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TMI Blog2010 (4) TMI 970X X X X Extracts X X X X X X X X Extracts X X X X ..... on sale and purchase of all agricultural produces except fruits, vegetables and pulses; (iv) use of machinery as provided under the Punjab General Sales Tax Act for collection of cess/fee, and (v) the Clarificatory Notification No. 7/8/98-5FBI/-4865 dated April 8, 1999 issued by the Government of Punjab (Department of Finance). Broadly, the common grounds of challenge are: (i) that the levy of cess under the Punjab Infrastructure Development Ordinance/the Punjab Infrastructure Development Act, 1998 (for short, "the 1998 Act") and the Punjab Infrastructure Development Cess (Collection) Rules, 1998 (for short, "the Cess (Collection) Rules") and fee under the Punjab Infrastructure (Development and Collection) Act, 2002 (for short, "the 2002 Act") is discriminatory being violative of articles 14 and 286(3) of the Constitution of India, as they were levied at the rate of one per cent and three per cent (extendable up to six per cent), respectively only on the items mentioned in Schedule III to the Acts, and collected in the manner prescribed in the Acts which is not sustainable in law; (ii) that there is absence of the element of quid pro quo to justify the levy of cess and fee as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of cess or fee amounts to collecting an excessive and unreasonable amount of imposts at the higher rate inasmuch as the total amount of tax, cess and fee being paid on the articles in question under various Acts is comparatively higher than the imposts being charged on other taxable goods. During the course of hearing, learned counsel for both parties extensively referred to the averments of four writ petitions, namely, C.W.P. No. 6676 of 1999 (Food Corporation of India v. State of Punjab) and C.W. P. No. 2343 of 2000 (Ludhiana Flour and General Mills Limited, Ludhiana v. State of Punjab), while assailing the validity of the 1998 Ordinance (No. 7 of 1998)/the 1998 Act (No. 1 of 1999), and C.W.P. No. 3295 of 2003 (Garg Rice and General Mills, Mundi Kharar v. State of Punjab) and C.W.P. No. 1449 of 2003 (Food Corporation of India v. State of Punjab) for laying the challenge to the provisions of the 2002 Act. According to learned counsel, the questions of law raised in the factual background of these writ petitions would squarely cover the subject-matters of the other connected writ petitions also. C.W.P. No. 6676 of 1999 has been preferred by the Food Corporation of India (for sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Rules vide the notification dated November 11, 1998 (annexure P3), and also a clarificatory notification dated April 8, 1999 (annexure P4) regarding levy of cess on sale and purchase, both, under section 4 of the 1998 Act, has not been made a party. The respondent-State has been given the duty to collect the infrastructure cess on behalf of the PIDB also vide the Punjab Infrastructure Development (General) Rules (for short, "the PID(G) Rules"), notified vide No. G.S.R.80/P.O.7/98/S.3/98 dated November 10, 1998. This is emphatically averred that the impugned levy of cess does not amount to the incidence of double taxation in the garb of cess which is being collected under the PGST Act in public interest under the sanction of the 1998 Act duly enacted by the State Legislature within the pale of its competence. The cess in question is not a tax also for the fact that it is only confined to a local and specific area and is levied for a particular purpose. The word "tax" is to be construed in generic sense under articles 265 and 266 which also includes cess. Further, the expression "tax" as used in article 265 of the Constitution of India, also includes duties, cess or fee, etc. As r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently omitted in the 1998 Ordinance and the relevant Rules made thereunder. Hence, a clarification was needed to bring the word "purchase" in the Rules so as to levy the cess on the first purchase of the agricultural produces in question, namely, wheat, paddy and rice, etc., which is also the stage of imposition of tax under the PGST Act. This has also been clarified in the reply that wheat and paddy being the agricultural produces are exempted vide entry No. 39 of Schedule B of the CST Act, at the stage when it is sold by the farmers, but it is not exempted at the hands of purchasers. A tax is squarely covered by entry No. 54 of List II of the Seventh Schedule to the Constitution. Further, sales tax on declared goods is being charged at four per cent, whereas, the cess is collected only at one per cent. Thus, the collection of cess under the impugned enactments, is in consonance with articles 286 and 254 of the Constitution read with sections 14 and 15 of the CST Act and section 5(3) of the PGST Act. In the reply on behalf of the PIDB, this is pointed out that the FCI has violated the memorandum No. 53/3, 10/99-Cab. Cabinet Secretariat, Rashtrapathi Bhawan, dated January 24, 1994 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner-mill has to purchase wheat from different sources. One of the sources for the procurement of wheat is by way of purchase from the FCI which is the main procurer in Punjab and Haryana. According to the writ petitioner, the FCI has been constituted under the FCI Act to ensure payment of minimum procurement price to farmers which may be enhanced from time to time, and also in order to protect the consumers from a speculative trade. The FCI sells wheat in Punjab as per the policy decided by it from time to time. As per its policy, the release orders in respect of purchase of wheat are to be issued only after the payment of full cost, and thus, the flour mills are forced to pay cess at Re. 1 for every 100 rupees on ad valorem basis. This is also a submission that the Cess (Collection) Rules notified and published on November 11, 1998 were made available for general public only on November 23, 1998, therefore, the date of enforcement of Rules whereunder the cess was to be collected, was not November 11, 1998, but November 23, 1998. In this writ petition also, collection of cess under the PGST Act from the registered dealer has been assailed. After the Cess (Collection) Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner mills would be entitled to seek the recovery of cess, as other procurers like PUNSUP has already decided to refund the cess collected on the sale and purchase of the old stocks. Wheat is one of the declared goods under section 15(a) of the CST Act, hence, it cannot be subjected to levy of tax at more than one stage and, moreover, no tax could be leviable in excess of four per cent of the sale or purchase price. Besides, if section 4(1) of the 1998 Ordinance/Act provided for levy of cess on sale of articles, the Cess (Collection) Rules, 1998 should be interpreted to levy the cess only at the stage of sale, even though the PGST Act, whereunder the cess is being recovered, provides for levy of tax on the event of purchase also. Thus, the business of the petitioner has been adversely affected