TMI Blog1998 (9) TMI 632X X X X Extracts X X X X X X X X Extracts X X X X ..... desh Rural Development Act, 1996 (hereinafter called "the Act") purporting to levy cess which is in the nature of a tax which does not fall under any of the entries in List II of the Seventh Schedule to the Constitution, under which, the State Legislature can levy a tax. Entry 66 empowers the State to levy fees in respect of any of the matters enumerated in List II. Entry 54 deals with taxes on the sale or purchase of goods, but the cess levied under section 7 of the Act is not a fee, inasmuch as a fee is defined as a charge for special service rendered to individuals by governmental agencies. It is absolutely necessary that the levy of a fee should on the face of the legislative provision be correlated to the expenses incurred by the Government in rendering the services. According to section 2(1)(b) of the Act cess is defined as "cess levied and collected under section 7 of the Act". Section 7 of the Act provides for imposition of cess at the rate of 5 per cent on the ad valorem on the quantum of purchase of goods. If the cess is levied and collected on first point of purchase of goods, no cess shall be levied at subsequent point of sale or purchase. Section 8 contemplates constit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effective alternative remedy, they are seeking the writ as prayed for. 3.. In the counter-affidavit filed by the Deputy Commissioner in the office of the Commissioner oil' Commercial Taxes (Courts), it is stated that the impugned legislation is not enacted pursuant to entry 54 in List II of the Seventh Schedule to the Constitution, but it is brought into statute book for the purpose of accelerating rural development and to improve storage facilities for agricultural produce. The fee for the reason levied and collected at the point of first purchase would not become sales tax. Rural development cess is a cess simpliciter levied purely for purpose of rural development and for easy control and collection of the cess. The point of levy is the point of purchase and the Act is being administered by the Commercial Taxes Department. The cess so collected under the Act purely for local purposes and being utilised for local area would none the less be a fee. The allegations of the petitioners that the rural development cess is a tax has no basis. Fee or cess is being levied on paddy and cashewnut which have been identified as major products from rural areas for tapping revenue for the deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is not permissible. It is also stated that the petitioners are not paying the cess from out of their pockets, but they collect the said cess from Food Corporation of India, A.P. Civil Supplies Corporation, etc. Having collected the said amount from the above governmental organisations in the name of the State, petitioners cannot illegally retain the same for themselves. Therefore, writ petitions are devoid of merit, and they should be dismissed. 5.. Let us see the salient features of the Act. "Board" is defined under section 2(a) of the Act as the Andhra Pradesh Rural Development Board established under section 3. "Cess" is defined as the cess levied and collected under section 7. "Fund" means the Andhra Pradesh Rural Development Fund constituted under section 8. "Goods" is defined as goods specified in the Schedule to the Act; and "rural area" is described as the area other than local area included in a municipality, local area constituted to be a city, area declared as an urban area; and place declared to be a Cantonment under the Cantonments Act, 1924. Section 3 envisages constitution of A.P. Rural Development Board consisting of the Chief Secretary to the Government as Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... special class of persons or trade or business in any local area and in return cess is levied, the cess is distinguishable from a tax and is described as a fee. If the fee meant for the benefit of specified class or area, the fact that in benefiting the specified class or area, the State as a whole may ultimately be benefited would not detract from the character of the levy as a fee. If there is quid pro quo for the cess collected by constituting into a specific fund not part of the consolidated fund, its application regulated by a statute confined to its purpose there is definite correlation between the impost and the purpose of the Act, then in such an event, it is a fee. It is pertinent to note the following observations of Justice Mukherjea: "It is said 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 is that it is an imposition made for public purpose without reference to any special benefit to be conferred on the payer of the tax. This is expressed by saying that the levy of tax is for the purposes of general revenue, which when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to weigh too meticulously the cost of the services rendered, etc., against the amount of fees collected so as to evenly balance the two. A broad correlationship is all that 'is necessary. Quid pro quo in the strict sense is not the one and only true index of a fee; nor is it necessarily absent in a tax." 11.. A Constitution Bench of the apex Court in Kewal Krishan Puri v. State of Punjab AIR 1980 SC 1008 has deduced certain principles for satisfying the tests for a valid levy of fee, thus: "(1) That the amount of fee realised must be earmarked 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. (2) That the services rendered to the licensees must be in relation to the transaction of purchase or sale of the agricultural produce. (3) 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 a direct, close and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t may be of no consequence that the State may ultimately and indirectly be benefited by it. The power of any Legislature to levy a fee is conditioned by the fact that it must be 'by and large' a quid pro