TaxTMI 
TaxTMI 
2010 (4) TMI 970
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....r the 2002 Act, on ad valorem basis on sale and purchase of all agricultural produces except fruits, vegetables and pulses; (iv) use of machinery as provided under the Punjab General Sales Tax Act for collection of cess/fee, and (v) the Clarificatory Notification No. 7/8/98-5FBI/-4865 dated April 8, 1999 issued by the Government of Punjab (Department of Finance). Broadly, the common grounds of challenge are: (i) that the levy of cess under the Punjab Infrastructure Development Ordinance/the Punjab Infrastructure Development Act, 1998 (for short, "the 1998 Act") and the Punjab Infrastructure Development Cess (Collection) Rules, 1998 (for short, "the Cess (Collection) Rules") and fee under the Punjab Infrastructure (Development and Collection) Act, 2002 (for short, "the 2002 Act") is discriminatory being violative of articles 14 and 286(3) of the Constitution of India, as they were levied at the rate of one per cent and three per cent (extendable up to six per cent), respectively only on the items mentioned in Schedule III to the Acts, and collected in the manner prescribed in the Acts which is not sustainable in law; (ii) that there is absence of the element of quid pro quo to....
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.... payable before January 12, 1999; and (xi) that the levy of cess or fee amounts to collecting an excessive and unreasonable amount of imposts at the higher rate inasmuch as the total amount of tax, cess and fee being paid on the articles in question under various Acts is comparatively higher than the imposts being charged on other taxable goods. During the course of hearing, learned counsel for both parties extensively referred to the averments of four writ petitions, namely, C.W.P. No. 6676 of 1999 (Food Corporation of India v. State of Punjab) and C.W. P. No. 2343 of 2000 (Ludhiana Flour and General Mills Limited, Ludhiana v. State of Punjab), while assailing the validity of the 1998 Ordinance (No. 7 of 1998)/the 1998 Act (No. 1 of 1999), and C.W.P. No. 3295 of 2003 (Garg Rice and General Mills, Mundi Kharar v. State of Punjab) and C.W.P. No. 1449 of 2003 (Food Corporation of India v. State of Punjab) for laying the challenge to the provisions of the 2002 Act. According to learned counsel, the questions of law raised in the factual background of these writ petitions would squarely cover the subject-matters of the other connected writ petitions also. C.W.P. No. 6676 of 19....
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....f Punjab (Department of Finance) which issued the Cess (Collection) Rules vide the notification dated November 11, 1998 (annexure P3), and also a clarificatory notification dated April 8, 1999 (annexure P4) regarding levy of cess on sale and purchase, both, under section 4 of the 1998 Act, has not been made a party. The respondent-State has been given the duty to collect the infrastructure cess on behalf of the PIDB also vide the Punjab Infrastructure Development (General) Rules (for short, "the PID(G) Rules"), notified vide No. G.S.R.80/P.O.7/98/S.3/98 dated November 10, 1998. This is emphatically averred that the impugned levy of cess does not amount to the incidence of double taxation in the garb of cess which is being collected under the PGST Act in public interest under the sanction of the 1998 Act duly enacted by the State Legislature within the pale of its competence. The cess in question is not a tax also for the fact that it is only confined to a local and specific area and is levied for a particular purpose. The word "tax" is to be construed in generic sense under articles 265 and 266 which also includes cess. Further, the expression "tax" as used in article 265 of the....
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....lm of State Legislature inasmuch as the word "purchase" was inadvertently omitted in the 1998 Ordinance and the relevant Rules made thereunder. Hence, a clarification was needed to bring the word "purchase" in the Rules so as to levy the cess on the first purchase of the agricultural produces in question, namely, wheat, paddy and rice, etc., which is also the stage of imposition of tax under the PGST Act. This has also been clarified in the reply that wheat and paddy being the agricultural produces are exempted vide entry No. 39 of Schedule B of the CST Act, at the stage when it is sold by the farmers, but it is not exempted at the hands of purchasers. A tax is squarely covered by entry No. 54 of List II of the Seventh Schedule to the Constitution. Further, sales tax on declared goods is being charged at four per cent, whereas, the cess is collected only at one per cent. Thus, the collection of cess under the impugned enactments, is in consonance with articles 286 and 254 of the Constitution read with sections 14 and 15 of the CST Act and section 5(3) of the PGST Act. In the reply on behalf of the PIDB, this is pointed out that the FCI has violated the memorandum No. 53/3, 10/99....
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....(4) the Food Corporation of India. In order to carry out the business, the petitioner-mill has to purchase wheat from different sources. One of the sources for the procurement of wheat is by way of purchase from the FCI which is the main procurer in Punjab and Haryana. According to the writ petitioner, the FCI has been constituted under the FCI Act to ensure payment of minimum procurement price to farmers which may be enhanced from time to time, and also in order to protect the consumers from a speculative trade. The FCI sells wheat in Punjab as per the policy decided by it from time to time. As per its policy, the release orders in respect of purchase of wheat are to be issued only after the payment of full cost, and thus, the flour mills are forced to pay cess at Re. 1 for every 100 rupees on ad valorem basis. This is also a submission that the Cess (Collection) Rules notified and published on November 11, 1998 were made available for general public only on November 23, 1998, therefore, the date of enforcement of Rules whereunder the cess was to be collected, was not November 11, 1998, but November 23, 1998. In this writ petition also, collection of cess under the PGST Act from t....
