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PETITIONER: GOVERNMENT OF ANDHRA PRADESH & ANR:

       Vs.

RESPONDENT: HINDUSTAN MACHINE TOOLS LTD.

DATE OF JUDGMENT01/05/1975

BENCH: CHANDRACHUD, Y.V. BENCH: CHANDRACHUD, Y.V. KHANNA, HANS RAJ BEG, M. HAMEEDULLAH

CITATION:  1975 AIR 2037            1975 SCR  394  1975 SCC  (2) 274  CITATOR INFO :  R          1977 SC1686  (6)  RF         1980 SC1008  (21)  R          1987 SC2310  (14)

ACT: Article  246(3) and, entry 49 in List II of 7th Schedule  to Constitution--Nature  of  fees--Quid  pro   quo--Legislature amending definition retrospectively whether encroaches  upon judicial functions--Andhra Pradesh Gram Panchayat Act, 1964.

HEADNOTE: The  Andhra  Pradesh Legislature passed the  Andhra  Pradesh Gram  Panchayat Act, 1964.  The Kuthbullapur Gram  Panchayat was established under the Act.  The respondent constructed a factory  and other buildings without the permission  of  the Gram Panchayat.  Later on, the respondent asked for  expost- facto  permission.   The  Panchayat  agreed  to  grant   the permission on the respondent paying permission fee at  1-1/2 per cent on the capital value of the factory building and at 1  percent  on the capital value of  other  buildings.   The Panchayat also called upon the respondents to pay the  house tax. The  respondents  filed a Writ Petition in  the  High  Court challenging  the levy of house tax and permission fee.   The High  Court  allowed  the Writ  Petition  holding  that  the buildings constructed by the respondents did not fall within the  definition of a house and further ruled that  since  no services  were  rendered, the levy of,  permission  fee  was illegal.   Section  69  of  the  Act  authorises  the   Gram Panchayat to levy a house tax.               The  definition of house as it stood when  the               High  Court  delivered  its  judgment  was   a               building  or  hut  fit  for  human  occupation               whether as a residence or otherwise, having  a               separate  principal entrance from  the  common               way   and  included  any  shop,  workshop   or               warehouse or any building used for garaging or               parking of buses or as a bus stand.  The  High               Court  held  that  the  buildings  other  than               factory  premises  were not  a  house  because               their separate principal entrance was situated

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             on the road belonging to the respondents. As  regards the factory buildings, the High Court held  that the  legislature included shops, workshops, and  warehouses, but  aid  not include factory within the definition  of  the house.  The demand of house tax was held to be illegal. After  the  judgment of the High Court  was  delivered,  the Legislature   amended   the   definition   of   the    house retrospectively to include the buildings constructed by  the respondents. The appellant contended that the new definition of the house clearly includes the buildings constructed by the respondent and  that the Panchayat was entitled to impose house tax  on the  respondent.  Secondly, the Gram Panchayat  lays  roads, provides  for  drainage and lights,  scrutinises  the  plans submitted  for  intended construction,  and,  therefore,  is entitled to charge the permission fee.  In the  alternative, it was contended that the permission fee though called a fee is  really  in the nature of a tax on buildings and  may  be upheld as such. Respondent contended 1. By redefining the term ’houses with retrospective effect, the Legislature encroached upon a judicial function. 2. Without a proper budget, the Gram Panchayat cannot impose taxes. 395 3.   There  is no provision in the Act empowering  the  Gram Panchayat to levy permission fees. 4. No services are rendered for which permission fees can be charged. Partly allowing the appeal, HELD : The Legislature has power to pass a law prospectively as well as retrospectively.  The Legislature can remove  the basis of the decision rendered by a court.  The Amending Act does  not ask the instrumentalities of the State to  disobey or  disregard  the  decision given by the  High  Court,  but merely  removes the basis of that decision.   Under  Article 246(3)  read with Entry 49 in List II of the  7th  Schedule, the State Legislature has exclusive power to make laws  with respect to taxes on lands and buildings.  Section 69 of  the Act authorises the Gram Panchayats to levy house tax in the’ villages under their respective jurisdiction.  The house tax was  rightly imposed by the Gram Panchayat. [398  B.F.,  399 DEF] HELD  FURTHER-The argument about absence of budget  was  not made  in the High Court and as it involves an  investigation into facts, this Court cannot go into it for the first time. [400-DE] HELD FURTHER-There is no provision in the Act empowering the Gram Panchayat to levy fees on the permission to construct a building.   In  fact, there is no provision in  the  Act  to obtain the permission of the Gram Panchayat for construction of building.  Fees are a sort of return or consideration for services rendered which makes it necessary that there should be  an element of quid pro quo in the imposition of  a  fee. There has to be co-relationship between the fee levied by an authority and the services rendered by it to the person  who is required to pay the fee.  In this case, there is no  such co-relationship.   Fees  cannot be imposed  for  discharging statutory  functions  of public authorities.   The  services have to be rendered individually to the particular person on whom the fee is imposed.  The very fact that the  permission fee  is levied at a certain percentage of the capital  value of the buildings shows that the Gram Panchayat itself  never intended to correlate the fee with the services rendered  or intended to be rendered by it. [400-H, 401-DE, 402 c]

