# KRISHI UPAJ MANDI SAMITI AND ORS v. ORIENT PAPER AND INDUSTRIES LTD

- **Citation:** [1994] Supp. 5 S.C.R. 392
- **Court:** Supreme Court of India
- **Decided:** 1994-11-09
- **Case number:** Civil Appeal No. 1810 of 1991
- **Bench:** P.B. Sa Want, S.C. Agrawal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/krishi-upaj-mandi-samiti-and-ors-v-orient-paper-and-industries-ltd-12708
- **Pages:** 30

## Headnote

MP. Krishi Upaj Mandi Adhiniyam, 1973.
Section 19-Levy of market fee on sale and purchase of bamboosExistence of nexus between fees levied and services rendered-No direct
benefit to buyers-No bar to levy-Transaction between traders-Liability
on the buyer not seller-Distinction between tax and fee-Explained
The respondent-Mills purchased bamboos as raw material under a
contract with the State Government. The bamboos were supplied to the
respondent-Mills by the Forest Department of the State Government at
various forest depots established for the purpose. After taking delivery from
the forest depots, the respondent transported the same to its factory. The
forest depots from which the respondent purchased the bamboos and its
factory fell withm the market area of the appellant-Committees.
The appellants levied market fees on the sale and purchase of
bamboos under Section 19 of the M.P. Krishi Upaj Mandi Adhiniyam,
1973. The respondent challenged the said levy by way of a writ petition
before the·High Court which upheld its contention that the levy was not
justified because there is no direct or indirect benefit conferred by the
appellants either on the purchasers or traders of bamboos as a class.
The High Court further held that, while selling the bamboos, the
forest department would be a trader and hence the sale of bamboos
would be a sale by a trader to a trader. In such a case the market fee
shall be collected and paid by the seller, i.e.; the Forest Department and
not by the respondent. Aggrieved by the High Court's judgment, the
appellants preferred the present appeal.
Allowing the appeal, this Court
HELD : 1.1. Though levying of fee is only a particular form of the
exercise of the taxing power of the State, the Constitution has placed
H
fee under a separate category for purposes of legislation. (399-G)
392
-
KRISHI UPAJ MANDI SAMITI v. ORIENT PAPER
393
1.2. Tax is a compulsory exaction of money by public authority for A
public purposes enforceable by law and is not payment for services
rendered. Fee is a charge for a special service rendered to individuals
or a class by some governmental agency. The element of compulsion or
coerciveness 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. The B
distinction between a tax and 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. (400-A, C, E, F)
1.3. There is really no generic difference between tax and fee and
the taxing power of the State may manifest itself in three different C
forms, viz.; special assessments, fees and taxes. In determining whether
the levy is a fee, the true test must be whether the primary and essential
purpose is to render specific services to a specific area or classes. I~ 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 D
service, further, cannot be remote. Absence of uniformity is not a
criterion on which alone it can be said that the levy is of the nature of a
tax. Also it is not necessary that the amount of fees collected by the
Government should be kept separately. (401-D, 402-E, 403-A)
Commissioner,
Hindu
Religious Endowments,
Madras
v.
Sri E
Lakshmindra Thirtha Swamiar of Shirur Mutt, [1954) SCR 1005, Sri
Jagannath Ramuni Das and Anr. v. The State of Orissa and Anr., [1954)
SCR 1046, Ratilal Panchanand Gandhi v. The State of Bombay and Ors.,
[1954) SCR 1055, The Corporation of Calcutta and Anr. v. Liberty Cinema
[1965) 2 SCR 477, Keva/ Krishna Puri and Anr. v. State of Punjab and
Ors., [1979) 3 SCR 1217; Southern Pharmaceuticals and Chemicals, F
Trichur and Ors. v. State of Kera/a and Ors., (1982] 1 SCR 519 and Om
Prakash Agarwal v. Giri Raj Kishori and Ors., (1986] 1 SCR 149, relied
on.
Mathews v. Chicory Marketing B

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KRISHI UPAJ MANDI SAMIT! AND ORS.
v.
ORIENT PAPER AND INDUSTRIES LTD.
NOVEMBER 9, 1994
[P.B. SA WANT AND S.C. AGRAWAL, JJ.]
MP. Krishi Upaj Mandi Adhiniyam, 1973.
