TaxTMI 
TaxTMI 
2021 (9) TMI 1561
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.... CUMI respectively. 2. On 07.12.1990, the Government The Government of Kerala framed a policy vide G.O. (MS) No. 23/90/PD (the Policy, for short) allowing private agencies and public undertakings to set up hydel schemes for generation of electricity at their own cost. As per the Policy, the matters concerning the construction, operation and maintenance of the hydel scheme were to be managed as per the stipulations made by the Government/Board Kerala State Electricity Board. Clauses 2, 14 and 15 of the Policy were as under: 2. Private agencies/ public undertakings shall be allowed the setting up of sanctioned hydel schemes of the category small/ mini/ micro at their own cost, the construction, operation and maintenance being managed by them as per the stipulations insisted upon by Government/ Board. (The stipulated conditions as per Indian Electricity Act, 1910. Electricity (Supply) Act, 1948, other related Rules and orders from Central and State Governments). 14. Royalty for the use of water together with the tax and duties on generation of power as fixed by Government/Board from time to time have to be paid by the agency. Normally generation of power ....
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....s stipulated by the KSEB. In case energy in excess of the requirement of CUMI is generated from the projects during one accounting year such excess energy shall be fed into the KSEB grid itself at rates to mutually agreed upon. Under no circumstances shall CUMI be entitled for the sale or transfer of any excess energy or any energy produced from the project to any party other than the KSEB. The accounting of the energy fed into the grid and supplied by KESB to CUMI or operating their factories in Kerala at Palakkad, Koratty and Kalamaooery will be settled on an annual basis, the year being reckoned from lot of July to 30th June. ... ... ... 14. Royalty for the use of water together with the tax and duties on generation of power as fixed by govt./KESB from time to time have to be paid by CUMI, to K.S.E.B. Maniyar Hydro Electric Projects will utilize the existing head works benefit of the Maniyar Irrigation Dam of P.W.D. which is fed mainly by the controlled release of water from existing Moozhiar Power House of KSEB. In order to account for the additional advantage gained by way of getting such controlled released, CUMI will have to pay to KSEB th....
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.... 19. Cess/ Royalties for use of water, if decided by the Government together with tax/ duties as fixed by the Government from time to time shall be paid by the company to Government. 8. Since the setting up of the project by June, 2001 at a cost of Rs. 50 crores, INDSIL has been generating electricity which is essentially used by it and its associates as stated in Clause 10 of INDSIL Agreement. 9. The respective projects were thus set up by CUMI and INDSIL for Captive Power Consumption and such producers of electricity for own consumption are called Captive Power Producers (CPP) as against Independent Power Producers (IPP) who generate electricity not for self consumption but for supply in its entirety to the Board. 10. On 11.10.2002, Guidelines were issued by the Government after noting the Policy and the recommendations of the Empowered Committee set up vide G.O. dated 5.9.2002. These Guidelines dealt with transmission and distribution losses in wheeling the energy to CPPs but did not deal with royalty for the use of water. The relevant portion of these Guidelines was: The Empowered Committee constituted as per the GO read as 3rd paper above, to oversee t....
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....the disputes in the instant matters which are subject matter of these appeals. Before we set out the pleadings pertaining to such disputes, the locations of the respective Projects and what kind of flow of water is used, must be noted: CUMI: The water flowing down from Moozhiyar Power House of the Board is diverted to the Kakkad Power House (50 MW) of the Board for generation of electricity using "tail race" benefit of Moozhiyar Power House. After power generation at the Kakkad Power House, the water is allowed to flow back into the river and is then utilized for irrigation and for the Maniyar Hydro Electric Project of CUMI. INDSIL: Anayirankal Dam, one of the largest earthen dams in State of Kerala was built in the 1960s and soon thereafter, the Panniyar Power House having capacity of generating 32 MW electricity was built by the Board. Kuthungal is situated in between Anayirankal Dam (at the higher altitude) and Panniyar Power Station of the Board (at the lower level). Thus the water released from Anayirankal Dam for generation of electricity at Panniyar Power Station passes through the area where the project of INDSIL is situated. 13. CUMI filed O.P. No. 688....
