TaxTMI 
TaxTMI 
2010 (5) TMI 397
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.... was also posed in Writ Petition No. 2159 of 2004 (Insure Policy Plus Services Ltd. v. Life Insurance Corporation). The said petition, which was similar to the earlier petition of the petitioner, was allowed by this Court by the Judgment and Order dated 22-3-2007 and the said Circulars were declared to be illegal and null and void . Though the said Judgment has been challenged by the respondent No. 1 before the Supreme Court by Special Leave Petitions, no stay has been granted to the effect of the order of this Court. In this background, the respondent No. 1 implemented the impugned Circular, dated 24-4-2006 with effect from May, 2007 and imposed a charge of Rs. 250 per assignment in favour of "Finance Organizations". The petitioners are affected by the same. According to the petitioner, the effect of the impugned Circular is to make the assignment of life insurance policies in favour of Finance Organizations, such as the petitioner No. 1, so onerous that it operates to severely restrict, if not prohibit, such legal and valid assignments in favour of the petitioner No. 1. 2. According to the petitioners, the impugned Circular is liable to be struck down on the following grounds ....
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....echnology and some of these benefits have been passed on by the respondent No. 1 to its policyholders. Considerable financial cost and investment has been made in computerization of its Systems, installing a Fire Wall for prevention of hacking, training its employees to operate the same, to check whether all the essential conditions for assignment have been fulfilled, whether valid notices have been given, whether stamp duty has been paid and whether there are any other claims on the policy. Due to the huge increase in assignment of policies in the last few years, the whole system and the staff of the respondent No. 1 have come under severe stress. In view of the cumbersome administrative processes and tremendous manpower involved and consequent high cost of administration in servicing the voluminous assignments of policies, especially of the Financial Institutions like the petitioner who are doing lucrative business of assignments of life insurance policies, in the public interest, the respondent No. 1 has levied the nominal service fee of Rs. 250 per assignment. It is contended that under the provisions of section 6 of the LIC Act, 1956, a general duty has been cast on the respon....
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....s under your jurisdiction be advised suitably." 6. The learned Senior Counsel for the petitioners contended that although the respondent No. 1 is a statutory Corporation established under the Life Insurance Corporation Act, 1956, the business of life insurance carried on by the respondent No. 1 is regulated by the provisions of the Insurance Act. The LIC Act deals with the establishment of the respondent No. 1 as a statutory body and regulates the functioning of the respondent No. 1 as a company, as opposed to regulating the business of life insurance, which is governed by the Insurance Act. Section 43 of the LIC Act makes the provisions of section 38 of the Insurance Act expressly applicable to the respondent No. 1. 7. Section 38 of the Insurance Act provides for the assignment and transfer of Insurance policies. It reads as follows :- "Assignment and transfer of Insurance policies.-(1) A transfer or assignment of a policy of life insurance, whether with or without consideration, may be made only by an endorsement upon the policy itself or by a separate instrument, signed in either case by the transferor or by the assignor or his duly authorized agent and attested by at l....
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....4) mandates that if the insurer receives the notice as prescribed in section 38(2), the insurer is bound to record the fact of such transfer or assign-ment. The only authority to levy a fee by the insurer under this section is if the insurer issues a written acknowledgement for the receipt of a notice for recording the assignment or transfer of the policy. Even in this circumstance, by statutory mandate, the fee cannot exceed one rupee. 9. Section 39(4) of the Insurance Act provides that a transfer or assignment of a policy made in accordance with section 38 shall automatically cancel a nomination. Thus, it is very clear that a transfer or assignment of policy if made after following the due procedure laid down in section 38, is the mandate of the law. In Insure Policy Plus Services Ltd. v. Life Insurance Corpn. [Writ Petition No. 2159 of 2004], the Division Bench of this Court, after considering the rival arguments of the parties, observed as follows in paras 16 and 20 :- "16. We shall now examine the various sub-sections of section 38. Section 38(1) unequivocally provides the procedure by which assignment of a policy of life insurance can be done. The contract of insurance ....