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JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1189  of 1972. From  the Judgment and order dated 6th August, 1971  of  the High Court of Andhra Pradesh in W. P. No. 4223 of 1969. P.   Ram Reddy and P. P. Rao, for the appellants. B.   Sen and Naunit Lal, for the respondent. K.   Srinivasanmurthy, Naunit Lal and Lalita Kohli, for  the inter-verners. The Judgment of the Court was delivered by CHANDRACHUD,  J. This is a tax dispute concerning the  power of  the  second appellant, Kuthbullapur Gram  Panchayat,  to levy  house-tax and Permission Fee on the  respondent.   The Hindustan Machine Tools Ltd., which is a Government of India Undertaking.   The  first  appellant is  the  Government  of Andhra Pradesh. The Kuthbullapur Gram Panchayat was established in 1959.  In 1964 the Andhra Pradesh State Legislature passed the  Andhra Pradesh 396 Gram  Panchayats Act, 2 of 1964, which with he exception  of Chapter  VII  of  the  Act,  came  into  force  on   January 18,1964.The  Act to the Kuthbullapur Gram  Panchayat  within whose  geographical limits the respondent has established  a factory  for the manufacture of special apparatus  machines, presses etc.  The construction of the factory began in  1964 and  was completed in December 1965.  The factory  was  con- structed  without  the  permission of  the  Gram  Panchayat. Considering the skeleton staff which mans the Panchayat  and its  skeleton activities, the respondent’s plea that it  did not  obtain  the Panchayat’s permission bemuse  it  was  not aware  of  its  existence  is  not  implausible.   But  such awareness has no relevance on the respondent’s liability  to pay taxes and fees.  In any event, on coming to know of  the construction  of  the factory and the  other  buildings  the Panchayat  asked  the  respondent to  obtain  the  requisite permission.    The   respondent   asked   for   ex-postfacto permission in January, 1967. In  its  meeting  of  May 8, 1967  the  Panchayat  passed  a resolution for collecting Permission Fee from the respondent at 1/2% on the capital value of the factory buildings and at 1%  on  the capital value of other buildings.  By  a  letter dated  August  20,  1968  the  Panchayat  called  upon   the respondent  to pay house-tax for the years 1966-67,  1967-68 and  1968-69  amounting to Rs. 1,83,750 at the rate  of  Rs. 61,250  per annum.  On March 3, 1969 the Panchayat  demanded from  the  respondent  a  sum of  Rs.  1,65,000  by  way  of Permission  Fee, Rs. 80,000 being for factory buildings  and Rs. 85,000 in respect of the, other buildings. On November 25, 1969 the respondent filed a writ petition in the  High  Court of Andhra Pradesh Challenging the  levy  of house  tax  and the Permission Fee.  By its  judgment  dated August 6, 1971 the High Court allowed the writ petition.  It held  that the buildings constructed by the  respondent  did not fall within the definition of a ’house’ as contained  in the  Act and therefore no house-tax could be levied  on  the buildings.  Regarding the Permission Fee the High Court  re- pelled  the appellant’s contention that the fee was  in  the nature of tax and held that since no services were  rendered by  the Panchayat to the respondent the levy  of  Permission Fee  was  illegal.   The  High  Court  has  granted  to  the appellants a Certificate of Fitness under Article 133(1) (a)