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....ould not have charged the cess at one per cent from the mills. As such, the petitioner mills would be entitled to seek the recovery of cess, as other procurers like PUNSUP has already decided to refund the cess collected on the sale and purchase of the old stocks. Wheat is one of the declared goods under section 15(a) of the CST Act, hence, it cannot be subjected to levy of tax at more than one stage and, moreover, no tax could be leviable in excess of four per cent of the sale or purchase price. Besides, if section 4(1) of the 1998 Ordinance/Act provided for levy of cess on sale of articles, the Cess (Collection) Rules, 1998 should be interpreted to levy the cess only at the stage of sale, even though the PGST Act, whereunder the cess is being recovered, provides for levy of tax on the event of purchase also. Thus, the business of the petitioner has been adversely affected on account of unilaterally action on the part of FCI in recovering the cess in connivance with the State of Punjab and, therefore, it amounts to infringement of fundamental right of the petitioner under article 19(1)(g) of the Constitution. In reply to the writ petition on behalf of the State, it is denied th....
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....egislative competence of the State. This Act was published in the Punjab Gazette (extraordinary) on July 9, 2002. Admittedly, as per the notification of the Government of Punjab, the Act came into force with effect from July 11, 2002. Under section 25 of the Act, every dealer is liable to pay a fee under the Act on the sale or purchase of the goods specified in Schedule III thereof within the State of Punjab at the rate not exceeding six per cent of the value of the goods as the State Government may by notification direct. In Schedule III of the Act, a list of articles which are subject to levy of fee under the 2002 Act has been given, and at Sr. No. 1, is the item agricultural produces (except fruits, vegetables and pulses) as defined in the Punjab Agricultural Produces Markets Act, 1961, which is to be levied with fee under the circumstances and stage as mentioned in Schedule D to the PGST Act, 1948. There is no dispute that the paddy is an item included in the Schedule at item No. 6. In the Schedule appended to the PGST Act, paddy has been declared to be liable to purchase tax within the State to be paid by a dealer under this Act on the first purchase. Thus, on coming into forc....
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....isputedly, tax can be imposed on the purchase of paddy. However, it should not exceed the limit of four per cent and in case the State Government wants to do so by way of the levy of tax in excess thereof in the guise of separate Act by giving the nomenclature of cess to a tax, this would amount to a fraud on the Constitution of India. Besides, any tax collected under article 265 has to be deposited in the consolidated fund as provided under article 266 of the Constitution. This fund is liable to be audited by the authority under the Comptroller and Audit General of India under article 148 of the Constitution of India. However, in the present Act, there is no provision that the tax will go to the consolidated fund and it will be subject to the audit by the Comptroller and Audit General of India. The Act does not provide for any kind of audit by any authority. Thus, the levy of tax in the guise of cess/fee is ab initio void. However, the impost in question is to be collected for infrastructure defined under section 2(15) of the Act, meaning thereby, the infrastructure in Schedule 1 of the Act. The levy is unconstitutional inasmuch as paddy is one of the declared goods and a tax at f....
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....rticipation and funding from sources other than those provided by the State Budget. There is no such attempt on the part of the State to impose a tax under the garb of fee. The levy of fee by the State of Punjab has been done in pursuance of Notification No. 6349 dated July 11, 2002 issued under section 25 of the Act. Section 25 of the 2002 Act empowers the State Government to levy fee for the development of infrastructure in the State of Punjab at a rate not exceeding Rs. 6 for every hundred rupees of the value of goods as the State Government may by notification direct. Thus, fee at Re. 1 (now Rs. 3) for every Rs. 100 is being charged on the sale and purchase of all agricultural produces (except fruits, vegetables and pulses) and at Re. 1 per liter on the sale and purchase of petrol and diesel. As per section 27(2) of the Act of 2002, the amount collected by way of fee is credited to the Development Fund or the Punjab Infrastructure Development Fund, constituted in pursuance of section 27(1) and 2(11) of the Act. As per section 27(3) of the 2002 Act, the development fund is applied for the development of infrastructure sectors by providing infrastructure facilities in the Stat....
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.... the Constitution of India, the tax collected is to be deposited in the consolidated fund, but since levy in question is not a tax and is rather a fee, it is deposited in the development fund to be applied for the development of the infrastructure sectors by providing infrastructure facilities in the State of Punjab for the benefit of the persons from whom the fee is being charged and collected, and the public at large, and for the infrastructure facilities of the country having direct benefit to the economy of the State of Punjab, which is justifiable. The answering respondent has also asserted that under section 22(3) of the 2002 Act, there is a provision for auditing of the accounts. Further, in terms of section 22(4) of the 2002 Act, the development fund which is vested in the Board, is regularly audited by the Local Fund Examiner, Punjab. Thereafter, the respondent-Board, the PIDB, has filed three additional affidavits through Sh. G.P.S. Mann, its Chief Manager, to highlight the efforts of the Board while giving the details of infrastructures provided, and the money spent by the PIDB on such projects. According to these affidavits, in pursuance of Notification No. 6343 date....
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....ted the investments from private sector entrepreneurs. According to the details annexed with the affidavit, the total cost of all the projects already awarded under the aegis of PIDB up to March 31, 2009 is Rs.10,197.55 crores and the total cost of the projects being developed is Rs. 33,540.80 crores. Thus, the grand total of costs of the projects taken up for development by the Board is Rs. 43,738.35 crores, as against the fee of only Rs. 1,857.92 crores, collected and credited into the development fund. Out of the infrastructure projects/facilities costing Rs. 43,738.35 crores, developed or under-developed by the Board, majority of the projects/facilities have been utilized or are going to be utilized by the persons mentioned in the Schedule under section 25 of the 2002 Act. It cannot be possible to cull out the exact expenditure in mathematical exactitude, however, it cannot be denied that proportionate to the fee charged and credited in the development fund, infrastructure facilities have been provided to the petitioners. The total amount received by the State Government from the Central Road Fund (CRF) for undertaking road works in the State for five years, i.e., 2001-02 to....
