5. AIR 1954 SC 282 - Commissioner, HRE v. Sri Lakshmindra Thirtha (Foll) 6. (1980) 1 SCC 416 - Kewal Krishan Puri v. State of Punjab (do) 7. (1975) 3 SCR 475 - State of Maharashtra v. The Salvation Army (do) 8. (1971) 2 SCC 236 : AIR 1971 SC 1182 - Indian Mica & Micanite Industries v. State of Bihar (do) 9. AIR 1961 SC 459 - Hingir-Rampur Coal Co. v. State of Orissa (do) 10. ILR 1989 KAR 1 - Aswathanarayana Setty v. State of Karnataka (do)

BOOKS REFERRED: 1. C.S Diver - Policy Making Paradigms in Administrative Law - 1981 Harward Law Review 2. Verkuil - Review of Informal Rule Making

Mr. K.S Rarnesh for Petitioners

Mr. S.R Nayak, Govt. Advocate for Respondents

Balakrishna, J.:—

Similarity of predicament warranting common relief has compelled the petitioners to invoke the Writ Jurisdiction under Article 226 of the Constitution. Quashing of the order of the State of Karnataka passed on 25-8-1983 in Order No. CI 17 SPD 83 is sought in these Writ Petitions by the petitioners who are manufacturers of spun concrete pipes used for the purpose of water supply, sanitation and irrigation.

2. The impugned order is the outcome of a revision of registration fee and other rates chargeable by the Department of Stores Purchase, Government of Karnataka, Bangalore, which is reproduced below:—

“PROCEEDINGS OF THE GOVERNMENT OF KARNATAKA

Sub: Revision of Registration fee and other rates chargeable by the Department of Stores Purchase - Issue Order

ORDER No. CI 17 SPD 83 BANGALORE, DATED THE 25TH AUGUST, 1983

Government have considered various measures for additional resource mobilisation. One of these being revision of the fees charged by the Department of Stores Purchase. The Revenue of the Department of Stores Purchase Department consists of Tender fees, Registration fees and miscellaneous receipts. The present rates were revised in March 1980. Government consider it necessary to revise these rates.

Sanction is accorded for the revision of the rates charged by the Department of Stores Purchase as indicated below with immediate effect.

A) TENDER FORMS FEE FOR FIXED QUANTITY:

1. Upto Rs. 50,000/- Rs. 100/- 2. Rs. 50,000/- to Rs. 1.00 Lakh Rs. 200/- 3. For Rs. 1 lakh and above Rs. 400/- 4. For every additional Rs. 1 lakh Rs. 100/- with overall ceiling limit of Rs. 5,000/-

B) TENDER FORM FEE FOR RATE CONTRACT:

1. For sale of tender forms for rate contract upto Rs. 1.00 lakh Rs. 1,000/-

2. Rs. 1.00 lakh to Rs. 10 lakhs Rs. 2,500/- 3. Rs. 10 lakh to Rs. 25 lakhs Rs. 5,000/- 4. Rs. 25 lakhs to Rs. 50 lakhs Rs. 7,500/- 5. Rs. 50 lakhs to Rs. 1 crore Rs. 10,000/- 6. Rs. 1 crore and above Rs. 15,000/-

In the case of Registered Small Scale Industrial Units in Karnataka, there will be a concession of 50% of the fee charges,

C) REGISTRATION FEES;

1. For SSI Units Rs. 500/- 2. For others Rs. 750/-

The applications form fee will be increased from Rs. 5/- to Rs. 20/-.

BY ORDER AND IN THE NAME OF THE GOVERNOR OF KARNATAKA

Sd/- (N.R Santhurama Rao)

Under Secretary to Government, Commerce & Industries Department.”

