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CASE NO.:

Appeal (civil) 5120-5132 of 1999

PETITIONER:

Vijayalashmi Rice Mill and Ors.

RESPONDENT:

Commerical Tax Officers, Palakol and Ors.

DATE OF JUDGMENT: 07/08/2006

BENCH:

Ashok Bhan & Markandey Katju

JUDGMENT:

JUDGMENT

MARKANDEY KATJU, J.

Civil Appeal Nos.5120-5132 of 1999 have been filed against the Judgment and

Order dated 25.9.1998 of the High Court of Andhra Pradesh passed in Writ

Petition Nos.19213, 19299, 19384, 19385, 19387, 19388, 19389, 19523, 19526,

19707, 19709, 19915 and 22448 of 1998, by which the Constitutional validity

of the Andhra Pradesh Rural Development Act, 1996 has been upheld.

Heard Shri M.N. Rao, learned Senior counsel for the appellants, and Shri

Rakesh Dwivedi, learned Senior counsel for the respondents.

Most of the petitioners-appellants are registered firms, while some of them

are individual traders engaged in the business of rice milling. It is

alleged that they are regularly submitting returns to the Commercial Tax

Authorities reflecting their turnovers of purchase of paddy as well as sale

of rice every year and accordingly they pay purchase and sales tax. They

are challenging the levy of cess under the Andhra Pradesh Rural Development

Act, 1996 (hereinafter referred as "the Act") which levies cess in addition

to the purchase or sales tax being paid by them. It is alleged that the

aforesaid cess under the Act does not fall under any of the entries in

List-II or List III of the Seventh Schedule to the Constitution. Hence it

is alleged that the aforesaid levy of cess is invalid.

Entry 54 of List II of the Seventh Schedule no doubt empowers the State

Legislatures to levy tax on purchase or sale of goods, but since the goods

in question have been declared as declared goods under the Central Sales

Tax Act, it is submitted by the appellant that the maximum sale or purchase

tax can be 4% and the appellants have already paid more than that as

sale/purchase tax. Hence it is contended that the levy of cess under the

Act is invalid.

On the other hand, Shri Rakesh Dwivedi, learned Senior counsel for the

State of Andhra Pradesh, has submitted that the cess in question is in fact

a fee, and hence it comes under Entry 66 of List-II of the Seventh Schedule

to the Constitution.

Shri Rao, learned Senior counsel for the appellants contended that there

was no quid pro quo in the levy of the cess, and hence it cannot be said to

be a fee. He has invited our attention to the allegation in para 5 of the

affidavit in support of the writ petition, where it has been alleged "The

cess is collected from a dealer and nothing is done specially to benefit

the dealer. The cess partakes the character of a tax".

A copy of the Andhra Pradesh Rural Development Act, 1996 has been annexed

as annexure P-1. In the Statement of Objects and Reasons of the Act, it is

stated :

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"It is observed that the development in the rural areas in the State has

not been accelerated due to paucity of funds. The Government are of the

view that there is an imperative need to provide financial assistance for

the development of rural areas in the State by creating infrastructure

facilities, so that the economic activities in the rural areas will

increase and thereby contribute for the growth of the economy. With a view

to generating funds for the purpose of development of the rural areas, it

is considered desirable to levy a cess @ 5% on the advalorem basis on the

quantity of the purchase of goods specified in the Schedule appended to the

Bill".

Section 3 of the Act empowers the State Government by notification to

establish the Andhra Pradesh Rural Development Board.

Section 7(1) states: "There shall be levied and collected by the Government

a cess @ 5% on the advolerem on the quantum of purchase of goods".

Section 8 establishes a fund to be called "The Andhra Pradesh Rural

Development Fund" which vests in the Board. The purpose of this fund has

been mentioned in Section 9 which states:

"9. Purpose for which the Fund may be applied : The Fund shall be applied

for the purposes herein specified :

(i) to provide and accelerate comprehensive rural development including the

construction of rural roads and bridges;

(ii) to augment storage facilities for storing agricultural produce; and

(iii) for maintaining and strengthening of Public Distribution System".

The question in the present case is whether the impost in question is a fee

or a tax. If it is a tax, then it will have to be held to be

unconstitutional because it does not come in any of the Entries in List II

of the Seventh Schedule to the Constitution. However, if it is a fee, then

it comes under Entry 66 of List II.

Ordinarily, a cess means a tax which raises revenue, which is applied to a

specific purpose. Thus in Guruswamy and Co. v. State of Mysore, AIR (1967)

SC 1512, Hidayatullah, J. in his dissenting judgment observed :

"The word `cess' is used in Ireland and is still in use in India although

the word rate has replaced it in England. It means a tax and is generally

used when the levy is for some special administrative expense which the

name (health cess, education cess, road cess, etc.) indicates. When levied

as an increment to an existing tax, the name matters not for the validity

of the cess must be judged of in the same way as the validity of the tax to

which it is an increment."

The aforesaid observations has been referred to by the Constitution Bench

decision of this Court in India Cement Ltd. & Ors. v. State of Tamil Nadu &

Ors., [1990] 1 SCC 12 vide para 19.

