Tax and Fee – The Imbroglio ?

 

(By S. Nikhil Sankar, Advocate, Kochi)

 

Abstract

(The author through this article ponders over and deliberates upon  clear and appropriate distinctive analysis of ‘Tax’ vis-a-vis  ‘Fee’).

 

(A).  Prologue 

“In this world nothing can be said to be certain, except death and taxes” (Benjamin Franklin, See Simon James & Chantal Stebbings “A Dictionary of Legal Quotations.” Universal Law Publishing Co. Pvt. Ltd., Delhi (Fifth Indian reprint) 2004 at P165.)

 

 “All thieves who could my fees afford

Relied on my orations

And many a burglar I’ve restored

To his friends and relations” (Sir W.S.Gilbert See ibid at P.491.)

 

The history of collection of Tax can be traced back to millions of years, more leculently to the items when human civilization sprouted its roots and edified towards the establishment of a Governmental/Authoritarian regimes.  As years passed by so does the Dynamic weather with the off shot in living conditions and status of the citizens, it became a ponderous task on the regnant regime to interpolate more fiscal measures suffice to the perennial developments in its day to day affairs.

 

The terms Tax and Fee are engrossed with fiscal power of the State and decorously constitute a  indispensable touchstone in augmenting  to the revenue of State vis-a-vis.  Exchequer of the Government to be adroitly utilized in the day to day administrative affairs, policy decisions and measures undertaken for the welfare of its citizens.

 

Though Tax and Fee belong to same order  and delineate  their lineage propensitively to a general platform, yet they are distinctive in one way or the other.

 

(B).  Intermediate

It would be now apposite to bestow our attention to some of the definitive clauses that would up to some extent conspicuously serve as a catalyst to expound the same.

 

The well renowned and well acclaimed American Jurisprudential Encyclopedia i.e. Corpus Juris Secondum would palpably place tax  to be “ a rate or sum of money assessed on the person or a property of a citizen by government for use of nation or State (See Corpus Juris Secondum: A complete restatement of the entire American law as developed by All reported cases by Francis J.Ludes and Harold J.Gilbert  St.Paulminn, West Publishing Co. New York Vol.84  P30,  1954.).  In Contrariety, it would hold fees to be “the compensation for particular acts or services rendered in the line of official duties”.(See Corpus Juris Secondum: A complete restatement of the entire American law as developed by All reported cases by Francis J.Ludes and Harold J.Gilbert  St.Paulminn, West Publishing Co. New York Vol.36A (P.248-250), 1961.)               

 

To be suffice a more authoritative and exhaustive  definition for former would be “an enforced contribution exacted pursuant  to legislative authority for the  purpose of raising revenue to be used for public or governmental  purposes, and not as payment for a special privilege or service rendered”(See “Words and Phrases”, Table – Terror, St.Paul Minn West Publishing Co. Vol.41 1965 (Permanent edn.) (P.170).)  and later would be “charge fixed by the law for the service of a public officer”(See “Words and Phrases”, Table – Terror, St.Paul Minn West Publishing Co. at Fabric – Femur, Vol.16 (P.535), 1959 (Permanent edn.).)  

 

(C)  Epilogue

The analysis so far done brings out certain Homogeneity with Tax and Fee

 

(I)     Both are accumulated as  money

(II)   Both are accounted through statutory organs/authority of the State.

 

The contrariety betwixt both are broad and  it would be pertinent to be poignantly observed as

(I)    Absence of ‘quid pro quo’ doctrine in tax as regards fee.

(II)   No specific service nor any special benefits are conferred on a tax  Payer.  In contrast fee contemplates for return of specific services, specific benefits on its payee.

(III) Payment of tax are a mandatory obligation cast upon the citizen, whereas payment of fee is rather obligatory.

(IV)  Fee collected would compositively add up as revenue towards the  specific purpose sought to be accomplished, per contra Tax doesn’t have any earmarked slot towards its utilization.