3. The material facts, in brief, are as follows:—

The petitioners are suppliers of various products mainly to the Public Works. Department of the Government of Karnataka. They have registered their names with the Stores Purchase Department of the Government of Karnataka for supply of their products to the Government Departments. The prescribed procedure for awarding rate contracts for supply of the products are described below:—

(a) Respondent-2 invites tenders for fixation of rate contract usually once in a year for the fixation of rate contract depending upon the lowest quoted rate for each class of supply;

(b) The concerned Department will then place orders for supply in accordance with its requirements giving details such as the class of the materials to be supplied, quantity, time of delivery and similar particulars at rates fixed by the Director, Stores Purchase Department, Government of Karnataka;

(c) At the time of calling for tenders, in order to fix the rate contract, all the registered suppliers are notified besides publication of notification by public notice inviting sealed tenders:

(d) On receipt of notice, the intending suppliers are required to purchase tender forms and submit their tender to respondent-2. The tender forms are sold by respondent-2 for a price fixed by respondent-1 from time to time. The money so payable for purchase of the forms is known as “Tender Form Fee”. In addition, the suppliers have to furnish separate Earnest Money Deposit at the time of submitting the tender with quotations for the purpose of fixing the rate contract by respondent-2 and non-payment of the E.M.D entails rejection of the quotation. Whereas the E.M.D is refundable at the time of finalisation of the bills after supply of materials, the tender from fee is non-refundable.

4. In 1979, the State of Karnataka (respondent-1) stipulated Rs. 50/- plus 4% K.S.T as tender form fee which was subsequently revised in 1980 to Rs. 100/- only by the proceedings of the Government of Karnataka. Thereafter, by proceedings of respondent-1 dated 25-8-1983 came about a drastic revision of tender form fee and registration fee. The price of tender forms was enhanced from Rs. 100/- to a rate ranging between Rs. 100/- to Rs. 5,000/- for fixed quantity and Rs. 1,000/- to Rs. 15,000/- for rate contract. However, in the case of registered Small Scale Industrial Units in Karnataka, a concession was given to the extent of 50% of the prescribed fee. Since the tender form fee as commonly understood is intended to cover only the cost of the forms, the abnormal enhancement of the price caused much heart-burn among the petitioners and therefore they have challenged the impugned order.

5. The case of the petitioners is that the impugned order is not only arbitrary, but also unreasonable and that the reason advanced for revision and enhancement of the tender form fee is impermissible in law, unconstitutional and violative of Article 19(1)(g) of the Constitution of India for the reason that the price under the impugned order is oppressive and prohibitive. The second contention is that the impugned order infringes Article 14 of the Constitution of India since it imposes an unreasonable restriction on persons who do not pay the unreasonably high rate, indirectly eliminating them from participation in the tender. The third contention is that respondent-1 has no power to burden a citizen unreasonably by levying tax in the garb of fee without the authority of law, transgressing his fundamental rights under the guise of additional resource mobilisation. Lastly it is contended that there is no rational basis for revision of the tender form fee and the only justifiable basis ought to be the actual cost of the tender form and the related expenses and it is further contended that the basis on which the rate has been revised is not spelt out. It is pointed out that arbitrariness and unreasonableness are manifest in the draconian increase in the fee from Rs. 100/- to Rs. 5,000/- for pressure pipes and Rs. 15,000/- for non-pressure pipes which is fifty times and 150 times more respectively than the existing rate.

6. On behalf of the respondents, it is contended that the impugned order is beyond challenge since the power exercised by respondent-1 in passing the impugned order is derived from Article 154 read with Article 162 of the Constitution of India by exercise of executive power which is co-extensive with the legislative power of the State. It is also contended that the object of revision of the tender form fee is resource mobilisation and levy of such a fee as the price to be paid for supply of tender forms to the petitioners does not amount to compulsory exaction since it is always open to the petitioners either to opt for participation in the tender or not to do so.

7. The question is whether the impugned order deserves to be quashed for violation of Articles 14 and 19(1)(g) of the Constitution of india.