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....r generation of electricity at Kakkad Power House the water flowing down flows back to the same river at a lower stage and utilized for irrigation and partly for the Petitioner's Maniyar Project. It is submitted that the water released from Moozhiyar Power House is thus diverted to Kakkad Power House and utilized for power generation there. The alleged controlled release of water from Moozhiyar Power House to the Petitioner's hydel project at Maniyar is no longer there and has ceased to be available to the Petitioner after commissioning of the Kakkad Power Station by the 2nd Respondent. It is therefore submitted that the 2nd Respondent cannot in any manner charge or collect the so-called cost component for controlled release of water from Moozhiyar Power House since there is no such release, much less controlled release of water from Moozhiyar Power House to the Petitioner after 1998. Petitioner submits that in any event the charge and collection of cost component from the Petitioner after 1998 is totally without authority of law, arbitrary, illegal and unfair. 5. ... ... There is no provision in the Electricity Supply Act conferring any power on the 2nd Respondent....
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....estment for storage of water. ........ It is further stated that normally generation of power from schemes of the category small/mini/micro utilizing the storage benefit of the existing reservoir and tailrace benefit of existing power stations will not be entrusted with private agencies. But Government under special circumstances allowed such schemes to be set up by private parties. In such case, in order to account for the additional advantage gained by the agency by way of getting the controlled release, the agency will have to pay to government or the Board, as the case may be, in tariff equivalent to the cost component for energy generated from the scheme. This will be in addition to the royalty of water if any, to be paid. The tariff storage/controlled release as above are to be worked out in respect of each scheme separately taking into account the above factors. 5. It is submitted that from the year 1998, the water flowing down from Moozhiyar Power House is collected in the reservoir of Kakkad Power House of the 2nd Respondent and after generation of electricity at Kakkad Power House the water flowing down to the same river and to the reservoir of the Petitioner'....
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....y is liable to pay 1.2 paise per unit as electricity duty for each unit of electricity generated in accordance with the provision of the Kerala Electricity Duty Act. The Chief Electrical Inspector shall collect the royalty from the company and remit it to the State revenue. 17. INDSIL challenged the order dated 03.07.2004 by filing Writ Petition (C) No. 22187 of 2004 in the High Court. The Writ Petition was however withdrawn with liberty to make an appropriate representation to the Government. This led to some correspondence and representations from INDSIL. The Government, however, refused to recall its decision to recover royalty and cost of controlled release of water, which was communicated vide order dated 23.01.2008. The action on part of the Government was challenged by INDSIL by filing Writ Petition (C) No. 4596 of 2008 in the High Court. 18. With regard to the use of controlled water INDSIL submitted: 11. Kuthungal is situated between Anayirankal at the higher end and Ponmudi at the lower end. Panniyar power station at Vellathooval has a capacity to generate 30 MW of power. The said power station functions on water flowing across Panniyar river. Ther....
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....rigiri and Kakkad Power Project are controlled releases. This is totally unlike in the case of the Petitioner where the actual release of water from Anayirankal is in the manner mentioned above. 19. The reply given on behalf of the Government to the petition by INDSIL was: 9. ... ... In fact, the scheme envisages utilization of controlled release from Anayirankal reservoir in addition to water from 114 sq.km., free catchment downstream of the dam as per the detailed project report prepared by KSEB in August, 1991. The Petitioner had also made their own assessment as per the techno economic feasibility report submitted by them. As already mentioned, the scheme envisages utilization of water from 114 sq.km. of free catchment downstream of existing Anayirankal reservoir drained from a catchment of 65 sq. Km for power generation as per the detailed report mentioned above. The averment and allegations in paragraphs 10 and 11 of the writ petition are not fully correct and hence denied. The description of the project of the Petitioner given in the said paragraph explaining that is designed as a "run of the river" scheme does not deny the fact that it is using the water release....