Section 19-Levy of market fee on sale and purchase of bamboosExistence of nexus between fees levied and services rendered-No direct
benefit to buyers-No bar to levy-Transaction between traders-Liability
on the buyer not seller-Distinction between tax and fee-Explained
The respondent-Mills purchased bamboos as raw material under a
contract with the State Government. The bamboos were supplied to the
respondent-Mills by the Forest Department of the State Government at
various forest depots established for the purpose. After taking delivery from
the forest depots, the respondent transported the same to its factory. The
forest depots from which the respondent purchased the bamboos and its
factory fell withm the market area of the appellant-Committees.
The appellants levied market fees on the sale and purchase of
bamboos under Section 19 of the M.P. Krishi Upaj Mandi Adhiniyam,
1973. The respondent challenged the said levy by way of a writ petition
before the·High Court which upheld its contention that the levy was not
justified because there is no direct or indirect benefit conferred by the
appellants either on the purchasers or traders of bamboos as a class.
The High Court further held that, while selling the bamboos, the
forest department would be a trader and hence the sale of bamboos
would be a sale by a trader to a trader. In such a case the market fee
shall be collected and paid by the seller, i.e.; the Forest Department and
not by the respondent. Aggrieved by the High Court's judgment, the
appellants preferred the present appeal.
Allowing the appeal, this Court
HELD : 1.1. Though levying of fee is only a particular form of the
exercise of the taxing power of the State, the Constitution has placed
H
fee under a separate category for purposes of legislation. (399-G)
392
-
KRISHI UPAJ MANDI SAMITI v. ORIENT PAPER
393
1.2. Tax is a compulsory exaction of money by public authority for A
public purposes enforceable by law and is not payment for services
rendered. Fee is a charge for a special service rendered to individuals
or a class by some governmental agency. The element of compulsion or
coerciveness 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. The B
distinction between a tax and 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. (400-A, C, E, F)
1.3. There is really no generic difference between tax and fee and
the taxing power of the State may manifest itself in three different C
forms, viz.; special assessments, fees and taxes. In determining whether
the levy is a fee, the true test must be whether the primary and essential
purpose is to render specific services to a specific area or classes. I~ 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 D
service, further, cannot be remote. Absence of uniformity is not a
criterion on which alone it can be said that the levy is of the nature of a
tax. Also it is not necessary that the amount of fees collected by the
Government should be kept separately. (401-D, 402-E, 403-A)
Commissioner,
Hindu
Religious Endowments,
Madras
v.
Sri E
Lakshmindra Thirtha Swamiar of Shirur Mutt, [1954) SCR 1005, Sri
Jagannath Ramuni Das and Anr. v. The State of Orissa and Anr., [1954)
SCR 1046, Ratilal Panchanand Gandhi v. The State of Bombay and Ors.,
[1954) SCR 1055, The Corporation of Calcutta and Anr. v. Liberty Cinema
[1965) 2 SCR 477, Keva/ Krishna Puri and Anr. v. State of Punjab and
Ors., [1979) 3 SCR 1217; Southern Pharmaceuticals and Chemicals, F
Trichur and Ors. v. State of Kera/a and Ors., (1982] 1 SCR 519 and Om
Prakash Agarwal v. Giri Raj Kishori and Ors., (1986] 1 SCR 149, relied
on.
Mathews v. Chicory Marketing Board, (60) CLR 263, referred to.
G
2. In the instant case, the services that are rendered by the market
committees, among others, are covered auction platform and open
auction platform, godowns, shops-cum-godowns, office building,
provision of all categories of staff and their training, office equipment,
security guards, water coolers, rest house for agriculturists, and
canteen building and so o~. The Income and Expenditure Account of H
394
SUPREME COURT REPORTS
[1994) SUPP. S S.C.R.
A
the appellant for the five years, viz.; 1985-86 to 1989-90 would show
that there is a reasonable nexus between .the market fees levied and the
expe11ses incurred on the services rendered to the buyers and sellers of
the agricultund pr9duce. The fact that the respondent-mills may not be
the direct beneficiary of any one or some of the facilities, or does not
make use of them, does not absolve it from payment of the market fees.
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The said machinery and the facilities are meant for the benefit of all the
buyers and sellers of all the agricultural produce within the market
area. (415-B-C-D, H, 418-F)
3. The market fee has to be paid by the respondent-Mills if not to
the market committee directly, at least to the Forest Department ~nder
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Section 19 (2) of the Act. It is immaterial for this purpose whether the
bamboos were purchased by the respondent-Mills for selling them or
for using them as their raw material in the manufacture of paper. The
liability of the respondent-Mills to pay the market fees is in no way
negated on that account. The provision requiring the seller to collect
the market fees in such cases is made for the convenience of collection
D · of the fees. The provision is enabling and does not prevent the
Committee itselffrom collecting the fee, if it so proposes. (421-C-E)
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1810 of
1991.