on account of unilaterally action on the part of FCI in recovering the cess in connivance with the State of Punjab and, therefore, it amounts to infringement of fundamental right of the petitioner under article 19(1)(g) of the Constitution. In reply to the writ petition on behalf of the State, it is denied that as many as 16 items were mentioned in the Schedule of the 1998 Ordinance, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... traordinary) on July 9, 2002. Admittedly, as per the notification of the Government of Punjab, the Act came into force with effect from July 11, 2002. Under section 25 of the Act, every dealer is liable to pay a fee under the Act on the sale or purchase of the goods specified in Schedule III thereof within the State of Punjab at the rate not exceeding six per cent of the value of the goods as the State Government may by notification direct. In Schedule III of the Act, a list of articles which are subject to levy of fee under the 2002 Act has been given, and at Sr. No. 1, is the item agricultural produces (except fruits, vegetables and pulses) as defined in the Punjab Agricultural Produces Markets Act, 1961, which is to be levied with fee under the circumstances and stage as mentioned in Schedule D to the PGST Act, 1948. There is no dispute that the paddy is an item included in the Schedule at item No. 6. In the Schedule appended to the PGST Act, paddy has been declared to be liable to purchase tax within the State to be paid by a dealer under this Act on the first purchase. Thus, on coming into force of the Act, the first purchase of paddy within the State of Punjab became liable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the limit of four per cent and in case the State Government wants to do so by way of the levy of tax in excess thereof in the guise of separate Act by giving the nomenclature of cess to a tax, this would amount to a fraud on the Constitution of India. Besides, any tax collected under article 265 has to be deposited in the consolidated fund as provided under article 266 of the Constitution. This fund is liable to be audited by the authority under the Comptroller and Audit General of India under article 148 of the Constitution of India. However, in the present Act, there is no provision that the tax will go to the consolidated fund and it will be subject to the audit by the Comptroller and Audit General of India. The Act does not provide for any kind of audit by any authority. Thus, the levy of tax in the guise of cess/fee is ab initio void. However, the impost in question is to be collected for infrastructure defined under section 2(15) of the Act, meaning thereby, the infrastructure in Schedule 1 of the Act. The levy is unconstitutional inasmuch as paddy is one of the declared goods and a tax at four per cent which is the maximum limit provided under section 15 of the CST Act is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no such attempt on the part of the State to impose a tax under the garb of fee. The levy of fee by the State of Punjab has been done in pursuance of Notification No. 6349 dated July 11, 2002 issued under section 25 of the Act. Section 25 of the 2002 Act empowers the State Government to levy fee for the development of infrastructure in the State of Punjab at a rate not exceeding Rs. 6 for every hundred rupees of the value of goods as the State Government may by notification direct. Thus, fee at Re. 1 (now Rs. 3) for every Rs. 100 is being charged on the sale and purchase of all agricultural produces (except fruits, vegetables and pulses) and at Re. 1 per liter on the sale and purchase of petrol and diesel. As per section 27(2) of the Act of 2002, the amount collected by way of fee is credited to the Development Fund or the Punjab Infrastructure Development Fund, constituted in pursuance of section 27(1) and 2(11) of the Act. As per section 27(3) of the 2002 Act, the development fund is applied for the development of infrastructure sectors by providing infrastructure facilities in the State of Punjab for the benefit of the persons from whom the fee is being charged. These facil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but since levy in question is not a tax and is rather a fee, it is deposited in the development fund to be applied for the development of the infrastructure sectors by providing infrastructure facilities in the State of Punjab for the benefit of the persons from whom the fee is being charged and collected, and the public at large, and for the infrastructure facilities of the country having direct benefit to the economy of the State of Punjab, which is justifiable. The answering respondent has also asserted that under section 22(3) of the 2002 Act, there is a provision for auditing of the accounts. Further, in terms of section 22(4) of the 2002 Act, the development fund which is vested in the Board, is regularly audited by the Local Fund Examiner, Punjab. Thereafter, the respondent-Board, the PIDB, has filed three additional affidavits through Sh. G.P.S. Mann, its Chief Manager, to highlight the efforts of the Board while giving the details of infrastructures provided, and the money spent by the PIDB on such projects. According to these affidavits, in pursuance of Notification No. 6343 dated July 11, 2002, issued under section 25 of the 2002 Act, the State Government has levied fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he affidavit, the total cost of all the projects already awarded under the aegis of PIDB up to March 31, 2009 is Rs.10,197.55 crores and the total cost of the projects being developed is Rs. 33,540.80 crores. Thus, the grand total of costs of the projects taken up for development by the Board is Rs. 43,738.35 crores, as against the fee of only Rs. 1,857.92 crores, collected and credited into the development fund. Out of the infrastructure projects/facilities costing Rs. 43,738.35 crores, developed or under-developed by the Board, majority of the projects/facilities have been utilized or are going to be utilized by the persons mentioned in the Schedule under section 25 of the 2002 Act. It cannot be possible to cull out the exact expenditure in mathematical exactitude, however, it cannot be denied that proportionate to the fee charged and credited in the development fund, infrastructure facilities have been provided to the petitioners. The total amount received by the State Government from the Central Road Fund (CRF) for undertaking road works in the State for five years, i.e., 2001-02 to 2005-06 is only 148.63 crores which is negligible and very less as compared to the total amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orkers, visitors, transporters carrying goods and grains, etc., to the mills would be directly benefited from a single project, namely, the proposed Kharar-Phagwara Expressway. Besides, the writ petitioners are free to derive the direct or indirect benefits on a non-exclusive basis from the infrastructure facilities costing over Rs. 43,000 crores created with the efforts of the PIDB. Thus, leveraging of such a huge development fund is unprecedented in our country and is also