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....has no choice but to accept the transfer or assignment as the case may be if the procedure required by section 38 has been followed, subject to the terms of the policy. We have no hesitation in holding that section 38 is substantive and not procedural. The position in law, therefore, would be that the interest in the policy earlier held by the assignor is transferred to the assignee with all benefits attached thereto. The assignment becomes binding on the insurer recording the fact of such transfer or assignment. The submission, therefore, advanced on behalf of the respondent No. 1 herein that section 38 is merely procedural is devoid of merit. . . ." "20. . . . It is not open to respondent No. 1 to impose on the insured terms and conditions not provided in the contract or not permissible under the provisions of the Insurance Act, section 30A of the Insurance Act makes it mandatory for the Corporation to carry on its business in terms of the Insurance Act. The effect of the policy would be clearly contrary to section 38(4) of the Insurance Act. As we have held the section to be mandatory, once the insured complies with the requirement of section 38(2), the respondent No. 1 is bo....
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....ct to "the fees payable under the Act and the manner in which they are to be collected". The learned counsel contended that the Central Government has not exercised its rule-making power to levy a fee or charge on registration of assignments. It is further contended that section 49 of the LIC Act confers power to make regulations on the respondent No. 1 with previous approval of the Central Government and such regulations are to be notified. However, such regulations cannot be inconsistent with the provisions of the LIC Act. There is no dispute that the impugned Circular is not issued under the regulation-making power under section 49. 12. The learned Senior Counsel for the petitioners vehemently contended that no tax or a fee in the nature of tax can be imposed without any authority of law in view of article 265 of the Constitution of India. This contention is supported by several authorities. 13. In M. Chandru v. Member-Secretary, Chennai Metropolitan Development Authority [2009] 4 SCC 72. Their Lordships considered several earlier authorities with reference to the tax, fee and administrative charges. In paras 25 and 26, Their Lordships observed as follows :- "25. In Kri....
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....apacity. In the case of a tax, there is no identification of a specific benefit and even if such identification is there, it is not capable of direct measurement. In the case of a tax, a particular advantage, if it exists at all, is incidental to the State's action. It is assessed on certain elements of business, such as, manufacture, purchase, sale, consumption, use, capital, etc. but its payment is not a condition precedent. It is not a term or condition of a licence. A fee is generally a term of a licence. A tax is a payment where the special benefit, if any, is converted into common burden. 41. On the other hand, a fee is based on the 'principle of equivalence'. This principle is the converse of the 'principle of ability' to pay. In the case of a fee or compensatory tax, the 'principle of equivalence' applies. The basis of a fee or a compensatory tax is the same. The main basis of a fee or a compensatory tax is the quantifiable and measurable benefit. In the case of a tax, even if there is any benefit, the same is incidental to the Government action and even if such benefit results from the Government action, the same is not measurable. Under the principle of equivalence, as....
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....C 236 and CCE v. Chhata Sugar Co. Ltd. [2004] 3 SCC 466. In Indian Mica Mercantile Industries' case (supra), it was held that where the State is rendering no service to the consumer and is merely protecting its own rights and that when the State is in a position to place material before the Court to show what services had been rendered by it to the appellant and other similar licences, the costs or at any rate probable cost that may be said to have been incurred for rendering this service and the amount realised as fees, it has failed to do so, the levy appears to be tax and not fee. In Chhata Sugar Co. Ltd.'s case (supra), it was held that administrative charges under the U.P. Act is a tax and not a fee. After referring to all the authorities, the Supreme Court in Gupta Modern Breweries' case (supra) observed in para 28 as follows :- "28. It is, thus, clear from the aforesaid decisions that imposition of administrative services (sic charges) is a tax and not a fee. Such imposition without backing of statutes is unreasonable and unfair." 16. We may also consider some of the observations in Calcutta Municipal Corpn. v. Shrey Mercantile (P.) Ltd. [2005] 4 SCC 245, which noted t....