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....d in some cases, a few lacs rupees. According to reply, the writ petitioners as well as their workers, visitors, transporters carrying goods and grains, etc., to the mills would be directly benefited from a single project, namely, the proposed Kharar-Phagwara Expressway. Besides, the writ petitioners are free to derive the direct or indirect benefits on a non-exclusive basis from the infrastructure facilities costing over Rs. 43,000 crores created with the efforts of the PIDB. Thus, leveraging of such a huge development fund is unprecedented in our country and is also the need of hour. Thus, the development fund created with the funds collected from the payers under the 1998 Act and the 2002 Act, is substantially directed towards providing benefits to the agrarian sector. As regards C.W.P. No. 1449 of 2003, this writ petition is again filed by the Food Corporation of India against the respondents, namely, (1) the State of Punjab; (2) the Financial Commissioner, Taxation, Punjab; (3) the Punjab Infrastructure Development Board; and (4) the Excise and Taxation Officer-cum-Assessing Authority, Patiala, to challenge the validity of the new Act, namely, the Punjab Infrastructure (Dev....
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....y in as much as it is being levied only on agricultural produces (except fruits, vegetables and pulses), petrol and diesel, and not on other articles, although the infrastructure so provided or proposed to be provided would be used by the public at large. Thus, there is discrimination in classification of goods for the purpose of levy of cess as also the fee. Besides, the PIDB has not provided any infrastructural facility to be counted towards providing special services to the petitioners herein. This is also his submission that the money so collected by imposing the impost has to be deposited only with a consolidated fund under article 266 of the Constitution even if it is a fee. According to learned counsel, there is no quid pro quo to justify the levy of cess/fee. Thus, the impost in question is only a tax and not a fee. The learned counsel also urged that both the statutes, namely, the Acts of 1998 and 2002, are discriminatory and violative of article 14 and also article 301 of the Constitution. Hence, they are liable to be struck down. This is also his submission that the levy of cess, which is otherwise a tax, being in excess of four per cent of purchase or sale price of d....
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.... the purpose for which the fund is to be utilized is mentioned in section 6(1) of the 1998 Act. The purpose as such was to utilize the funds for the development of infrastructure in the State of Punjab, and the infrastructure facilities in the country having direct benefit to the economy of the State of Punjab and not for the special benefits of individuals who paid the impost. According to learned counsel, an Act must substantially meet the facial test, and every legislation has to be tested on the ground of reasonableness. The learned counsel referred to a Constitutional Bench judgment of the apex court (Kewal Krishan Puri v. State of Punjab reported in [1980] 1 SCC 416), wherein the market fee levied under the Punjab Agricultural Produces Markets Act, 1961, when increased from two per cent to three per cent on all sales and purchases of agricultural produces, was struck down. The learned counsel thus submitted that in the instant case also, as the Punjab Infrastructure Development Board ("the PIDB") has increased the fee from one per cent to two per cent with effect from April 1, 2008 and further from two per cent to three per cent with effect from September 1, 2008 without publ....
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....to learned counsel, the imposition of impost without providing infrastructure is arbitrary which has adversely affected the trade of the petitioner as also the revenue of State. Mr. Puneet Bali, learned counsel for the PIDB, submitted that none of the petitioners has disclosed the amount of cess being paid by each of them. They have not given any figure or amount of cess they have paid so far in the support of their contention assailing the validity of enactments. They have also not given any figure to say that the amount spent on the infrastructure facilities by the State does not meet the requirement of quid pro quo. The learned counsel referred to three affidavits filed on behalf of the PIDB so as to establish that the amount earned from the levy of impost is much less in comparison with the amount spent on the infrastructure sector. The learned counsel also referred to the details of accounts given in the affidavits and submitted that the petitioners are not able to deny the facts. He also submitted that the amounts in question were not spent on the projects which are alien to the objects of the Acts. According to learned counsel, the petitioners have relied on only two j....
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....ct defined the "Government" to mean the Government of Punjab in the Department of Finance. Under section 3 of the 1998 Act, the Government by notification would establish for the purpose of carrying out the provisions of the 1998 Act, a Board. Section 4 of the Act provides for a cess on ad valorem basis at Re. 1 for every Rs. 100 in respect of the articles specified in the Schedule on all the sales effected after coming into force of the 1998 Act and all the sales of goods made under the Punjab General Sales Tax Act, 1948. Section 6 of the Act relates to the purpose for which the fund may be applied and sub-section (2) thereof provides for generality of sub-section (1) and the funds in question have in fact been especially applied for infrastructure development in the sectors as mentioned in the Act, which include irrigation, transportation, roadways including the roads which may be national highways, State highways, district roads and village roads, etc., and power generation, etc., section 7 of the 1998 Act relates to audit of the accounts of the funds constituted under section 5 and prescribes that the same shall be audited by the local Fund Examiner, Punjab. Section 11 of the 1....
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....e-assess, collect and enforce payment of any tax under the Punjab General Sales Tax Act, 1948, shall assess, reassess, collect and enforce payment of cess on the articles and goods specified in the Schedule appended to this Ordinance, from any dealer registered under the Punjab General Sales Tax Act, 1948, at the stage envisaged under the Punjab General Sales Tax Act, 1948.' -A perusal of the above-mentioned rule would show that the authorities which have to assess, reassess, collect and enforce payment of any tax under the PGST Act, shall do the same on the articles and goods specified in the Schedule appended to the Ordinance at the stage envisaged under the PGST Act. The stage as mentioned in the PGST Act is only a method/mode of procedure to be adopted while levying the cess. It by no stretch of imagination means that the cess has to be charged in accordance with the provisions of the PGST Act. Only for the administrative and legislative convenience the methods envisaged under the PGST Act have to be followed. -The word 'sales' as mentioned under section 4(1) of the 1998 Act included purchases as well. The Legislation has not stated that the word 'sales....