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....le Judge of the High Court by his judgment and order dated 03.04.2013 with following observations: Even though in W.P.(C) No. 4596/2008, I have given some findings against the Petitioner, in view of my findings in Paragraphs 36 to 41 and 51 to 53 of the said judgment, I allow this writ petition and set aside the impugned order, Annexure P-3 holding that the Government is devoid of jurisdiction to realize any amount from the Petitioner by way of Royalty or other charges on the water used for the Maniyar Hydel Project. In the circumstances, there will be no order as to costs. 22. The decisions of the Single Judge in the matters of INDSIL and CUMI were called in question by the Board by filing Writ Appeal Nos. 1345 of 2013 and 1355 of 2013 respectively before the Division Bench, which appeals were allowed by the Division Bench vide its common judgment and order dated 03.04.2014. The judgment of the Division Bench comprises of two parts: the first part dealt with the case of INDSIL; while the second part considered the case of CUMI. 22.1. After considering some of the decisions of this Court, it was held that after entering into an agreement, a party would be estopped....
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....mption unlike the other IPP's. Therefore, in our view, the justification that if royalty or cess or other charges are levied, the energy generated at IPP's would be more expensive to the consumer and that it was therefore that the IPP's were relieved of that obligation, is a valid reason for classification of IPP's and CPP's Under Article 14 of the Constitution of India. 26. Secondly, IPP's that are complained of by the 1st Respondent were established to Exts.P8 and P9 orders issued by the Government of Kerala in 2002 and 2003. These orders show that the terms and conditions that are incorporated in these orders are totally different from what are contained in Ext. P1, pursuant to which sanction was accorded, agreement was executed and the project was established by the 1st Respondent. Therefore, the obligations undertaken by the 1st Respondent in Ext. P3 agreement and the obligations that are fastened on the beneficiaries of Ext. p8 and Ext. P9 are incomparable and different. That itself shows that the 1st Respondent and the owners of the independent power plants fall in separate classes and therefore also there cannot be any discrimination to be c....
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.... is only an incidental benefit and that to make them liable for controlled release, water should be released solely at their instance and for generation at their project and not otherwise. In our view, this argument has no substance. Parties are governed by a mutually agreed contract evidence by Ext. P3. Agreement provides that for the additional advantage of controlled release derived by them, the agency is liable to pay charges as provided in the agreement. Agreement does not state that such controlled release should be at the instance of the 1st Respondent and that it should be for their sole benefit. Instead, if the agency is a beneficiary of the controlled release of water, they are liable to pay for it. Admittedly, the 1st Respondent is generating energy utilizing the controlled release of water from Anayirankal and so long as it is so, in view of Clause 14 of the Ext. P1, the 1st Respondent cannot get itself absolved of that liability. Therefore, this contention is only to be rejected and we do so. 22.3. The Division Bench thus found that the Single Judge of the High Court had erred in allowing the Writ Petition preferred by INDSIL. It, however, concluded that the demand ....
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.... private party like the 1st Respondent that it shall make available water to a Hydro Electric Project for generation of energy and in consideration, royalty is required to be paid to the Government and that contractual right of the Government or the obligation of the generating company to pay are not affected by any of the provisions of the Electricity (Supply) Act, 1948. Therefore, the 1st Respondent who has willingly entered into an agreement undertaking to pay royalty and other charges to the Government and after having enjoyed the benefit thereof, cannot now rely on the provisions of the Electricity (Supply) Act and contend that the Government or the Board have no power under the Electricity (Supply) Act to realise the charges that are contractually payable by them. Therefore, this contention of the learned Senior Counsel is unacceptable and is rejected. 58. The second contention raised by the learned Senior Counsel for the 1st Respondent was that there was no controlled release to the Maniyar Hydro Electric Project and that therefore the charges levied on them for controlled release of water is unsustainable. We have already rejected such a contention raised by the 1s....
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.... the free catchment between Anayirankal dam and Kuthunkal weir alongwith the controlled release of water. The controlled release of water from Anayirankal dam was done by the Board through the Panniyar River depending upon the requirements of the Panniyar Power Project of the Board. This water, when released, is being utilized at Kuthungal for power generation. This controlled release of water is diverted by a weir across Panniyar River at Mukkudi to the Kuthungal project and used for generation of power. In the absence of Anayirankal reservoir, the water would have flown to Ponmudi during monsoon months and the weir would be overflowing most of the time. And during summer months there would be substantial shortfall in the generation of power at the Kuthungal project in the absence of water release from Anayirankal dam. The release of water at Anayirankal is made in the months of January, February, March and April every year and the scheme generates mostly during these months in a year and primarily generates power out of the water released from Anayirankal. The total generation of power during this period was 266.69 MU and generation from controlled release was 60.12 MU, which is ....