 

The Distinctive classification of Tax would be dual in nature, namely where payment is sought directly from Assessed by the competent authority would be termed as ‘Direct tax’ (Eg. Income Tax, Wealth Tax) and where payment is sought indirectly, to be more precise  as a circumstance  where there would be shifting of shoulders, as upon the burden pitched on the payer, would amount to ‘Indirect tax’ (Eg. Sales tax). Fees are also classified two fold cogmently observed as those which  encompasses the ‘quid pro quo’ doctrine to compensate  an authority for services granted termed as ‘Compensatory’, juxtaposed is ‘Regulatory” where ‘quid pro quo’ is neither applicable rather no services are contemplated in return.

 

Though it beholds hazyness as regards the texture of Tax and Fee, in reality and in operative sense both stand detached from each other. A deeper and broader delving is the requisite of the day  to unearth the distinctiveness of both the revolving  globules, which can  amptly be  undertaken through guidance of Judicial interpretations and authoritative opinions.

 

II.  Constitutional   Provisions

The Constitution of India 1950, has specifically dealt with, Articles namely 264 to 290 enshrined in Part XII, pertaining to matters Tax/Fee which inter alia provides the authority to impose, levy and utilize the proceeds as regards their concerned subject matter enunciated and envisaged through their concerned lists₁ in Seventh Schedule, contemplated  in their respective entries.  The quantum/nature of tax/fees that may be imposed and levied may vary subjectively and duly.

 

III.   Judicial  Ratiocination

The essence and true object of a legislative enactment is an arduous task of great concern and devotion is to discern the intent of the Law makers in enacting the Rule.  As is permissible and well understood fact, Law cannot remain static and inactive to the changing circumstances but rather Dynamic and Progressive with the change of  time and circumstances.

 

The acumenic perception of the soul and life of legislation could be appropriatively under taken through the task of Interpretation. Judiciary one of the three sanctified pillars in a democratic system has been bestowed with the sagacious responsibility of interpreting the Laws/Rules enacted by the Legislature vis-à-vis Executive, to be examined on the touchstone and basic principles shed out per se by the Constitution i.e. “Organic Law” of our country.  In Jurisprudential Scenaria its an old adage that “Interpretation is to be derived from common sense(See Glanville Williams “Learning the Law”, Strevens and Sons, London (Eleventh edition) 1982 P.98.).  Laws offending  constitutional limitations can be invalidated by courts, but when they decry basic notions of justice and  disregard constitutional morality a mobilized public opinion is essential to rectify the same (See N.A.Palkhivala “We the people” Strand Book Stall Bombay, (Second impression) 1984 P.177.).

 

The wisdom of the legislature is not questionable before  any court of Law, only the competency and validity thereto can be impugned.  It would be staggering to note that there were a time when  tax laws were considered not amenable even to the price less fundamental rights(Ramjilal ITO Mohindargarh (1951) SCR 127.) guarantees in Part-III of our constitution.  This could be termed as nothing but a birds eye view on the cardinal aspects of fundamental rights in tune to laws on Taxation(See H.M.Seervai “Consitutional Law of India”, N.M.Tripathi Pvt Ltd, Bombay, (Silver Jubilee Edition,  Fourth  edition) 1991 P.479.).  But thanks to a vibrant and dynamic Judiciary, the erstwhile Nelson’s eye towards Tax and Fundamental rights was overturned subsequently.  The Honourable Apex Court has set the clock straight by holding that tax laws are subjective to fundamental rights(Purushottam Govindji Halaiv  B.M. Desai (1955) 2 SCR 887.) and this view has perpetuated such.

 

To discern as to the real criterion as regards  Tax/Fee, the  Judicial interpretation on the above could be used  effectively as the apt tool to show the light to the right direction.

 

The Apex Court in Hindu Religious Endowments, Madras v. Sri.Lakshmindra Thritha Swamiar(AIR 1954 SC 282.) wherein the issue  which sprout  up for consideration was whether the services rendered therein under S.76(1) of the Madras Hindu Religious and Charitable Endowments Act 1951, (herein after referred to as ‘Act) amounted to tax or fee.  The court went on to discuss the matter elaborately, speaking through Mukherjea J., it opined “The distinction between a tax and a fee lies primarily in the fact that a tax is levied as a part of a common burden, while a fee is a payment for a special benefit or privilege, the former is coupled with public interest whereas latter confers some special benefit on the individual”(AIR 1954 SC at P.295 & 296.).

 

The court held that payment under S.76 (1) of the Act amounted to levy of tax which was beyond ultra vires the legislative competence and struck down it as unconstitutional.