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....natory as under section 2(15) of the 2002 Act as well as under section 6 of the 1998 Act, various infrastructure sectors have been earmarked for the levy of fee. As 80 per cent of the occupational trades within the State of Punjab relates to agricultural and agricultural produces, etc., the fee for the time being is being levied on those products and in turn is being used for the development of the infrastructural facilities in relation to the trade and industry, etc., relating to agricultural produce, which is the main occupation of the people of Punjab. The levy would have become discriminatory or illegal if an infrastructure sector as mentioned in Schedule I of the 2002 Act would be charged the levy without providing any facilities as a measure of recompense to them. Thus, Schedule III under section 25 of the 2002 Act is not exhaustive at all. As and when the State Government would undertake the infrastructure development work in relation to any infrastructure sectors, as mentioned under Schedule I, the articles and goods in relation to that infrastructure sector shall definitely be included in Schedule III. This is also his submission in regard to proportionality of services in....
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....class or area, in fact, in that benefiting of the specific class or area, the State as a whole may ultimately be benefited, however, that would not detract from the character of the levy being the fee. Thus, there is a fair correspondence between the fee charged and the cost of services rendered to the fee payers as a class, which is enough to prove the co-relationship. The principle of "quid pro quo" in respect of fee is undergoing transformation and the person paying the fee may not receive direct special benefit, and the facilities/services need not be provided immediately, but can be provided in future also. Amount collected by way of fee can be reserved for future service and entry 66 of List II gives power to the State to levy a fee and thus, there is no question of double taxation. Besides, service is not a condition precedent and it is confined to contributory alone. There is a difference between compensatory fee and regulatory fee like transit fee, licence fee, etc. The traditional view that there must be an actual quid pro quo has undergone a sea change with the passage of time. All that is necessary is that there should be a reasonable relationship between the levy of th....
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....lary functions in favour of some other authority. That apart, Legislature may, after laying down the legislative policy confer discretion on an administrative agency to work out the details within the framework of policy. While considering the factum of delegated legislation, the object and purpose of the Act as can be gathered from the various provisions of the statute, should be taken into account. The court should not substitute its own opinion in respect of the legislative policy, and the object and purpose of the statute. Once the essential legislative function is performed by the Legislature and the policy has been laid down, it is always open to the Legislature to delegate the ancillary and subordinate powers to the executive authority which is necessary for carrying out the policy and purpose of the Act. The learned counsel appearing for Markfed, respondent No. 3, has made a submission that the Markfed procured foodgrains on behalf of the Food Corporation of India in the Central pool and made the payment of cess thereon to the State of Punjab. However, the same is not being refunded to it by the FCI in view of the pendency of the writ petition. Sh. Amol Rattan Sing....
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....njab, we need to find out the relevant entries of List II (State List) and List III (Concurrent List) of the seventh Schedule in order to examine the source of legislation as well as the competence of State Legislature. The relevant entries of these Lists for the purpose of testing the validity of the impugned Acts, are as under: LIST II (STATE LIST) "13. Communications, that is to say, roads, bridges, ferries, and other means of communication not specified in List I; municipal tramways; ropeways; inland waterways and traffic thereon subject to the provisions of List I and List III with regard to such waterways; vehicles other than mechanically propelled vehicles. 14.. Agriculture, including agricultural education and research, protection against pests and prevention of plant diseases. 17.. Water, that is to say, water supplies, irrigation and canals, drainage and embankments, water storage and water power subject to the provisions of entry 56 of List I. 24.. Industries subject to the provisions of entries 7 and 52 of List I. 26.. Trade and commerce within the State subject to the provisions of entry 33 of List III. 28. Markets and fairs. ....
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....tems for which the fund would be utilized as under: "6. (1) The fund shall be applied for the development of infrastructure in the State of Punjab and infrastructure facilities in the country having direct benefit to the economy of the State of Punjab. (2) Without prejudice to the generality of sub-section (1), the fund shall be specially applied for infrastructure development in the following sectors, namely: (a) transportation, roadways, including roads which may be national highways, State highways, major district roads (plan roads), other district roads, and village roads, express ways, by-passes, bridges, intercharges, roads over and under bridges, road transport system and water transportation; (b) power generation, transmission and distribution; (c) infrastructure for information technology; (d) inland container facilities, container transport and warehousing for export purposes; (e) industrial parks and modern industrial townships; (f) water supply and sewerage disposal and treatment systems, solid waste management, roads, street lights, parks and gardens and urban mass transport systems; (g) irrigation, and (h) any other infrastructure ....
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....s and development and maintenance of infrastructure facilities through financial sources other than those provided by the State budget by following modern project management systems and for matters connected therewith or incidental thereto. . ." Besides, the works undertaken by the Board towards the development of infrastructure have been detailed in three affidavits filed on behalf of the PIDB in reply to the writ petition. It appears that till March 31, 2009, the Board has collected an amount of Rs. 1,857.92 crores as fee. The amount collected by way of fee is primarily used for the benefit of fee payers by providing them with world class infrastructure facilities/projects for various infrastructure sectors including roads, bridges, Expressways, irrigation, transport, etc. This is also mentioned in the affidavit that the main stay of the residents of the Punjab is agriculture, and most of the infrastructure facilities in the shape of good roads, bypasses, rail over bridges (ROBs), high level bridges (HLBs), expressways, irrigation canals and minors, bus terminals, water supply and sewerage facilities in villages and towns, etc., provide a major relief to the agrarian sector. T....