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From the Judgment and Order dated 7.9.90 of the Madhya Pradesh
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High Court in M.P. No. 315of1989.
A.K. Sanghi for the Appellant.
R.F. Nariman and Ms. Suman Khaitan for the Respondent.
The Judgment of the Court was d~livered by
SAWANT, J. The respondent-Orient Paper Mills [for short 'Mifls']
purchases bamboos as raw material under a contract with the State
Government which holds monopoly in regard to bamboos as a forest
produce in view of the provisions of the M.P. Van Upaj [Vyapar
Viniyaman] Adhiniyam, 1969 [No. 9 of 1969]. The baml:ioos are supplied
to the respondent-Mills by the Forest Department of the State Government
at various forest depots established for the purpose. After taking delivery
from the forest depots, the Mills transports the same to its factory situated
in Amlai in the district of Shahdol [M.P.]. It is not disputed the forest
depots from which the Mills purchases the bamboos fall within the market
KRISHI UPAJ MANDI SAMITlv. ORIENT PAPER [SA WANT, J.]
395
area of the appellant-Krishi Upaj Mandi Samitis [for short 'Committees'] A
and the factory of the Mills also falls within the market area of Krishi Upaj
Mandi Samiti, Budhar [M.P.].
2. Under Section 3 of the M.P. Krishi Upaj Mandi Adhiniyam, 1973
[for short 'the Act'], the State Government is empowered to declare by a
notification its intention to establish a market for regulating the purchase B
and sale of such agricultural produce and in such area as may be specified
in the notification, and invite objections for the same. Under Section 4
thereof, after the expiry of the period specified in the notification and after
considering the objections and suggestions as may be necessary, the State
Government is authorised to establish by another notification a market, for
the areas specified in the notification issued under Section 3 or in any C
portion thereof. Under Section 5, in every market area, there has to be a
market yard and there may be more than one sub-market yard. For every
market yard or sub-market yard, there has to be a market proper. On the
establishment of market under Section 4, Section 6 prohibits local
authorities from setting up or establishing or continuing or using or D
allowing to be set up, established,. continued or used, any place in the
market area for the marketing of any notified agricultural produce.
Likewise, no person is pennitted to use any place in the market area for the
marketing of the notified agricultural produce or operate in the market area
any market function otherwise than in accordance with the provisions of the
Act. The exception to this prohibition is in favour of [a] a person who E
himself is a seller of the product concerned, and whose sale does not exceed
four quintals at a time to a person who putchases it for his own domestic
consumption, [b] produce which is brought by head loads, [ c] produce
which is purchased or sold by petty traders, [d] produce which is imported
from outside India, [e] ·produce which is purchased by various fair price
shop dealers from the F6od Corporation of India, the Madhya Pradesh State F
Commodities Trading Corporation or any other agency or institution
authorised by the State Government for distribution of essential
commodities through the public distribution system, and [t] the transfer of
the agricultural produce to a co-operative society for the purpose of
securing an advance therefrom.
The Samitis. or Market Committees are established under Section 7 of
.. the Act. Under Section 19 [ 1] of the Act, the Committees have been given
power to levy market fees on notified agricultural produce brought for sale
or sold in the market area under their jurisdiction at such rate as may be
fixed by the State Government from time to time subject to the minimum
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rate of fifty paise and a maximum rate of two rupees for every one hundred H
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396
SUPREME COURT REPORTS
[1994) SUPP. S S.C.R.
rupees of the price in the manner prescribed. Under Section 19 [2], the
market fees are payable by the buyer of such produce ·and is not to be
deducted from the price payable to the seller. It is only if the buyer of the
produce cannot be identified that all fees are payable by the seller or by the
person who brought the produce for sale in the market area. Provided
further that in case of a commercial transaction between the traders in the
market area, the market fees are to be collected and paid by the seller.·
Section 19(6] provides that no notified agricultural produce nor any product
processed therefrom shall be removed out of the market proper except in
accordance with a permit issued by the market committee. Sub-section [7]
thereof provides that the market committee may levy and collect entrance
fee on vehicles plying on hire, which may enter into market area at such
rate as may be specified in the bye-laws.
