TaxTMI 
TaxTMI 
1994 (11) TMI 421
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....udhar (M.R). 2. Under Section 3 of the M.R Krishi Upaj Mandi Adhiniyam, 1973 (for short 'the Act'), the State Government is empowered to declare by a notification its intention to establish a market for regulating the purchase and sale of such agricultural produce and in such area as may be specified in the notification, and invite objections for the same. Under Section 4 thereof, after the expiry of the period specified in the notification and after considering the objections and suggestions as may be necessary, the State Government is authorised to establish by another notification a market, for the areas specified in the notification issued under Section 3 or in any portion thereof. Under Section 5, in every market area, there has to be a market yard and there may be more than one sub- market yards. For every market yard or sub-market yard, there has to be a market proper. On the establishment of market under Section 4, Section 6 prohibits local authorities from setting up or establishing or continuing or using or allowing to be set up, established, continued or used, any place in the market area for the marketing of any notified agricultural produce. Likewise, no per....
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....ws. 4. Section 31 prohibits any person from operating in the market area in respect of the notified agricultural produce as commission agent, trader, broker, weighman, hammal, surveyor, warehouseman, owner or occupier of processing or pressing factories or as other market functionary except in accordance with the provisions of the Act and the rules and the bye-laws made thereunder. Section 32 requires every person specified in Section 31 who desires to operate in the market area to apply to the market committee for the grant of a licence. The application has to be accompanied by such fees as the Director of Marketing appointed by the State Government may subject to the minimum, prescribe in this behalf. Under Section 33, the market committee is given power to cancel or suspend the licence for reasons and under the procedure laid down therein. Section 38 provides for the constitution of a Market Committee Fund in which all the moneys received by the market committee are paid and from which all expenditure incurred by the committee is defrayed. Section 39 lays down the purposes for which the Market Committee Fund is to be expended. They are: "39. Application ....
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....s in the public interest, subject to the prior sanction of the State Government." 5. Section 43 provides for the constitution of a Market Development Fund and every market committee is required to pay every three months, to the Marketing Board constituted under the Act such percentage not exceeding 50 per cent of its gross receipts comprising of licensing fees and market fees as the State Government may by notification declare from time to time. All expenditure incurred by the Board according to the object sanctioned by it has to be defrayed out of the said fund. 6. It appears that the Committees levied fees on the sale and purchase of bamboos. The Mills challenged the said levy by way of a writ petition in the M.R High Court on the ground that the Act was ultra vires the Constitution, that the requirement of obtaining the licence under Section 32 and of paying the market fee under Section 19 of the Act was also unconstitutional. 7. The High Court relied upon a decision of the same Court in Miscellaneous Petition No. 4063 of 1986 decided on 12-1- 1988 and allowed the writ petition. The High Court by the said decision of 12-1-1988 had repelled the challenges to the constitu....
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.... levies of the market fees or of the requirement of a licence and of the payment of the licence fees since those contentions are not raised before us on behalf of the Mills and they have been expressly given up. There is also no cross-appeal on the said point. The limited controversy before us is whether the finding of the High Court that the levy of the market fees is not justified because there is no direct or indirect benefit conferred by the market committee either on the purchasers or traders of bamboos as a class, is valid or not. 9. We may now refer to the authorities cited at the bar. The earliest decision of this Court on the definition of 'fee' and 'tax' and the distinction between the two is of the Constitution Bench of seven learned Judges in Commissioner, Hindu Religious Endowments v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt [1954 SCR 1005 : AIR 1954 SC 282]. It was observed then that though levying of fee is only a particular form of the exercise of the taxing power of the State, our Constitution has placed fee under a separate category for purposes of legislation, and at the end of each one of the three Legislative Lists, it has given pow....
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.... in the fact that payment is enforceable by law against a man in spite of his unwillingness or want of consent and this element is present in taxes as well as in fees. In some cases whether a man would come within the category of a service receiver may be a matter of his choice, but that by itself could not constitute a major test which can be taken as the criterion of these species of imposition. The distinction between a tax and a fee lies primarily in the fact that a tax is levied as a part of the common burden while a fee is a payment for a special benefit or privilege. Fees confer a special capacity although the special advantage is secondary to the primary motive of regulation in the public interest. Public interest seems to be at the basis of all impositions but in a fee it is some special benefit which the individual receives. The special benefit accruing to the individual is the reason for payment in the case of fees. In the case of a tax, the particular advantage if it exists at all, is an incidental result of State action. A fee is a sort of return or consideration for services rendered and hence it is primarily necessary that the levy of fee should on the face of the le....
