# DELHI CLOTH & GENERAL MILLS CO. LTD v. CHIEF COMMISSIONER, DELHI & ORS

- **Citation:** [1970] 2 S.C.R. 348
- **Court:** Supreme Court of India
- **Decided:** 1969-09-11
- **Case number:** Civil Appeal No. 1414 of 1966
- **Bench:** J. C. Shah, V. Ramaswami, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/delhi-cloth-general-mills-co-ltd-v-chief-commissioner-delhi-ors-4813
- **Pages:** 7

## Headnote

B
The Factories Act, 1948 (63 of 1948) Delhi Factories Rules 1950
made under s. 112 of Act-Validity of R. 7 read with R. 5 and Schedule
cheret.>-Fee for annual renewal of licence to run factory-Whether fee
or tax~-Maintenance of Inspectors whether provid.es quid pro quo for fee.
The appellant company had a number of industrial establishments
in Delhi.
These establishments were factories within the meaning of s.
2(m) of the Factories Act, 1948. The factories could be run only after
re.gistration and under a licence granted under the Act and the Rules on
prj'ment of a prescribed fee.
The licence was renewable every year
under R. 7 on payment of the sam"!'. fee as for grant of the licence. The
company filed a writ petition under Arts. 226 and 227 of the Constitution
challenging the validity of the Rules under which the fee for renewal
of the licence for each of .its factories in Delhi was being levied and
collected i.e. R. 7 read witlr R. 5 and its Schedule.
The petition being
dismissed by the High Court, an appeal was filed in this Cqurt with
certificate.
The contentioit on behalf of the appellant was that there
was nC\ quid pro quo fot·i'the fee paid for renewal' of the licence and
that the maintenance ofO::.ii. team of Inspectors under the Act did not
amount to such quid pro:n_uo. Reliance was placed on the Liberty Cine111a
case.
·
HELD : In each c~se when the question arises whether the levy is
in the nature of a fee, the entire scheme of the statutory provisions, the
duties and obligations imposed on the inspecting staff Rnd the nature
of the work done by them will have to be examined for the purpose
of determining the rehdering of the services which would make the levy
of a fee. · In the Liblrily Cinema case it was found that no service of any
kind was being and could be rendered and for that reason the levy was
held to be a tax and not a fee.
The present case however fell within
the other class of cases in which contributions for the purpose of maintaining an authority and the staff for supervising ano controlling public
institutions were held to he fee and not tax. [354 B-C]
A large number of provisions of the Act, particularly in the chapters
dealing with safety, involve a ·good deal of technical knowledge and in
the course of discharge of their duties and obligations the Inspectors arc
expected to give proper a<lvice and · 2uidance so
that there may be
due compliance 'Vith the provisions of the Act.
On certain occasions
the factoory owners are bound to receive a good deal of benefit by being
saved from the consequences of the working of dangerous machines or
employment of such processes as involve danger to human life by being
warned at the proper time as to the defective nature of the machinery
or of the taking of precautions which are enjoined under the Act. Similarly if a building or a machinery or plant is in such a condition that it
is dangerous to human life or safety the Inspector by serving a timely
notice on the manager saves the factory owner from all. the consequences
of proper repairs not being done in time to the building or machinery.
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DELHI CLOTH MILLS v. CHIEF COMMR. (Grover, J.)
349
The Hig;1 Court found that 60% of the amount of licence fees which
were being realized was actually spent on services rendered to the factory
owners.
The findin~ being
one of fact
must
be
considered
final.
[355 H-356 DJ
It could therefore hardly be contended that the levy of the licence
fee was wholly unrelated to the expenditure incurred out of Lhe total
realizaiion. The appeal must accordin~ly fail. [356 D-E]
Corporotion of Calcutta & Anr. v. Lihert,v Cinema, [1965] 2 S.C.R.
477, distinguished.
·
H. H. Sudhundra Thirtht.· Swarniar v. Comniissioner for Hindu Relf.
giou.< & Charitable Endowments, My30re0 [1963) Supp. 2 S.C.R. 302,
Mahant Sri Jagannath Ramanu; Das & Anr, v. State of Orlssa & Anr.
[1954] S.C.R. 1046 and Ratila/ Panachand Gandhi v. State of Bombay &
Ors., [1954] S.C.R. 1055, applied.

## Text

348
DELHI CLOTH & GENERAL MILLS CO. LTD.
v.
