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PETITIONER: DELHI CLOTH & GENERAL MILLS CO. LTD.

       Vs.

RESPONDENT: CHIEF COMMISSIONER, DELHI & ORS.

DATE OF JUDGMENT: 11/09/1969

BENCH: GROVER, A.N. BENCH: GROVER, A.N. SHAH, J.C. RAMASWAMI, V.

CITATION:  1971 AIR  344            1970 SCR  (2) 348  1970 SCC  (2) 172  CITATOR INFO :  R          1971 SC1182  (10)  R          1971 SC1325  (11)  R          1975 SC 846  (16,18,23)  R          1980 SC1008  (17)

ACT: The  Factories Act, 1948 (63 of 1948) Delhi Factories  Rules 1950   made under s. 112 of Act--Validity of R. 7 read  with R.  5  and  Schedule thereto---Fee  for  annual  renewal  of licence  to run factory--Whether fee or tax--Maintenance  of Inspectors whether provides quid pro quo for fee

HEADNOTE: The   appellant   company  had  a   number   of   industrial establishments   in   Delhi.   These   establishments   were factories  within the meaning of s. 2Ira) of  the  Factories Act,   1948.   The  factories  could  be  run   only   after registration  and under a licence granted under the Act  and the Rules on payment of a prescribed fee.  The licensee  was renewable every year under R. 7 on payment of the same.  fee as  for  grant  of the licence.  The company  filed  a  writ petition  under  Arts.  226  and  227  of  the  Constitution challenging  the validity of the Rules under which  the  fee for  renewal  of the licence for each of  its  factories  in Delhi was being levied and collected i.e.R. 7 read with R. 5 and its Schedule.  The petition being dismissed by the  High Court,  an appeal was filed in this Court with  certificate. The contention on behalf of the appellant was that there was no quid pro quo for the fee paid for renewal of the  licence and  that the maintenance of a team of Inspectors under  the Act  did  not  amount to such quid pro  quo.  Reliance.  was placed on the Liberty Cinema case. HELD: In each case when the question arises whether the levy is  the nature of a fee, the entire scheme of the  statutory provisions,  the  duties  and  obligations  imposed  on  the inspecting  staff ’and the nature of tire work done by  them wilt have to be  examined  for  the  purpose of  determining the rendering of the services which would make the levy     of a fee.  In the Liberty Cinema case it was found  that no service of  any kind was being and could be rendered  and

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for  that  reason the levy was held to. be a tax and  not  a fee.   The present case however fell within the other  class of   cases  in  which  contributions  for  the  purpose   of maintaining  an authority and the staff for supervising  and controlling public institutions were held to be fee and  not tax. [354 B--C]     A large number of provisions of the Act, particularly in the  chapters  dealing with safety, involve a good  deal  of technical knowledge and in the course of discharge of  their duties  and obligations the Inspectors are expected to  give proper  advice and  guidance  so  that  there  may   be  due compliance  with  the  provisions of the  Act.   On  certain occasions  the  factory owners are bound to receive  a  good deal of benefit by being saved from the consequences of  the working   of  dangerous  machines  or  employment  of   such processes as involve danger to human life by being warned at the proper time as to the defective nature of the  machinery or of the taking of precautions which are enjoined under the Act.  Similarly if a building or a machinery or plant is  in such  a  condition  that it is dangerous to  human  life  or safety  the  Inspector  by serving a timely  notice  on  the manager saves the factory owner from all the consequences of proper  repairs not being done in time to the  building.  or machinery.   349 The High Court found that 60% of the amount of licence  fees which  were  being realized was actually spent  on  services rendered to the. factory owners.  The finding being  one  of fact    must    be    considered    final.   [355    H--356, D]                                      ..     It could therefore hardly be contended that the levy  of the  licence  fee was wholly unrelated  to  the  expenditure incurred  out  of the total realization.   The  appeal  must accordingly fail. [356 D--El     Corporation of Calcutta & Anr. v. Liberty Cinema, [1965] 2 S.C.R. 477,distinguished.     H.H. Sudhundra Thirtha Swamiar v. Commissioner for Hindu Religious  & Charitable Endowments, Mysore, [1963]  Supp.  2 S.C.R. 302, Mahant Sri Jagannath Ramanuj Das & Anr. v. State of  Orissa  & Anr [1954] S.C.R. 1046 and  Ratilal  Panachand Gandhi  v.  State  of  Bombay &  Ors,  [1954]  S.C.R.  1055, applied.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1424 of 1966.     Appeal  from  the order dated February 11, 1965  of  the Punjab High Court, Circuit Bench at Delhi in Civil Writ  No. 3-D of 1963.     H.R.  Gokhale,  D.R. Thadani  and A.N. Goyal,  for  the. appellant.     Jagdish Swarup, Solicitor-General, L.M. Singhvi and R.N. Sachthey, for the respondents. The Judgment of the Court was delivered by     Grover,  J.  This is an appeal from a  judgment  of  the Punjab  High  Court  (Circuit Bench,  Delhi)  involving  the question of the validity of Rule 7 read with Rule 5 and  its Schedule of the Delhi Factories Rules 1950 made under s. 112 of  the   Factories  Act 1948, hereinafter called  the  Act. The  impugned Rules relate to the grant of a licence  for  a factory  and renewal thereof, the fees. being prescribed  by the Schedule to. Rule 5.     The  Delhi  Cloth and General Mills  Co.  Ltd.  operates within the Delhi area a number of industrial  establishments

