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The Indian Penal Code, 1860
Section 4 in The Indian Penal Code, 1860
The Revenue Recovery Act, 1890
P.K. Unni vs Nirmala Industries & Ors on 20 February, 1990
Section 2 in The Indian Penal Code, 1860

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Madhya Pradesh High Court
Gautamlal Agrawal vs State Of Madhya Pradesh on 24 February, 1995
Equivalent citations: AIR 1995 MP 257, 1995 (0) MPLJ 858
Author: U Bhat
Bench: U Bhat, M Tamaskar

JUDGMENT

U.L. Bhat, C.J.

1. This petition, the petitioner challenges the validity of Act No. 15 of 1982 of M. P. Karadhan Adhiniyam, 1982, Part II School Building Cess as ultra vires the Constitution of India.

2. M. P. Karadhan Adhiniyam, 1982 as published in M. P. Rajpatra dated 6th May, 1982 Part II is quoted below:

"Part II School Building Cess-Definitions:

In this part, unless the context otherwise requires -

(a) "Code" means the Madhya Pradesh Land Revenue Code, 1959 (No. 20 of 1959);

(b) "school building cess" means the school building cess levied under Section;

(c) "holder of land" means a tenure holder, occupancy tenant or a Government lessee;

(d) "holding means all land held by a holder in the State in any one or more than one of the capacities specified in Clause (c);

(e) "member of a Scheduled Caste" means a member of any caste, race or tribe or part of a group within a caste, race or tribe specified as Scheduled Caste with respect to the State of Madhya Pradesh under Article 341 of the Constitution of India;

(f) "member of a Scheduled Tribes" means a member of any tribe, tribal community or part of or group within a tribe or tribal community specified as such with respect to the State of Madhya Pradesh under Article 342 of the Constitution of India;

(g) words and expressions used in this part and not defined herein but defined in the Code shall have the meaning assigned to them to the Code.

3. Levy of School building cess -

(1) There shall be levied and collected for every revenue year school building cess on every holding of six hectares and above held by a holder at the rate of three rupees and seventy five paise per hectare:

Provided that the provision of this subsection shall, in respect of a holding held by a member of Scheduled Castes or Scheduled Tribes shall, have effect as if for the words "six hectares", the words "ten hectares" were substituted.

(2) The school building cess levied and collected under Sub-Section (1) shall be in addition to land revenue or rent or any other cess or tax payable by the holder of the land in respect of the holding under the Code or any other enactment for the time being in force and shall be payable by the holder of the land in the same manner as and along with, land revenue.

(3) The provisions of the Code in relation to assessment, collection and recovery of land revenue shall, so far as may be, apply to the assessment, collection and recovery of school building cess under this part as if the cess were land revenue assessed on the holding under the Code.

(4) (1) The proceeds of the school building cess under Section 3 shall first be credited to the Consolidated Fund of the State and the State Govt. may, at the commencement of each financial year, after due appropriation has been made by law withdraw from the Consolidated Fund of the State an amount equivalent to the proceeds of the school building cess realised by the State Government in preceding financial year and shall place it to the credit of a separate fund to be called the Primary School Buildings Construction Fund and such credit to the said fund shall be an expenditure charged on the Consolidated Fund of the State of Madhya Pradesh.

(2) The State Government shall every year make its contributions to the fund equal to fifty per cent of the amount credited to the fund under Sub-Section (1).

(3) The amount in the credit of the fund ' shall be utilised for construction and furnishing of Primary School building in non-urban areas as defined in Clause (2-z) of Section 2 of the Code and for that purpose only so much amount in the credit of the fund shall be allotted to a district as recovered by way of school building cess from that district to- g ether with fifty percent of the contribution of the State Government for that district.

5. The maintenance and operation of the Primay School Buildings Construction Fund, including the investment or re-investment of sums in its credit, shall be in accordance with the rules made under this part."