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....dowments Act, 1939 as fee on the same reasoning as in the earlier decision of seven learned Judges. 11. In Ratilal Panachand Gandhi v. State of Bombay [1954 SCR 1055 : AIR 1954 SC 388] the validity of the contribution imposed under Section 58 of the Bombay Public Trust Act, 1950 fell for consideration. The Court held that as the contribution was levied purely for the purposes of due administration of the trust property- and to defray the expenses incurred in connection with the same, no objection could be taken to the provisions of the section on the ground of its infringing the fundamental rights of the appellants. The Court referred to its earlier decision in Shirur Mutt case2 and the observations made and principles laid down there and reiterated the same. 12. In Hingir-Rampur Coal Co. Ltd. v. State of Orissa [(1961) 2 SCR 537 : AIR 1961 SC 459] the Constitution Bench of five learned Judges reiterated that although there can be no generic difference between a tax and fee since both are compulsory exaction of money by public authorities, there is this distinction between them that whereas the tax is imposed for public purposes and requires no consideration to support it, a ....
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.... rendered. Absence of uniformity is not a criterion on which alone it can be said that the levy is of the nature of a tax. The legislature has power to enact appropriate retrospective legislation declaring levies as fees by denuding them of the characteristics of tax. 14. In Corpn. of Calcutta v. Liberty Cinema (1965) 2 SCR 477: AIR 1965 SC 1107 the facts were that under Section 413 of the Calcutta Municipal Act, 1951, no person was permitted to keep open any cinema house for public amusement without a licence granted by the Municipal Corporation. Under Section 548(2), for every licence under the Act, a fee could be charged at such rates as may from time to time be fixed by the Corporation. In 1948, the appellant-Corporation fixed fees on the basis of annual valuation of the cinema house and it was paid by the respondent. In 1958, the appellant changed the basis of assessment of the fee and levied it at rates prescribed per show according to the sanctioned seating capacity of the cinema house. The respondent-cinema, therefore, moved the High Court by a writ petition and the petition was allowed. In appeal to this Court, the appellant-Corporation contended that (i) the levy was a....
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....rket boards assume to themselves the liberty of utilising and spending the realisations from market fees to a considerable extent as if it was a tax although in reality it was not so. It was further held that rendering some service, however remote the service may be, cannot, strictly speaking, satisfy the element of quid pro quo, required to be established in cases of the impost of fee. Registration fee, however, had to be taken to stand on a different footing altogether. In the case of such a fee, the test of quid pro quo is not to be satisfied with such close or proximate relationship as in the case of many other fees. By and large, the registration fee is charged as a regulatory measure. The Court then culled the following principles from the conspectus of various authorities on the subject: (SCR pp. 1243-1244 : SCC pp. 434-35, para 23) (i) That the amount of fee realised must be earmarked for rendering services to the licensees in the notified market area and a good and substantial portion of it must be shown to be expended for this purpose. * * * (iii) That while rendering services in the market area for the purpose of facilitating the transactions of purchase and sal....
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....the buyer was not a licensee, the responsibility of paying the fee was of the seller who may realise the same from the buyer. But such a contingency could not arise in respect of the transaction of a sale by an agriculturist of his agricultural produce in the market to a dealer who must be a licensee. Probably such an alternative provision was meant to be made for outside buyers who were not licensees when they bought their agricultural produce from or through the licensees. Every market committee was obliged under sub-section (2)(a) of Section 27 of that Act to pay out of its fund to the marketing board as contribution such percentage of its income derived from licence fee, market fee and fines levied by the courts as specified therein. The purpose of this contribution was to enable the Board to defray expenses of the office establishment of the Board and such other expense incurred by it in the interests of the Committees in general. The purposes for which the Marketing Development Fund might be expended were enumerated in Section 26 and the purpose for which the Market Committee Funds might be expended were catalogued in Section 28 of that Act. The whole of the State was divided....
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.... fee cannot be spent on the construction of link roads although transportation is very essential for the development of a market and to enable the growers of the agricultural produce to bring the same to the market. The impost must be correlated with the service to be rendered to the payers of the fees as pointed out above. If insecticides and pesticides are for use at the place where actually the marketing operations are carried on, it would be justifiable expenditure. But if they are meant to be supplied to the agriculturists for use at their village homes or in their fields, the market fee cannot be spent for the purpose. The charging of fee at the rate of Rs. 2 per Rs. 100 was not considered unjustifiable. The Court observed that any increase in the rate should be corelated to the expenditure made strictly for the purposes mentioned above. 16. It may be mentioned here that the purposes mentioned in Sections 26 and 28 of the Punjab Agricultural Produce Marketing Act which fell for consideration there are similar to the provisions of the M.P. Krishi Upaj Mandi Adhiniyam, 1973. 17. In Southern Pharmaceuticals & Chemicals v. State of Kerala [(1981) 4 SCC 391 : 1981 SCC (Tax) ....