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..... . 31. Article 245 of the Constitution is the fountain source of legislative power. It provides-subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State. The legislative field between Parliament and the Legislature of any State is divided by article 246 of the Constitution. Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule, called the 'Union List'. Subject to the said power of the Parliament, the Legislature of any State has power to make laws with respect to any of the matters enumerated in List III, called the 'Concurrent List'. Subject to the abovesaid two, the Legislature of any State has exclusive power to make laws with respect to any of the matters enumerated in List II, called the 'State List'. Under article 248 the exclusive power of Parliament to make laws extends to any matter not enumerated in the Concurrent List or the State List. The power of making any law imposing a tax not mentioned in the Concurrent List or the State....
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....tence of a Legislature of any State is questioned on the ground that it encroaches upon the legislative competence of Parliament to enact a law, the question one has to ask is whether the legislation relates to any of the entries in Lists I or III. If it does, no further question need be asked and Parliament's legislative competence must be upheld. Where there are three Lists containing a large number of entries, there is bound to be some overlapping among them. In such a situation the doctrine of pith and substance has to be applied to determine as to which entry does a given piece of legislation relate. Once it is so determined, any incidental trenching on the field reserved to the other Legislature is of no consequence. The court has to look at the substance of the matter. The doctrine of pith and substance is sometimes expressed in terms of ascertaining the true character of legislation. The name given by the Legislature to the legislation is immaterial. Regard must be had to the enactment as a whole, to its main objects and to the scope and effect of its provisions. Incidental and superficial encroachments are to be disregarded. (6) The doctrine of occupied field ....
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....is separately set out. (AIR page 494, paras 51 and 55) (4) The entries in the Legislative Lists must be construed broadly and not narrowly or in a pedantic manner. (AIR page 494, para 56) (5) The entries in the two Lists-List I and II-must be construed, if possible, so as to avoid conflict. Faced with a suggested conflict between entries in List I and List II, what has first to be decided is whether there is any conflict. If there is none, the question of application of the non obstante clause 'subject to' does not arise. And, if there be conflict, the correct approach to the question is to see whether it was possible to effect a reconciliation between the two entries so as to avoid a conflict and overlapping. ILLUSTRATION If it is possible to construe entry 42 in List I as not including tax on inter-State sales it should be so construed and the power to levy such tax must be held to be included in entry 54 in List II (entries as they existed pre-Forty-second Amendment, 1976) (See: Governor General in Council v. Province of Madras [1945] 1 STC 135 (PC); AIR 1945 PC 98; [1945] 7 FCR 179 and Province of Madras v. Boddu Paidanna & Sons [1942] 1 STC 104 (FC); AIR 19....
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....t that a State Legislature is competent to enact laws in relation to fee in respect of any matters contained in List II (State List), but would not include fee taken in any court. Besides, this is now well established by the judicial decisions that the compensatory tax is only a sub-class of fee. As the respondents have admitted in their replies on affidavit that the imposts in question are only a fee and they have furnished enough data therein (as referred to hereinabove and would be further detailed later) to satisfy the test of proportionality as propounded in the latest judgment of a Constitution Bench of the honourable apex court in the case of Jindal Stainless Ltd. v. State of Haryana [2006] 145 STC 544; [2006] 7 SCC 241, we are of the considered view that the provisions of the impugned Acts in question satisfy the requirement of quid pro quo and the respondents have also complied therewith. Thus, the State Legislature is well within its competence to pass the impugned legislation in terms of entry No. 66 of List II (State List) of the Seventh Schedule to the Constitution. For the same reason, namely, the impost being a fee, the argument that the statutes and the levy of impo....
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....nourable apex court has held that it is for the Legislature or the taxing authority to determine the question of need and policy, and to select the goods or services for taxation. Courts cannot review the wisdom or advisability or expediency of the levy of a tax as the court has no concern with the policy of legislation, so long as they are not in consistent with the provisions of the Constitution. It is only where there is abuse of powers and transgression of legislative function in levying a tax, it may be corrected by the judiciary and not otherwise. Taxes may be and often are oppressive, unjust, and even unnecessary but this can constitute no reason for judicial interference. When taxes are levied on certain articles or services and not on others it cannot be said to be discriminatory. Every tax must discriminate; and only the authority that imposes it can determine how and in what directions. Thus, the argument of the petitioners also fails on that count. Now the next question that needs to be addressed is to find out the nature and character of the impugned imposts to determine as to whether they are a cess/fee or a tax. A Constitution Bench of the honourable apex co....
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....sion in Kewal Krishan Puri's case [1980] 1 SCC 416 does not lay down any legal principle of general applicability. The observation made therein seeking to quantify the extent of co-relation between the amount of fee collected and the cost of rendition of service, was held to be an obiter as is evident from the observations as: ". . . 'At least a good and substantial portion of the amount collected on account of fees, may be in the neighbour-hood of twothirds or three-fourths, must be shown with reasonable certainty as being spent for rendering services in the market to the payer of fee', appears to be an obiter. It was not intended to lay down a rule of universal application but it was a decision which must be confined to the special facts of that case." A Full Bench of this court in the case of Subbhash Chander Kamlesh Kumar v. State of Punjab [1990] 2 PLR 666 while dealing with the nature and degree of quid pro quo (one thing in return for another) between the fee realised and the costs of the services rendered, has held as: ". . . that the true test for a valid fee is whether the primary and essential purpose is to render specific services to a specified are....