CHIEF COMMISSIONER, DELHI & ORS.
September 11, 1969
[J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.]
B
The Factories Act, 1948 (63 of 1948) Delhi Factories Rules 1950
made under s. 112 of Act-Validity of R. 7 read with R. 5 and Schedule
cheret.>-Fee for annual renewal of licence to run factory-Whether fee
or tax~-Maintenance of Inspectors whether provid.es quid pro quo for fee.
The appellant company had a number of industrial establishments
in Delhi.
These establishments were factories within the meaning of s.
2(m) of the Factories Act, 1948. The factories could be run only after
re.gistration and under a licence granted under the Act and the Rules on
prj'ment of a prescribed fee.
The licence was renewable every year
under R. 7 on payment of the sam"!'. fee as for grant of the licence. The
company filed a writ petition under Arts. 226 and 227 of the Constitution
challenging the validity of the Rules under which the fee for renewal
of the licence for each of .its factories in Delhi was being levied and
collected i.e. R. 7 read witlr R. 5 and its Schedule.
The petition being
dismissed by the High Court, an appeal was filed in this Cqurt with
certificate.
The contentioit on behalf of the appellant was that there
was nC\ quid pro quo fot·i'the fee paid for renewal' of the licence and
that the maintenance ofO::.ii. team of Inspectors under the Act did not
amount to such quid pro:n_uo. Reliance was placed on the Liberty Cine111a
case.
·
HELD : In each c~se when the question arises whether the levy is
in the nature of a fee, the entire scheme of the statutory provisions, the
duties and obligations imposed on the inspecting staff Rnd the nature
of the work done by them will have to be examined for the purpose
of determining the rehdering of the services which would make the levy
of a fee. · In the Liblrily Cinema case it was found that no service of any
kind was being and could be rendered and for that reason the levy was
held to be a tax and not a fee.
The present case however fell within
the other class of cases in which contributions for the purpose of maintaining an authority and the staff for supervising ano controlling public
institutions were held to he fee and not tax. [354 B-C]
A large number of provisions of the Act, particularly in the chapters
dealing with safety, involve a ·good deal of technical knowledge and in
the course of discharge of their duties and obligations the Inspectors arc
expected to give proper a<lvice and · 2uidance so
that there may be
due compliance 'Vith the provisions of the Act.
On certain occasions
the factoory owners are bound to receive a good deal of benefit by being
saved from the consequences of the working of dangerous machines or
employment of such processes as involve danger to human life by being
warned at the proper time as to the defective nature of the machinery
or of the taking of precautions which are enjoined under the Act. Similarly if a building or a machinery or plant is in such a condition that it
is dangerous to human life or safety the Inspector by serving a timely
notice on the manager saves the factory owner from all. the consequences
of proper repairs not being done in time to the building or machinery.
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DELHI CLOTH MILLS v. CHIEF COMMR. (Grover, J.)
349
The Hig;1 Court found that 60% of the amount of licence fees which
were being realized was actually spent on services rendered to the factory
owners.
The findin~ being
one of fact
must
be
considered
final.
[355 H-356 DJ
It could therefore hardly be contended that the levy of the licence
fee was wholly unrelated to the expenditure incurred out of Lhe total
realizaiion. The appeal must accordin~ly fail. [356 D-E]
Corporotion of Calcutta & Anr. v. Lihert,v Cinema, [1965] 2 S.C.R.
477, distinguished.
·
H. H. Sudhundra Thirtht.· Swarniar v. Comniissioner for Hindu Relf.
giou.< & Charitable Endowments, My30re0 [1963) Supp. 2 S.C.R. 302,
Mahant Sri Jagannath Ramanu; Das & Anr, v. State of Orlssa & Anr.
[1954] S.C.R. 1046 and Ratila/ Panachand Gandhi v. State of Bombay &
Ors., [1954] S.C.R. 1055, applied.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1414 of
1966.
.
Appeal from the order dated February 11, 1965 of the Punjab
High Court, Circuit Bench at Delhi in Civil Writ No. 3-D of 19~3.
H. R. Gokhale, D. R. Thadani and A. N. Goyal, for the·
appellant.
Jagdish Swarup, Solicitor-General, L. M. Singhvi and R. N.
Sachthey, for the respcmdents.