_ Section 31 prohibits any person from operating in the market area in
respect of the notified agricultural produce as commission agent, trader,
broker, weigh-man, hammal, surveyor, warehouseman, owner or occupier
of processing or pressing factories or as other market functionary except in
accordance with the provisions of the Act and the rules and the bye-laws
made thereunder. Section 32 requires every person specified in Section 31
who desires to operate in the market area to apply to the market committee
for the grant of a licence. The application has to be accompanied by such
fees as the Director of Marketing appointed by the State Government may
subject to the minimum, prescribe in this behalf. Under Section 33, the
market committee is given power to cancel or suspend the licence for
reasons and under the procedure laid done therein. Section 38· provides for
the constitution of a Market Committee Fund in which all the moneys
received by the market committee are paid and from which all expenditure
incurred by the committee is defrayed. Section 39 lays down the purposes
for which the market committee fund is to be expended. They are:
"39. Application of market committee fund- Subject to the
provisions of section 38, the market committee fund may be
. expended for the following purposes only namely -
(i] the acquisition of a site or sites for the market yards;
[ii] the maintenance and improvement of the. market yards;
(iii] the construction and repairs of buildings, necessary for
the purposes of the market and for convenience or safety of
the persons using the market yard;
.....
KRISHI UPAJ MANDI SAMITI v. ORIENT PAPER [SA WANT, J.]
397
[iv] the maintenance of standard weights and measures;
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[v] the meeting of establishment charges including
payments and contribution towards provident fund, pension
and gratuity of the officers and servants employed by a
market committee;
[vi] the payment of interest on the loans that may be raised
for the purpose of the market and provisions of sinking fund
in respect of such loans;
B
[vii] the collection and dissemination of information
relating to crops statistics and marketing of agricultural C
produce;
[viii] (a) the expenses incurred in auditing the accounts of
the market committee;
{b) payment of honorarium to Chairman, . travelling D
allowance of Chairman, Vice-Chairman and other members
of the market committee and sitting fees payable to member
for attending the meeting;
( c) contribution to State Marketing Development Fund;
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( d) meeting any expenditure for carrying out order of the
State Government and any other work entrusted to market
committee under any other Act;
( e) contribution to any scheme for increasing agriculturists
in the market area;
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(f) to develop necessary infrastructure within a radius of one
kilometer from the market yard/sub-market yard for
facilitating the flow of notified agricultural produce with the
prior sanction of the Director and with the prior permission
of the local authority concerned for using their land for this G
purpose;
(g) to provide for development of agricultural produce in
the market area;
(h) payment of expenses on elections under this Act.
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398
SUPREME COURT REPORTS
(1994] SUPP. 5 S.C.R.
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[ix] any other purpose whereon the expenditure to the
market committee fund is in· the public interest, subject to
the prior sanction of the State Government."
Section 43 provides for the constitution of a Market Development Fund
and every market committee is required to pay every three months, to the
B
Marketing Board constituted under the Act such percentage not exceeding
50 percent of its gross receipts comprising of lice:ising fees and market fees
as the State Government may by notification declare from time to time. All
expenditure incurred by the Board according to the object sanctioned by it
has to be defrayed out of the said Fund.
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3. It appears that the Committees levied fees on the sale and purchase
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of bamboos. The Mills challenged the said levy by way of a writ petition in
the M.P. High Court on the ground that the Act was ultra vires the
Constitution, that the requirement of obtaining the licence under Section 32
and of paying the market fee under Section 19 of the Act was also
unconstitutional.
The High Court relied upon a decision of the same Court in Misc.
Petition No. 4063 of 1986 decided on 12th January, 1988 and allowed the:
writ petition. The High Court by the said decision of 12th January, 1988
had repelled the challenges to the constitutional validity of the Act and its
provisions, but had upheld the contention of the petitioners that the levy
was not justified on the ground that it was not established that any direct or
indirect benefit was conferred either on the purchasers or traders of
bamboos as a class by the market committee. For the purpose, the High
Court relied upon a decision in Om Parkash Agarwal Etc. Etc. v. Giri
Kishori and others Etc. Etc. AIR (1986) SC 726. The High Court further
held that in view of the return filed on behalf of the State Government,
while selling the bamboo$, the Forest Department would be a trader within
the meaning of the Act and hence the sale of bamboos by the State
Government to the petitioners would be a sale of a notified agricultural
produce by a trader to a trader and in such a case the second proviso to subsection [2] of Section 19 of the Act will be attracted. That proviso
contemplates that in case of a commercial transaction between traders in the
market area, the market fee sqall be collected and paid by the seller.