8. The Preamble to the impugned order dated 25-8-1983 affords an insight into the object of revision of tender form fee as well as registration fee. But for the purpose of these Writ Petitions, the tender form fee is of concern. According to the Preamble, the Government of Karnataka considered various measures for additional resource mobilisation among which one of the measures is revision of the fee charged by the Department of Stores Purchase. The revenue of the Stores Purchase Department consists of not only tender form fee and registration fee, but also miscellaneous receipts. The first revision took place in March 1980 enhancing the tender form fee from Rs. 50/- to Rs. 100/-. The second revision took place on 25-8-1983. It is also seen that the registration fee also underwent an increase besides applications form fee. The registration fee for S.S.I units was increased to Rs. 500/- and for others to Rs. 750/- whereas the application form fee was increased from Rs. 5/- to Rs. 20/-. Thus it is seen that there was an all-round revision and drastic increase in the fee payable to the Department of Stores Purchase under the impugned order. Annexure-A is the notice dated 13-8-1987 served on the petitioners the relevant portion of which is extracted below:—

“Sealed tenders in duplicate superscribed with enquiry number and closing date will be received by the Director, Stores Purchase Department upto 3 p.m on 15-9-1987 for the supply of R.C.C PIPES AND COLLARS (NON-PRESSURE) ON RATE CONTRACT BASIS.

Intending tenderers may on application to the Director, Stores Purchase Department, 17th Floor, Public Utility Building, M.G Road, Bangalore-1 obtain the requisite tenders forms on which tenders should be submitted. Applications should be accompanied by a cash remittance of Rs. 15,000/- plus 8% K.S.T (Rupees Fifteen thousand plus 8% taxes) which is the price fixed for a set of forms and which is not refundable. For additional set of tender forms Rs. 10/- + Taxes extra. The tender forms will be sold till 4 p.m on 14-9-1987. If the quotation is submitted without E.M.D of Rs. 1,500/- by way of D/D or R.B.I Challan and without attested copies of recent valid sales tax and income tax clearance certificates the same will be rejected outright. If telegraphic quotation is sent by the tenderers it should be clear, complete with regard to rate, delivery terms, taxes, discounts and such other necessary details. Further the telegraphic quotation should be followed by the detailed tender and the said E.M.D within three days from the date of telegraphic quotation, failing which the telegraphic quotation will be rejected. The tenderers quoting validity of less than 90 days will be straightaway rejected.

Cheques and postage stamps will not be accepted towards the cost of tender forms nor will the forms be sent by V.P.P

The last date for receipt of the quotation will be at 3 p.m on 15-9-1987. The date of opening of the tender is at 3.30 p.m on 15-9-1987.

The SSI units of Karnataka can avail 50% concession in the tender forms fee on production of documentary evidence.

The rates to be quoted on Zonal basis taking the Revenue Divisions into account.”

9. According to this notice, the intending tenderers are required to obtain the requisite tender forms on which tenders have to be submitted. The purchase of the tender forms is a condition precedent to the submission of the tenders. The notice contemplates that the applications should be accompanied by a cash remittance of Rs. 15,000/- plus K.S.T at 8% which is the price fixed for a set of tender forms and which amount is not refundable. The notice also mentions that additional tender form set would be had at Rs. 10/- plus taxes extra. The notice makes it clear that if the quotation is submitted without purchasing the prescribed tender forms and without an E.M.D of Rs. 1,500/- by way of D.D or R.B.I challan and without attested copies of valid sales tax and income tax clearance certificates, the applications would be rejected outright. By these conditions, it is abundantly clear that the first step contemplated in the process is the mandate to the intending tenderer to apply for the requisite tender forms by paying the price fixed on the same failing which the application for supply of tender forms would be rejected outright. In the notice it is also made clear that any quotation submitted without purchasing the prescribed tender forms and without the accompanying of E.M.D of Rs. 1,500/- is liable to be rejected. It is thus seen that the petitioners are subjected to compulsory exaction of money in so far as payment of tender form fee is concerned. In these cases, we are not concerned with the tenders as such, but we are only concerned with the reasonableness of the price fixed for the tender forms and the right of the petitioners to participate in the tenders.