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....as undergoing a transformation. The question of corelationship between services rendered and the fee levied was essentially a question of fact. 18. In Sreenivasa General Traders v. State of A.P [(1983) 4 SCC 353 :(1983) 3 SCR 843] a Bench of three learnedJudges considered the validity of a levy of market fee under the Andhra Pradesh (Agricultural Produce and Livestock) Market Act, 1966. The Court held that the provisions of Section 7(6) of that Act which prohibited any person purchasing, producing or selling any notified agricultural produce, livestock and products of livestock in a notified market area but outside the market in that area were valid having regard to the purpose and object of the legislation. The Court further held that the levy of market fee under Section 12(1) of that Act on the transactions effected by the petitioners from their business premises located in the notified market area but outside the market proper was legal. The petitioners' contention to the contrary proceeded on the wrong assumption because, firstly, in view of the express prohibition contained in Section 7(6) of the Act, the petitioners could not carry on such a trade without r....
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.... State predominates, the levy becomes a tax. In regard to fees, there is and must always be a correlation between the fee collected and the services intended to be rendered. In determining whether the levy is a fee or tax, the true test must be whether its primary and essential purpose is to render specific services to a specified area or class. It may be of no consequence that the State may ultimately and indirectly be benefited by it. The power of any legislature to levy a fee is conditioned by the fact that it must be by and large a quid pro quo for services rendered. Every corelationship between the levy and the services rendered is one of general character and not a mathematical exactitude. All that is necessary is that there should be a reasonable relationship between the levy of fee and the services rendered. There is no postulate of a fee that it must have a direct relation to the actual services rendered by the authority to each individual to obtain the benefit of the service. It is now increasingly realised that merely because the collections for the services rendered or for grant of a privilege or licence are taken to the Consolidated Fund of the State and not separately....
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....onsideration was the cess imposed under Section 3 of the Haryana Rural Development Fund Act, 1983. The cess was imposed on ad valorem basis at the rate of one per cent of the sale proceeds of the agricultural produce brought or sold or brought for processing in a notified market area. The dealer in his turn, was entitled to pass on the burden of the cess paid by him to the next purchaser of the agricultural produce from him. Section 4(1) of the Act provided for the creation of the fund called the Haryana Rural Development Fund which was vested in the State Government and the amount of cess was to be credited to the said fund. Sub-section (5) of Section 4 of the Act stated that the fund would be applied by the State Government to meet the expenditure incurred in the rural areas in connection with the development of roads, hospitals, means of communication, water supply, sanitation facilities and for the welfare of agricultural labour or for any other scheme approved by the State Government for the development of the rural areas. This Court held that the Act was unconstitutional since the State Legislature was not competent to enact it. The Court held that in the guise of a fee, the ....
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....mary service was to the producer, dealer and purchaser of the agricultural produce. The Court also held that the power of any legislature to levy a fee is conditioned by the fact that it must be by and large quid pro quo for the services rendered. However, corelationship between the levy and the services rendered/expected is one of general character and not of mathematical exactitude. All that is necessary is that there should be reasonable relationship between the levy of the fee and the services rendered. The Court then held that the cess levied therein is a fee and that the levy for the fund was created to expend for the purposes enumerated under Section 6(5) of the Act. 21. Thus what emerges from the conspectus of the aforesaid decisions is as follows: (1)Though levying of fee is only a particular form of the exercise of the taxing power of the State, our Constitution has placed fee under a separate category for purposes of legislation. At the end of each one of the three Legislative Lists, it has given power to the particular legislature to legislate on the imposition of fee in respect of every one of the items dealt with in the list itself, except fee....
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....e second for services rendered. In the first class of cases, the cost incurred by the Government for granting of permission or privilege may be very small and the amount of imposition levied is based not necessarily upon the costs incurred by the Government but upon the benefit that the individual receives. In such cases, the tax element is predominant. If the money paid by privilegeholders goes entirely for the expenses of matters of general public utility, the fee cannot but be regarded as a tax. In the other class of cases, the Government does some positive work for the benefit of persons and the money is taken as the return for the work done or services rendered. (6)There is really no generic difference between tax and fee and the taxing power of the State may manifest itself in three different forms, viz., special assessments, fees and taxes. Whether a cess is tax or fee, would depend upon the facts of each case. If in the guise of fee, the legislature imposes a tax it is for the Court on a scrutiny of the scheme of the levy, to determine its real character. In determining whether the levy is a fee, the true test must be whether its primary and essential ....
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....formity is not a criterion on which alone it can be said that the levy is of the nature of a tax. The legislature has power to enact appropriate retrospective legislation declaring levies as fees by denuding them of the characteristics of tax. (9)It is not necessary that the amount of fees collected by the Government should be kept separately. In view of the provisions of Article 266, all amounts received by the Governments have to be credited to the Consolidated Funds and to the public accounts of the respective Governments. 22. In the light of the above law with regard to the levy of fee we have to consider whether the fee levied by the appellant-Market Committees in the present case is illegal. The impugned decision has relied upon the earlier decision of the same Court to come to the conclusion that in the absence of any services rendered by the Market Committees with regard to the transactions of sale and purchase of bamboos, the respondent-Mills is not liable to pay the market fee. It is, therefore, necessary to deal with the said earlier decision of the said Court which was delivered on 12-1-1988 in Miscellaneous Petition No. 4063 of 1986 filed by the respondent-Mills aga....