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of the Constitution to appeal to this Court. Section 69(1) (a) of the Act provides that a Grain Panchayat shall levy in the village a house-tax.  By section 2(15), as it stood when the High Court delivered its judgment, ’house’ meant a building or hut fit for human occupation, whether as a  residence  or  otherwise, "having  a  separate  principal entrance  from  the  common way," and  included  "any  shop, workshop  or warehouse or any building used for garaging  or parking buses or as a bus-stand".  The High Court held  that buildings  other  than factory premises were not  a  ’house’ within  the  meaning  of  the  Act  because  their  separate principal entrances were situated on the roads belonging  to the  respondent  and not on the common way  as  required  by section  2(15).  As regards the factory buildings, the  High Court held that the Legislature had included shops, 39 7 workshops  and  warehouses  but  not  factories  within  the definition of a ’house’ and therefore factory buildings were also not a ’house’ within the meaning   of  the  Act.    The demand. of house-tax was accordingly held illegal. By the Andhra Pradesh Gram Panchayats (Amendment) Act, 16 of 1974,  the State Legislature has amended the  definition  of ’house  with  retrospective effect so as  to  eliminate  the impediments on which the High Court rested its judgment.  If the amendment is lawful and valid, it will be unnecessary to consider whether the High Court was right in reading the way it  did  the  definition  of ’house’  as  contained  in  the unamended section 2(15). Section 2 of the Amending Act provides               "2. For clause (15) of section 2 of the Andhra               Pradesh Gram Pancbayats Act, 1964 (hereinafter               referred   to  as  the  principal  Act),   the               following clause shall be and shall be  deemed               always to have been substituted, namely :-               "(15) ’house’ means a building or hut fit  for               human  occupation, whether as a  residence  or               otherwise.  and  includes any  shop,  factory,               workshop or warehouse or any building used for               garaging  or parking buses or as a  bus-stand,               cattle  shed (other than a cattle shed  in  an               agricultural  land),  poultry  shed  or  dairy               shed" ;               Section 4(a) of the Amending Act provides               "4. Notwithstanding anything in any  judgment,               decree   or  order  of  any  court  or   other               authority,-               (a)anything   done   or  any   action   taken,               including any tax levied and collected, in the               exercise  of any power conferred by  or  under               the  principal Act shall be deemed, to be  and               to  have always been, done or taken or  leived               and  collected in the exercise of  the  powers               conferred  by  to under the principal  Act  as               amended  by section 2 of this Act , as if  the               principal  Act as amended by this Act were  in               force  on  the date on which. such  thing  was               done  or action was taken, or tax  was  levied                             and collected; and all arrears of tax and other               amounts due under the principal Act as amended               by  this Act at the commencement of this  Act,               may be recovered as if they had accrued  under               the principal Act as amended by this Act"; The   new  definition  of  ’house’  which  is  to  be   read retrospectively  in  to the Act meets effectively  both  the