10. The Preamble to the impugned order clearly demonstrates that the payment of revised tender form fee and imposition of the same on the intending tenderers is for the collateral purpose of “additional resource mobilisation” in the words of the Government. Obviously In the absence of any other statement of object discernible in the impugned order, it has to be presumed that the revised fee is not intended to be the actual cost of the tender forms sold to the petitioners. The tender form fee in respect of fixed quantity and also in respect of rate contract is not either cost based or service oriented. Apart from the fact that there is an element of compulsion in the imposition and exaction of the fee, there is absolutely no indication of any reciprocal service being rendered to the petitioners either individually or generally. It is possible to reach the finding in these circumstances that though the price of tender forms is prescribed as tender form fee, what is in fact involved is only a tax. There is no quid pro quo to support the tender form fee in order to call it a fee instead of a tax. Under the guise of fee, if in fact and in substance tax is being exacted, the question which arises is whether the power to impose and levy tax is properly derived under any statute by the Government. The learned Government Advocate appearing for the respondents submitted that the power exercised in revising the tender form fee is traceable to Articles 154 and 162 of the Constitution of India and that the petitioners have no locus standi to question the same. I am unable to agree with such a contention because no executive legislation in respect of levy and recovery of a tax is permissible in the absence of a legislative enactment for imposition of tax liability on the petitioners. The contention deserves to be rejected on the face of it in the light of Article 265 of the Constitution.

In a recent decision of the Supreme Court in Mahabir Auto Stores v. Indian Oil Corporation . 1990 3 SCC 752 the amenability of the exercise of power by the State to Article 14 of the Constitution when it acts in its executive power under Article 298 of the Constitution in entering into contracts with individual parties, is highlighted:

Per Mukherji, C.J:—

“It is well settled that every action of State or an instrumentality of the State in exercise of its executive power, must be informed by reason. In appropriate cases, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Constitution. Reliance in this connection may be placed on the observations of this Court in Radha Krishna Agarwal v. State of Bihar (1977) 3 SCC 457: ((1977) 3 SCC 457 : AIR 1977 SC 1496). It appears to us, at the outset, that in the facts and circumstances of the case, the respondent company IOC is an organ of the State or an instrumentality of the State as contemplated under Article 13 of the Constitution. The State acts in its executive power under Article 298 of the Constitution in entering or not entering in contracts with individual parties. Article 14 of the Constitution would be applicable to those exercises of power. Therefore, the action of State organ under Article 14 can be checked. See Radhakrishna Agarwal v. State of Bihar at Page 462 (at SCC): (at Page 1499-1500 of AIR) (supra), but Article 14 of the Constitution cannot and has not been construed as a charter for judicial review of State action after the contract has been entered into, to call upon the State to account for its actions in its manifold activities by stating reasons for such actions…….. In case any right conferred on the citizens which is sought to be interfered, such action is subject to Article 14 of the Constitution, and must be reasonable and can be taken only upon lawful and relevant grounds of public interest. Where there is arbitrariness in State action of this type of entering or not entering into contracts, Article 14 springs up and judicial review strikes such an action down. Every action of the State Executive Authority must be subject to Rule of Law and must be informed by reason……”

(Emphasis supplied)

In the instant cases, the petitioners have challenged the impugned order before entering into contract and therefore Article 14 is applicable inviting judicial review of State action.

11. Most curiously the tender notification discloses that the fee in question aims at “additional resource mobilisation”, for whatever it means. The respondents are unable to explain for whose benefit the resources are moblised and for what purpose they are intended to be appropriated. As rightly pointed out by the learned Counsel appearing for the petitioners even the basis on which the rate has been revised by respondent-1 is not spelt out. There is no demonstrable material with the respondents to persuade me to accept the contention that the revision of fee is rational and justified. There is no gainsaying the fact that what is fixed under the impugned order is the price sought to be recovered from the petitioners for mere supply of tender forms at an exhorbitant rate far in excess of the actual cost of the forms. When such a price is exacted from the petitioners, a duty is cast on the recipient to disclose what service is being rendered whether individual or otherwise and also throw light on material particulars of the pattern of proposed utilisation. Such an appraisal is not at all forthcoming from the respondents. In these circumstances, it would not be unreasonable to presume that the money collected on supply of tender forms is intended for an undisclosed collateral purpose and certainly not for rendering service.