the need of hour. Thus, the development fund created with the funds collected from the payers under the 1998 Act and the 2002 Act, is substantially directed towards providing benefits to the agrarian sector. As regards C.W.P. No. 1449 of 2003, this writ petition is again filed by the Food Corporation of India against the respondents, namely, (1) the State of Punjab; (2) the Financial Commissioner, Taxation, Punjab; (3) the Punjab Infrastructure Development Board; and (4) the Excise and Taxation Officer-cum-Assessing Authority, Patiala, to challenge the validity of the new Act, namely, the Punjab Infrastructure (Development and Regulations) Act, 2002 ("the 2002 Act"), on identical grounds as raised to question t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol and diesel, and not on other articles, although the infrastructure so provided or proposed to be provided would be used by the public at large. Thus, there is discrimination in classification of goods for the purpose of levy of cess as also the fee. Besides, the PIDB has not provided any infrastructural facility to be counted towards providing special services to the petitioners herein. This is also his submission that the money so collected by imposing the impost has to be deposited only with a consolidated fund under article 266 of the Constitution even if it is a fee. According to learned counsel, there is no quid pro quo to justify the levy of cess/fee. Thus, the impost in question is only a tax and not a fee. The learned counsel also urged that both the statutes, namely, the Acts of 1998 and 2002, are discriminatory and violative of article 14 and also article 301 of the Constitution. Hence, they are liable to be struck down. This is also his submission that the levy of cess, which is otherwise a tax, being in excess of four per cent of purchase or sale price of declared goods, i.e., wheat, paddy and cotton, is violative of article 286(3) of the Constitution of India read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch was to utilize the funds for the development of infrastructure in the State of Punjab, and the infrastructure facilities in the country having direct benefit to the economy of the State of Punjab and not for the special benefits of individuals who paid the impost. According to learned counsel, an Act must substantially meet the facial test, and every legislation has to be tested on the ground of reasonableness. The learned counsel referred to a Constitutional Bench judgment of the apex court (Kewal Krishan Puri v. State of Punjab reported in [1980] 1 SCC 416), wherein the market fee levied under the Punjab Agricultural Produces Markets Act, 1961, when increased from two per cent to three per cent on all sales and purchases of agricultural produces, was struck down. The learned counsel thus submitted that in the instant case also, as the Punjab Infrastructure Development Board ("the PIDB") has increased the fee from one per cent to two per cent with effect from April 1, 2008 and further from two per cent to three per cent with effect from September 1, 2008 without publication of any draft or without inviting any objection, the levy of fee deserves to be struck down. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the trade of the petitioner as also the revenue of State. Mr. Puneet Bali, learned counsel for the PIDB, submitted that none of the petitioners has disclosed the amount of cess being paid by each of them. They have not given any figure or amount of cess they have paid so far in the support of their contention assailing the validity of enactments. They have also not given any figure to say that the amount spent on the infrastructure facilities by the State does not meet the requirement of quid pro quo. The learned counsel referred to three affidavits filed on behalf of the PIDB so as to establish that the amount earned from the levy of impost is much less in comparison with the amount spent on the infrastructure sector. The learned counsel also referred to the details of accounts given in the affidavits and submitted that the petitioners are not able to deny the facts. He also submitted that the amounts in question were not spent on the projects which are alien to the objects of the Acts. According to learned counsel, the petitioners have relied on only two judgments namely, Jindal Stainless Ltd. v. State of Haryana [2006] 145 STC 544 (SC); [2006] 7 SCC 241 and Kewal Krishan Pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Government by notification would establish for the purpose of carrying out the provisions of the 1998 Act, a Board. Section 4 of the Act provides for a cess on ad valorem basis at Re. 1 for every Rs. 100 in respect of the articles specified in the Schedule on all the sales effected after coming into force of the 1998 Act and all the sales of goods made under the Punjab General Sales Tax Act, 1948. Section 6 of the Act relates to the purpose for which the fund may be applied and sub-section (2) thereof provides for generality of sub-section (1) and the funds in question have in fact been especially applied for infrastructure development in the sectors as mentioned in the Act, which include irrigation, transportation, roadways including the roads which may be national highways, State highways, district roads and village roads, etc., and power generation, etc., section 7 of the 1998 Act relates to audit of the accounts of the funds constituted under section 5 and prescribes that the same shall be audited by the local Fund Examiner, Punjab. Section 11 of the 1998 Act, inter alia, stipulates that where any difficulty arises in giving effect to the provisions of the 1998 Act, the G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of cess on the articles and goods specified in the Schedule appended to this Ordinance, from any dealer registered under the Punjab General Sales Tax Act, 1948, at the stage envisaged under the Punjab General Sales Tax Act, 1948.' -A perusal of the above-mentioned rule would show that the authorities which have to assess, reassess, collect and enforce payment of any tax under the PGST Act, shall do the same on the articles and goods specified in the Schedule appended to the Ordinance at the stage envisaged under the PGST Act. The stage as mentioned in the PGST Act is only a method/mode of procedure to be adopted while levying the cess. It by no stretch of imagination means that the cess has to be charged in accordance with the provisions of the PGST Act. Only for the administrative and legislative convenience the methods envisaged under the PGST Act have to be followed. -The word 'sales' as mentioned under section 4(1) of the 1998 Act included purchases as well. The Legislation has not stated that the word 'sales' mentioned under section 4(1) would have the same meaning as 'sales' under the PGST Act. Since the intention of the Legislature was very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evy of fee. As 80 per cent of the occupational trades within the State of Punjab relates to agricultural and agricultural produces, etc., the fee for the time being is being levied on those products