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objections  by reason of which the High Court held that  the buildings constructed by the respondent were not a  ’house’. By the Amendment the old clause "having a separate principal entrance from the common way" is dropped and the  definition of ’house’ is reframed to include a ’factory’.  It is  clear and  is  undisputed that the buildings  constructed  by  the respondent-the  colony  buildings  as well  as  the  factory buildings-answer fully the description 398 of  a  house  and are squarely  within  the  new  definition contained in section 2(15). We  see no substance in the respondent’s contention that  by redefining the term ’house’ with retrospective effect and by validating the levies imposed under the unamended Act as if, notwithstanding anything contained in any judgment decree or order of any court, that Act as amended was in force on  the date when the tax was levied, the Legislature has encroached upon a judicial, function.  The power of the Legislature  to pass a law postulates the power to pass it prospectively  as well  as  retrospectively, the one no less than  the  other. Within  the scope of its legislative competence and  subject to  other  constitutional  limitations,  the  power  of  the Legislature  to enact laws is plenary.  In United  Provinces v. Atiqa Begum (1) Gwyer, C.J. while repelling the  argument that Indian Legislatures had no power to alter the  existing laws  retrospectively,  observed that within the  limits  of their  powers  the Indian Legislatures were as  supreme  and sovereign  as the British Parliament itself and  that  those powers  were  not  subject  to  the  "strange  and   unusual prohibition  against retrospective legislation".  The  power to  validate  a  law, retrospectively  is,  subject  to  the limitations  aforesaid, an ancillary power to  legislate  on the particular subject. The State legislature, it is significant, has not  overruled or set aside the judgment of the High Court.  It has amended the  definition  of  ’house’ by the substitution  of  a  new section  2(15) for the old section and it has provided  that the   new  definition  shall  have   retrospective   effect, notwithstanding  anything contained in any judgment,  decree or  order of any court or other authority.  In other  words, it  has  removed the basis of the decision rendered  by  the High Court so that the decision could not have been given in the altered circumstances.  If the old section 2(15) were to define "house’ in the manner that the amended section  2(15) does,  there  is doubt that the decision of the  High  Court would  have  been otherwise.  In fact, it was  not  disputed before  us that the buildings constructed by the  respondent meet  fully the requirements of section 2(15) as amended  by the Act of 1974. In  Tirath  Ram  Rajindra Nath v. State of U.  P.  (2),  the Legislature  amended  the law  retrospectively  and  thereby removed the basis of the decision rendered by the High Court of  Allahabad.   It  was held by this Court  that  this  was within the permissible limits and validation of the old  Act by  amending  it  retrospectively  did  not  constitute   an encroachment on the functions of the judiciary. The  decisions  on which the respondent relies  are  clearly distinguishable.   In the Municipal Corporation of the  City of Allahabad v. The New Shrock Spg. & Wvg.  Co. Ltd. (3) the impugned  provision commanded the Corporation to  refuse  to refund the amount illegally (1)  (1940)F.C.R. 110. (2)  A.I.R. 1973 S.C. 405. (3)  A.I.R. 1970 S.C. 1292. 399

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collected by it despite the orders of the Supreme Court  and the  High Court.  As the basis of these  decisions  remained unchanged  even  after the amendment, it was  held  by  this Court that the legislature had made a direct inroad into the Judicial  powers.  In Janpada Sabha Chindwara etc.,  v.  The Central  Provinces  Syndicate Ltd.,(1)  the  Madhya  Pradesh Legislature passed a Validation Act in order to rectify  the defect  pointed  out by this Court in the  imposition  of  a cess.   But  the  Act  did not set out  the  nature  of  the amendment  nor did it provide that the notifications  issued without the sanction of the State Government would be deemed to have been issued validly.  It was held by this Court that this  was tantamount to saying that the judgment of a  court rendered in the exercise of its legitimate jurisdiction  was to  be deemed to be ineffective.  The position in, State  of Tamil  Nadu v. M. Rayappa Gounder (2) was similar.  In  that case  the  reassessment  made under an  Act  which  did  not provide  for  reassessments were attempted to  be  validated without   changing  the  law  retrospectively.    This   was considered to be an encroachments on the judicial functions. ’In the instant case the Amending Act of 1974, cures the old definition contained in section 2(15) of the vice from which it  suffered.  The amendment has  been  given  retrospective effect  and as stated earlier the legislature has the  power to  make the law passed by it retroactive.  As the  Amending Act  does  not ask the instrumentalities’ of  the  State  to disobey  or disregard the decision given by ’the High  Court but removes the basis of its decision, the challenge made by the  respondent to the Amending Act must fail.  The levy  of the, house-tax must therefore be upheld. Under Article 246(3) read with Entry 49 in List II,  Seventh Schedule  of the Constitution, the State  legislatures  have exclusive power to make laws with respect to "Taxes on lands and  buildings" Section 69(1)(a) of the Act authorises  Gram Panchayats  to levy house.-tax in the villages  under  their respective jurisdiction.  The Gram Panchayat of Kuthbullapur has   accordingly   levied  house-tax   on   the   buildings constructed   by  the  respondent  including   the   factory buildings.   It needs to be clarified that by Rule 6 of  the "Rules  relating  to  levy  of  House-Tax",  machinery   and furniture  are  to be excluded from  consideration  for  the purpose  of  assessment to house-tax.  Thus, the tax  is  on buildings  only and does not transgress the scope  of  Entry 49. This   clarification  became  necessary  in  view   of   the respondent’s  contention that the State legislature  has  no power under Entry 49, List II, to levy tax on the lands  and buildings owned or occupied by a factory.  Entry 36 in  List III relates to "Factories" and Entry 47 in that List relates to "Fees in respect of any of the matters in this List,  but not  including  fees taken in any court".  It  is  urged  on behalf  of  the respondent that these  specific  Entries  in regard  to the, particular subject matter exhaust the  power to  impose  levies  on factories and  ’since  the  power  is limited to the imposition of fees on (1)  A.I.R. 1971 S.C. 57.  A.I.R. 1971 S.C. 231. 400 factories, the legislature has no competence to impose a tax on the lands or buildings of a factory.  It is true that the various  Entries  in the legislature Lists  must  receive  a broad and liberal construction and Entry 36 in List III  may therefore  cover  every  aspect of  the  subject  matter  of "Factories".   But the State legislature has not  authorised the  levy  of,  house-tax on factories  in  the  compendious sense.   The new definition of ’house’ includes a  ’factory’