Consequently, according to the High Court, even if it was accepted for the
sake of argument, that market fee on sale of bamboos by the State
Government to the petitioner was leviable, it wa:; not to be paid through the
market committees by the petitioners who are the buyers; but it has to be
collected and p~id by the Forest Department of the State Government.
KRISHI UPAJ MANDI SAMIT! v. ORIENT PAPER (SA WANT, J.]
399
Hence, the market committees cannot require the petitioners to pay the A
market fee directly to them. While allowing the present writ petition on this
ground, the Court also observed as follows:
"At this place, however, we wish to make it clear if in future
any serVice is rendered by any market committee with
regard to transactions of sale and purchase in the various B
forest depots it would be open to the concerned market
committee to lay a claim to levy market fee in the changed
circumstances. It is further made clear that since that
contingency is not stated to have so far arisen in these cases,
we are not expressing any opinion with regard to any claim
about market fee that may be made by the concerned C
market committee, if any of the paper mjlls actually sells
some stock of bamboos as contemplated by the M.P. Van
Upaj (Vyapar Viniyaman] Sanshodhan Adhiniyam, 1986
[No. 15of1987]".
We are not concerned in this appeal with the vires of the Act or of the D
levies of the ·market fees or of the requirement of a licence and of the
payment of the licence fees since those contentions are not raised before us
on behalf of the Mills and they have been expressly given up. There is also
no cross appeal on the said point. The limited controversy before us is
whether the finding of the High Court that the levy of the market fees is not E
justified because there is no direct or indirect benefit conferred by the
market committee either on the purchasers or traders of bamboos as a class,
is valid or not.
4. We may now refer to the authorities cited at the bar.
The earliest decision of this Court on the definition of 'fee' and 'tax' F
and the distinction between the two is of the Constitution Bench of seven
learned Judges in. commissioner, Hindu Religious Endowments, Madras v.
Sri Lakshmindra Thirtha Swamiar of Sri Shriur Mutt; (1954) SCR 1005. It
was observed then that though levying of fee is only a particular form of the
exercise of the taxing power of the State, our Constitution has placed fee G
under a separate category for purposes of legislation, and 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. Referring then to the definition of 'tax',
the Court referred to the decision of the Australian High Court in Mathews
v. Chicory Marketing Board, 60 CLR 263. There 'tax' is defined as a H
400
SUPREME COURT REPORTS
[1994] SUPP. 5 S.C.R.,
A
compulsory exaction of money by public authority for public purposes
enforceable by law and is not payment for services rendered. The Court
then observed that the essence of taxation is compulsion, that is to say, it is
imposed under statutory power without the tax-payer's consent and the
payment is enforced by law. The second characteristic of tax according to
the Court is that it is an imposition made for public purpose without
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reference to any special benefit to be conferred on the payer of the tax. The
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levy of tax is for the purposes of general revenue which when collected
forms part of the public revenue of the State. 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 tax-payer depends
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generally upon his capacity to pay. Referring to the definition of 'fee', the
Court observed that a fee is generally defined to be a charge for a special
service rendered to individuals 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
D
of the varying abilities of different recipients to pay. These are some .of the
general characteristics of fee but as there may be various kinds of fees, it is
not possible to formulate a definition that would be applicable to all cases.
..
The Court then referred to the contention with regard to the distinction
between a tax and fee in the compulsory nature of the former and the
voluntary nature of the latter and observed that a careful examination will
E
reveal that the element of compulsion or coerciveness is present· in all kinds
of impositions though in different degrees and that 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 a man in spite of his unwillingness or want of
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. consent and this element is present in taxes as well as in fees. In some cases
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whether a man would come within the category of a service receiver may
be a matter of his choice, but that by itself could not constitute a major test
which can be taken as the criterion of these species of imposition. The
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distinction betwe~n a tax 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
..
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advantage is secondary to the primary motive of regulation in the public
interest Public interest seems to be at the basis of all impositions but in a fee
it is some special benefit which the individual receives. The special benefit
accruing to the individual is the reason for payment in the case of fees. In
I_
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
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rendered and hence it is primarily necessary that the levy of fee .should on
KRISHI UPAJ MANDI SAMITI v. ORIENT PAPER [SA WANT, J.]