The Judgment of the Court was delivered by
Grover, J. This is an appeal from a judgment of the Punjab·
High Court (Circuit Bench, Delhi) involving the question of the
validity of Rule 7 read with Rule 5 and its Schedule of the Delhi
Factories Rules 1950 made under s. 112 of the Factories Act
1948, hereinafter called the Act.
The impugned Rules relate to
the grant of a licence for a factory and renewal thereof, the fees
being prescribed by the Schedule to Rule 5.
The Delhi Cloth and General Mills Co. Ltd. operates within
the Delhi area a number of industrial establishments which are·
factories within the meaning of s. 2(m) of the Act. The company has to pay a total sum of Rs. 12,775.00 as annual licence·
fee for all its factories in Delhi, the fees being calculated according to the Horse Power and the maximum iITumber of workers to
be employed on any day during the year as given in the Schedule.
The maximum fee that is payable is Rs. 2,000 I J for a factory.
The factories can be run only after registration and under a·
licence granted under the Act aind the Rules on payment of the
prescribed fee.
The licence is renewed every year under R. 7
on payment of lhe same fee which is paid at the time of the granting of the licence.
Every licence granted or renewed remains
in force up to December 31, of the year for which it is granted or
350
SUPREME COURT REPORTS
[1970] 2 S.C.R.
renewed.
In January i963 th_e ~omRany filed a petition under
~rts. 226 ~~ 227 of the Conslitut10n m the High Court challengmg the vahd1_ty of the Rules under which the licence fee for renewa~ of the ltceince for each of its factories in Delhi; was being
Jev'.ed a~~ collected_ 1.e: R. 7 read with R. 5 and its, Schedule.
This pet1hon was d1sm1ssed by a division bench on February 11,
1965. The company then filed the present appeal by ceitificate.
The principal point which has been canvassed on behalf of the
appellant company is that the paymeint made for renewal of the
licence was and is only to endorse the licence as valid for the next
year and the amount charged for the renewal ther~of cann?t and
does not entail services which can reasonably be regarded to be
-commensurate with the amount so charged. In other words the
element of quid-pro-quo which distinguishes a fee from a tax is
absent and lacking.
The Act, it is pointed out, contaiμs specific
provisions for rendering of beinefit. and service to the workmen by
the owners of the factories.
The Inspectors who are ·appointeo
.under the Act to ensure that its provisions are complied with by
the factory owners constitute a policing agency and it is not possible to say that the power and duties of the l;."1Spectors when
exercised arid carried out amount to services rendered for the
benefit of the factory owners or the workmen.
Falshaw C.J., who delivered the judgment of the
division
bench was of the view that the work carried out by the Inspectors
·under the Act of seeing that all its beneficient provisions for the
health and welfare of the workers employed in the factories were
fully implemented must definitely be regarded as services rendered
in return for th~ foe levied for the annual renewal of •he licence
for th~ factory.
It was further observed on an examination of
the affidavit which had been placed before the court that at least
60% of the amount realised as licence fee was be~ng utilised on
running the department.
Mr. H. R. Gokhale for the appellant company has contended
that the High Court failed to apply the principles which are settled
by certain decisior.;i of this Court for d.etermining whether a fee for
a licence or a renewal thereof in circumstances similar to the
present case is in substance and effect a tax.
He has relied
largely
on
Corporation, of Calcutta & Another v.
Libert,,·
Cinema('). In that case the licence fee had been raised from
Rs. 400/. to Rs. 6,000/. per year.
It was obServed in the majority judgment that the provision under which the licence had to
be taken out for a cinema did not refer to the rendering of any
service by the Corporati0in of Calcutta. It was also not obliga·
tory on the Corporation to make any bye-law under which
(I) [1955] 2S,C.R.477.
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DELHI CLOTH MILLS v. CHIEF COMMR. (Grover, J.)
351
services were to be rendered.
If the bye-laws were not made
there would be no service to render. It was further pointed out
that inspection by the authorities concerned could not be regardd
as a service to the licence as it was meant only to make sure that
the licencee carried out the conditions on which the licence had
been granted to him.
Some of the earlier decisions were considered as also the pronouncement in H. H. Sudhundra Thirtha
Swamiar
v.
Commissioner for Hindu Religious & Charitabie
Endowments, Mysore(') and with regard to the latter case it was
said that a service resulting in the control of the Math adipathi
conferred special benefit on the institution which alone paid the
levy.