and in turn is being used for the development of the infrastructural facilities in relation to the trade and industry, etc., relating to agricultural produce, which is the main occupation of the people of Punjab. The levy would have become discriminatory or illegal if an infrastructure sector as mentioned in Schedule I of the 2002 Act would be charged the levy without providing any facilities as a measure of recompense to them. Thus, Schedule III under section 25 of the 2002 Act is not exhaustive at all. As and when the State Government would undertake the infrastructure development work in relation to any infrastructure sectors, as mentioned under Schedule I, the articles and goods in relation to that infrastructure sector shall definitely be included in Schedule III. This is also his submission in regard to proportionality of services in lieu of the funds collected till date that the money at least six times more than the fund collected has been spent or is contemplated to be spent on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act from the character of the levy being the fee. Thus, there is a fair correspondence between the fee charged and the cost of services rendered to the fee payers as a class, which is enough to prove the co-relationship. The principle of "quid pro quo" in respect of fee is undergoing transformation and the person paying the fee may not receive direct special benefit, and the facilities/services need not be provided immediately, but can be provided in future also. Amount collected by way of fee can be reserved for future service and entry 66 of List II gives power to the State to levy a fee and thus, there is no question of double taxation. Besides, service is not a condition precedent and it is confined to contributory alone. There is a difference between compensatory fee and regulatory fee like transit fee, licence fee, etc. The traditional view that there must be an actual quid pro quo has undergone a sea change with the passage of time. All that is necessary is that there should be a reasonable relationship between the levy of the fee and services rendered. Besides, the doctrine of "quid pro quo" is not strictly applied in case of fee. A reasonable relationship between the fee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative agency to work out the details within the framework of policy. While considering the factum of delegated legislation, the object and purpose of the Act as can be gathered from the various provisions of the statute, should be taken into account. The court should not substitute its own opinion in respect of the legislative policy, and the object and purpose of the statute. Once the essential legislative function is performed by the Legislature and the policy has been laid down, it is always open to the Legislature to delegate the ancillary and subordinate powers to the executive authority which is necessary for carrying out the policy and purpose of the Act. The learned counsel appearing for Markfed, respondent No. 3, has made a submission that the Markfed procured foodgrains on behalf of the Food Corporation of India in the Central pool and made the payment of cess thereon to the State of Punjab. However, the same is not being refunded to it by the FCI in view of the pendency of the writ petition. Sh. Amol Rattan Singh, learned Additional Advocate-General for the State of Punjab, also supported the contention of learned counsel for the PIDB by contending that this is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as the competence of State Legislature. The relevant entries of these Lists for the purpose of testing the validity of the impugned Acts, are as under: LIST II (STATE LIST) "13. Communications, that is to say, roads, bridges, ferries, and other means of communication not specified in List I; municipal tramways; ropeways; inland waterways and traffic thereon subject to the provisions of List I and List III with regard to such waterways; vehicles other than mechanically propelled vehicles. 14.. Agriculture, including agricultural education and research, protection against pests and prevention of plant diseases. 17.. Water, that is to say, water supplies, irrigation and canals, drainage and embankments, water storage and water power subject to the provisions of entry 56 of List I. 24.. Industries subject to the provisions of entries 7 and 52 of List I. 26.. Trade and commerce within the State subject to the provisions of entry 33 of List III. 28. Markets and fairs. 35.. Works, lands and building vested in or in the possession of the State. 41.. State public services; State Public Service Commission. 52.. Taxes on the entry of goods into a local a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it to the economy of the State of Punjab. (2) Without prejudice to the generality of sub-section (1), the fund shall be specially applied for infrastructure development in the following sectors, namely: (a) transportation, roadways, including roads which may be national highways, State highways, major district roads (plan roads), other district roads, and village roads, express ways, by-passes, bridges, intercharges, roads over and under bridges, road transport system and water transportation; (b) power generation, transmission and distribution; (c) infrastructure for information technology; (d) inland container facilities, container transport and warehousing for export purposes; (e) industrial parks and modern industrial townships; (f) water supply and sewerage disposal and treatment systems, solid waste management, roads, street lights, parks and gardens and urban mass transport systems; (g) irrigation, and (h) any other infrastructure as may be decided by the Board for betterment of the economy of the State of Punjab. Explanation: 'Infrastructure development' shall include creation and addition of new infrastructure facilities, replacement of existing fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." Besides, the works undertaken by the Board towards the development of infrastructure have been detailed in three affidavits filed on behalf of the PIDB in reply to the writ petition. It appears that till March 31, 2009, the Board has collected an amount of Rs. 1,857.92 crores as fee. The amount collected by way of fee is primarily used for the benefit of fee payers by providing them with world class infrastructure facilities/projects for various infrastructure sectors including roads, bridges, Expressways, irrigation, transport, etc. This is also mentioned in the affidavit that the main stay of the residents of the Punjab is agriculture, and most of the infrastructure facilities in the shape of good roads, bypasses, rail over bridges (ROBs), high level bridges (HLBs), expressways, irrigation canals and minors, bus terminals, water supply and sewerage facilities in villages and towns, etc., provide a major relief to the agrarian sector. Thus, the infrastructure facilities provided towards the collection of fee being in consonance with the object of the Act directly relate to the entries of Lists II and III of the Seventh Schedule to the Constitution, hence, the State Legislatur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may make laws for the whole or any part of the State. The legislative field between Parliament and the Legislature of any State is divided by article 246 of the Constitution. Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule, called the 'Union List'. Subject to the said power of the Parliament, the Legislature of any State has power to make laws with respect to any of the matters enumerated in List III, called the 'Concurrent List'. Subject to the abovesaid two, the Legislature of any State has exclusive power to make laws with respect to any of the matters enumerated in List II, called the 'State List'. Under article 248 the exclusive power of Parliament to make laws extends to any matter not enumerated in the Concurrent List or the State List. The power of making any law imposing a tax not mentioned in the Concurrent List or the State List vests in Parliament. This is what is called the residuary power vesting in Parliament. The principles have been succinctly summarised and restated by a Bench of three learned judges of this court on a review of the available decisions in Hoechst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no further question need be asked and Parliament's legislative competence must be upheld. Where there are three Lists containing a large number of entries, there is bound to be some overlapping among them. In such a situation the doctrine of pith and substance has to be applied to determine as to which entry does a given piece of legislation relate. Once it is so determined, any incidental trenching on the field reserved to the other Legislature is of no consequence. The court has to look at the substance of the matter. The doctrine of pith and substance is sometimes expressed in terms of ascertaining the true character of legislation. The name given by the Legislature to the legislation is immaterial. Regard must be had to the enactment as a whole, to its main objects and to the scope and effect of its provisions. Incidental and superficial encroachments are to be disregarded. (6) The doctrine of occupied field applies only when there is a clash between the Union and the State Lists within an area common to both. There the doctrine of pith and substance is to be applied and if the impugned legislation substantially falls within the power expressly conferred upon the Legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avoid conflict. Faced with a suggested conflict between entries in List I and List II, what has first to be decided is whether there is any conflict. If there is none, the question of application of the non obstante clause 'subject to' does not arise. And, if there be conflict, the correct approach to the question is to see whether it was possible to effect a reconciliation between the two entries so as to avoid a conflict and overlapping. ILLUSTRATION If it is possible to construe entry 42 in List I as not including tax on inter-State sales it should be so construed and the power to levy such tax must be held to be included in entry 54 in List II (entries as they existed pre-Forty-second Amendment, 1976) (See: Governor General in Council v. Province of Madras [1945] 1 STC 135 (PC); AIR 1945 PC 98; [1945] 7 FCR 179 and Province of Madras v. Boddu Paidanna & Sons [1942] 1 STC 104 (FC); AIR 1942 FC 33; [1942] 2 MLJ 327. (AIR page 495, paras 56-57) 6.. In the event of a dispute arising it should be determined by applying the doctrine of pith and substance to find out whether between two entries assigned to two different Legislatures the particular subject of the legislatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondents have admitted in their replies on affidavit that the imposts in question are only a fee and they have furnished enough data therein (as referred to hereinabove and would be further detailed later) to satisfy the test of proportionality as propounded in the latest judgment of a Constitution Bench of the honourable apex court in the case of Jindal Stainless Ltd. v. State of Haryana [2006] 145 STC 544; [2006] 7 SCC 241, we are of the considered view that the provisions of the impugned Acts in question satisfy the requirement of quid pro quo and the respondents have also complied therewith. Thus, the State Legislature is well within its competence to pass the impugned legislation in terms of entry No. 66 of List II (State List) of the Seventh Schedule to the Constitution. For the same reason, namely, the impost being a fee, the argument that the statutes and the levy of imposts thereunder are violative of sections 14 and 15 of the CST Act and articles 286 and 301 of the Constitution would not be tenable, hence, the same stands negatived. In view of the aforesaid, the argument on behalf of the petitioners that this is a case of double taxation would also not be sustaina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of legislation, so long as they are not in consistent with the provisions of the Constitution. It is only where there is abuse of powers and transgression of legislative function in levying a tax, it may be corrected by the judiciary and not otherwise. Taxes may be and often are oppressive, unjust, and even unnecessary but this can constitute no reason for judicial interference. When taxes are levied on certain articles or services and not on others it cannot be said to be discriminatory. Every tax must discriminate; and only the authority that imposes it can determine how and in what directions. Thus, the argument of the petitioners also fails on that count. Now the next question that needs to be addressed is to find out the nature and character of the impugned imposts to determine as to whether they are a cess/fee or a tax. A Constitution Bench of the honourable apex court in the case of Hingir-Rampur Coal Co. Ltd. v. State of Orissa AIR 1961 SC 459, has held that there is no generic difference between a tax and fee and both are compulsory exaction, but a tax is imposed for public purpose and need not be supported by any consideration of service rendered in return, whereas, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations as: ". . . 