401
the face of the legislative provision be co-related to the expenses incurred A
by Government in rendering the services. As indicated in Article 110 [2] of
the Constitution, ordinarily there are two classes of cases where
Government imposes fees upon persons. In the first class of cases,
Government simply grants a permission or privilege to a person to do
something which otherwise that person would not be competent to do, and
extracts fees either heavy or moderate from that person in return for the B
privilege that is conferred. A most common illustration of this type of cases
is furnished by the licence fees for motor vehicles. Here the costs incurred
by the Government in maintaining an office or bureau for the granting of
licences may be very small and the amount of imposition that is levied is
based really not upon the costs incurred by the Government but upon the
benefit that the individual .receives. In such cases, the tax element is C
predominant and if the money paid by licence-holders goes for the upkeep
of roads and other matters of general public utility, the licence 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. If the money thus paid is set D
apart and appropriated specifically for the performance of such work and is
not merged in the public revenues for the benefit of the general public, it
could be counted as fees and not a tax. There is really no generic difference
between tax and fee, and the taxing power of a State may manifest itself in
three different forms known respectively as special assessments, fees and
taxes. Our Constitution has for legislative purposes made a distinction E
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.
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In Mahant Sri Jagannath Ramanuj Das and Anr. v. The State of Orissa
and Anr., [1954] SCR 1046 .• the Constitution Bench of five learned Judges
upheld the annual contribution provided in Section 49 of the Orissa Hindu
Endowments Act, 1939 as fee on the same reasoning as in the earlier
decision of seven learned Judges.
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In Ratikll--Panachand Gandhi v. The State of Bombay and Others,
[i954] SCR 1055, the validity of the contribution imposed under Section 58
of the Bombay Public Trust Act, 1950 fell for consideration. The Court
held that as the contribution was levied purely for the purposes of due
administration of the trust property and to defray the expenses incurred in H
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SUPREME COURT REPORTS
[1994] SUPP. 5 S.C.R.
connection with the same, no objection could be taken to the provisions of
the Section on the ground of its infringing the fundamental rights of the
appellants. The Court referred to its earlier decision in Shirur Mutt case
[supra] and the observations made and principles laid down there and
reiterated the same.
In The Hingir-Rampur Coal Co. Ltd and Ors. v. The State of Orissa
and Ors., (1961] SCR 537, the Constitution Bench of five learned Judges,
reiterated that although there can be no generic difference between a tax
and fee since both are compulsory exaction of money by public authorities,
there is this distinction between them that whereas the tax. is imposed for
public purposes and requires no consideration to support it, a fee is levied
essentially for services rendered and there must be an element of quid pro
quo between the person who pays it and the public authority that imposes it.
While a tax invariably goes into the consolidated fund, a fee is earmarked
for the specified services in a fund created for the purpose. Whether a case
is one or the other would naturally depend on the facts of each case. If in
the guise of a 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. The
distinction is recognised by the Constitution which while empowering the
appropriate Legislatures to levy taxes under the Entries in the three Lists
refers to their power to levy fee in respect of any such matters, except the
fees taken in Court. In determining whether the levy is a fee, the true test
must be whether its primary and essential purpo&e is to render specific
services to a specified area or class, it being of no consequence that the
State may ultimately and indirectly be benefited by it. The amount of the
levy must depend on 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 duty of excise. Nor can the method prescribed by the
legislature for recovering the levy by itself alter its character. The method is
a matter of convenience and though relevant, has to be tested in the light of
other relevant circumstances.
In H.H. Sadhundra Thirtha Swamiar v. The Commissioner for. Hindu
Religious and Charitable Endowments, Mysore, (1963] Supp. 2 SCR 302,
the Constitution Bench of five learned Judges on the same reasoning as in
the earlier decision of seven learned Judges in Shirur Mutt Case [supra],
upheld the contributions levied under the amended Section 76 [I] of the
Madras Religious Endowments Act, 1951 as fee since the said contributions
went into .a-separate fund and not the consolidated fund of the State and
were. earmarked for defraying the expenses for rendering services. The
contributions. were not even payable to the Government but to the
KRISHI UPAJ MANDI SAMITI v. ORIENT PAPER [SAWANT,J.]
403
Commissioner and hence th~y were not levied as a tax but only as a fee. It A
was observed further that a fee does not cease to be of that character merely
because, there is an element of compulsion in it nor is it a postulate of a fee
that it must have relation to the actual service rendered. Absence of
uniformity is not a criterion on which alone it can be said that the levy is of
the nature of a tax. The legislature has power to enact appropriate
· retrospective legislation declaring levies as fees by denuding them of the B
characteristics of tax.