3A. The petitioner challenges the validity on the ground that it is in excess of legislative power conferred under the Entries 45 and 49 of List II of Seventh Schedule of the Constitution of India. Secondly, it is also stated that the Act is arbitrary as it operates differently on the holders of land belonging to Scheduled Castes, Scheduled Tribes and General Categories. It is also said that the building cess is nothing but land revenue payable and thus amounts to double taxation. It is submitted that in view of the Ceiling on Agricultural Holding Act, 1961 the levy of cess on the holdings could operate prejudicially inasmuch as the holders would reduce their holdings below six hectares by sale or otherwise. Lastly, it is also submitted that there is no procedure for assessment, hence, the scheme of the Act cannot be implemented.

4. We have considered the submissions of the learned counsel for the petitioner. Analysis of Part II discloses that school building cess is recovered for a particular purpose that is to say the same is to be utilised for construction of primary school buildings in rural areas.

5. Section 5 of the Act reads as under:

"5. Maintenance and operation of Fund --The maintenance and operation of the Primary School Buildings Construction Fund including the investment or reinvestment of sums in its credit, shall be in accordance with the rules made under this part."

Rules have been framed and Rules 7(1) and (5) are reproduced below:

"7. Utilisation and Operation of Fund for The Construction of the Primary School Building -

(1) The amount deposited in the Fund for the construction of school building shall be utilised in pursuance of Sub-Section (3) of Section 4 of the Act for the construction, repair, furnishing and maintenance of the Primary School Buildings in rural areas in consultation with the Committee set up for this purpose.

(5) It shall be obligatory to utilise the allotment made for the proposed construction works by 30th June in any case."

The amount has to be spent or utilised in the same year. A committee for the said purpose is to be constituted for each Primary School.

The recovery is for a particular purpose to be utilised only for the said purpose within the same financial year. In this view of the matter, the levy is not a tax but a fee even though it may be a compulsory exaction. The same is to be deposited in the Consolidated Fund of the State and State Government has to follow the procedure of appropriating the same as made by law, withdraw from Consolidated Fund of the State an amount equivalent to the proceeds of the school building cess realised by the State Government in the preceding financial year and shall place it to the credit of a separate fund to be called the Primary School Buildings Construction Fund and such credit to the said fund shall be an expenditure charged on the Consolidated Fund of the State of Madhya Pradesh. Section 4 is quite specific. It casts a burden on the State Govt. to make its contribution equal to 50%,

6. Merely because the fund is required to be deposited towards the Consolidated Fund of the State, the nature of levy cannot be termed as a tax. The distinction between cess, fee and tax was considered by this Court in M. P. No. 1298/92 (Orient Paper and Industries Ltd. v. State of M. P., M. P. No. 1298/82 decided on 11-1-1994) decided on 11-1-1994. It is held thus :

"9. The term 'cess' and 'fees' are not defined in the Constitution. Use of expression 'cess' by legislature is not decisive of its being a tax. As held in Kunwar Ram Nath v. Municipal Board, Pilibhit, 1983 (3) SCC 357 (363): AIR 1983 SC 930.

'A cess may either be a tax or a fee whether a cess in a given case in a given contest is a tax or fee depends upon the purpose for which it is levied.' .

Merely because of expression "Forest Development Cess" the nature of levy would not be tax.

9(A). Article 265 provides, no tax shall be levied or collected except by authority of law. Article 366(28) defines taxation as including the imposition of any tax or impost, whether general or local or special, 'tax' shall be construed accordingly. However, we may posthaste abandon searching for the definition of 'tax' by quoting the following passage from 'decision of their Lordships in Hingir-Rampur Coal Co. v. State of Orissa, AIR 1961 SC 459, para 9 at page 464:

"The neat and terse definition of Tax which has been given by Latham, C.J. in Mathews v. Chicory Marketing Board, 60 CIR 263, 276, is often cited as a classic on this subject. "A tax" said Latham, C.J. "is a compulsory exaction of money by public authority for public purposes enforceable by law, and is not payment for services rendered." In bringing out the essential features of a tax this definition also assists in distinguishing a tax from a fee. It is true that between a tax and a fee there is no generic difference. Both are compulsory exactions of money by public authorities; but whereas a tax is imposed for public purposes and is not, and need not, be supported by any consideration of service rendered in return, a fee is levied essentially for services rendered and as such there is an element of quid pro quo between the persons who pay the fee and the public authority which imposes it."