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....power to tax but as in the Constitution of India, the word 'tax' is defined, it has to be interpreted accordingly. 22. The expression 'regulatory fee' is not defined. Fee, therefore, may be held to be a tax if a 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 Corpn. of Calcutta v. Liberty Cinema)." 17. In view of this legal position, if the amount of Rs. 250 charged by the respondent No. 1 for registration of every assignment of a policy is in the nature of administrative charges for general services being rendered by the LIC to its policyholders or assignees, it would amount to tax. Similarly, if it is a fee, which has no co-relation with the service being rendered to the particular customer, it will also amount to a tax and cannot be charged without the authority of law. However, if it is a fee in the nature of charges for the services rendered to the particular customer and is not for recovery of general administrative expenses of the LIC, it may be treated as a fee or service charges. Therefore, the ques....
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....from exercising jurisdiction under Article 226 is different from saying that it has no jurisdiction. Therefore, we are not satisfied with the contention that the Writ Petition is not tenable. 19. The respondent No. 1 has tried to justify the imposition of the charge of Rs. 250 by giving some data. It is contended that there are about 19 crore policyholders with the respondent No. 1 and the respondent No. 1 is required to provide services to such policyholders frequently. With a network of 2048 branches all over India, large number of requests to record and register assignments are made. For the whole of India, the data reveals that in the Western Zone comprising the States of Maharashtra and Gujarat, only the respondent No. 1 was required to record the assignments in respect of about 77,000 policies in one financial year, i.e., 2005-06 alone. The total charges distributed amongst the 2048 branches worked out to Rs. 9,399.41 per branch which is a moderate figure. It is also pointed out that the cumbersome administrative processes involves, inter alia, scrutiny, verification, confirmation of the factum of the assignment by the existing policyholders in favour of the purported assi....
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....al institutions and banks are in the trade of the insurance policies. Naturally, such financial institutions purchase the policies at the discounted price from the original policy-holders and then get the policies assigned or transferred to them to gain huge profits in future. It cannot be forgotten that during the last few years, due to the globalisation and liberal economic policies, fast financial development has taken place in the country resulting in the higher salaries of the staff, high cost of stationery, computers and network systems. The cost of correspondence by post or the courier has also substantially increased. As the workload has increased due to large number of requests for registration of assignments, the respondent No. 1 will be compelled to have extra work force and staff to meet the requirements. 21. Section 6 of the LIC Act provides for functions of the Life Insurance Corporation of India. Sub-section (3) provides that in the discharge of any of its functions, the Corporation shall act, so far as may be, on business principles. Therefore, it is submitted on behalf of the respondents that the respondents have powers to act and in fact have acted on the busin....
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....nimum. Therein this Court further noticed : (SCC p. 430, para 34) 34. In another article on 'The Public Sector in India', quoted in Issues in Public Enterprise by Shri K.R. Gupta, Dr. Rao is quoted as saying (at p. 84) : '. . . the pricing policy should be such as to promote the growth of national income and the rate of this growth. . . public enterprises must make profits and the larger the share of public enterprises in all enterprises, the greater is their need for making profits. Profits constitute the surplus available for savings and investment on the one hand and contribution to national social welfare programme on the other; and if public enterprises do not make profits the national surplus available for stepping up the rate of investment and the increase of social welfare will suffer a corresponding reduction; . . . Hence, the need for giving up the irrational belief that public enterprise should, by definition, be run on a non-profit basis.'" 22. Again in CIT v. A.P. State Road Transport Corpn. [1986] 2 SCC 391^1, the Supreme Court observed as follows :- "10. The submission founded upon section 22 is based upon a misunderstanding of what that section provides.....
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....ries v. Bihar State Electricity Board). It is a public utility monopoly undertaking which may not be driven by pure profit motive - not that profit is to be shunned but that service and not profit should inform its actions. It is not the function of the Board to so manage its affairs as to earn the maximum profit; even as a private corporate body may be inspired to earn huge profits with a view to paying large dividends to its shareholders." In view of this settled legal position, it is clear that the respondent LIC is expected to manage its affairs on sound economic and business principles which are as essential to public service undertakings as to the commercial ventures. 24. Section 28 of the LIC Act reads as follows :- "28. Surplus from life insurance business how to be utilized.-If as a result of any investigation undertaken by the Corporation under section 26 any surplus emerges, ninety-five per cent of such surplus or such higher percentage thereof as the Central Government may approve shall be allocated to or reserved for the life insurance policyholders of the Corporation and after meeting the liabilities of the Corporation, if any, which may arise under section 9....