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....easonable nexus between the market fees levied and the expenses incurred on the services rendered to the buyers and sellers of the agricultural produce. 25. What is further, the provisions of Section 17 of the Act cast a duty on the market committee to provide such facilities for marketing of notified agricultural produce in the market area as the State Government may from time to time direct and to do such other acts as may be necessary in relation to the superintendence and control of the market area for regulating the marketing of notified agricultural produce in any place in the market area and for purposes connected with the said matters. Among other things, the market committees are required to (i) maintain and manage the market yards; (iii) provide the necessary facilities for marketing of agricultural produce in the market yard; (iii) grant or refuse licences to the market functionaries and renew, suspend or cancel such licences; (iv) supervise the conduct of the market functionaries; (v) regulate the opening, closing and suspending of trading in the market yards; (vi) enforce the conditions of the licences; (vii) regulate the making, carrying out and enforcement or canc....
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....ii) institute or defend any suit, action, proceeding, application or arbitration and compromise such suit action, proceeding, application or arbitration; (xix) make arrangement for employing by rotation, weighmen and hammals for weighing and transporting of goods in respect of transactions held in the market yard; (xx) to provide on rent, storage facilities for stocking of agricultural produce to agriculturists; (xxi) arrange for preventive measures against spread of contagious cattle disease. 26. In addition, the market committees are required to contribute to the Market Committee Fund constituted under Section 38 of the Act and the said fund is to be utilised for the purposes mentioned in Section 39 of the Act. Those purposes, among others, are (i) the acquisition of a site or sites for the market yards; (ii) the maintenance and improvement of the market yards; (iii) the construction and repairs of buildings, necessary for the purposes of the market and for convenience or safety of the persons using the market yard; (iv) the maintenance of standard weights and measures; (v) the meeting of establishment charges including payments and contribution towards provident fund, pension....
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....r technical assistance to the market committee in the preparation of site plans and estimates of construction and in the preparation of project reports or master plans for development of market yard and (x) any other purpose of general interest to regulate marketing of agricultural produce. 28. It will be obvious from the above purposes for which the market fee is to be utilised that the said purposes are in furtherance of the object of the Act, viz., to regulate the buying and selling of agricultural produce and the establishment and proper administration of markets for agricultural produce for the benefit of the agriculturists who are the primary producers of the said produce. The machinery and the facilities for which the market fees are being expended are all necessary to provide the necessary infrastructure to further the object of the Act. But for such infrastructure, the objects of the Act cannot be properly and adequately implemented. The fact that the respondent-Mills may not be the direct beneficiary of anyone or some of the said facilities or does not make use of them does not absolve it from payment of -the market fees. The said machinery and the facilities are meant....
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....ots and hence the requirement of the Act that the agricultural produce shall be sold in the market proper or market area does not apply to the present case. This also applied to bamboos grown on the forest land belonging to the Government. The contention advanced on behalf of the respondent-State Government there that the market fee is required to be paid on every agricultural produce brought for sale or sold in the market area was rejected by the Court on the ground that the respondent-Mills did not purchase the bamboos for sale but purchased them for use as its raw material for manufacture of paper. Secondly, there was nothing in the return filed by the State Government to show that any services were rendered to the respondent-Mills in return for the market fees levied oil them for the purchase of bamboos which transaction took place at various forest depots. The bamboos were purchased by them not for sale but for being used for manufacture of paper. Although, the Court noted the fact that it is not necessary that each individual trader must be benefited by the services provided, the Court held that it was necessary to justify the levy by proving that some direct or indirect bene....
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....that no person shall, in respect of any notified agricultural produce, operate in the market area as commission agent, trader, broker, weighman, hammal, surveyor, warehouseman, owner or occupier of processing or pressing factories or such other market functionary except in accordance with the provisions of the Act and the rules and bye-laws made thereunder. Section 37 requires that every person who buys notified agricultural produce in the market area, shall execute an agreement in favour of the seller in triplicate in such forms as may be prescribed. One copy of such agreement is to be kept in the record of the market committee. 32. As regards the reliance placed by the High Court on the second proviso to sub-section (2) of Section 19 of the Act which provides that in case of a commercial transaction between traders in the market area, the market fee shall be collected and paid by the seller, we are unable to understand as to how the said provision can be pressed into service to negative the levy of the market fee, even assuming that the Forest Department is for the purposes of the said provision, a trader when it sells the bamboos. The Forest Department is required by that pro....