 

A Constitutional Bench   of the Supreme Court in Sri.Jaganath v.  State of Orissa(AIR 1954  SC 400.),   wherein challenge was raised against S.49 of the Orissa Hindu Religious Endowments  Act 1939, that  authorized collection to be levied  from religious denominations, vitiated the competence of legislature  with respect to Art. 27 of the Constitution of India. ‘Speaking through Mukherjea J,  while upholding the impugned section opined that a tax is undoubtedly the compulsory extraction of money by public authority for public purposes without any special benefits thereon and they merge on to the general revenue of the State.  Fees on the other hand are payments in public interest but there is special service/work done, moreover the amount thus collected constitute a specific fund and can only be utilized for the specific purpose.’(AIR 1954 SC 403.)  This view was further reiterated by the Learned Judge in a subsequent case(Ratilal Panachand Gandhi & Orsv  State of Bombay & Ors (AIR 1954 SC 388) at P.395.).

 

A six Judge Bench of the  Supreme Court(Hingir Rampur Coal Co.Ltdv   State of Orissa (AIR 1961 SC 459).) with Gajendragadker  J. (as his Lordship  then was) speaking  for majority opined that the Cess levied under Orissa Mining Areas Development Fund Act 1952  to be “ a fee rather than excise duty, as there  was a quid pro quo element between the person who pays the fee and public authority which imposed it”(AIR 1961 SC at P.467.).

 

In  the case of Corporation of Calcutta v.  Liberty  Cinema((1965) 2 SCR 477.) the respondent was charged by the Calcutta Corporation a very high licence fee assessed according to the sanctioned seating capacity of cinema house.  The same was quashed by the Hon’ble High Court.  Before the Apex Court, it was contended by appellant that it amounted to tax within purview of proper delegation of legislative powers.  The Majority speaking through Sarkar J. upheld  it as a tax.  The minority opinion by Ayyangar J., made a classic distinctive analysis pertaining in fee/tax by holding on to the necessary correlation between the fee charged and service rendered therein.  The minority opinion though  held the imposition to be a tax but struck its validity, as unconstitutional delegation of legislative powers.

 

A three Judge Bench of the Court in Nagarpalika, Varanasi v.  Durga Das(AIR 1968 SC1119.) speaking through Ramaswami J. was pleased to rule  that there must be sufficient  ‘quid pro quo’ element on the annual  licence fee collected by the Municipality from Rickshaw owners and drivers. The fee if thus collected after deduction of various other expenditures would not be suffice to satisfy the ‘quid pro quo’ as contemplated, would result in  it to be turned down as illegal and ultra vires(AIR 1968 SC at P.1125.).

 

The Apex Court in The Indian Mica and Micanite Industries Ltd v. The State of Bihar & Ors.  (AIR 1971 SC 1182.) speaking through Hegde J.opined as “For a levy to be upheld as a fee, it must be shown that the levy has reasonable  correlationship  with the services rendered by the Government.  In other words, the levy must be proved to be a ‘quid pro quo’ for the services rendered.  But in these matters it will be impossible to have an exact correlationship.  The correlationship expected is one of a general character and not of arithmetic exactitude”(AIR 1971 SC  at 1186.).

 

In Government of Madras v.  Zenith Lamp and Electrical Ltd  ((1973) 1 SCC 162.) the question which came up for consideration was whether  Court fees were  in the nature of a ‘fee’ or a ‘tax’.  Though  after perusing various lists in the Schedule VII,  it was decided that ‘court fee’ was the in the nature of fee envisaged therein, Sikri.C.J, further cemented the stand holding that “Fees levied must have relation to the administration of Justice.  They can be varied according to subject matter  of dispute, various steps to be complied therein, the up keep of courts and officers administering civil Justice.  However the legislature is incompetent to tax litigation to increase the general public revenue”((1973) 1 SCCat P.170).

 

A three Judge Bench  of Apex Court speaking through Chandrachud J. (as his Lordship then was) in   Government of A.P.  v.  Hindusthan Machine Tools Ltd. ((1975) 2 SCC 274.) opined that the house tax imposed was lawful, whereas the levy of permission fee is illegal as there was obscurity in the nature of services to be rendered for the fees collected ((1975) 2 SCC at P.282 & 283.).