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....ssertions with respect to the location of the project and use of controlled release of water were: The alleged controlled release of water must be directly to the Petitioners' Maniyar Hydroelectric project from the water releasing point at Moozhiyar Power House of KSEB and not to Irrigation Dam of PWD or to its own Hydroelectric project at Moozhiar. After the year 1998, KSEB has set up its own Hydro Electric Project at Kakkad upstream of the river and two more Private Hydel Power Project had been approved and set up on the same river upstream, i.e. in between the Moozhiyar Power House of KSEB and the Petitioner's Maniyar Power Plant. It is pertinent to note that the alleged controlled release of water being used by the Board's Hydro Electric Project at Kakkad at the first instance and then flows further down to two other private Hydro Electric Projects at Ullunkal & Karikkayam before it reaches the irrigation dam owned by PWD from where the Petitioner draws water for its Maniyar Hydro Electric Project. It is further to be noticed that when the flow of the controlled release of water further strengthened by two more minor rivers and forms confluence on its way o....
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.... 0.607 MCM are the reservoirs of Kakkad Power Station. Thus, the storage capacities of the three power stations are as shown below: Sabarigiri Power House - 480.54 MCM (Effective) Kakkad Power House - 1.767 MCM (Effective) Maniyar Power House - 8.0 MCM (Gross) ............ 14.... ... The Pamba Dam across Pamba river, Kakki Dam across Kakki river and a flanking dam at Anathode are the main three dams of Sabarigiri Project. These Dams are at an elevation of about 900 M from the sea level. Water from the Kakki reservoir is brought to Sabarigiri Power House, the water is again stored at Moozhiyar by a concrete Gravity Dam. Water from other small streams like Saippinkuzhy stream also reaches this reservoir. This water is brought to Kakkad Power Station through under ground tunnel and utilized it for power generation. Water from another stream called Veluthode is also brought to Kakkad Power Station by constructing a small Dam across the stream. Before the commissioning of the Kakkad Power Station, the controlled release of water from Sabarigiri Power House directly reached the maniyar barrage (owned by Kerala Irrigation Department) and this w....
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....roject of INDSIL was conceived as a "run of the river scheme". The release of water from Annayirankal Reservoir would be only for 45 days in a year, and the Regulation of release of water would be completely at the discretion of the Board and meant to facilitate the generation of power at the Panniyar Power Station. The release of water would be determined by the requirements of the Board at the Panniyar Power Station and that utilization of such controlled release constituted only 22.54% of the generation by the INDSIL. d) The controlled release of water in the case of CUMI would be meant to suit the requirements of its project. On the other hand, such controlled release of water would not be exclusively for the benefit of INDSIL but for the benefit of the Plant at Panniyar. It would therefore be illegal to draw similarity between the case of CUMI and that of INDSIL. e) The imposition of royalty on the use of water would be unconstitutional as INDSIL was discriminated against other similarly situated hydroelectric plants. f) Imposition of royalty in terms of Clause 19 of INDSIL Agreement would partake the nature and character of a "Tax". Assuming that th....
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....Board. Reliance was placed upon the decision of this Court in the State of Maharashtra and Ors. v. Salvation Army, Western India Territory (1975) 1 SCC 509. g) Considering the facts of the case, the calculations were required to be revisited where all relevant aspects had to be properly accounted for and the levy had to be linked to the cost of advantage gained from controlled release of water and not from other sources from catchment area. 27. Mr. Jaideep Gupta and Mr. P.V. Surendranath, learned Senior Advocates appearing for the Board and the State respectively, in both the appeals, submitted: (a) Terms and conditions of the Policy including Clause 14 of the Policy stood specifically incorporated in INDSIL and CUMI Agreements. Said Clause 14 of the Policy dealt with the additional advantage gained by an agency/ project by way of controlled release of water and stipulated that the cost component for such controlled release would be required to be paid. Clause 15 of the Policy then set out the formula to be used for ascertainment of the relevant indicia. The Agreements having accepted the liability to pay such controlled release of water, the matter was purely ....