Hence ordinarily a cess is also a tax, but is a special kind of a tax.

Generally tax raises revenue which can be used generally for any purpose by

the State. For instance, the Income Tax or Excise Tax or Sales Tax are

taxes which generate revenue which can be utilized by the Union or State

Governments for any purpose, e.g. for payment of salary to the members of

the armed forces or civil servants, police, etc. or for development

programmes, etc. However, cess is a tax which generates revenue which is

utilized for a specific purpose. For instance, health cess raises revenue

which is utilized for health purposes e.g. building hospitals, giving

medicines to the poor etc. Similarly, education cess raises revenue which

is used for building schools or other educational purposes.

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However, in such matters nomenclature is not very important and we have to

see the nature of the levy. Hence, what is called a cess may be in reality

a fee depending on its nature.

It is well settled that the basic difference between a tax and a fee is

that a tax is a compulsory exaction of money by the State or a public

authority for public purposes, and is not a payment for some specific

services rendered. On the other hand, a fee is generally defined to be a

charge for a special service rendered by some governmental agency. In other

words there has to be quid pro quo in a fee vide Kewal Krishan Puri v.

State of Punjab, AIR (1980) SC 1008.

The earlier view of the Supreme Court was that to sustain the validity of a

fee some specific service must be rendered to the particular individual

from whom the fee is sought to be realized. However, subsequently in

Sreenivasa General Traders v. State of Andhra Pradesh, AIR (1983) SC 1246,

Supreme Court observed:

"The traditional view that there must be actual quid pro quo for a fee has

undergone a sea change in the subsequent decisions. The distinctions

between a tax and a fee lies preliminary in the fact that a tax is levied

as part of a common burden, vide a fee is for payment of a specific benefit

or privilege although the specific advantage is secondary to the primary

motive of regulation in public interest. If the element of revenue for

general purpose of the State predominates, the levy becomes a tax. In

regard to fees there is, and must always be, correlation between the fee

collected and the service intended to be rendered.......... There is no

generic difference between a tax and a fee. Both are compulsory exaction of

money by public authorities."

Similarly in City Corporation of Calicut v. Thachambalath Sadasivan, AIR

(1985) SC 756, which has placed reliance on an earlier decision of the

Supreme Court in Amar Nath Om Prakash v. State of Punjab, AIR (1985) SC

218, it was held that:

"It is thus well settled in numerous recent decisions of this Court that

the traditional concept in a fee of quid pro quo is undergoing a

transformation and that though the fee must have relation to the services

rendered, or the advantages conferred, such relation need not be direct,

and a mere casual relation may be enough. It is not necessary to establish

that those who pay the fee must receive direct benefit of the services

rendered for which the fee is being paid. If one who is liable to pay

receives general benefit from the authority levying the fee the element of

service required for collecting fee is satisfied. It is not necessary that

the person liable to pay must receive some special benefit or advantage for

payment of the fee."

Subsequently, also the same view has been reiterated that there has been a

sea change in the concept of a fee and now it is no longer regarded

necessary that (i) some specific service must be rendered to the particular

individual or individuals from whom the fee is being realized, and what has

to be seen is whether there is a broad and general correlationship between

the totality of the fee on the one hand, and the totality of the expenses

of the services on the other, vide State of Himachal Pradesh v. M/s.

Shivalik Agro Poly Products, AIR (2004) SC 4393; (ii) there need not be an

exact or mathematical correlation between the amount realized as a fee and

the value of the services rendered. A broad correlation between the two is

sufficient to sustain the levy.

In the present case, there is no averment by the petitioner in the writ

petition that there is no broad correlation between the amount realized as

a cess and the amounts spent for the purposes mentioned in Section 9 of the

Act, namely, to provide and accelerate rural development including the

construction of rural road and bridges and storage facilities for storing

growth and for maintaining and strengthening of the Public Distribution

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System. All that has been alleged by the petitioner in para 5 of the

affidavit to the writ petition is that no specific benefit is given to the

dealer from whom the cess is collected.

Thus the factual averment in the writ petition is limited to the plea that

there is no specific service rendered to a particular dealer from whom the

fee is realized. There is no factual averment that there is no broad

correlation between the total amount of cess realized and the total value

of the service being rendered to the people living in the rural areas.

As already stated above, the concept of fee has undergone a sea change, and

hence the writ petition is liable to fail on the mere ground that the writ

petition was drafted under a total misconception about the legal position.

As already stated above, the concept of fee has undergone a sea change,

while the writ petition has been drafted in the light of the old concept of

fee and not the new concept which was subsequently developed by the Supreme

Court.

In Sona Chandi Oal Committee v. State of Maharashtra, AIR (2005) SC 635,

this Court observed as under:

"The traditional concept of quid pro quo in a fee has undergone

considerable transformation. So far as the regulatory fee is concerned, the

service to be rendered is not a condition precedent and the same does not

lose the character of a fee provided the fee so charged is not excessive.