 

In Municipal Council v  R.Narayan (1975 (2) SCC 497.) a four Judge bench reiterated the view in Varanasi case(1975 (2) SCC at n. 21.).

 

The decision of the Apex Court in Kewalkrishnan v. State of Punjab (AIR 1980 SC 1008.) has ornated extensively  on the aspect of Tax and Fee. The five Judge Bench speaking through N.L.Untwalia J. held as:-

(a)    The point must be ascertained with a cogent amount of certainty,  reasonableness, preponderance of  probability,  that the lumpsome part of fee thus collected is utilized for special benefits as envisaged.

(b)    As fees are levied for special purposes, further it must be coupled with ‘quidpro quo’ between the payer and the imposer.

(c)    Broadened the definition of ‘service’ so as to include within its ambit the elements (transaction,  property or institution) assimilated towards the fee imposed. (AIR 1980 SC 1020 to 1022.)

 

The court in Sreenivasa General Traders and Ors v. State of A.P  & Ors ((1984) 4 SCC 353.) has took a diagonally wider view ushering a sea change to the doctrine of ‘quid pro quo’ from its traditional view point.  The reasoning adopted was “fee collected should be utilized for substantiating the primary and essential purpose by rendering the specific services to a specified area or class”.  If the utilization is for a general purpose the levy would be termed as ‘Tax’.  Moreover it was summed up as what would amount tax/fee should be done by critical analysis of the facts of each  specific case.

 

A Seven Judge of the court in Synthetics and Chemicals Ltd v.  State of UP ((1990) 1 SCC 109.) while dealing  with the question as to whether levy on Industrial alcohol is justifiable, inter alia, held that when revenue earned out of the same is substantial it can’t be termed  as a fee.

 

In Union of India v.  Purna Municipal Council ((1992) 1 SCC 100.), the respondent’s  demand for ‘service charges’ from the Petitioner (Indian Railways) were  negatived by the court on the ground of inter play of constitutional as  well as legal provisions.  The stand was cemented by stating that there existed an interlinking connectivity between  Article 285 (which exempts property of Union from Taxation) and S.135 of Railways Act, 1890.

 

However the Court in M/s.Kishan Lal Lakhmi Chand & Ors v  State of Haryana (JT 1993 (4) SC 426.) though reiterating stand in Sreenivasa’s case elaborated the aspect by viewing both Tax/Fee as legally enforceable compulsive extraction of Money by public authorities.  A levy in nature doesn’t cease to lose the character as fee though it may be collected compulsorily or coercively, not it can be assured of lieu of specific service contemplated therein.

 

In the case of P.Kannadasa v.  State of Tamilnadu(1996 (7) JT 16.) the petitioner challenged the constitutionality of the Cess and other Taxes  on Minerals (Validation) Act, 1992, a central enactment as ultra vires the constitution.  The court speaking through B.P.Jeevan Reddy J. repelled their contentions, upholding the validity of statute,  the learned Judge opined that “element of  ‘quid pro quo’ cannot be considered as the epitome for distinction of tax/fee.  In case of Regulatory  fees the criteria of ‘quid pro quo’ is indecorous.”  (1996 (7) JT at P.37)

 

The reasoning adopted in Purna Municipal Council case was further reiterated in Union of India v.  Ranchi Municipal Corporation((1996) 7 SCC 542 at P.543.).

 

In State of  U.P. v.  Sitapur Packing Wood Supplier ((2002) 4 SCC 566.), the court while dealing with issue pertaining to transit fee opined that it was regulatory in nature and doctrine of ‘quid pro quo’ was not attracted.

 

The view in ‘Ranchi case’ was latter pursued  in Municipal Corporation. Amritsar v.  Senior Supdt. of Post Offices.( (2004) 3 SCC 92.).

 

The Court in Sona Chandioal  Committee v.  State of Maharashtra((2005) 2 SCC 345) was confronted  with the question as to whether levy of inspection fee for levy of money lender’s licence was valid or not.  The Lordships held that fee being regulatory in nature, service to be rendered is not a condition precedent, coupled with existence of reasonable relationship between levy of fees and services rendered in the context.