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....he part of CUMI and INDSIL that it would amount to compulsory exaction was therefore without any merit. 28. Before we deal with the principal submissions, an aspect of the matter highlighted on behalf of the Appellants needs to be dealt with. It was submitted that a decision was taken on 08.04.1994 that no charges for benefit of controlled water would be imposed if the water was being retained in the same basin. The decision in said meeting was only to make a recommendation but the final call had to be taken by the Irrigation Department of the State. It cannot therefore be said that no liability could be imposed after 08.04.1994. Pertinently, INDSIL Agreement was entered into on 30.12.1994. Though no specific Clause comparable to Clause 14 of CUMI Agreement was included in INDSIL Agreement a specific reference to the terms and conditions of the policy was made and such terms and conditions were incorporated in INDSIL Agreement. Thus the decision dated 08.04.1994 had no bearing on the matter in question. 29. The first question that arises for consideration is whether the projects of CUMI and INDSIL are located at places where the advantage of controlled supply of water is a....
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....rea where the project of INDSIL is situated, which has a capacity of 21 MW. The location of the project of INDSIL would thus have natural advantage of consistent and controlled supply of water. 33. The facts on record thus show that both the projects have certainly derived advantage of controlled supply of water as contemplated in Clause 14 of the Policy. How much benefit of controlled supply of water each of the projects has received or will receive in future would be a matter of computation and calculation. 34. The Agreements entered into by CUMI and INDSIL show that the terms and conditions of the Policy including Clause 14 thereof were consciously incorporated in the Agreements. Both CUMI and INDSIL were alive to the fact that because of peculiar location, their units would certainly have the advantage of controlled supply of water. Thus, the absence of a specific clause, akin to Clause 14 of CUMI Agreement, in INDSIL Agreement, would be of no consequence. The relationship between the parties would be governed by Clause 14 of the Policy, as incorporated in the respective Agreements. 35. The next questions to be considered are whether Clause 14 of CUMI Agreement and ....
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....ful choice, but to give his assent to a contract or to sign on the dotted line in a prescribed or standard form or to accept a set of Rules as part of the contract, however unfair, unreasonable and unconscionable a Clause in that contract or form or Rules may be. This principle, however, will not apply where the bargaining power of the contracting parties is equal or almost equal. This principle may not apply where both parties are businessmen and the contract is a commercial transaction. In today's complex world of giant corporations with their vast infrastructural organizations and with the State through its instrumentalities and agencies entering into almost every branch of industry and commerce, there can be myriad situations which result in unfair and unreasonable bargains between parties possessing wholly disproportionate and unequal bargaining power. These cases can neither be enumerated nor fully illustrated. The court must judge each case on its own facts and circumstances. (Emphasis added) 37. In S.K. Jain v. State of Haryana and Anr. (2009) 4 SCC 357 a Bench of three Judges of this Court summed up as under: It is to be noted that the plea relating to u....
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....greements, cannot be termed unconscionable. 41. In ICOMM Tele Limited (2019) 4 SCC 401, this Court found Clause 25(viii) of the Notice Inviting Tender to be arbitrary as said Clause deterred a party to an arbitration agreement from invoking the alternative dispute resolution process unless it complied with requirements of pre-deposit. Though this Court did not accept the submission, based on Central Inland Water Transport Corporation (1986) 3 SCC 156, that the Clause in question was unconscionable, the matter was considered from the stand point whether said Clause could be said to be manifestly arbitrary. The Clause was found to be contrary to the object of de-clogging the Court process and rendering the arbitral process ineffective. Relying upon the decision of this Court A.L. Kalra v. Project and Equipment Corporation of India (1984) 3 SCC 316 it was found in paragraph 23 that the Clause had no nexus to the filing of frivolous claims. The discussion in paragraph 23 was: 23. The important principle established by this case is that unless it is first found that the litigation that has been embarked upon is frivolous, exemplary costs or punitive damages do not follow. Cl....