It was not necessary that service to be rendered by the collecting

authority should be confined to the contributories alone. The levy does not

cease to be a fee 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 a direct relation to the actual service rendered by the authority to

each individual who obtains the benefit of the service. Quid pro quo in the

strict sense was not always a sine qua non for a fee. All that is necessary

is that there should be a reasonable relationship between the levy of fee

and the services rendered and it is not necessary to establish that those

who pay the fee must receive direct or special benefit or advantage of the

services rendered for which the fee was being paid. It was held that if one

who is liable to pay, receives general benefit from the authority levying

the fee, the element of service required for collecting the fee is

satisfied."

In State of West Bengal v. Kesoram Industries Ltd. and Ors., [2004] 10 SCC

201 a Constitution Bench of the Supreme Court (vide para 140) observed:

"...........The imposition of cess envisaged through the SADA Act and the

Rules was a step towards developing the special area. It is a matter of

common knowledge, and does not need any evidence to demonstrate, that

mining activity carried on the land within the special area involves

extraction, removal, loading-unloading and transportation of the minerals

accompanied by its natural consequences entailed on the environment and the

infrastructure such as roads, water and power supply etc. within the

special area. The impugned cess can, therefore, be justified as a fee for

rendering such services as would improve the infrastructure and general

development of the area, the benefits whereof would be availed even by the

stone-crushers. Entry 66 in List II is available to provide protective

constitutional coverage to the impugned levy as fee."

In Shiv Dayal Singh Ors. v. State of Haryana & Ors., AIR (1989) Punjab 87,

the Punjab and Haryana High Court has upheld the validity of the Haryana

Rural Development Act, which is similar to the Act in question. We are in

respectful agreement with the view taken by the Punjab and Haryana High

Court in the aforesaid decision. A similar view was also taken by the

Supreme Court in M/s. Kishan Lal Lakhmi Chand & Ors. v. State of Haryana &

Ors., [1993] Suppl. 4 SCC 461.

Learned counsel for the appellant has relied on the Constitution Bench

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decision of this Court in Jindal Stainless Ltd. & Anr. v. State of Haryana

and Ors., JT (2006) 4 SC 611 and he relied on para 39 of the said judgment

which refers to "the principle of equivalence". In our opinion the

aforesaid decision cannot be interpreted to mean that the sea change which

has taken place in the concept of fee (as noted above) has vanished, and

that by this decision the old concept of fee has been restored, and that

now it has to be established that the particular individual from whom the

fee is being realized must be rendered some specific services.

It may be noted that the decision in Jindal Stainless (supra) was given in

connection with Article 301 of the Constitution, and it was not regarding

the nature of a fee. Hence, it cannot be regarded as an authority

explaining the nature of a fee. In our opinion the decisions of this Court

in Sreenivasa General Traders v. State of A.P. (supra), City Corporation of

Calicut v. Thachambalath (supra), State of Himachal Pradesh v. M/s Shivalik

Agro Poly Products (supra), etc. still hold the field regarding the nature

of a fee.

In our opinion the cess in question is in substance a fee as it is being

levied for rendering to the rural public the service of rural development

for the purposes stated in para 9 of the Act. Clearly roads, bridges and

storage facilities have to be built in rural areas for progress, and

naturally this will require generating funds. Thus even if no specific

service is rendered to any particular individual from whom the fee has been

realized, the cess in question is nevertheless a fee, for the reasons

already mentioned above. Services are being rendered to the people in the

rural areas as mentioned in Section 9 of the Act.

No doubt, as stated above, there has to be a broad correlation between the

total amount of fees generated by the impugned cess and the total value of

the services rendered, but there is no specific averment in the writ

petition that there is no such broad correlation. It is true that if, say,

Rs.100 crores revenue is generated every year by this cess, it is not

necessary that this entire amount of Rs.100 crores must be spent for the

purposes mentioned in Section 9, and it will suffice if a substantial part

of this Rs. 100 crores is spent for such purposes. At the same time we

would like to clarify that if, say, Rs.100 crores is generated by the cess

in question and only Rs.1 crore or Rs.50 lacs is spent for the purpose

mentioned in Section 9, obviously there would not be in such a case a broad

correlation between the fees being realized and the service rendered.

Hence, while we uphold the validity of the Act, we leave it open to the

petitioners (or any other person concerned) in the special circumstances of

the case, to file a fresh petition, wherein he can make a specific averment

that there is no broad correlation between the total amount of cess being

realized every year under the Act and the total value of the services being

rendered every year in accordance with Section 9. If the appellants (or any

other concerned person) files such a fresh petition, the State of Andhra

Pradesh will have to give facts and figures in their counter affidavit

showing that there is a broad correlation between the total amount of cess

being realized and the total value of the services rendered. If it is found

that there is no such broad correlation then obviously a suitable mandamus

can be issued by the High Court, as is required by the circumstances of the

case.

With the aforesaid observations these appeals are dismissed. No costs.

Civil Appeal Nos. 5133/1999, 5134-5137/1999, 5138-5140/1999, 5141/1999,

5142-5143/1999, 5144-5146/1999, 5147/1999 & 5148/1999

In view of the decisions in Civil Appeal Nos. 5120-5132 of 1999 these

appeals are accordingly dismissed. No costs.

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