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which  are  factories within the meaning of s. 2(m)  of  the Act.  The company has to pay a total sum of Rs. 12,775.00 as annual licence. fee for all its factories in Delhi, the fees being  calculated  according  to the  Horse  Power  and  the maximum  in  number  of workers to be employed  on  any  day during  the year as given in the Schedule. The  maximum  fee that is payable is Rs. 2,000/- for a factory. The  factories can  be run only after registration  and  under   a  licence granted  under  the  Act and the Rules  on  payment  of  the prescribed fee.  The licence is renewed every year under  R. 7  on payment of the same fee which is paid at the  time  of the  granting  of  the licence.  Every  licence  granted  or renewed remains in force up to December 31, of the year  for which it is granted or 350 renewed.  In January 1963 the company filed a petition under Arts.  226  and 227 o,f the Constitution in the  High  Court challenging  the  validity  of the  Rules  under  which  the licence  fee  for  renewal of the licence for  each  of  its factories  in Delhi was being levied and collected i.e.R.  7 read  with  R.  5 and  its,   Schedule.  This  petition  was dismissed  by  a division bench on February  11,  1965.  The company then filed the present appeal by  certificate.     The  principal point which has been canvassed on  behalf of  the  appellant  company is that the  payment  made’  for renewal  of  the  licence was and is  only  to  endorse  the licence  as valid ,for the next year and the amount  charged for the renewal thereof cannot and does not entail  services which can reasonably be regarded to be commensurate with the amount so charged.  In other words the element of  quid-pro- quo  which  distinguishes  a fee from a tax  is  absent  and lacking.   The  Act, it is pointed  out;  contains  specific provisions  for  rendering  of benefit and  service  to  the workmen by the owners of the factories.  The Inspectors  who are  .appointed under the Act to ensure that its  provisions are  complied  with  by  the  factory  owners  constitute  a policing agency and it is not possible to say that the power and duties of the Inspectors when exercised and carried  out amount  to  services   rendered  for   the  benefit  of  the factory owners or the workmen.     Falshaw   C.J.,  who  delivered  the  judgment  of   the division bench was of the view that the work carried out  by the  Inspectors  under  the  Act  of  seeing  that  all  its beneficient  provisions  for the health and welfare  of  the workers  employed  in the factories were  fully  implemented must  definitely be regarded as services rendered in  return for the fee levied for the annual renewal of the licence for the  factory.  It was further observed on an examination  of ’the  affidavit which had been placed before the court  that at  least  60.% of the amount realised as  licence  fee  was being utilised on running the department. Mr.  H.R.  Gokhale for the appellant company  has  contended that the High Court failed to apply the principles which are settled  by certain decisions of this Court for  determining whether  a  fee  for  a licence  or  a  renewal  thereof  in circumstances    similar   to   the  present   case  is   in substance   and   effect a tax.  He has relied  largely   on Corporation  of Calcutta & Another  v.   Liberty  Cinema(1). In that case the licence fee had been raised from Rs.  400/- to  Rs. 6,000/- per year.  It was observed in  the  majority judgment  that the provision under which the licence had  to be taken out for a cinema did not refer to the rendering  of any  service by the Corporation of Calcutta.  It  was  also. not  obligatory  on the Corporation  to make   any   bye-law under  which