'At least a good and substantial portion of the amount collected on account of fees, may be in the neighbour-hood of twothirds 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. It was not intended to lay down a rule of universal application but it was a decision which must be confined to the special facts of that case." A Full Bench of this court in the case of Subbhash Chander Kamlesh Kumar v. State of Punjab [1990] 2 PLR 666 while dealing with the nature and degree of quid pro quo (one thing in return for another) between the fee realised and the costs of the services rendered, has held as: ". . . that the true test for a valid fee is whether the primary and essential purpose is to render specific services to a specified area or class, it being of no consequence that the State may ultimately and in directly benefit by it. Quid pro quo is not always a sine qua non of a valid fee and what is required to be shown is that by and large there is quid pro quo. The corelationship between services expected is of a general character and a broad, reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . v. Shivalik Agro Poly Products [2004] 8 SCC 556. In Sonachandi's case [2005] 2 SCC 345, the honourable court has held that the service to be rendered is not a condition precedent and only a reasonable relationship between the levy and fee and the services rendered is sufficient. In Shree Baidyanath Ayurved Bhawan's case [2005] 2 SCC 762, a three-judge Bench of the honourable apex court has held that the fee for grant of licence is regulatory and not compensatory, hence quid pro quo for the same is not necessary, therefore, in the absence of quid pro quo, such fee would not violate article 301 of the Constitution. Again, in Shivalik Agro's case [2004] 8 SCC 556, a three-judge Bench of the honourable apex court has taken the view that the co-relationship between the levy and the services rendered should be one of general character and not of mathematical exactitude. Thus, the view taken in Kewal Krishan Puri's case [1980] 1 SCC 416 has undergone a major change regarding the ratio of services to be rendered in lieu of the payment of fee. The honourable apex court in the case of Jindal Stripe Ltd. v. State of Haryana [2004] 134 STC 303, while dealing with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. 29.. 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 lakhs 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." The issue raised in the case of Jindal Stripe Ltd. v. State of Haryana [2004] 134 STC 303 (SC); [2003] 8 SCC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) as a part of regulatory charge. Consequently, we have to go into concepts and doctrines of taxing powers vis-a-vis regulatory powers, particularly when the concept of compensatory tax was judicially crafted as an exception to article 301 in Automobile Transport [1963] 1 SCR 491; AIR 1962 SC 1406. Difference between exercise of taxing and regulatory power: 38.. In the generic sense, tax, toll, subsidies, etc., are manifestations of the exercise of the taxing power. The primary purpose of a taxing statute is the collection of revenue. On the other hand, regulation extends to administrative acts which produces regulative effects on trade and commerce. The difficulty arises because taxation is also used as a measure of regulation. There is a working test to decide whether the law impugned is the result of the exercise of regulatory power or whether it is the product of the exercise of the taxing power. If the impugned law seeks to control the conditions under which an activity like trade is to take place then such law is regulatory. Payment for regulation is different from payment for revenue. If the impugned taxing or non-taxing law chooses an activity, say, movement of trade and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the case of a tax, even if there is any benefit, the same is incidental to the Government action and even if such benefit results from the Government action, the same is not measurable. Under the principle of equivalence, as applicable to a fee or a compensatory tax, there is an indication of a quantifiable data, namely, a benefit which is measurable. 42.. A tax can be progressive. However, a fee or a compensatory tax has to be broadly proportional and not progressive. In the principle of equivalence, which is the foundation of a compensatory tax as well as a fee, the value of the quantifiable benefit is represented by the costs incurred in procuring the facility/services which costs in turn become the basis of reimbursement/recompense for the provider of the services/facilities. Compensatory tax is based on the principle of 'pay for the value'. It is a sub-class of a 'a fee'. From the point of view of the Government, a compensatory tax is a charge for offering trading facilities. It adds to the value of trade and commerce which does not happen in the case of a tax as such. A tax may be progressive or proportional to income, property, expenditure or any other te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the special benefit to the payer (individual as such) based on the principle of equivalence. When the tax is imposed as a part of regulation or as a part of regulatory measure, its basis shifts from the concept of 'burden' to the concept of measurable/quantifiable benefit and then it becomes 'a compensatory tax' and its payment is then not for revenue but as reimbursement/recompense to the service/facility provider. It is then a tax on recompense. Compensatory tax is by nature hybrid but it is more closer to fees than to tax as both fees and compensatory taxes are based on the principle of equivalence and on the basis of reimbursement/recompense. If the impugned law chooses an activity like trade and commerce as the criterion of its operation and if the effect of the operation of the enactment is to impede trade and commerce then article 301 is violated. Burden on the State: 46.. Applying the above tests/parameters, whenever a law is impugned as violative of article 301 of the Constitution, the court has to see whether the impugned enactment facially or patently indicates quantifiable data on the basis of which the compensatory tax is sought to be levied. The Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raint/restriction one has to see whether the impugned law is enacted by the Parliament or the State Legislature. Clause (b) of article 304 confers a power upon the State Legislature similar to that conferred upon Parliament by article 302 subject to the following differences: (a) While the power of Parliament under article 302 is subject to the prohibition of preference and discrimination decreed by article 303(1) unless Parliament makes the declaration under article 303(2), the State power contained in article 304(b) is made expressly free from the prohibition contained in article 303(1) because the opening words of article 304 contain a non obstante clause both to article 301 and article 303. (b) While the Parliament's power to impose restrictions under article 302 is not subject to the requirement of reasonableness, the power of the State to impose restrictions under article 304 is subject to the condition that they are reasonable. (c) An additional requisite for the exercise of the power under article 304(b) by the State Legislature is that previous Presidential sanction is required for such legislation." After the judgment of the Constitution Bench dated April 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the amount of fee collected and credited in the development fund has been annexed as R1. It depicts the area and townwise figures of fee collected and credited in the development fund. It appears that till March 31, 2009, the Board has collected an amount of Rs. 1,857.92 crores as fee. This is emphatically averred in the affidavit that the imposition of infrastructure fee is well in consonance with the spirit of the Act of 2002 which aims to provide the infrastructure facilities through financial sources other than those provided by the State