 

The Apex Court in Calcutta Municipal Corporation v.  Shrey Mercantile (P) Ltd, ((2005) 4 SCC 245) wherein the impugned legislation Calcutta Municipal Corporation (Taxation) Regulations 1989 which authorized collection of ‘fees’ (known as ‘mutation fees’) for changing ownership of land on an ‘ad valorem’ basis amounted to ‘tax’ or ‘fee’.  The court speaking through S.H. Kapadia J. (as his Lordship then was) held that levy was in the nature of garbing of ‘tax’ in the guise of a ‘fee’ and no substantial service was rendered in return.  The court accordingly held the provisions to be invalid and unconstitutional.

 

In Vijayalakshmi Rice Mill v.  C.T.O.((2006) 6 SCC 763)   the court adopted  herein distinctive analysis existing  between the Tax,  cess and fees.  It was observed that the traditional doctrine of ‘fees’ envisaged has undergone a sea change, giving it a wider amplitude that there is requisite of only a broader and general correlationship between totality of fee imposed and the totality of the expenses rendered therein.

 

Lastly the Court in Union of India & Ors. v.  State of Uttar Pradesh & Ors.(2007) 11 SCC 324),  the court speaking through A.K.Mathur.J took a deviant view from its earlier decisions and held that  ‘service charges’ are leviable from the Union vis-a-vis the tax exempted therein under Article 285.

 

IV . The  Golden  Eye

The quality in regard to quantity of effort undertaken in possession of things of imperative value by the Heterogeneous class, capitulated to its duration of usufructous enjoyment could be the appropriate criterion in imposition/levy of tax /fee. In an organizational set-up, the tax/fee must be imposed based on four relevant criteria.

(a)    Productivity and efficiency of the organization.

(b)    The distribution of wealth/rewards

(c)    The enrichment achieved to the society

(d)     The effective co-ordination between the persons who controls the authoritarian regimevis-à-vis on whom the authority reforms are imposed.

 

The tantamountal equipoise of power (Justice H.G.Balakrishna “New Dimensions of Law and Justice “ Snow White Publications, Delhi, First edn 1992 (p.210 & 211).), should be imperatively assured and ascertained, investments though to be encouraged, should be vigilantly monitored, and secured not to be counterproductive to interests of State encompassing its people. The perspicaciousness should be assiduously towards the principles of proportionate equality and the basis of apportionment of liability (Morris Ginsberg “on Justice in Society” Penguin Books, England, 1965 (P.95).)..

 

The succulent part of the liability to be imposed should be in response to the clearly formulated Peristroikian principles of societal and sentiments needs (W.Friedmann “Law in a Changing Society”, University Book House, New Delhi (Abridged edn) First Indian Reprint, 1970 (p.19).).

 

The imposition/liability must be enured properly in tune to the gain/loss principle with congenial regards to public welfare and excellence to overall development of the society.

 

V.  The  Final  Point

The analysis of various judicial interpretations and authorities beholds the truth that in a strict sense there exists no generic difference between Tax and Fee.  Both of them account themselves in one way or another in synonymity with that of  alternatively towards the revenue of the State.

 

The doctrine of ‘quid pro quo’ can’t be relied on as the sole criterion for distinguishing betwixt between tax and fee.  The contrariety  lies in the purpose of collection and utilization of the proceeds therein.  If the major proceeds of the ‘fee’ collected are utilized for general purposes of the Government, the later amounts to ‘tax’ which shall be permitted subjective to Judicial discretion, moreover it can’t be assured of granting special benefits/privileges individually but from a wider amplitude of analytical reasoning coupled with establishment of correlationship between totality of fees imposed and totality of services rendered.

 

To be succinct as to the semantical nuances pellucidly regarding the etymology of  Tax/fee, would always have to be discerned from Judicial analysis and logical reasonings.  Subjective to the facts and circumstances of each specific Case Law.

---

1.  (1) (a)   List-I Union to impose taxes.   Entries mentioned in 82 to 90, 92, 92 A & B

           (b)    Imposition of fees except Court Fees – Entry 96.

     (2) (a)     List II – State to impose taxes on entries mentioned 46 to 62

          (b)    Imposition of Fees except Court Fees – Entry 66

    (3) (a)   List III – Union/States to impose Fees on respective subjects except Court Fees.