quo for the services rendered. However, correlationship between the levy and the services rendered expected is one of general character and not of mathematical exactitude. All that is necessary is that there should be a 'reasonable relationship' between the levy of the fee and the service rendered." He went on observing: "A levy in the nature of a fee does not cease to be of that character merely because there is an element of compulsion or coerciveness present in it, nor is it a postulate of a fee that it must have direct relation to the actual service rendered by the authority to each individual who obtains the benefit of the service. It is now increasingly realized that merely because the collections for the services rendered or grant of a privilege or licence are taken to the consolidated fund of the State and not separately appropriated towards the expenditure for rendering the service is not by itself decisive." 13.. Sri S. Krishna Murthy, learned counsel leading the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners. He relied on decisions of a Constitution Bench of the Supreme Court in Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt [1954] SCR 1005 and Kewal Krishan Puri v. State of Punjab AIR 1980 SC 1008. 15.. Sri M. Ramaiah, learned Government Pleader submitted ed that enough if the benefit of cess is intended for a class of persons as it need not necessarily be passed on to individual members who belong to that class it is still a fee. It is also submitted that the advantages conferred through the fee need not be direct, but may have even a casual relationship; in other words, he submits that the benefit conferred to the rural population as a whole is enough to satisfy the requirement of quid pro quo; inasmuch as rural development is contemplated as part of general regulation of promoting the conditions in the rural areas, and so the requirement of quid pro quo is satisfied. In support of his argument, he relies upon a decision of the Supreme Court in Southern Pharmaceuticals and Chemicals v. State of Kerala AIR 1981 SC 1863, wherein it is observed as follows: "It is now increasingly realised that merely because the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but governed or qualified by the particular facts of the case in which such expressions are to be found. It would appear that there are certain observations to be found in the judgment in Kewal Krishan Puri's case AIR 1980 SC 1008, which were really not necessary for purposes of the decision and go beyond the occasion and therefore they have no binding authority though they may have merely persuasive value. The observation made therein seeking to quantify the extent of correlation between the amount of fee collected and the cost of rendition of service, namely: 'At least a good and substantial portion of the amount collected on account of fees, may be in the neighbourhood of two-thirds or three-fourths, must be shown with reasonable certainty as being spent for rendering services in the market to the payer of fee', appears to be an obiter." The learned Judges went on observing thus: "A levy in the nature of a fee does not cease to be of that character merely because there is an element of compulsion or coerciveness present in it, nor is it a postulate of a fee that it must have direct relation to the actual service rendered by the authority to each individual who obtains the be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if the services rendered are not by a separate body like the Charity Commissioner, but by a Government department, the character of the imposition would not change because under article 226 the moneys collected for the services must be credited to the consolidated fund. It may be mentioned that the element of quid pro quo is not necessarily absent in every tax." 20.. To the same effect are the observations of the three-Judge Bench in Sreenivasa General Traders v. State of Andhra Pradesh AIR 1983 SC 1246 which are as follows: "There is no generic difference between a tax and a fee. Both are compulsory exactions of money by public authorities. Compulsion lies in the fact that payment is enforceable by law against a person in spite of his unwillingness or want of consent. A levy in the nature of a fee does not cease to be of that character merely because there is an element of compulsion or coerciveness present in it, nor is it a postulate of a fee that it must have direct relation to the actual service rendered by the authority to each individual who obtains the benefit of the service. It is now increasingly realized that merely because the collections for the services rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the various Mandis'. If the quantum of quid pro quo was to be quantified to the extent as indicated in Kewal Krishan Puri's case AIR 1980 SC 1008 for the levy of a fee or cess, it may affect many other beneficent legislations brought in by the Centre and the States for rendering service to a specified area or a specified class of persons or trade or business in any local area. There are many other observations in Kewal Krishan Puri's case AIR 1980 SC 1008 which were really not necessary for purposes of the decision in that case and need, to be clarified. The word 'fee' cannot be said to have acquired a rigid technical meaning during the past three decades and should not be given such a narrow construction." 21.. The learned Judges observing, that the observations made in Kewal Krishan Puri v. State of Punjab AIR 1980 SC 1008 that "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 in the market to the payer of fee, appear to be an obiter", however went on as under: "However, correlationship between the levy an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and Planning, Panchayat Raj and Rural Development, in addition to Commissioner, Commercial Taxes and Director, Civil Supplies as Ex-Officio Member. The constitution of the Board with senior IAS Officers who have sufficient experience and knowledge about rural development, including laying of roads and bridges, improving storage facilities and maintaining public distribution system, cannot be said to be improper or unreasonable. 