Budget. The amount collected by way of fee is primarily used for the benefit of the fee-payers by providing them with world class infrastructure facilities/ projects in various infrastructure sectors including roads, bridges, expressways, irrigation, transport, etc., in the State of Punjab. This is also submitted in the affidavit that the fee collected is spent by the Board (the PIDB) strictly in accordance with the provisions of the Act of 2002, particularly with reference to sub-section (3) of section 27 of the Act. Statutory auditors of PIDB, i.e., the local fund examiner, Punjab, have till date never raised any objections that the devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 43,738.35 crores, as against the amount of fee of only Rs. 1,857.92 crores, collected and credited into the development fund. Out of the infrastructure projects/facilities costing Rs. 43,738.35 crores, developed or under-developed by the Board, majority of the projects/facilities have been utilized or are going to be utilized by the persons related to the items in Schedule III under section 25 of the 2002 Act. It may not be possible to cull out the exact expenditure in mathematical exactitude. However, it cannot be denied that in proportion to the fee charged and credited in the development fund, infrastructure facilities worth many times more than the collection of cess/fee have been provided to the petitioners. The respondents have detailed as under the relevant data relating to the facilities provided by them, in order to show as to how the fee collected by the PIDB is being utilized: "C WP No. Petitioners Projects 3295 of 2003 M/s. Garg Rice and General Mills,Ludhi-ana Moga Road, Moga (1) Steps being taken for four-laning of Ludhiana-Moga-Ferozepur road on BOT basis (approximate project cost of Rs. 300 crores). Tenders to be invited shortly. Rs. 90 lacs already spent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e., Dhuri, Sangrur, Moga and Bathinda. All such projects would bring direct and indirect economic benefits to the petitioners, their workers/employees, etc., residing in the nearby areas. 2861 of 2002 M/s. Ganesh Roller Flour Mills, G.T. Road, Bahumajra, Khanna. Construction of ROB at Khanna completed at a cost of approximately Rs. 6 crores. Work of Khanna-Nawanshahr-Machiwara Road completed at a cost of approximately Rs. 26 crores. The aforesaid projects in the vicinity on the petitioner flour mills would facilitate easy transportation of goods to and from the flour mills. Prior to the construction of the ROB at Khanna, the travellers including goods transport vehicles had to often wait at the railway level crossing for hours. Better infrastructure facilities in the nearby area would definitely bring a number of direct and indirect economic and other benefits to the petitioners. 3842 of 2000 M/s. Samana Roller Mills, Patiala Saman road. Work of Patiala-Samana-Patran road (48 kms.) awarded on BOT basis. Project cost Rs. 48.10 crores. The upgraded road is already functional and is benefiting the petitioner-flour mills, transport vehicles visiting the flour mills, customers, wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t required for properly maintaining the existing roads even in the State of Punjab and what to talk of upgrading the service level of roads or constructing new roads. On the other hand, an amount of Rs. 898.30 crores has been released by the Board out of the development fund just for new road works. This is also stated in the affidavit that the onus is on the petitioners to furnish the precise figures of the fee paid by each of them, which if provided would establish that the quantum of facilities which each of the petitioners is enjoying is many times more than the actual amount of fee paid by each of them. This is reiterated in the affidavit that none of the road projects which have been exclusively developed by the PIDB would benefit the commercial private projects such as shopping malls, etc., falling within the towns and cities. Such internal city projects are only developed by the local development authorities like PUDA, GMADA, BDA, PDA, GLADA, Municipal Committees, Municipal Corporations, etc., as part of their official functions. Almost all the road sector projects developed by the PIDB connect towns with towns, towns with villages and villages with villages. Primarily and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt of Railway share, etc., was Rs. 89.97 crores. Thus, the total fund available with the PIDB on that date was to the tune of Rs. 3,767.48 crores. The PIDB has not received any funds or financing for its projects from the State till date. The development fund vested with the Board is a ring fenced dedicated fund which is used on an exclusive basis for developing infrastructure projects by leveraging the available amounts for the benefit of persons paying the fee. As mentioned hereinabove, infrastructure projects funds costing approximately Rs. 10,197.55 crores have already been awarded, whereas the total amount of fee received by the Board till March 31, 2009 is only Rs. 1,857.92 crores, out of which the individual writ petitioners herein have hardly paid few thousands and in some cases, few lacs rupees each. On the contrary, one of the petitioners, namely, M/s. Garg Rice and General Mills situated in Mundi Kharar, District Mohali, would be getting benefit from the construction of proposed Kharar-Phagwara Expressway to be constructed at a tentative cost of Rs. 5,000 crores which is going to be the first fully access control expressway upgradable up to 10 lanes. Rs. 2,500 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06] 145 STC 544 (SC); [2006] 7 SCC 241 and Vijayalashmi Rice Mill [2006] 147 STC 609 (SC); [2006] 6 SCC 763 were cited and considered. The honourable court in para 27 of the judgment has noted as "we, however, feel that this Bench is bound by the Constitution Bench decision of this court". Thus, in order to find out a reasonable relationship between the fee levied and cost of regulation/services made available in lieu thereof, some empirical and quantifiable data have to be made available by the authority imposing the cess/fee for examination as to whether the impugned Acts indicate proportionality to quantifiable benefit. Looking to the exhaustive replies filed on behalf of the State as well as the PIDB setting out in detail the fund utilised towards the object and purpose of the Acts (which is much more than the collection of cess/fee), and the provisions of the Acts indicating the area, i.e., Infrastructure development sectors wherefor the fund in question is to be utilized and is being utilised as discussed hereinabove, we have in no manner any doubt that the mandates of Constitution Bench judgment in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241 stand fully a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC 1124, a Constitution Bench of the Supreme Court had upheld the imposition of market fee retrospectively. In yet another judgment in Sri Krishna Das [1990] 77 STC 395 (SC); [1990] 3 SCC 645, imposition of tax retrospectively was held to be