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....al benefit enjoyed by the payer and the payment is proportional to such benefit. Money raised by fee is appropriated for the performance of the service and does not merge in the general revenue. Where, however, the service is indistinguishable from the public services and forms part of the latter it is necessary to inquire what is the primary object of the levy and the essential purpose which it is intended to achieve. While there is no quid pro quo between a taxpayer and the authority in case of a tax, there is a necessary co-relation between fee collected and the service intended to be rendered. Of course the quid pro quo need not be understood in mathematical equivalence but only in a fair correspondence between the two. A broad co-relationship is all that is necessary." 27. In Mumbai Agricultural Produce Market Committee v. Hindustan Lever Ltd. AIR 2008 SC 2215, this Court observed :- "14. The quantum for recovery, however, need not be based on mathematical exactitude as such cost is levied having regard to the liability of all the licensees or a section of them. It would, however, require some calculation." 28. From this, it is clear that while co-relation between the....
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....icy provided:" From this, it is clear that the cost of transaction of assignment of policies has considerably increased and, therefore, the Corporation has decided to levy service charges. As noted by the Supreme Court in Sri Krishna Das' case (supra) and M. Chandru's case (supra), a fee is paid for performing a function and fee is not ordinarily considered to be a tax. If the fee is levied merely to compensate an authority for the services rendered, it cannot be called a tax. Taking into consideration, the legal position and the explanation given by the respondent No. 1 for levying service charges, we have no doubt that by the impugned Circular, the respondent No. 1 has levied service charge or a fee for the services to be rendered to the person requesting for registration of assignment and, therefore, the said charges cannot be treated as tax. 31. We may first deal with the contention as raised on behalf of the respondents that considering section 6 of the LIC Act, they have to run the Corporation on business principles and the power to charge the amount flows from that power. We have noted the judgments and referred to them. Section 6, at the highest, if read in its proper....
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....t the delegated authority must act strictly within the parameters of the authority delegated to it under Act and it will not be proper to bring the theory of implied intent or the concept of incidental and ancillary power in the matter of exercise of fiscal power. 8. . . . It has been consistently held by this Court that whenever there is compulsory exaction of any money, there should be specific provision for the same and there is no room for intendment. Nothing is to be read and nothing is to be implied and one should look fairly to the language used." 35. In Gupta Modern Breweries' case (supra), the Supreme Court observed as under :- "It is now well-settled principle of law that the regulatory powers are generally to be widely construed. However, empowering the State Government to impose taxes, fees or duties and such demands must be authorised by the Statute and must contain sufficient guidelines." 36. It would, thus, be clear that there must be a specific provision conferred by the Act on the delegate to levy a fee. We do not find that the power to make rules under the LIC Act as also the Insurance Act, 1938 is conferred on the respondent-Corporation. Under the LIC....
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....enshrined in Article 14 of the Constitution. It is contended that while the assignment in favour of family members, LIC of India and LIC Housing Finance Ltd. and in favour of the Government bodies, are exempt from payment of such service charges, the assignments in favour of other public sector entities, including banks, co-operatives, financial organizations are to be charged. It is contended that non-banking financial institutions like the petitioners, banks, public sector entities form a homogeneous group with the LIC of India, LIC Housing Finance Ltd. and the Government bodies and, therefore, there can be no justification to make a difference between them. It is contended that the classification and differential apparent from the Circular renders it unconstitutional. It is contended that it makes an artificial classification of what is essentially one homogeneous class, which is not permissible under the law. In support of this contention, the learned counsel placed reliance upon State of Rajasthan v. Mukan Chand AIR 1964 SC 1633 wherein the Constitution Bench of the Supreme Court discussed the principles of article 14 of the Constitution and observed as follows :- ". . . . ....