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TMI Blog2015 (9) TMI 1213X X X X Extracts X X X X X X X X Extracts X X X X ..... riums, challenge the levy as impermissible under Article 246 of the Constitution of India and impugn it further on the grounds of discrimination and arbitrariness. The petitioners also bring to focus the fact of the specific activity being covered under the Finance Act, 1994 and the Kerala Tax on Luxuries Act, 1976 [for brevity "Act of 1976"], which levies tax in the nature of "tax on luxuries". 2. Essentially one of the oldest and most sanctified social institutions, often referred to in a lighter vein; as an "essential evil" by nature of the cess, at least for certain persons, is made out to be an "avoidable luxury". I have heard the learned counsel appearing in the various writ petitions as also the learned Special Government Pleader (Taxes). Both have placed decisions before this Court, which would be discussed in the course of the judgment and the minimal facts, which are necessary for the disposal of these writ petitions, are referred to from W.P.(C). No. 4555 of 2014. 3. The petitioners are all owners of auditoriums/hotels and the individuals who conducted marriages of their wards; obliged to pay the cess brought out by the Kerala Finance Act, 2013. The extract of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondents, since there is neither quid pro quo nor can it be considered as a regulatory measure. Much less is there any nexus between the persons who are so made liable and the persons who are said to benefit from the revenue generated from such cess, which lays bare the arbitrariness in the levy. The so-called "fee", hence, in effect is a "tax", the levy of which is outside the scope and powers of the State Legislature; is the essential contention. 6. The petitioners concede the power of the State Legislature to resort to reasonable classification; while exercising the power of taxation, but brings into focus the clear discrimination in having excluded all weddings conducted other than in a Three Star hotel or an auditorium having a capacity of more than 500 seats. The petitioners pointedly refer to the weddings conducted in other hotels/auditoriums and inter alia in religious institutions and open areas with temporarily erected shamianas and so on and so forth. Furthermore, the renting of auditoriums and hotels are made for various purposes and there is no reason why 'weddings' alone should be singled out. The instant levy cannot be sustained as a tax; nor could it be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try 66 of List II and relatable to Entry 49 and Entry 62 of List II or sustainable under Entry 47 and Entry 5 of List III of the Seventh Schedule. Before examining the specific entries, one has to look at the concept of tax and fees and the source of power to make such levy under the Constitution of India, as elaborated upon by judicial precedents. The learned counsel for the petitioners have placed reliance on a number of judgments of the Hon'ble Supreme Court to contend that though it has been held that there need not be any exactitude in the "quid pro quo" with respect to a fee levied, there should definitely be a connection, however remote, when such fees are compensatory in nature. In the case of regulatory fees, essentially there should be an amount of regulation and the quantum of the levy should have some nexus with the expenditure incurred by the State, in making operative such regulations. Though a number of judgments of the Hon'ble Supreme Court and this Court have been cited, for the purpose of deciding the particular issue, reference to the decision in Delhi Race Club Ltd. v. Union of India: (2012) 53 VST 1 (SC)] would first suffice. The entire gamut of decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis supplied) 11. Kesoram Industries Ltd. (supra) was also relied on and the following extract assumes relevance:- "The term cess is commonly employed to connote a tax with a purpose or a tax allocated to a particular thing... However, it also means an assessment or levy. Depending on the context and purpose of levy, cess may not be a tax; it may be a fee or fee as well. It is not necessary that the services rendered from out of the fee collected should be directly in proportion with the amount of fee collected. It is equally not necessary that the services rendered by the fee collected should remain confined to the persons from whom the fee has been collected. Availability of indirect benefit and a general nexus between the persons bearing the burden of levy of fee and the services rendered out of the fee collected is enough to uphold the validity of the fee charged...". (emphasis supplied) Hence, in considering the sustainability of the levy, the primary object and the essential purpose of the levy must be distinguished from its ultimate or incidental results. The fact that incidentally or ultimately the State or the public in general be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment works are in progress for providing modern infrastructure facilities, the expenditure may be far in excess of the income. It is wrong to take only one particular year or a few years into consideration to decide whether the fee is commensurate with the services rendered. An overall picture has to be taken in dealing with the question whether there is quid pro quo, i.e., there is correlation between the increase in the rate of fee from 50 paise to rupee one and the services rendered...". 