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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.