As far back as 1954 it was laid down in Mahant Sri Jaga1111oth
Ramanui Das & Anr. v. The State of Orissa & Another(') that
the contributions levied for the expenses of the Commissioner and
his staff who were to exercise effective control over the trustees of
the Maths and the toonples was to be regarded as· a fee and not a
tax.
Two reaso,ns were given for this : ( 1) The payment was
demanded only for the purpose of meeting the expenses of the
Commissioner and his staff which is the machinery set up for due
administration of the affairs of the religious institution.
(2) The
collections made were not merged in the general public revenue.
Similarly in Ratilal Panachand Gandhi v. The State of Bombay &
Others( 3 ) the contribution imposed under the Bombay
Public
Trusts Act was held to be fee and not tax.
It was stated that in
the first place these contributions were to be credited to the Public
Trusts Administration Fund which was a special fund and were
not to be merged in the general reve.nlue.
Secondly, it was not
necessary that services should be rendered only at the request of
particular people and it was enough that payments we,e demanded
for rendering services which the State comsidered beneficial in the
public interest ·and which the people had to accept wh~ther they
were willing or not.
The following observations in H. H. Sud/11mdra Thirtha Swamiar case(') may be referred to wit!. advantage :
"A levy in the nature of a foe does not cease to be
of that character merely because there is ·an element of
compulsiOjll or coerciveness present in it, nor is it a
postulate of a fee that it must have direct relation to the
actual sei:vices rendered by the authority to individual
wro obtams the benefit of service. If with a view to
provide a. speci~c s~ryice, levy is imposed by Jaw and
expenses for mamtammg the service are met out of the
amounts collected there being a reasonable relation
between the levy and the expe;nBes incurred for render-
(!) (1963] Supp, 2 S.C.R. 302.
(2) [1954] S.C.R. 1046.
(3) [1954] S.C.R. 1055.
352
SUPREME COURT REPORTS
[1970] 2 S.C.R.
ing the service, the levy would be in the nature of a .fee
and not in the nature of a tax."
According to Mr. H. R. Gokhale the present case is of the type
which would fall squarely withip the decision in Liberty Cinema
case (1).
It is difficult to agree.
In each case where the questi<m
. arises whether the levy is in the nature of a fee the entire scheme
of the statutory provisions, the duties and obligations imposed on
the inspecting staff and the nature of work done by them will have
to be examined for the purpose of detennining the reodering of
the services which would r::ake the J~vy a fee. It is quite apparent
that in the Liberty Cinema case it was found that no service of
any kind was being or could be rendered and for that reason the
levy was held to be a tax and not a fee.
Iini our judgment the
present case falls within the other class of cases to which reference
has been made in which contributions for the purpose of maintaining an authority and the staff for supervising and cootrolling
public institutions like Maths etc. were held to be fee and not
tax.
We may now look at the provisions of the Act. Chapter II
provides for the inspecting staff. Section 9 gives the powers of
the Inspectors.
They can enter any factory and inter alia make
examination of the premises, plant and machinery. Under s. 10
qualified medical practitioners can be appointed to be certifying
surgeons for the purpose of the Act. The certifying sur&eon has
to carry out such duties as may be prescribed in conneeuon with
the examination and certification of young persons under the Act,
the examination of persons engaged in· factories in dangerous
occupation or process as also the exercising of medical supervision.
Chapter III deals with health.
Section 11
contains detailed
provisions about cleanliness.
SectiOJllS 12 to 14 relate to disposal
of was!e and effluents, ventilation and temperature, and dust and
fume. Sections 17 to 20 concern lighting, drinking water, latrines
and urinals, and spittoons.
Chapter IV contains ihe provisions
relating to safety.
Section 21 deals with fenci,n:g of machinery
Section 22 with work on or near machinery in motion and section
23 with employment of young persons on dangerous machi,nes.
The other sections which may be noticed in this Chapter are s. 27
containing the prohibition of employment ,of women and children
near cotton-openers; s .. 35 in the matter of protection of eyes,
s. 36 dealing with precautions against dangerous fumes, s. 37
relating to explosive or inflammable dust, gas etc., and s. 38
relating to precautions in case · of fire.
Under s.
39 if
it appears to the Inspector that any building or part Di a building
or any part of the· ways, machinery or plant ~ti a factory is in
such a condition that it may be dangerous to human life and safety
he may serve on the manager of the factory an order in writing
11) [1965] 2 S,C.R. 477.