13. Delhi Race Club Ltd. (supra) reiterated that our Constitution contemplates fee for licensing and fee for services rendered, which are distinct and different kinds of levy and the former is not intended to be a fee for services rendered. In granting licences and thereby bringing in regulations, the fee charged would necessarily be, to defray the cost of administering such regulatory measure. If that would enrich the coffers of the State, which money would also be used for public purposes, unrelated to the regulatory measure; that alone cannot result in the levy being struck down. Hence, when a fee is charged for rendering specific services, quid pro quo is existent; but there need not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n use in India although the word rate has replaced it in England. It means a tax and is generally used when the levy is for some special administrative expense which the name (health cess, education cess, road cess etc.) indicates. When levied as an increment to an existing tax, the name matters not for the validity of the cess must be judged of in the same way as the validity of the tax to which it is an increment". 16. The Constitution Bench of the Hon'ble Supreme Court noted that the aforesaid observations were not the aspect on which the dissent was expressed, but did not actually rely on such observation. In any event, the above extracted observation only places the concept of 'cess' in the proper perspective insofar as declaring it to be a compulsory levy imposed either for special administrative expense or as an increment or increase on the existing tax and its sustainability being entitled to be adjudicated, just as the validity of a tax. 17. A Constitution Bench of the Hon'ble Supreme Court in Jindal Stainless Ltd. v. State of Haryana: AIR 2006 SC 2550] reiterated that a 'fee', 'tax' as also 'compensatory tax', the latter being a j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) SCC 673], the concept of 'quid pro quo' was widened to hold that "some connection" between the tax and the trading facilities extended to dealers directly or indirectly is sufficient to uphold a compensatory tax. That later view was held to be not good law and the doctrine of direct and immediate effect propounded in Atiabari Tea Co. Ltd. Etc. v. State of Assam and Ors.: AIR 1961 SC 232] and the working test evolved in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan: AIR 1963 SC 1406] was held to be applicable even now by Jindal Stainless Ltd. (supra). The working test for deciding whether a tax is compensatory or not, evolved in Automobile Transport (Rajasthan) Ltd. (supra), was held to be paraphrased in G.K. Krishnan and Ors. v. State of T.N. and Ors.: (1975) 1 SCC 375] in the observation that "the very idea of a compensatory tax is service more or less commensurate with the tax levied". 19. Entry 66 of List II specifically speaks of "fees in respect of any of the matters in this List", for the purpose of which the learned Special Government Pleader correlates it to Entry 49 and Entry 62 of List II. Entry 49 refers to "taxes on lands and buildings" and what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy on the "building" as such. 20. The correlation to Entry 62 List II also cannot be sustained, since there is already a levy by virtue of the Act of 1976, on the activities for which the Three Star hotels or auditoriums, covered under the impugned enactment are taxed. Any amenity or service provided in a hotel, auditorium or kalyanamantapam where the rate of charges for such amenity or service is above a specified limit; are deemed to be luxury and is taxed under Entry 62. The tax levied is on the aspect of luxury enjoyed. The fees now sought to be levied, tracing the power to Entry 66 List II and correlating it with Entry 62, cannot be sustained in view of the specific intention professed for providing marriage assistance to the under-privileged. The beneficiaries are not related to any service which has any remote connection to the persons on whom such levy is made. There is no regulatory exercise or administrative effort on the part of the Government; which if present could have possibly sustained the levy on the ground of defraying of expenses. 21. The State hence, does not provide any service or incur any administrative expense and the amount received on levy and collecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was noticed before hand, the State does not state any reason; why, wedding ceremonies alone was singled out for the levy; from a host of purposes for which auditoriums as such and those in Three star Hotels are rented out. Though classification is permissible and the State is given a wide berth in resorting to classification; there is an interdiction in singling out; as in this case the event for taxation. The intention disclosed is clear and unambiguous. A socially relevant measure to tax those who carry on expensive ceremonies in connection with weddings to enable marriage-unions for the less-privileged. The State could definitely employ its funds to that laudable object; but when it taxes citizens to generate money, it should have the power so to do. Social responsibility though could be enforced under the fields of legislation, it should be relatable to a specific entry under the lists of the Seventh Schedule. 25. Koluthara Exports Ltd. v. State of Kerala: (2002) 2 SCC 459] was a case in which a welfare fund constituted for the fishermen, by the Kerala Fishermen Welfare Fund Act, 1985, was sought to be sustained as a regulatory measure under Entry 23 of List III. The impost ..... X X X X Extracts X X X X X X X X Extracts X X X X
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