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....nt of infrastructure and development had been and would be made by the State in erecting and maintaining dams and reservoirs and as such the incremental advantage or benefit of such investment must go back to the public through units in public sector. If the advantage was, however, allowed to be given to a private entity or agency, the Policy contemplated imposition of charges for the use of such controlled supply of water. There is nothing arbitrary or unreasonable in having such term in the Policy. Since the private entity or agency would stand to gain from and out of the capital outlay and infrastructure put in place by the State, some reasonable charges for such benefit would naturally be imposed. It was only under such Policy that both CUMI and INDSIL were given permissions to set up their electricity generating units and such term was consciously accepted by them. The submission that the relevant Clause would be manifestly arbitrary, therefore, does not merit acceptance. 43. Though we have considered the submissions that Clause 14 of the Policy would be unconscionable or arbitrary on merits, reference may also be made to the following statement of law culled out in R....
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....tly answered by the Division Bench of the High Court against CUMI and INDSIL. Rather than being unnatural or irrational, the classification had a clear nexus or relationship with the object of reducing resultant burden on the common consumers. This submission therefore, is, meritless and rejected. 45. This takes us to the last set of submissions challenging the imposition of royalty or charges on controlled supply of water on the ground of absence or lack of jurisdiction and some ancillary issues. The matter in that behalf was considered by the Division Bench of the High Court in paragraphs 38, 39 and 57 as quoted hereinabove. As rightly observed, the basis or genesis of such imposition was Clause 14 of the Policy which, as agreed between the parties, stood incorporated in the respective Agreements. 46. The submission on behalf of the Appellants was that the royalty or charges for controlled supply of water in the instant case would be nothing but compulsory exaction and in the absence of any statutory sanction behind such imposition, the actions on part of the Board would be without jurisdiction. The counter submission on behalf of the State and the Board was that such....
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....ot open to the said area or to the said class of persons to plead that they do not want the service and therefore they should be exempted from the payment of the cess. Though there is an element of quid pro quo between the tax payer and the public authority there is no option to the tax-payer in the matter of receiving the service determined by public authority. In regard to fees there is, and must always be, co-relation between the fee collected and the service intended to be rendered. Cases may arise where under the guise of levying a fee Legislature may attempt to impose a tax; and in the case of such a colourable exercise of legislative power courts would have to scrutinise the scheme of the levy very carefully and determine whether in fact there is a co-relation between the service and the levy, or whether the levy is either not correlated with service or is levied to such an excessive extent as to be a pretence of a fee and not a fee in reality. In other words, whether or not a particular cess levied by a statute amounts to a fee or tax would always be a question of fact to be determined in the circumstances of each case. The distinction between a tax and a fee is, however, i....
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.... (1954) S.C.R. 1046. Mukherjea, J., who again spoke for the Court, upheld the validity of Section 49 which imposed the liability to pay the specified contribution on every Mutt or temple having an annual income exceeding Rs. 250 for services rendered by the State Government. The scheme of the impugned Act was examined and it was noticed that the collections made under it are not merged in the general public revenue and are not appropriated in the manner laid down for appropriation of expenses for other public purposes. They go to constitute a fund which is contemplated by Section 50 of the Act, and this fund to which the Provincial Government contributes both by way of loan and grant is specifically set apart for the rendering of services involved in carrying out the provisions of the Act. The same view was taken by this Court in regard to Section 58 of the Bombay Public Trust Act, 1950 (Act 29 of 1950) which imposed a similar contribution for a similar purpose in Ratilal Panachand Gandhi v. State of Bombay (1954) S.C.R. 1055. It would thus be seen that the tests which have to be applied in determining the character of any impugned levy have been laid down by this Court in these th....
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....nt may demand for the appropriation of minerals, timber or other property belonging to the Government. Two important features of royalty have to be noticed, they are, that the payment made for the privilege of removing the articles is in proportion to the quantity removed, and the basis of the payment is an agreement. Black's Law Dictionary (7th Edn., p. 1330): Royalty.--A share of the product or profit from real property, reserved by the grantor of a mineral lease, in exchange for the lessee's right to mine or drill on the land. Mineral royalty.--A right to a share of income from mineral production. 60. In D.K. Trivedi & Sons v. State of Gujarat (1986) Supp SCC 20 a Bench of two learned Judges of this Court dealt with "rent", "royalty" and "dead rent" and held as follows: (SCC pp. 53-54, paras 38-39) 38. Rent is an integral part of the concept of a lease. It is the consideration moving from the lessee to the lessor for demise of the property to him. ... ... ... 39. In a mining lease the consideration usually moving from the lessee to the lessor is the rent for the area leased (often called surface rent), dead r....
