2006 (8) TMI 307 - SC - VAT / Sales Tax

Constitutional validity of the Andhra Pradesh Rural Development Act 1996 - Challenged the levy of Cess in addition to the purchase or sales tax - Nature of the cess - Whether it is a tax or a fee - Difference between a tax and a fee HELD THAT - It is well-settled that the basic difference between a tax and a fee is that a tax is a compulsory exaction of money by the State or a public authority for public purposes and is not a payment for some specific services rendered. On the other hand a fee is generally defined to be a charge for a special service rendered by some governmental agency. In other words there has to be quid pro quo in a fee vide Kewal Krishan Puri v. State of Punjab 1979 (5) TMI 136 - SUPREME COURT . In our opinion the cess in question is in substance a fee as it is being levied for rendering to the rural public the service of rural development for the purposes stated in para 9 of the Act. Clearly roads bridges and storage facilities have to be built in rural areas for progress and naturally this will require generating funds. Thus even if no specific service is rendered to any particular individual from whom the fee has been realised the cess in question is nevertheless a fee for the reasons already mentioned above. Services are being rendered to the people in the rural areas as mentioned in section 9 of the Act. No doubt as stated above there has to be a broad correlation between the total amount of fees generated by the impugned cess and the total value of the services rendered but there is no specific averment in the writ petition that there is no such broad correlation. It is true that if say Rs. 100 crores revenue is generated every year by this cess it is not necessary that this entire amount of Rs. 100 crores must be spent for the purposes mentioned in section 9 and it will suffice if a substantial part of this Rs. 100 crores is spent for such purposes. At the same time we would like to clarify that if say Rs. 100 crores is generated by the cess in question and only Rs. 1 crore or Rs. 50 lacs is spent for the purpose mentioned in section 9 obviously there would not be in such a case a broad correlation between the fees being realised and the service rendered. Hence while we uphold the validity of the Act. With the aforesaid observations these appeals are dismissed. No costs.

Summary

Issues Involved:
1. Constitutional validity of the Andhra Pradesh Rural Development Act, 1996.
2. Nature of the cess imposed under the Act - whether it is a tax or a fee.
3. Correlation between the cess collected and the services provided.

Issue-wise Detailed Analysis:

1. Constitutional Validity of the Andhra Pradesh Rural Development Act, 1996:

The appellants challenged the constitutional validity of the Andhra Pradesh Rural Development Act, 1996, which levies a cess in addition to the purchase or sales tax already being paid by them. They argued that the cess did not fall under any of the entries in List II or List III of the Seventh Schedule to the Constitution, making it invalid. The High Court of Andhra Pradesh upheld the Act's validity, leading to the present appeals.

2. Nature of the Cess - Tax or Fee:

The appellants contended that the cess was a tax since it lacked quid pro quo, a necessary characteristic of a fee. They argued that the cess partakes the character of a tax because no specific benefit was provided to the dealers from whom the cess was collected. The respondents, representing the State of Andhra Pradesh, argued that the cess was, in fact, a fee under entry 66 of List II of the Seventh Schedule to the Constitution.

The court examined the nature of the cess, noting that traditionally, a cess is a tax for a specific purpose. However, nomenclature is not critical; the nature of the levy is what matters. The court reiterated that the basic difference between a tax and a fee is that a tax is a compulsory exaction for public purposes without specific services rendered, while a fee is a charge for a special service rendered by a governmental agency.

3. Correlation Between Cess Collected and Services Provided:

The court noted that the concept of quid pro quo for a fee had evolved. It was no longer necessary for the fee to provide a direct benefit to the payer. Instead, a broad and general correlation between the totality of the fee and the services rendered suffices. The court observed that the writ petition did not allege that there was no broad correlation between the cess collected and the services rendered as per section 9 of the Act, which includes rural development, construction of roads and bridges, storage facilities, and maintaining the public distribution system.

The court concluded that the cess in question is a fee since it is levied for rendering services to the rural public for development purposes. The court upheld the validity of the Act but left open the possibility for the appellants or any concerned person to file a fresh petition if they could specifically aver that there was no broad correlation between the cess collected and the services rendered.

Conclusion:

The appeals were dismissed, and the validity of the Andhra Pradesh Rural Development Act, 1996, was upheld. However, the court allowed for the possibility of a fresh petition if it could be shown that there was no broad correlation between the cess collected and the services rendered.