12. When the State or its Department notifies an invitation to tender, the attitude of “take it or leave it” no matter how oppressive and unreasonable the price of tender form is, neither fits into the rubric of a rational executive nor creates a non-repulsive climate free from unconscionable and unfair pricing of the tender forms even before the contract begins. The result is that the prohibitive and arbitrary price shuts the door to the aspirants who otherwise would have participated in the tender by paying a reasonable price for the tender forms. It is not only significant but also relevant to note that no tender could be offered without purchasing the forms at a rate so outrageous in its defiance of logic or of acceptable standards that no reasonable person who had applied his mind could have arrived at. It is against this back-ground that I am prompted to observe that the cry of public interest is the summons to relief through juristic activism and that irrationality is a valid basis for judicial review of State action.

13. Sovereign people rely heavily on Courts today to breathe life into the words of the Constitution. Rule of law is the accepted foundation. However, realism tells that what matters is how the wheel turns and not a theory that makes a Government free or not free. How truly it is said that democracy has no theory but only a theorem and that principles of democratic Government may be described by a single proposition but there is no single means to achieve them. Between the State and the citizen there is no place for arbitrariness or authoritarian action whether it is trade or commerce or contract, if administrative justice is to be meaningful. Reasonable standard of conduct of the State towards its citizen under the Rule of Law is a necessary concomitant of jurisprudence of public duties.

14. Proliferation of tender contracts with the expansion of the State's developmental activities in various fields which is bound to go on unabated in a developing economy, has thrown open increasing possibilities of substantial exaction of money by means of unfair pricing of tender forms, registration fee and other miscellaneous charges. The State being in a dominant position and the applicant being an unequal in the transaction, the price of the tender form being neither cost based nor service based, the scope for unfair practice in State contracts is expanding by imposition of unconscionable conditions. By compelling an intending tenderer to buy the forms at an unfair price or at a prohibitive price or at an oppressive price as a condition precedent for submitting the tender, the State is indulging in unfair trade practice. Instead of service element, what is in evidence is the element of exploitation attached to taxation in the garb of fee. In my opinion, the impugned State action in the context is injurious to public interest besides being offensive to public policy.

15. According to Dicey:—

“The Rule of Law is again used as a formula for expressing the fact that with us, the law of the Constitution, the Rules which foreign countries naturally form part of a constitutional code, are not the source but the consequence of the rights of individuals as defined and expressed by Courts.”

(Emphasis supplied)

16. The petitioners who are subjected to unduly harsh burden have a legitimate grievance and do have the locus standi to assail the constitutionality of the impugned State action which lacks statutory warrant. The contentions urged by the petitioners commend acceptance and I hold that the impugned order is offensive to both Article 14 and Article 19(1)(g) of the Constitution of India.

The additional perceptions in support of the case of the petitioners which compel attention, are the doctrine of duress, the element of extortion under colour of authority and confiscation involved in the State action in question.

In Shoppee v. Nathan,2 it was observed:—

“Extortion is defined to be in a large sense, any oppression under colour of right. In a strict sense, the taking of money by any Officer under colour of his office either where none at all is due, or not so much is due or where it is not yet due.”

The compulsory exaction of an exhorbitant fee on tender forms in my opinion, tends to fail within the ambit of extortion, as it is not only irrational but also confiscatory not being refundable.

In recent years, a new doctrine has taken roots in the thinking of Courts in Administrative Law called the “hard look doctrine” [See C.S Diver's “Policy making Paradigms in Administrative Law” (1981) Harvard Law Review and also Verkuil's “Review of Informal Rule Making”].