valid. Thus, we hold that the retrospective levy of imposts in question under the 1998 Ordinance/Act, the Cess (Collection) Rules notified on November 11, 1998 and the clarificatory notification issued on April 8, 1999 with effect from the date of promulgation of Ordinance No. 7 of 1998 on October 15, 1998 and coming into force of the Act No. 1 of 1999, dated January 12, 1999, is valid in law. Thus, the submission to the contrary on behalf of the petitioners would not be sustainable, hence, it stands rejected. As regards the contention relating to recovery of cess by using the machinery under the PGST Act, in our view, this point would be covered by the decision of a Constitution Bench of the honourable apex court in Khyerbari Tea Co. Ltd. AIR 1964 SC 925. Para 23 thereof on reproduction reads as: "23. This question has been frequently considered by this court and the power of the Legislature to create appropriate machinery to recover a tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2001] 5 SCC 212 (para 18), has held that such delegation is permissible and cannot be found fault with. This has also been emphasized in the judgment that our Constitution is a growing document and the pressure of Legislature is immense, therefore, once the Act itself grants the power to the State Government to do something, it cannot be said to be an excessive delegation of power. Besides, if two views are possible, one in favour of the legislation and the other against it, the one in favour of legislation should prevail. Besides, in other cases also, namely, (i) State of Tamil Nadu v. K. Sabanayagam [1998] 1 SCC 318, (ii) St. Johns Teacher Training Institute v. Regional Director, National Council for Teacher Education [2003] 3 SCC 321, (iii) Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC); [2004] 10 SCC 1 and (iv) M.P. High Court Bar Association v. Union of India [2004] 11 SCC 766, the honourable court has taken a view in favour of delegation of ancillary functions by the Legislature. As regards the amendment in Schedule, section 11 of the 1998 Act provided as: "11. If any difficulty arises in giving effect to the provisions of this Act, the Government may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of fee has been increased under the 2002 Act only for the purpose of augmenting the infrastructure facilities primarily for the payers of fee. Another submission of learned counsel that an objection should have been invited before the levy of imposts may also not hold ground for the State Legislature is well within its competence to pass the impugned legislation qua entry 66 of List II (State List). Besides, there cannot be any procedural fetter like inviting objection before enacting a legislation. In regard to the argument that the fee collected should be deposited in a consolidated fund, we may say that the imposts have not been collected towards general revenue and the State Government has no control over the corpus. The collection of fund goes to a special fund, namely, infrastructure development fund created under the Act, which is regularly audited by the local fund examiner, Punjab, and it has been granted exemption under the Income-tax Act. The PIDB files income tax returns regularly and it has never earned any objection from the Income-tax Department. Moreover, we have already held that the imposts in question are only a fee and not a tax, thus, the provisions of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as far as possible, the respondents shall make space for the representation on behalf of individuals paying cess/fee under the Acts in question in the Punjab Infrastructure Development Board for participation in the formulation of schemes, utilisation of the development fund and implementation of projects relating to infrastructure development sectors. In view of all the aforesaid discussions and in the premises set out hereinabove, we hereby dispose of this batch of writ petitions with the liberty and observations as above while holding the impugned 1998 Ordinance (Ordinance No. 7 of 1998), the 1998 Act (Act No. 1 of 1999), the Cess (Collection) Rules, 1999, the clarificatory notification dated April 8, 1999 and the 2002 Act (Act No. 8 of 2002), as valid and intra vires, and the levy of imposts thereunder being sustainable in law. However, in the facts and circumstances of the case, the parties are directed to bear their own costs. ANNEXURE "A" 1. CWP-14317-1999 Vishnu Rice Mills (So) v. State of Punjab. 2. CWP-15280-1999 Athwal Rice & General Mill v. Punjab State, etc. 3. CWP-15424-1999 Rattna Rice and Gen. Mills, etc. v. State of Punjab. 4. CWP-15642-1999 P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anti Rice Mills and others v. State of Punjab and others. 38. CWP-7070-2008 K. N. Rice Mills v. State of Punjab and others. 39. CWP-7051-2008 A. V. and Company v. State of Punjab and others. 40. CWP-7053-2008 Dashmesh Rice Mills v. State of Punjab and others. 41 CWP-7055-2008 Dass Rice and Oil Mills v. State of Punjab. 42. CWP-7054-2008 Gupta Rice Mills v. State of Punjab and others. 43. CWP-7057-2008 Mewa Singh Avtar Singh v. State of Punjab and others. 44. CWP-7056-2008 B. P. Agro Industries v. State of Punjab and others. 45. CWP-12163-2008 Shri Chandu Lal Agro Ind. and others v. State of Punjab and others. 46. CWP-12162-2008 Ram Sarup Garg Cotton Mills and others v. State of Punjab and others. 47. CWP-12789-2008 J. D. Rice Mills v. State of Punjab and others. 48. CWP-12594-2008 Jagan Nath Din Dayal and others v. State of Punjab and others. 49. CWP-12156-2008 Shree Ganesh Cotton Industries and others v. State of Punjab and others. 50. CWP-13323-2008 Gobind Rice and General Mills and others v. State of Punjab and others. 51. CWP-14310-2008 Khalsa Rice Mills and others v. State of Punjab and others. 52. CWP-14547-2008 Shiv Shakti Exporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gro Industries Sultanpur Road v. State of Punjab and others. 85. CWP-2505-2007 Aggarwal Rice Mills v. State of Punjab and others. 86. CWP-2489-2007 Gurdial Mal and Sons Ltd. v. State of Punjab and others. 87. CWP-2512-2007 Gupta Rice Mills v. State of Punjab and others. 88. CWP-1499-2007 M. S. Sokhal Rise Mills v. State of Punjab and others. 89. CWP-16910-2008 S. S. A. International Ltd. v. State of Punjab and others. 90. CWP-11150-2008 Tejinder Kumar and Bros. v. State of Punjab and others. Page No: 461 91. CWP-21294-2008 Ajmer Singh Cotton & General Mills v. FCI and another. 92. CWP-11551-2008 Khosla Rice & General Mills v. State of Punjab and others. 93. CWP-1189-2000 R. F. Overseas (Pvt) Ltd. v. State of Punjab and others. 94. CWP-686-2009 Love Rush Foods Pvt. Ltd. v. State of Punjab and others. 95. CWP-1230-2009 Jeuni Rice Mills v. State of Punjab and others. 96. CWP-1231-2009 Onkar Rice Mills v. State of Punjab and others. 97. CWP-1233-2009 Sehaj Rice Mills v. State of Punjab and others. 98. CWP-12426-2000 Deva Singh Sham Singh v. State of Punjab. 99. CWP-1243-2009 Mahadev Rice and General Mills v. State of Punjab and othe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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