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but  the house-tax is levied only on the buildings  occupied by the factory and not on the machinery and furniture.   The State  legislature has the legislative competence to  do  so under Entry 49 in List II. It  was  urged  by Mr. Naunit Lal on behalf of  one  of  the interveners  that ’Factory’ is a compendious expression  and since a factory consists of the building, the machinery  and the   furniture,  the  legislature  cannot  split   up   the personality  of  the factory and tax one part  of  it  only. There  is no substance in this contention because the  power to tax a building can be exercised without reference to  the use to which the building as put and it irrelevant that  the building  is occupied by a factory which cannot conduct  its activities without the machinery and furniture.  What  falls legitimately  within  the scope of a legislative  Entry  can lawfully form the subject matter of legislation. We cannot entertain the respondent’s argument that without a proper budget, the Gram Panchayat cannot impose a tax.  Such an  argument was not made in the High Court and it  involves an  investigation into the fact whether the  Gram  Panchayat had or had not prepared a budget.  Nor can we entertain  the respondents submission that section 4(b) and (c) of the  Act of  1974  are invalid.  Under clause (b), no suit  or  other proceeding is maintainable or can be continued in any  court or  before any authority for the refund, of any tax.   Under clause  (c),  no  court shall enforce any  decree  or  order directing  the  refund of any such tax.  No  suit  has  been filed by the respondent for the refund of tax and no  decree or  order has been passed by any court or any authority  for the refund of any tax.  This Court does not answer  academic questions. The position in regard to the so called ’Permission Fee’  is entirely  different.   In the first place, the Act  of  1964 itself makes a distinction between the power to impose a tax and  the power to impose a fee.  Section 69(1)  and  section 69(3)(i),  (ii), (iii) empower the Gram Panchayats  to  levy taxes while section 69(3) (v) and (vi) provide for the  levy of fees.  Sections 92, 109(2), 111, 121(5), 122 and  section 131  of the Act also provide for the imposition of  specific fees.  There is no provision in the Act empowering the  Gram Panchayats  to  levy fees on the permission to  construct  a building,  which is what the second appellant has  purported to do in the instant case. In fact, there is no provision in tile Act under which it is necessary to obtain the permission of the Gram Panchayat for constructing  a building.  Section 131(2) of the  Act  which authorises the levy of fees for every licence or  permission is  therefore not attracted.  Section 125(1)  requires  that the permission of the Gram Panchayat must 401 be,  obtained  for constructing or establishing  a  factory, workshop  or  work-place in which it is proposed  to  employ steam   power,  water  power or other  mechanical  power  or electrical  power or in which it is proposed to install  any machinery  or manufacturing plant driven by steam, water  or other  power  as  aforesaid.   The  provision  may  possibly support  a levy of Permission Fee on the factory  buildings, but  there is no provision in the Act at all  requiring  the permission  of. the Gram Panchayat for the  construction  of other  buildings.   Counsel  for the  appellants  wanted  to derive  sustenance to the imposition of Permission Fee  from the  provision  contained in section 217(2) (xvi)  but  that clause only empowers the Government to make rules "as to the regulation  or restriction of building and the use of  sites for  building".   In  the absence of any  provision  in  the