The said doctrine which has set a new trend of judicial activism has assumed the form of a more exacting review of the rational basis of discretionary decisions. It has been described as ‘a distinct move from an incremental approach to one of comprehensive, rational planning, to a synoptic rather than a piecemeal approach and the threshold requirement of rational reasonableness has given way to the “hard look doctrine”.’

This lethal sounding devise has been characterised as a reluctance of the Courts to be content with the ‘intuitive plausibility of the link between the policy announced and the statutory standard.’

In “Citizens to Preserve Overton Park v. Volpe,”3 the Court expressed the view that “the agency must be prepared to demonstrate to the Court that the course of action chosen not only advances its goal but is superior to any alternative advanced by outside participants or conceived by the agency itself.”

Under the hard look doctrine, the Courts have demanded that the agency specify its goals, identify the alternatives, analyse the consequences of each and optimise their choices which in cumulative effect enjoin upon the Courts, a searching examination of the evidential and empirical basis of decisions.

Though ‘reasonableness’ is the one unifying concept that runs through judicial review, Lord Diplock's view that irrationality in an official action is a separate ground of review, has rapidly been assimilated into judicial orthodoxy (See Council of Civil Service Unions v. Minister for Civil Service).4

Unlawful taxation falls in the “duress category”. The petitioners are not on equal terms with the recipient for any reason such as where the latter declines to consider grant of contract unless they pay an unlawful premium to obtain the tender forms and therefore the doctrine of duress is attracted.

17. A thorough and exhaustive exposition of the niceties of distinction between tax and fee and the connotations of the two expressions are to be found in the following decisions of the Supreme Court which are of material relevance.

18. In Commissioner, Hindu Religious Endowments v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt . AIR 1954 SC 282 @ 295. the Court observed:—

“A neat definition of what ‘tax’ means has been given by Latham, C.J of the High Court of Australia in ‘Matthews v. Chicory Marketing Board’, 60 CLR 263 at page 276 (M).

‘A tax’, according to the learned Chief Justice, “is a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment ‘for services rendered.”

This definition brings out, in our opinion, the essential characteristics of a tax as distinguished from other forms of imposition which, in a general sense, are included within it. 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 vide - ‘Lower Mainland Diary v. Crystal Dairy Ltd.’ 1933 AC 168 (N).

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 collected forms part of the public revenues of the State. As the object of a tax is not to confer any special benefit upon any particular individual, there is, as it is said, no element of ‘quid pro quo’ between the taxpayer and the public authority, see Findlay Shirras on ‘Science of Public Finance’, Vol. I, Page 203. An other feature of taxation is that as it is a part of the common burden, the quantum of imposition upon the tax-payer depends generally upon his capacity to pay.

Coming now to fees, a ‘fee’ is generally defined to be a charge for a special service rendered to individuals by some governmental agency. The amount of fee levied is supposed to be based on the expenses incurred by the Government in rendering the service, though in many cases the costs are arbitrarily assessed. Ordinarily, the fees are uniform and no account is taken of the varying abilities of different recipients to pay, vide Lutz on “Public Finance” page 215. These are undoubtedly some of the general characteristics, but as there may be various kinds of fees, it is not possible to formulate a definition that would be applicable to all cases.

……..The distinction between a tax and a fee lies primarily in the fact that a tax is levied as a part of a common burden, while a fee is a payment for a special benefit or privilege. Fees confer a special capacity, although the special advantage, as for example in the case of registration fees for documents or marriage licences, is secondary to the primary motive of regulation in the public interest, vide Findlay Shirras on Science of Public Finance’, Vol. I, page 202. Public interest seems to be at the basis of all impositions, but in a fee it is some special benefit which the individual receives. As Seligman says, it is the special benefit accruing to the individual which is the reason for payment in the case of fees; in the case of a tax, the particular advantage if it exists at all is an incidental result of State action, vide Seligman's Essays on Taxation, page 408.