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....matical exactitude. During the course of arguments, we were also taken through some latest judgments of the honourable apex court rendered in the cases of (1) Sonachandi Oal Committee v. State of Maharashtra [2005] 2 SCC 345, (2) State of Bihar v. Shree Baidyanath Ayurved Bhawan (P) Ltd. [2005] 2 SCC 762, and (3) State of H.P. v. Shivalik Agro Poly Products [2004] 8 SCC 556. In Sonachandi's case [2005] 2 SCC 345, the honourable court has held that the service to be rendered is not a condition precedent and only a reasonable relationship between the levy and fee and the services rendered is sufficient. In Shree Baidyanath Ayurved Bhawan's case [2005] 2 SCC 762, a three-judge Bench of the honourable apex court has held that the fee for grant of licence is regulatory and not compensatory, hence quid pro quo for the same is not necessary, therefore, in the absence of quid pro quo, such fee would not violate article 301 of the Constitution. Again, in Shivalik Agro's case [2004] 8 SCC 556, a three-judge Bench of the honourable apex court has taken the view that the co-relationship between the levy and the services rendered should be one of general character and n....
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....ing 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 the 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 realised, 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. 29.. 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 gener....
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.... being necessarily either direct or specific. . . . 37.. The concept of compensatory tax is not there in the Constitution but is judicially evolved in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 SCR 491; AIR 1962 SC 1406, (Bhagatram Rajeev Kumar v. Commissioner of Sales Tax case [1995] 96 STC 654 (SC); [1995] Supp 1 SCC 673) as a part of regulatory charge. Consequently, we have to go into concepts and doctrines of taxing powers vis-a-vis regulatory powers, particularly when the concept of compensatory tax was judicially crafted as an exception to article 301 in Automobile Transport [1963] 1 SCR 491; AIR 1962 SC 1406. Difference between exercise of taxing and regulatory power: 38.. In the generic sense, tax, toll, subsidies, etc., are manifestations of the exercise of the taxing power. The primary purpose of a taxing statute is the collection of revenue. On the other hand, regulation extends to administrative acts which produces regulative effects on trade and commerce. The difficulty arises because taxation is also used as a measure of regulation. There is a working test to decide whether the law impugned is the result of the exercise of regulat....
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....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 applicable to a fee or a compensatory tax, there is an indication of a quantifiable data, namely, a benefit which is measurable. 42.. A tax can be progressive. However, a fee or a compensatory tax has to be broadly proportional and not progressive. In the principle of equivalence, which is the foundation of a compensatory tax as well as a fee, the value of the quantifiable benefit is represented by the costs incurred in procuring the facility/services which costs in turn become the basis of reimbursement/recompense for the provider of the services/facilities. Compensatory tax is based on th....
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....ry tax. 44.. Since compensatory tax is a judicially evolved concept, understanding of the concept, as discussed above, indicates its parameters. 45.. To sum up, the basis of every levy is the controlling factor. In the case of 'a tax', the levy is a part of common burden based on the principle of ability or capacity to pay. In the case of 'a fee', the basis is the special benefit to the payer (individual as such) based on the principle of equivalence. When the tax is imposed as a part of regulation or as a part of regulatory measure, its basis shifts from the concept of 'burden' to the concept of measurable/quantifiable benefit and then it becomes 'a compensatory tax' and its payment is then not for revenue but as reimbursement/recompense to the service/facility provider. It is then a tax on recompense. Compensatory tax is by nature hybrid but it is more closer to fees than to tax as both fees and compensatory taxes are based on the principle of equivalence and on the basis of reimbursement/recompense. If the impugned law chooses an activity like trade and commerce as the criterion of its operation and if the effect of the operation of the enac....
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....commerce and intercourse throughout India, as the criterion of its operation? If yes, the next question is: What is the effect of operation of the law on the freedom guaranteed under article 301? If the effect is to facilitate free-flow of trade and commerce then it is regulation and if it is to impede or burden the activity, then the law is a restraint. After finding the law to be a restraint/restriction one has to see whether the impugned law is enacted by the Parliament or the State Legislature. Clause (b) of article 304 confers a power upon the State Legislature similar to that conferred upon Parliament by article 302 subject to the following differences: (a) While the power of Parliament under article 302 is subject to the prohibition of preference and discrimination decreed by article 303(1) unless Parliament makes the declaration under article 303(2), the State power contained in article 304(b) is made expressly free from the prohibition contained in article 303(1) because the opening words of article 304 contain a non obstante clause both to article 301 and article 303. (b) While the Parliament's power to impose restrictions under article 302 is not subj....
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.... fund. (3) The development fund shall be applied for the development of infrastructure sectors by providing infrastructure facilities in the State of Punjab for the benefit of the persons from whom the fee has been charged and collected and the public at large and for the infrastructure facilities of the country having direct benefit to the economy of the State of Punjab." In the affidavit, a yearwise breakup of the amount of fee collected and credited in the development fund has been annexed as R1. It depicts the area and townwise figures of fee collected and credited in the development fund. It appears that till March 31, 2009, the Board has collected an amount of Rs. 1,857.92 crores as fee. This is emphatically averred in the affidavit that the imposition of infrastructure fee is well in consonance with the spirit of the Act of 2002 which aims to provide the infrastructure facilities through financial sources other than those provided by the State Budget. The amount collected by way of fee is primarily used for the benefit of the fee-payers by providing them with world class infrastructure facilities/ projects in various infrastructure sectors including roads, bridges, ....
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....which the PIDB has successfully attracted the investments from private sector entrepreneurs. According to the details annexed with the affidavit, the total cost of all the projects already awarded under the aegis of PIDB up to March 31, 2009 is Rs. 10,197.55 crores and the total cost of the projects being developed is Rs. 33,540.80 crores. Thus, the grand total costs of the projects taken up for development by the Board is Rs. 43,738.35 crores, as against the amount of fee of only Rs. 1,857.92 crores, collected and credited into the development fund. Out of the infrastructure projects/facilities costing Rs. 43,738.35 crores, developed or under-developed by the Board, majority of the projects/facilities have been utilized or are going to be utilized by the persons related to the items in Schedule III under section 25 of the 2002 Act. It may not be possible to cull out the exact expenditure in mathematical exactitude. However, it cannot be denied that in proportion to the fee charged and credited in the development fund, infrastructure facilities worth many times more than the collection of cess/fee have been provided to the petitioners. The respondents have detailed as under the rel....