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DELHI CLOTH MILLS v. CHIEF COMMR. (Grover, J.)
353
requiring him to furnish the particulars for determin\ng whether
the building, machin.~ry, plant etc., can be used w.ith safety or to
carry. out such tests as may be specified and convey the result thereuf to the Inspector. Under s. 40 if it appears to the Inspector that
any building or part o~ a building is in such a cqndition that it is
dangerous to human life or safety he can serve an order on the
manager of the factory specifying the measures which should be
adopted and requiring him to carry out the same before a specified
date.
Similarly if it appears to him that the use of any building
or machinery or plaint involves imminent danger to human life or
safety he can serve an order prohibiting its use until it has been
properly repaired or altered.
Chapter V deals with welfare and
provisions are made therein .for such amenities as washing facilities
for storing and drying clothing, for sitting, first aid applia;nces,
canteens and creches and every factory is required \lnder s. 49
wherein 500 or more workers are ordinarily employed to have
such number of welfare officers as may be prescribed.
The Rules
also contain various provisions where the ~nspector has to be
consulted and his approval obtained for doing certain things. For
instance R. 65 ( 3) says that the manager of a factory shall submit
for the approval o( the Chief Inspector plans o.f the building to be
constructed or adapted for use as a ca;nteen. It is unnecessary to
refer to several other provisions contained in the Act and the Rules
which show that the Chief Inspector and his staff play a very
important role in the working of the factory.
In the return which was filed in the High Court to the writ
petition it was stated in paragraph 8 that the fees were
be~ng
charged for the running of the whole establishment including the
Factory Inspectorate which in its turn "provides free inspection
and expert technical advice etc., to factory owners in matters
connect~d with safety, health welfare and the allied matters in respect of compliance with the provisions of the Factories Act". It
has further been stated that in our country matters relating to
health, safety, · 1elfare and employment have to be looked after
and the desired results have been sought to be achieved by the
legislature by providing statutory inspection service.
G
According to Mr. Gokhale the Inspectors only carry out the
duties laid on them under the Act and an that they have to do is to
ensure that the statutory provisions and the rules are carried out
properly and launch prosecutions aga~nst factory owners under
the provisions of Chapter X o.f the Act in case of any breach or
default on the part of the factory owners.
We do not consider
that the functions and duties oi the Inspectorate are confined only
H.
to the limited ta.sk which has been suggested on behalf of the
11ppellant company.
A large number of provisions to which reference has been made, particularly in the Chapter dealing, with
354
SUPREME COURT REPORTS
·[1970] 2 S.C.R.
safety, i;nvolve a good deal of technical knowledge and in the
course of discharge of their duties and obligations the Inspectors
are expected to give proper advice and guidance so that there .may
be due compliance, with the provisions of the Act. It can well be
said that on certain occasions factory owners are bound to receive
a good deal of benefit by being saved from the consequeinces of ihe
working of dangerous machines or employment of such processes
as involve danger to human life by being warned at the proper
time as to the dclective nature of the machinery or of the taking of
prec~utions which are t;njoined under the Act.
Similarly if a
building or a machinery or a plant is in such a condition that it is
dangerous to human life or safety the Inspector by serving a
iimely notice on the manager saves the factory owner from all the
conseqμences of proper repairs not being done in time to the
building or the machinery.
Indeed it seems to us that the nature
of the work of the Inspector is such that he is to render as much,
if not more, service than a Commissioner would, in the matter of
supervision, regulation and control over the way in which the
nrn;nagement of the trustees of religious and charitable endowment was conducted.
The High Court further found, which finding being of fact, must be considered as final that 60% of the
amount of licence fees which were being realized was actually
spent on services rendered to the factory owners.
It can, therefore, hardly be cqntended that the levy of the licence fee was wholly
unrelated to the expenditure incurred out pf .the total realisation.
Before the High Court the appellant company never made out any
case that the collections on account of the iicence fee werfl merged
in the general public revenue and were in:ot appropriated in the
manner laid down for the appropriation of expenses for the
department concerned.
There can be no manner of doubt that the amou.nt which the
appellant company has to pay as licence fee is not in the nature
o.f a tax but is a fee which could be properly levied.
The appeal fails and it is dismissed with costs.
G.C.
Appeal dismissed.
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