If as we hold, a fee is regarded as a sort of return or consideration for services rendered, it is absolutely necessary that the levy of fees should, on the face of the legislative provision, be correlated to the expenses incurred by Government in rendering the services. As indicated in Article 110 of the Constitution, ordinarily there are two classes of cases where Government imposes ‘fees’ upon persons. In the first class of cases, Government simply grants a permission or privilege to a person to do something, which otherwise that person would not be competent to do and extracts fees either heavy or moderate from that person in return for the privilege that is conferred.

……In the other class of cases, the Government does some positive work for the benefit of persons and the money is taken as the return for the work done or services rendered. If the money thus paid is set apart and appropriated specifically for the performance of such work and is not merged in the public revenues for the benefit of the general public, it could be counted as fees and not a tax. There is really no generic difference between the tax and fees and as said by Seligman, the taxing power of a State may manifest itself in three different forms known respectively as special assessments, fees and taxes, Ibid page 406.

Our Constitution has, for legislative purposes, made a distinction between a tax and a fee and while there are various entries in the legislative lists with regard to various forms of taxes, there is an entry at the end of each one of the three lists as regards fees which could be levied in respect of any of the matters that is included in it. The implication seems to be that fees have special reference to governmental action undertaken in respect of any of these matters.”

Applying the ratio of the decision in regard to the distinction between fee and tax, the logical conclusion is that in the instant cases the fee charged for the supply of tender forms is nothing but tax.

19. In Kewal Krishan Puri v. State of Punjab,6 a Bench of five Judges of the Supreme Court, while adopting the view taken by the Supreme Court in AIR 1954 SC 282 which is referred to in the preceding paragraphs, held:—

“The authorities, more often than not, almost invariably, will not be able to know the individual or individuals on whom partly or wholly the ultimate burden of the fee will fall. They are not concerned to investigate and find out the position of the ultimate burden. It is axiomatic that the special service rendered must be to the payer of the fee. The element of quid pro quo must be established between the payer of the fee and the authority charging it. It may not be the exact equivalent of the fee by a mathematical precision, yet, by and large, or predominantly, the authority collecting the fee must show that the service which they are rendering in lieu of fee is for some special benefit of the payer of the fee. It may be so intimately connected or interwoven with the service rendered to others that it may not: be possible to do a complete dichotomy and analysis as to what amount of special service was rendered to the payer of the fee and what proportion went to others. But generally and broadly speaking it must be shown with some amount of certainty, reasonableness or preponderance of probability that quite a substantial portion of the amount of fee realised is spent for the special benefit of its payers.”

In the cases in hand, the respondents have not shown with any amount of certainty, reasonableness or preponderance of probability that quite a substantial portion of the fee realised is spent for the special benefit of the petitioners.

20. In State of Maharashtra v. The Salvation Army, Western India Territory . 1975 3 SCR 475. the view propounded by the Court was:—

“A tax is a compulsory exaction of money by a public authority for a public purpose enforceable by law and is not a payment for any specific service rendered. The levy of a tax is for the purpose of general revenue, which, when collected, forms part of the public revenues of the State. There is no element of quid pro quo between the tax payer and the public authority. A fee, however, is generally defined to be a charge for a special service rendered to individuals by the Government or some other agency like a local authority or statutory Corporation. The amount of fee levied is supposed to be based on the expenses incurred in rendering the services though, in many cases, the costs are arbitrarily assessed. Fees are generally uniform but absence of uniformity is not a criterion on which alone it can be said that the levy is in the nature of a tax. As a fee is regarded as a sort of return or consideration for services rendered it is necessary that the levy of a fee should be correlated to the expenses incurred in rendering the services. It is also generally necessary that the payments demanded for rendering services must be set apart or specifically appropriated for that purpose and that they should not be merged in the general revenue of the State to be spent for general public purposes. It may not, however, be possible to prove in every case that the fees collected always approximate to the expenses that are incurred in rendering the particular kind of services or in performing any particular work for the benefit of certain individuals.”