7. The scheme of the Act discloses that the provisions of the Code i.e. Land Revenue Code have been applied for purpose of assessment, collection and recovery. The rate being fixed the assessment is only a quantification which is only arithmetical calculation. The Supreme Court had also occasion to consider the levy of market fee on bamboos. The High Court held that unless the services are rendered there can be no levy of market fee on sale and purchase of the bamboos in the market area. The said judgment has been reversed by the Supreme Court in K.U.M.S. v. Orient Paper and Industries Ltd., 1994 AIR SCW 5156. The Court considered number of decisions relating to the difference between tax and fee and stated that compulsion lies in the fact that payment is enforceable by law against a person 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 person 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. It is held thus at page 5174:

"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.

Our Constitution has for legislative purposes made a distinction between a tax and a fee and, as stated above, while there are various entries in the Legislative Lists with regard to various forms of taxes, there is an entry at the end of each one of the three lists as regards fees which could be levied in respect of any of the matters that is included in it. The implication seems to be that fee has special reference to Government action undertaken in respect of any of those matters."

Having dealt with the relevant case law on the subject, the learned Judges summarised as under:

"5. 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 fees taken in Court.

(2) The tax is a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment for services rendered. There is no quid pro quo between the tax-payer and the public authority. It is a part of the common burden and the quantum of imposition upon the taxpayer depends generally upon his capacity to pay.

(3) Fee is a charge for a special service rendered to individuals or a class by some governmental agency. The amount of fee levied is supposed to be based on the expenses incurred by the Government in rendering the service though in some cases the costs are arbitrarily assessed. Ordinarily, the fees are uniform and no account is taken of the varying abilities of different recipients to pay. These are various kinds of fees and it is not possible to formulate a definition that would be applicable to all cases.

(4) The element of compulsion or co-ereiveness is present in all kinds of impositions though in different degrees and it is not totally absent in fees. Hence it cannot be the sole or even a material criterion for distinguishing a tax from fee. Compulsion lies in the fact that payment is enforceable by law against an individual in spite of his unwillingness or want of consent and this element is present in taxes as well as in fees.

(5) 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 the impositions but in a fee it is some special benefit which is conferred and accruing which is the reason for imposition of the levy. 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 legislative provision be correlated to the expenses incurred by Government in rendering the services. As indicated in Article 110(2) of the Constitution, ordinarily there are two classes of cases where the Government imposes fees upon persons. The first is of grant of permission or privilege and the 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 predominent. If the money paid by privilege-holders 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 purpose is to render specific services to a specific area or classes. It is of no consequence that the State may ultimately and indirectly be benefited by it. The amount of the levy must depend upon the extent of the services sought to be rendered and if they are proportionate, it would be unreasonable to say that since the impost is high it must be a tax. Nor can the method prescribed by the legislature for recovering the levy by itself after its character. The method is a matter of convenience and though relevant, has to be tested in the light of other relevant circumstances.