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parent   Statute  requiring  the  permission  of  the   Gram Panchayat for the construction of non-factory buildings, the rule-making  power of the Government cannot be exercised  so as to impose. the requirement of a permission in respect  of such buildings. But  there  is  a  broader  ground  on  which  the  levy  of Permission  Fee  must be struck down.  Fees are  a  sort  of return or consideration for services rendered which makes it necessary that there should be an element of quid pro quo in the imposition of a fee.  There has to be a correlation-ship between  the  fee levied by an authority  Ind  the  services rendered  by  it to the person who is required  to  pay  the fee(1).   There is, in this case, not a word showing such  a correlationship.    In  the  counter-affidavit   which   the appellants  filed  in  the  High  Court  in  reply  to   the respondent’s writ petition, nothing at all was stated as  to the  expenses incurred or likely to be incurred by the  Gram Panchayat in rendering any actual or intended service to the respondent.  There may be something in the grievance of  the Gram  Panchayat  that  the  mighty  respondent  and   others following  the  respondent’s  lead  have  been  persistently refusing  to pay taxes which has made it impossible for  the Gram  Panchayat to render any services.  But the true  legal position  as  stated by Mukherjea, J. in  the  Commissioner, Hindu  Religious  Endowments  Madras  v.  Shri   Lakshmindar Thirtha  Swamiar  of  Sri  Shiur  Mutt(2)  is  that  ’it  is absolutely  necessary that the levy of fees should  on  ’the face  of  the legislative provision, be  correlated  to  the expenses incurred by Government in rendering the  services". In   the   total  absence  of  any  data  showing   such   a correlationship, the levy of Permission Fee has to fail. One cannot take into account the sum total of the activities of a public body like a Gram Panchayat to seek justification for the fees imposed by it.  The expenses incurred by a Gram Panchayat  or a Municipality in discharging  its  obligatory functions are usually met by the imposition of a variety  of taxes.   For  justifying the imposition of fees  the  public authority  has  to  show what services  are  rendered  or  H intended  to  be  rendered individually  to  the  particular person on whom the fee is imposed.  The Gram Panchayat  here has  not  even  prepared an estimate of  what  the  intended services would cost it. (1) [1954] S C.R. 1005: A.I.R. 1957 S.C. 846. (2) [1954] S.C.R. 1005, 1042. 402 Learned  counsel for the appellants contended that the  Gram Panchayat   lays   roads  for  providing   access   to   new buildings,that it provides for drainage and lights and  that it   scrutinises   the   plans   submitted   for    intended constructions  and, if necessary, it advises the  applicants in  order that the proposed construction may conform to  the regulations.   We are unable to accept that  these  services are  rendered individually to the respondent.  The laying of roads  and  drainage or the supply of  street-lights  are  a statutory function of public authorities and it is difficult to  hold, in the absence of any material, that any  of  such services  as  have been mentioned to us have  in  fact  been rendered to the respondent.  The very circumstance that  the Permission  Fee  is levied at a certain  percentage  of  the capital value of the buildings shows that the Gram Panchayat itself never intended to correlate the fee with the services rendered  or  intended  to  be rendered  by  it.   There  is therefore  no  warrant for the levy of Permission  Fee,  not even on factory buildings, assuming for the sake of argument that  the permission of Gram Panchayat is necessary for  the

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construction of factory buildings. It  was alternatively contended on behalf of the  appellants that the Permission Fee though called a fee is really in the nature of a tax on buildings and may be upheld as such.   It is   impossible  to  accept  this  contention.    That   the Permission  Fee is not a tax on buildings is clear from  the fact  that  the  fee may be required to be paid  even  if  a building  does  not  eventually come  into  existence.   The scheme    under which the Permission Fee is attempted to  be levied  is  that  it becomes payable at the  time  when  the permission to construct a building is applied for.  The levy does  not  depend upon whether a building has been  in  fact constructed  with  the  result that whether  a  building  is constructed or not, the fee has to be paid.  In other words, the Permission Fee is in the nature of a levy on a  proposed activity   and is not a tax on buildings. Thus,  the  levy  of house-tax is lawful  but  the  levy  of Permission  Fee  has  to be struck down  as  being  illegal. Accordingly  the  appeal  is allowed partly  but  since  the success is divided, there will be no order as to costs.                          Appeal partly allowed. P. H. P. 403