpose of  Section 4(4)(d)(ii) of the Central Excise Act, 1944.

We may also notice that in terms of rule Rule 23 of the  UP Sheera Niyantaran Niyamawali, 1974, the occupier of a  sugar factory is obligated to deposit the administrative  charges even prior to delivery of molasses and recovery  thereof from the buyers.

The impost levied in terms of the said Act must, thus,  be held to be a special tax applicable to a section of the  people, namely, buyers of molasses.

In this Case, this Court is not concerned with the  validity or otherwise of the impost, in which event only the  question as to whether the same has sufficient  constitutional protection or not whether viewed as a tax or  fee or either; was required to be considered as was the case  in Gasket Radiators Pvt. Ltd. vs. Employees’ State Insurance  Corporation and Another [1985) 2 SCC 68].

We may also notice a decision of this Court in Tata  Iron and Steel Co. Ltd. vs. Collector of Central Excise,  Jamshedpur [(2002) 8 SCC 338], wherein a Bench of this Court  distinguished C.C.E. vs. Kisan Sahakari Chinni Mills Ltd.  [(2001) 6 SCC 697] holding that the impost impugned therein  did not have a backing of a statutory provision and, thus,  would not be a tax. But it was clearly held that the same  would be so if the levy is imposed by any central or State  legislature or any statutory authority.  The principles  enunciated in Kisan Sahakari Chinni Mills Ltd. (supra) was,  therefore, not deviated from.  

Therefore, in agreement with the judgment and order  proposed to be delivered by Brother Kapadia, J.,  I am also  of the opinion that Kisan Sahakari Chinni Mills Ltd. (supra)  lays down the correct law.