(7) It is not a postulate of a fee that it must have relation to the actual service rendered. However, the rendering of service has to be established. The service, further, cannot be remote. The test of quid pro quo is not to be satisfied with close or proximate relationship in all kinds of fees. A good and substantial portion of the fee must, however, be shown to be expended for the purpose for which the fee is levied. It is not necessary to confer the whole of the benefit on the payers of the fee but some special benefit must be conferred on them which has direct and reasonable correlation to the fee. While conferring some special benefits on the payers of the fees, it is permissible to render service in the general interest of all concerned. The element quid pro quo is not possible or even necessary to be established with arithmetical exactitude. But it must be established broadly and reasonably that the amount is being spent for rendering services to those on whom the burden of the fee falls. There is no postulate of a fee that it must have a direct relation to the actual services rendered by the authorities to each individual to obtain the benefit of the service. The element of quid pro quo in the strict sence is not always a sine qua non for a fee. The element of quid pro quo is not necessarily absent in every tax. It is enough if there is a broad, reasonable and general correlation-ship between the levy and the resultant benefit to the class of people on which the fee is levied though no single payer of the fee receives direct or personal benefit from those services. It is immaterial that the general public may also be benefited from some of the services if the primary service intended is for the payers of the fees.

(8) 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.

(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 Government have to be credited to the Con- solidated Funds and to the public accounts of the respective Government."

Thus, it can be seen that the school buildings cess is nothing but a fee which is utilised for the particular purpose of construction of primary school building in rural areas.

8. This Court had occasion to consider forest cess imposed under the said Act i.e. M.P. Karadhan Adhiniyam, Part-Ill. This Court upheld the forest development cess vide M. P. No. 1298/82 decided on 11-1-94. The Court has given the same reasons which their Lordships of Supreme Court have stated in para. 5 of the judgment, reported in K.U.M.S. v. Oriental Paper and Industries Ltd. (supra).

9. The other submission made by the learned counsel is that the criteria for levy on general category as well as schedule castes and scheduled tribes categories suffers from arbitrariness. It is said that there is no rationale in enlarging the holding to ten hectares and not maintaining the same for the general category also. It is a historical fact that members of scheduled castes and scheduled tribes have been deprived of equal treatment and have not achieved that status and stability as in case of general categories. For their general uplift, the scheduled castes and scheduled tribes categories require more protection than the general category and as such rationale of fixing six hectares in case of general category and ten hectares for others cannot be said to be arbitrary.

10. Lastly, the procedure of assessment is the same as assessment, collection and recovery of land revenue. The scheme is quite workable. The submission of the learned counsel that unless the school committees are constituted the amount of cess cannot be recovered is not correct. The levy becomes operative, the moment Act has been passed and charge created. The cess is to be collected in the same financial year and the amounts recovered should be utilised in the same year for construction of primary school buildings in the rural areas. The education in rural areas is primary obligation. Large number of people residing in rural areas have no facilities of education and the facility of holding the classes cannot be achieved unless primary schools have buildings of their own and this being the primary object of this Act, the assessment and recovery has to be made in the same year so that the money is utilised in the same year, that is to say, the availability of fund is most important for the implementation. The apprehension expressed by the learned counsel that to hold escape from the applicability of the Act, may reduce the holding below the ceiling prescribed is merely imaginary.

11. The enactment is made under Entry 49. It is well accepted principle that if the legislation falls in any of the entries mentioned, the same will be valid. In the instant case, the Act squarely falls under Entry 49 and it cannot be said that the State Legislature acted beyond its legislative competence in enacting the law.

12. It is axiomatic in the field of taxation that the legislature has competence to levy tax under different heads and the same cannot be held to be void or ultra vires on the ground of double taxation. The State requires revenue for achieving the purpose. Providing primary education is a basic need and mandatory duty under the directive principles of State Policy laid in Part-IV, Article 41 of the Constitution the levy of cess for the same cannot be said to be the same as levy of land revenue under the M. P. Land Revenue Code. The purposes of two levies are different, as such, the contention of the learned counsel that the levy of school buildings cess amounts to double taxation cannot be accepted and even if it is double taxation that is permissible.

13. Having considered the various challenges made, we are of the opinion that the petitioner has not succeeded in showing that the levy as ultra vires.

14. The petition is dismissed. There shall be no order as to costs.