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(1) [1955] 2S.C.R.477.       351 services  were  to be  rendered.  If the bye-laws  were  not made  there would be no service to render.  It  was  further pointed  out  that inspection by the  authorities  concerned could not be regarded as a service to the licence as it  was meant  only to make sure that the licensee carried  out  the conditions  on  which the licence had been granted  to  him. Some  of the earlier decisions were considered as  also  the pronouncement   in   H.H.  Sudhundra  Thirtha  Swamiar    v. Commissioner  for Hindu Religious &  Charitable  Endowments, Mysore(1)  and  with regard to the latter case it  was  said that a service resulting in the control of the Math adipathi conferred  special  benefit on the institution  which  alone paid the levy.     As  far  back  as 1954 it was laid down  in  Mahant  Sri Jagannath  Ramanui  Das  & Anr. v. The  State  of  Orissa  & Another(2)that   the contributions levied for the.  expenses of  the  Commissioner and his staff who  were  to.  exercise effective  control  over the trustees of the Maths  and  the temples  was  to. be regarded as a fee and not a  tax.   Two reasons   were given for this: (1) The payment was  demanded only  for  the  purpose of meeting  the  expenses   of   the Commissioner  and his staff which is the machinery.. set  up for  due  administration  of the affairs  of  the  religious institution.   (2) The collections made were no.t merged  in the  general public revenue. Similarly in Ratilal  Panachand Gandhi  v. The State of Bombay & Others(3) the  contribution imposed under the Bombay  Public Trusts Act was held to:  be fee  and  not tax.  it was stated that in  the  first  place these contributions were to be credited to the Public Trusts Administration  Fund which was a special fund land were  not to  be merged in the general revenue.  Secondly, it was  not necessary  that  services  should be rendered  only  at  the request of particular people and it was enough that payments were  demanded  for  rendering  services  which  the   State considered  beneficial in the public interest and which  the people had to accept whether they were willing or not.   The following  observations  in H.H. Sudhundra  Thirtha  Swamiar case(1) may be referred to with advantage:                   "A  levy in the nature of a 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 services  rendered  by               the  authority to individual who  obtains  the               benefit of service.  If with a view to provide               a specific service, levy is imposed by law and               expenses  for maintaining the service are  met               out  of  the amounts collected there  being  a               reasonable  relation between the levy and  the                             expenses incurred for render-               (1)  [1963] Supp. 2 S.C.R. 302.    (2)  [1954]               S.C.R. 1046. (3) [1954] S.C.R. 1055.               352               ing  the  service, the levy would  be  in  the               nature  of  a fee and not in the nature  of  a               tax." According  to  Mr. H.R. Gokhale the present case is  of  the type  which  would  fall squarely  within  the  decision  in Liberty Cinema case(1).  It is difficult to agree.  In  each case  where the question arises whether the levy is  in  the nature  of  a  fee  the  entire  scheme  of  the   statutory provisions,  the  duties  and  obligations  imposed  on  the

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inspecting  staff and the nature of work done by  them  will have  to  be  examined for the purpose  of  determining  the rendering of the services which would make the levy a  ,fee. It is quite apparent that in the Liberty Cinema case it  was found  that  no service of any kind was being  or  could  be rendered  and for that reason the levy was held to be a  tax and  not  a  fee.  In our judgment the  present  case  falls within the other class of cases to which reference has  been made  in which contributions for the purpose of  maintaining an  authority and the staff for supervising and  controlling public institutions like Maths etc. were held to be fee  and not tax.     We  may now look at the provisions of the Act.   Chapter II  provides for the inspecting staff.  Section 9 gives  the powers  of the Inspectors.  They can enter any  factory  and inter  alia  make  examination of the  premises,  plant  and machinery.  Under s. 10 qualified medical practitioners  can be  appointed to. be certifying surgeons for the purpose  of the  Act.   The certifying surgeon has to.  carry  out  such duties  as  may  be prescribed  in  connection  with     the examination  and ,certification of young persons  under  the Act.  the examination of persons. engaged in  factories   in dangerous  occupation or process as also the  exercising  of medical   supervision.  Chapter  III  deals   with   health. Section Il  contains  detailed provisions about cleanliness. Sections 12 to 14 relate to disposal of waste and effluents, ventilation and temperature, and dust and fume.  Sections 17 to  20  concern  lighting,  drinking  water,  latrines   and urinals, and spittoons.  Chapter IV contains the  provisions relating  to  safety.   Section 21  deals  with  fencing  of machinery.  Section  22 with work on or  near  machinery  in motion  and section 23 with  employment of young persons  on dangerous machines. The other sections which may be  noticed in  this  Chapter are s. 27 containing  the  prohibition  of employment of women and children near cotton-openers; s.  35 in  the matter of  protection of  eyes, s. 36  dealing  with precautions  against  dangerous  fumes, s.  37  relating  to explosive  or  inflammable   dust, gas   etc.,   and  s.  38 relating to  precautions in  case  of  fire.   Under  s.  39 if it  appears to the Inspector that any building or part of a building or any part of the ways, machinery or plant in  a factory  is in such a condition that it may be dangerous  to human  life  and safety he may serve on the manager  of  the factory an order in writing [1965] 2 S.C.R. 477.   353 requiring  him to. furnish the particulars  for  determining whether  the  building, machinery, plant etc., can  be  used with  safety or to carry out such tests as may be  specified and convey the result thereof to the Inspector.  Under s. 40 if it appears to the Inspector that any building or part  of a  building is in such a condition that it is  dangerous  to human life or safety he can serve an order on the manager of the factory specifying the measures which should be  adopted and  requiring him to carry out the same before a  specified date.   Shnilarly if it ’appears to him that the use of  any building  or machinery or plant involves imminent danger  to human  life or safety he can serve an order prohibiting  its use until it has been properly repaired or altered.  Chapter V  deals with welfare and provisions are made  therein  ,for such amenities as washing facilities for storing and  drying clothing, for sitting,  first aid appliances, canteens   and creches  and every factory is required under s.  49  wherein 500  or  more workers are ordinarily employed to  have  such number of welfare officers as may be prescribed.  The  Rules