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....heir workers/employees, etc., residing in the nearby areas. 1984 of 2005 M/s. Nauhria Food Products, Moga-Barnala Road, Vill. Badani Kalan, district Moga. Widening and strengthening work of Raikot-Barnala Road (57.9 Kms) is being carried out on BOT basis. The Project cost Rs. 78.66 crores. Construction work to be completed shortly. A number of other projects in the area surrounding village Badni Kalan, are being developed at nearby places, i.e., Dhuri, Sangrur, Moga and Bathinda. All such projects would bring direct and indirect economic benefits to the petitioners, their workers/employees, etc., residing in the nearby areas. 2861 of 2002 M/s. Ganesh Roller Flour Mills, G.T. Road, Bahumajra, Khanna. Construction of ROB at Khanna completed at a cost of approximately Rs. 6 crores. Work of Khanna-Nawanshahr-Machiwara Road completed at a cost of approximately Rs. 26 crores. The aforesaid projects in the vicinity on the petitioner flour mills would facilitate easy transportation of goods to and from the flour mills. Prior to the construction of the ROB at Khanna, the travellers including goods transport vehicles had to often wait at the railway level crossing for ho....
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....e fee, the National Bank for Agriculture and Rural Development (NABARD) has partly shared the cost of some of the high level bridges (HLBs) which were perceived by the bank as directly benefiting the agricultural community. The total amount received by the State Government from the Central Road Fund (CRF) for undertaking road works in the State for five years, i.e., 2001-02 to 2005-06 being only Rs. 148.63 crores is negligible and much less as compared to the total amount required for properly maintaining the existing roads even in the State of Punjab and what to talk of upgrading the service level of roads or constructing new roads. On the other hand, an amount of Rs. 898.30 crores has been released by the Board out of the development fund just for new road works. This is also stated in the affidavit that the onus is on the petitioners to furnish the precise figures of the fee paid by each of them, which if provided would establish that the quantum of facilities which each of the petitioners is enjoying is many times more than the actual amount of fee paid by each of them. This is reiterated in the affidavit that none of the road projects which have been exclusively developed b....
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....002 Act, which is headed by the Chief Secretary. From perusal of the said affidavits, it is clear that till March 31, 2009, the total amount of fee collected and credited in the development fund was Rs. 1,875.92 crores. Bank interest earned on the development fund till that date was Rs. 231.56 crores; bonds money (i.e., loan raised) received is Rs. 1,549.96 crores; OUVGL receipt is Rs. 38.17 crores, and the miscellaneous receipts amount like refund from Income-tax Department, receipt of Railway share, etc., was Rs. 89.97 crores. Thus, the total fund available with the PIDB on that date was to the tune of Rs. 3,767.48 crores. The PIDB has not received any funds or financing for its projects from the State till date. The development fund vested with the Board is a ring fenced dedicated fund which is used on an exclusive basis for developing infrastructure projects by leveraging the available amounts for the benefit of persons paying the fee. As mentioned hereinabove, infrastructure projects funds costing approximately Rs. 10,197.55 crores have already been awarded, whereas the total amount of fee received by the Board till March 31, 2009 is only Rs. 1,857.92 crores, out of which t....
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....ividual from whom the fee is being realised must be rendered some specific services. The honourable court further held that the decision in Jindal Stainless Ltd. case [2006] 145 STC 544 (SC); [2006] 7 SCC 241 was given in connection with article 301 of the Constitution and it was not regarding the nature of fee. However, in a later judgment in the case of Hardev Motors Transport v. State of M.P. reported in [2006] 8 SCC 613, the aforesaid judgments in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241 and Vijayalashmi Rice Mill [2006] 147 STC 609 (SC); [2006] 6 SCC 763 were cited and considered. The honourable court in para 27 of the judgment has noted as "we, however, feel that this Bench is bound by the Constitution Bench decision of this court". Thus, in order to find out a reasonable relationship between the fee levied and cost of regulation/services made available in lieu thereof, some empirical and quantifiable data have to be made available by the authority imposing the cess/fee for examination as to whether the impugned Acts indicate proportionality to quantifiable benefit. Looking to the exhaustive replies filed on behalf of the State as well as the PIDB se....
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....tober 15, 1998 and the 1998 Act notified in the official gazette on January 12, 1999. In addition to that, the 1998 Act has also saved the acts done under the 1998 Ordinance dated October 15, 1998 under section 12 thereof. Thus, the retrospective applicability of the Cess (Collection) Rules and the clarificatory notification is valid in the light of the aforesaid authoritative pronouncements. In another judgment in the case of Ram Chandra Kailash Kumar & Co. v. State of U.P. AIR 1980 SC 1124, a Constitution Bench of the Supreme Court had upheld the imposition of market fee retrospectively. In yet another judgment in Sri Krishna Das [1990] 77 STC 395 (SC); [1990] 3 SCC 645, imposition of tax retrospectively was held to be valid. Thus, we hold that the retrospective levy of imposts in question under the 1998 Ordinance/Act, the Cess (Collection) Rules notified on November 11, 1998 and the clarificatory notification issued on April 8, 1999 with effect from the date of promulgation of Ordinance No. 7 of 1998 on October 15, 1998 and coming into force of the Act No. 1 of 1999, dated January 12, 1999, is valid in law. Thus, the submission to the contrary on behalf of the petitioners would ....