24. A similar enactment was brought out by the Haryana Legislature called the Haryana Rural Development Act (6 of 1986), whose constitutional validity was questioned before the Punjab and Haryana High Court. A Division Bench by its decision in Shiv Dayal Singh Ramesh Chander v. State of Haryana [1988] 68 STC 294; AIR 1989 P H 87 dismissed a batch of writ petitions. The provisions of the Haryana Rural Development Act are in pari materia or identical with the provisions of the present Act. The relevant provisions are shown below: "Haryana Act 1986: A.P. Act 1996: 1. An Act provide for the establishment of the Haryana Rural Development Fund. Administration Board for augmenting agricultural production and improving i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stering it. (iii) for maintaining and strengthening of public distribution system." Similarly, Punjab Legislature also passed Punjab Rural Development Act, 1987 which was also questioned before the High Court. Following the judgment reported in Shiv Dayal Singh Ramesh Chander v. State of Haryana [1988] 68 STC 294 (P H); AIR 1989 P H 87, the High Court dismissed the said writ petitions. Again questioning the said judgment, writ petitioners filed SLPs in the Supreme Court which were later withdrawn. So also the Punjab Agricultural Produce Markets Act, 1961; Haryana Rural Development Act, 1986 were questioned on the ground of absence of sufficient quid pro quo between fee realised and the services rendered. A Full Bench of the Punjab and Haryana High Court by its decision in Subbhash Chander Kamlesh Kumar v. State of Punjab AIR 1990 P H 259 dismissed the said batch. The said decision was again challenged in the Supreme Court and the Supreme Court by its decision in Kishanlal Lakshmi Chand v. State of Haryana (1993) 4 SCC Supp 461 while dismissing the appeal affirmed the decision of the Full Bench. The three-judge Bench while disposing the appeal observed thus: "The m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . According to the learned counsel, article 286 places an embargo on imposition of any tax on the sale or purchase of goods where such sale or purchase takes place outside the State or in the course of import of goods into or export of goods out of Indian territory. Learned counsel draws a support for his contention to the provisions of sections 14 and 15 of the Central Sales Tax Act, 1956. According to section 14, paddy is declared to be goods of special importance and under section 15, tax payable in respect of any sale or purchase of such goods inside the State shall not exceed 4 per cent. This argument proceeds on the premise that the impost in question is a tax which was already negatived. The question is whether the State Legislature can impose a cess or fee in respect of the declared goods by the Parliament under Central enactment. 27.. Even article 286 of the Constitution imposes restriction on the State Government for levy of any tax on the sale or purchase of goods which took place outside the State or in the course of importing or exporting of goods out of Indian territory. It is true the State Legislature cannot trench upon the field reserved for the Parliament under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that does not warrant striking down the impugned Act as ultra vires. 28.. A Constitution Bench of the Supreme Court in Synthetics Chemicals Ltd. v. State of U.P. [1991] 80 STC 270 enunciated the following guidelines: "(i) legislative entries are to be liberally construed. But when a topic is governed by two entries, then they have to be reconciled. It cannot be that one entry is to be liberally construed and the other entry is not to be liberally construed. (ii) under the constitutional scheme of division of powers under legislative Lists, there are separate entries pertaining to taxation and other laws. A tax cannot be levied under a general entry. (iii) a Constitution is an organic document and has to be so treated and construed. (iv) if there is a conflict between the entries, the first principle is to reconcile them. But the Union power will prevail by virtue of article 246(1) and (3). The words 'notwithstanding' and 'subject to' are important and give primacy to the Central legislative power." Therefore, if there is any slightest conflict between the entries between the Union List and the State List, the same has to be reconciled. Narrow pedantic approach in inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on the goods purchased outside the State in comparison with the goods manufactured and sold in the State. In fact under the impugned Act the impost or cess is only levied on the goods produced in the State and as such there is no substance in this contention. 32.. It can be noticed that there is no burden cast on the petitioners, being traders. as they are not paying the cess from out of their pockets, but they collect the same from the Food Corporation of India or AR Civil Supplies Corporation, or other Governmental organisations; as such they do not suffer any burden. After all, they collect the cess from those Corporations in the name of the State and accordingly pass on the same to the State. Therefore, they do not have to feel the pinch-of it. 33.. Sri S. Krishna Murthy, learned counsel appearing for some of the writ petitioners cited several decisions before us in his endeavour to show that the impost in question is only a tax and not a fee; that the field was already occupied by the Parliament and as such, the State Legislature is denuded of its power to trench upon it, or has no legislative competence; and that in any event the rate of tax prescribed is excessive. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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