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....payment is in proportion to the quantity removed; and (ii) the basis of the payment is an agreement. ... ... ... 71. We have clearly pointed out the said error, as we are fully convinced in that regard and feel ourselves obliged constitutionally, legally and morally to do so, lest the said error should cause any further harm to the trend of jurisprudential thought centring around the meaning of "royalty". We hold that royalty is not tax. Royalty is paid to the owner of land who may be a private person and may not necessarily be a State. A private person owning the land is entitled to charge royalty but not tax. The lessor receives royalty as his income and for the lessee the royalty paid is an expenditure incurred. Royalty cannot be tax. We declare that even in India Cement (1990) 1 SCC 12 it was not the finding of the Court that royalty is a tax. A statement caused by an apparent typographical or inadvertent error in a judgment of the Court should not be misunderstood as declaration of such law by the Court. We also record our express dissent with that part of the judgment in Mahalaxmi Fabric Mills Ltd. 1995 Supp (1) SCC 642 which says (vide para 12 of SCC report....
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....(iii) it is part of the common burden. In Commr., Hindu Religious Endowments v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt (1954) S.C.R. 1005, the Constitution Bench has laid down the characteristics of a tax which has since been consistently followed and it is as under: (AIR p. 284, para 43) 43. ... "A tax" ... 'is a compulsory exaction of money by a public authority for public purposes enforceable by law and is not payment "for services rendered".' This definition brings out, in all opinion, the essential characteristics of a tax as distinguished from other forms of imposition which, in a general sense, are included within it. It is said that the essence of taxation is compulsion, that is to say, it is imposed under statutory power without the taxpayer's consent and the payment is enforced by law. The second characteristic of tax is that it is an imposition made for public purpose without reference to any special benefit to be conferred on the payer of the tax. This is expressed by saying that the levy of tax is for the purposes of general revenue, which when collected forms part of the public revenues of the State. As the object of a tax is,....
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....to be faulty. More so in a language which is not the mother tongue. Those faulted words cannot bounce back to alter the thought. Thus in sum and substance when the contracting parties and the draftsman are assumed to have known that the word 'royalty' is meant to be employed to secure for the State something out of what the State conveys, their employment of that word for private ensuring was not intended to confer on the assignor the status of the sovereign or the State, and on that basis have the document voided. ... ... 53. We may also note the following observations from the decision of a Bench of three Judges of this Court in Union of India and Ors. v. Motion Picture Association and Ors. (1999) 6 SCC 150, where the payment of fee was under the terms of a contract between the parties. 31. The exhibitors also contend that the charge of one per cent on the net recoveries is a compulsory exaction in the form of a tax. Neither the Act nor the provisions of the licence stipulate payment of any such tax. Hence imposition of this amount is in violation of Article 265 of the Constitution. It is true that neither the relevant Act nor the notification nor the Rules no....
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.... Court has described a tax as a compulsory exaction for public purposes which does not require the taxpayer's consent; while fee is a charge for specific service to some, and it must have some relation to the expenses incurred for the service. In Ahmedabad Urban Development Authority v. Sharadkumar Jayantikumar Pasawalla (1992) 3 SCC 285 : AIR 1992 SC 2038 this Court has said that an express authorisation for the levy of a fee is necessary. In the present case, however, the rental is charged by the Films Division by virtue of an agreement between the Films Division and the individual exhibitor. This is in consideration of the Films Division supplying films to the exhibitor, packing the film and arranging for its delivery. This is clearly an agreed fee charged for rendering services. It cannot be viewed as a compulsory exaction or as a tax. There is a statutory obligation which is cast on the exhibitors to exhibit certain films. To carry out this statutory obligation, if the exhibitors enter into an agreement with the Films Division and agree to pay a certain amount of rental for procuring the films from the Films Division to comply with the statutory obligation, the levy must, ....