In Corporation of Calcutta and Another v. Liberty Cinema (1965) 2
SCR 4 77, the facts were that under Section 413 of the Calcutta Municipal
Act, 1951, no person was permitted to keep open any cinema house for
public amusement without a licence granted by the Municipal Corporation. C
Under Section 548 [2), for every licence under the Act, a fee could be
charged at such rates as may from time to time be fixed by the Corporation.
In 1948, the appellant-Corporation fixed fees on the basis of annual
valuation of the cinema house and it was paid by the respondent. In 195~,
the appellant changed the basis of assessment of the fee and levied it at ·
rates prescribed per show according to the sanctioned seating capacity of D
the cinema house. The respondent-cinema, therefore, moved the High Court
by a writ petition and the petition was allowed. In appeal to this Court, the
appellant-Corporation contended that [i) the levy was a tax and not a fee in
return for services, and [ii) Section 548 [2) did not suffer from the vice of
excessive delegation. On behalf of the respondent, it was contended that [i) E
the levy was a fee in return for the services to be rendered and not a tax,
and since it was not commensurate with the costs incurred by' the
Corporation in providing the services, the levy was invalid; [ii) If Section
548 authorised a levy of tax as distinct from fee, it was invalid as it
amounted to illegal delegation of legislative function to the appellant to fix
the amount of tax without any guidance for the purpose, and [iii) the levy
was invalid as violating Articles 19 [l) (f) and (g) of the Constitution. By F
majority, it was held that the levy was not a fee but a tax. While dealing
with the difference between tax and a fee in this context, the Court referred
to the earlier decisions of this Court viz., Commissioner, Hindu Religious
Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shriur
Mutt, [1954) SCR 1005, The Hingir-Rampur Coal Co. Ltd and Ors. v. The G
State of Orissa and Ors., [1961) 2 SCR 537 and H.H. Sadhundra Thirtha
Swamiar v. The Commissioner for Hindu Religious and Charitable
Endowments, Mysore, (1963) Supp. 2 SCR 302 and observed that the
decisions of this Court established that in order to made a levy a fee for
services rendered, the levy must confer special benefit on the persons on
whom it is imposed.
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SUPREME COURT REPORTS
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In Keva/ Krishna Puri and Anr. v. State of Punjab and Ors., [1979] 3
SCR 1217, where the levy of market fees by the market committees, as in
the present case, though under a different Act, viz., the Punjab Agricultural
Produce Markets Act, 1961 specifically fell for consideration before the
Constitution Bench of five learned Judges, it was held that the impost of fee
and the liability to pay it is on a particular individual or a cla'is of
individuals. They are under the obligation to submit accounts, returns or the
like to authorities concerned in cases where quantification of the amount of
fee depends upon the same. They have to undergo the botheration and
harassment sometimes justifiably and sometimes unjustifiably, in the
process of discharging their liability to pay the fee. The authorities levying
the fee deal with them and realise the fee from them. By operation of the
economic laws in certain kinds of imposition of fee, the burden may be
passed on to different other persons one after the other. In that case,, the
market committees and the market boards assume to themselves the liberty
of utilising and spending the realisations from market fees to a considerable
extent as if it was a tax although in reality it was not so. It was further held
that rendering some service, however, remote the service may be, cannot,
strictly speaking, satisfy the element of quid pro quo, required to be
established in cases of the impost of fee. Registration fee, however, had to
be taken to stand on a different footing altogether. In the case of such a fee,
' the test of quid pro quo is not to be satisfied ~· ·ith such close or proximate
relationship as in the case of many other fees. By and large, the registration
fee is ~barged as a regulatory measure. The Court then culled the following
principles from the conspectus of various authorities on the subject :
'
[i] That the amount of fee realised must be ear-marked for
rendering services to the licensees in the notified market
area and a good and substantial portion of it must be shown
to be expended for this purpose.
[ii] That while rendering services in the market area for the
purpose of facilitating the transactions of purchase and sale
with a view to achieve the objects of the marketing
legislation it is not necessary to confer the whole of the
benefit on the licensees but some special benefits must be
conferred on them which have direct, close, and reasonable
correlation between the licensees and the transactions.
[iv] That while conferring ·some special benefits on the
licensees it is permissible to render such service in the
KRISHI UPAJ MANDI SAMITI v. ORIENT PAPER [SA WANT, J.]