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also contain various provisions where the Inspector  has  to be  consulted  and his approval obtained for  doing  certain things.  For  instance R. 65(3) says that the manager  of  a factory shall submit for the approval of the Chief Inspector plans  of the building to be constructed or adapted for  use as  a canteen.  It is unnecessary to refer to several  other provisions  contained  in the Act and the Rules  which  show that the Chief Inspector and his staff play a very important role in the working of the factory. In the return which was filed in the  High Court to the writ petition  it was stated in paragraph 8 that the  fees   were 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 welfare and the allied matters in respect of compliance with the  provisions of the Factories Act".  It has further  been stated  that in our country  matters  relating   to  health, safety,  welfare and employment have to be looked after  and the desired results have been sought to be achieved  by  the legislature by providing statutory inspection service.     According  to Mr. Gokhale the Inspectors only carry  out the duties laid on them under the Act and all that they have to  do  is to ensure that the statutory provisions  and  the rules  are  carried  out properly  and  launch  prosecutions against factory owners under the provisions of Chapter X of_ the Act in case of any breach or default on the part of  the factory  owners.  We do not consider that the functions  and duties of the Inspectorate are confined only to the  limited task  which has been suggested on behalf  of  the  appellant company.   A large number of provisions to  which  reference has been made,  particularly in the Chapter  dealing  with 354 safety,  involve a good deal of technical knowledge  and  in the course of discharge of their duties and obligations  the Inspectors  are expected to give proper advice and  guidance so  that there may be due compliance with the provisions  of the  Act.   It can well be said that  on  certain  occasions factory  owners are bound to receive a good deal of  benefit by  being  saved  from the consequences of  the  working  of dangerous  machines  or  employment  of  such  processes  as involve  danger to human life by being warned at the  proper time  as to the defective nature of the machinery or of  the taking  of  precautions which are enjoined  under  the  Act. Similarly   if  a building or a machinery or a plant  is  in such  a  condition  that it is dangerous to  human  life  or safety  the Inspector  by  serving  a timely notice  on  the manager  saves the factory owner from all  the  consequences of   proper  repairs not being done in time to the  building or the machinery.  Indeed it seems to us that the nature  of the  work of the Inspector is such that he is to  render  as much. if not more, service than a Commissioner would, in the matter  of supervision, regulation and control over the  way in   which  the management of the trustees of religious  and charitable  endowment was conducted.  The High Court further found,  which finding being of fact, must be  considered  as final  that  60’% of the amount of licence fees  which  were being realized  was  actually spent on services rendered  to the factory owners.  It can, therefore, hardly be  contended that the levy of the licence fee was wholly unrelated to the expenditure  incurred out of the total  realisation.  Before the High Court the appellant company never made out any case that  the  collections on .account of the licence  fee  were merged   in  the  general  public  revenue  and   were   not appropriated  in the manner laid down for the  appropriation

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of expenses for the department concerned.     There  can be no manner of doubt that the  amount  which the  appellant company has to pay as licence fee is  not  in the  nature  of a tax but is a fee which could  be  properly levied.       The appeal  fails and it is dismissed with costs. G.C.                                       Appeal dismissed. 355