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....red in the negative. So far as the point relating to delegation of legislative power by the State Legislature to the State Government is concerned, section 11 of the 1998 Act specifically empowers the Government to issue a notification to remove difficulties. Thus, the legislative intention is to delegate this ancillary function to Government as the essential legislative function is the charging of cess. The honourable Supreme Court in the case of Kishan Prakash Sharma v. Union of India [2001] 5 SCC 212 (para 18), has held that such delegation is permissible and cannot be found fault with. This has also been emphasized in the judgment that our Constitution is a growing document and the pressure of Legislature is immense, therefore, once the Act itself grants the power to the State Government to do something, it cannot be said to be an excessive delegation of power. Besides, if two views are possible, one in favour of the legislation and the other against it, the one in favour of legislation should prevail. Besides, in other cases also, namely, (i) State of Tamil Nadu v. K. Sabanayagam [1998] 1 SCC 318, (ii) St. Johns Teacher Training Institute v. Regional Director, National Coun....
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....unjab [1979] 1 SCC 137, levy of tax on a flat rate was held to be not discriminatory. Besides, in a later judgment in the case of Sona Chandi Oal Committee v. State of Maharashtra [2005] 2 SCC 345, difference in inspection fee realised from money lender to money lender was held to be not discriminatory since the absence of infirmity is not the sole criterion on which the levy can be said to be tax in nature. In the instant case, we have already held that the imposts in question are a fee and thus, amount of fee has been increased under the 2002 Act only for the purpose of augmenting the infrastructure facilities primarily for the payers of fee. Another submission of learned counsel that an objection should have been invited before the levy of imposts may also not hold ground for the State Legislature is well within its competence to pass the impugned legislation qua entry 66 of List II (State List). Besides, there cannot be any procedural fetter like inviting objection before enacting a legislation. In regard to the argument that the fee collected should be deposited in a consolidated fund, we may say that the imposts have not been collected towards general revenue and the State....
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....are enough to meet the requirements of the mandate of the Constitution Bench judgment in the case of Jindal Stainless Ltd. [2006] 145 STC 544 (SC) ; [2006] 7 SCC 241, but there is yet further scope for making the services more specific and responsive to the payers of fee in question. We hope that the respondents would take necessary steps to remove even a grain of doubt in the mind of cess/fee-payers regarding the bona fide of PIDB in utilising the fund in question. Besides, we may also like to observe that as far as possible, the respondents shall make space for the representation on behalf of individuals paying cess/fee under the Acts in question in the Punjab Infrastructure Development Board for participation in the formulation of schemes, utilisation of the development fund and implementation of projects relating to infrastructure development sectors. In view of all the aforesaid discussions and in the premises set out hereinabove, we hereby dispose of this batch of writ petitions with the liberty and observations as above while holding the impugned 1998 Ordinance (Ordinance No. 7 of 1998), the 1998 Act (Act No. 1 of 1999), the Cess (Collection) Rules, 1999, the clari....
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....hers. 29. CWP-10834-2006 Rama Trading Co. v. State of Punjab and others. Page No: 459 30. CWP-5166-2007 Kissan Rice Trading Co. v. State of Punjab and others. 31. CWP-5168-2007 Rajendra Rice and General Mills v. State of Punjab and others. 32. CWP-1629-2007 Dwarka Traders v. State of Punjab and others. 33. CWP-3713-2008 Cotton Corporation of India Ltd. v. State of Punjab and others. 34. CWP-1000-2008 Shree Ram Dass Rice and General Mills v. State of Punjab and others. 35. CWP-7052-2008 A. M. Rice and General Mills v. State of Punjab and others. 36. CWP-6989-2008 R. K. Rice Mills and others v. State of Punjab and others. 37. CWP-5849-2008 Shanti Rice Mills and others v. State of Punjab and others. 38. CWP-7070-2008 K. N. Rice Mills v. State of Punjab and others. 39. CWP-7051-2008 A. V. and Company v. State of Punjab and others. 40. CWP-7053-2008 Dashmesh Rice Mills v. State of Punjab and others. 41 CWP-7055-2008 Dass Rice and Oil Mills v. State of Punjab. 42. CWP-7054-2008 Gupta Rice Mills v. State of Punjab and others. 43. CWP-7057-2008 ....
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....Rice Mills v. State of Punjab and others. 72. CWP-2010-2009 Aggarwal Rice Mills v. State of Punjab and others. 73. CWP-2236-2009 Shiv Om Traders v. State of Punjab and others. 74. CWP-2248-2009 Dashmesh Agro Exports v. State of Punjab and others. 75. CWP-16699-2002 Shree Maha Luxmi Roller Flour Mills v. State of Punjab and others. 76. CWP-8945-2000 Shiv Shakti Trading Co., etc. v. State of Punjab, etc. 77. CWP-13337-2003 Atam Rice Mills v. State of Punjab and others. 78. CWP-2622-2009 Naina Industries and others v. State of Punjab and others. 79. CWP-1754-2009 Shiva Traders and others v. State of Punjab and others. 80. CWP-1468-2007 Rf Overseas v. State of Punjab. 81. CWP-1491-2007 Charan Dass Mulkh Raj v. State of Punjab and others. 82. CWP-1492-2007 Charan Dass Mulkh Raj v. State of Punjab and others. 83. CWP-1467-2007 Fattu Dhinga Rice Mill v. State of Punjab and others. 84. CWP-2564-2007 Jain Agro Industries Sultanpur Road v. State of Punjab and others. 85. CWP-2505-2007 Aggarwal Rice Mills v. State of Punjab and others. 86. CWP-2489-2007 Gurdia....