405
market which may be in the general interest of all A
concerned with the transaction taking place in the market.
[v] That spending the amount of market fees for the purpose
of augmenting the agricultural produce, its facility of
transport in villages and to provide other facilities meant
mainly or exclusively for the benefit of agriculturists is not B
permissible on the ground that such services in the long run
go to increase the volume of transactions in the market
ultimately benefiting the traders also. Such an indirect and
remote benefit to the traders is in no sense a special benefit
to them.
[vi] That the element of quid pro quo may not be possible, c
or even necessary, to be established with arithmetical
exactitude but even broadly and reasonably it must be
established by the authorities who charge the fees that the
amount is being spent for rendering services to those on D
whom falls the burden of the fee.
[vii] At least a good and substantial portion of the amount
collected on account of fee, may be in the neighbourhood of
two-thirds or three-fourths, must be shown with reasonable
certainty as being spent for rendering services of the kind E
mentioned above.
Referring to the provisions of the impugned Act, the Court further held
that the whole object of the Act was to supervise and control the transaction
of purchase by the traders from the agriculturists in order to prevent
exploitation of the latter by the former. The supervision and control could F
be effective only in specified localities and places and not through the
extensive market area. The fee levied was not on the agricultural produce in
the sense of imposing any kind of tax or duty on the agricultural produce.
Nor was it a tax on the transaction of purchase or sale. The levy was an
impost on the buyer of the agricultural produce in the market in relation to
transaction of his purchase. The agriculturists were not required to share G
any portion of the burden of this fee. In case the buyer was not a licensee,
the responsibility of paying the fee was of the seller who may realise the
same from the buyer. But such a contingency could not arise in respect of
the transaction of a sale by an agriculturist of his agricultural produce in the
market to a dealer who must be a licensee. Probably such an alternative
provision was meant to be made for outside buyers who were not licences H
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when they bought their agricultural produce from or through the licensees.
Every market committee was obliged under sub-section [2] (a) of Section
27 of that Act to pay out of its fund to the marketing board as contribution
such percentage of its income derived from licence fee, market fee and
fines levied by the Courts as specified therein. The purpose of this
contribution was to enable the Board to defray expenses of the office
establishment of the Board and such other expense incurred by it in the
interests of the Committees in general. The purposes for which the
Marketing Development Fund might be expended were enumerated in
Section 26 and the purpose for which the Market Committee Funds might
be expended were catalogued in Section 28 of that Act. The whole of the
State was divided into market areas. The propaganda in favour of
agricultural improvement and expenditure for production and betterment of
agricultural produce would be in the general interest of agriculture in the
market area. It was not permissible to spend the market fees realised from
the traders for any purpose calculated to promote the national or public
interest. No market committee could be permitted to utilise the fund for an
ulterior purpose, however benevolent, laudable and charitable the object
might be. The whole concept of fee would collapse if the amount realised
by the market committees could be permitted to be spent in that fashion.
Technically and legally one may not have any objection to the expenditure
of such money for the purposes mentioned m clauses (x), (xi), (xiii) and
(xvii). The Court also held that it was not necessary to strike down any
clauses of Section 28 as being unconstitutional merely on the ground that
the expenditure authorised therein went beyond the purposes of the
utilisation of market fees. However, where a concrete case comes where the
spending of money cannot be reasonably connected with the purposes for
which the market fee can be sp~nt, the Courts may have to deal with the
question as to whether such expenditure can be met from the market fees
realised. The State Agricultural Marketing Board constituted under the Act
is the central controlling and superintending authority over all the
marketing committee~, the primary function of which is to render servis;es
in the market. The parting with thirty percent of the income by a market
committee in favour of the Board is not so excessive or unreasonable so as
to warrant the interference on the ground of violation of the principle of
quid pro quo in the utilisation of the market fee. :rhe Marketing
Development Fund can be validly spent for the purposes mentioned in
clauses [i], (ii], (iii], [iv], first part of [v], [vi], [vii], [viii], [ix], [xii], the
first part o( clause [xiii], [xiv], [xv] and [xvi]. The fund cannot be expended
for the purposes mentioned in the second part of clause [v], clauses [x],
[xi], the second part of clause [xiii] and clause [xvii]. The purpose of the
law will be served by restricting the operation of Section 26 to the purposes
KRISHI UP AJ MANDI SAMITI v. ORIENT PAPER [SAW ANT, I.]
407
for which it could be validly spent, it is not necessary to strike down the A
provisions of Section 26 for that purpose.