In the impugned order, the object of collecting the fee is stated as a measure for additional resource mobilisation. Applying the principle laid down in the above case since the fee collected is not set apart or specifically appropriated for rendering services to the payers but is merged in the general revenue of the State, the inevitable conclusion is that what is collected is not fee.

21. In the Indian Mica and Micanite Industries Ltd. v. The State of Bihar . 1971 2 SCC 236 the following passage is of contextual relevance:—

“According to the finding of the High Court the only services rendered by the Government to the appellant and to other similar licensees is that the Excise Department have to maintain an elaborate staff not only for the purposes of ensuring that denaturing is done properly by the manufacturer but also for the purpose of seeing that the subsequent possession of denatured spirit in the hands either of a wholesale dealer or retail seller or any other licensee or permit-holder is not misused by converting the denatured spirit into alcohol fit for human consumption and thereby evade payment of heavy duty. So far as the manufacturing process is concerned, the appellant or other similar licensees have nothing to do with it. They are only the purchasers of manufactured denatured spirit. Hence the cost of supervising the manufacturing process or any assistance rendered to the manufacturers cannot be recovered from the consumers like the appellant. Further under Rule 9 of the Board's Rules, the actual cost of supervision of the manufacturing process by the Excise Department is required to be borne by the manufacturer. There cannot be a double levy in that regard. In the opinion of the High Court the subsequent transfer of denatured spirit and possession of the same in the hands of various persons such as whole-sale dealer, retail dealer or other manufacturers also requires close and effective supervision because of the risk of the denatured spirit being converted into potable liquor and thus evading heavy duty. Assuming this conclusion to be correct, by doing so, the State is rendering no service to the consumer. It is merely protecting its own rights. Further in this case, the State which was in a position to place material before the Court to show what services had been rendered by it to the appellant and other similar licensees, the costs or at any rate the probable costs that can be said to have been incurred for rendering those services and the amount realised as fees has failed to do so. On the side of the appellant, it is alleged that the State is collecting huge amount as fees and that it is rendering little or no service in return. The correlationship between the services rendered and the fee levied is essentially a question of fact. Prima facie, the levy appears to be excessive even if the State can be said to be rendering some service to the licensees. The State ought to be in possession of the material from which the correlationship between the levy and the services rendered can be established at least in a general way. But the State has not chosen to place those materials before the Court. Therefore, the levy under the impugned Rule cannot be justified.”

It is to be pointed out that the State in these cases has not been able to substantiate or demonstrate what service is being rendered to the petitioners in lieu of the fee collected, by placing material in support. Applying the principle laid down in the above case, the finding is that the impugned levy is not justified.

22. In Hingir-Rampur Coal Co. v. State of Orissa . AIR 1961 SC 459. the Supreme Court while answering the question whether the levy imposed amounted to a fee relatable to Entry 23 read with Entry 66 in List II of the Constitution said:—

“Before we deal with this question it is necessary to consider the difference between the concept of tax, and that of a fee. The neat and terse definition of tax which has been given by Latham, C.J, in Matthews v. Chicory Marketing Board, 60 CLR 263 at page 276, is often cited as a classic on this subject. “A tax”, said Latham, C.J, “is a compulsory exaction of money by public authority for public purposes enforceable by law, and is not payment for services rendered”. In bringing out the essential features of a tax this definition also assists in distinguishing a tax from a fee. It is true that between, a tax and a fee there is no generic difference. Both are compulsory exactions of money by public authorities; but whereas a tax is imposed for public purposes and is not, and need not, be supported by any consideration of service rendered in return, a fee is levied essentially for services rendered and as such there, is an element of quid pro quo between the person who pays the fee and the public authority which imposes it. If specific services are rendered to a specific area or to a specific class of persons or trade or business in any local area, and as a condition precedent for the said services or in return for them cess is levied against the said area or the said class of persons or trade or business the cess is distinguishable from a tax and is described as a fee. Tax recovered by public authority invariably goes into the consolidated fund which ultimately is utilised for all public purposes, whereas a cess levied by way of fee is not intended to be, and does not became, a part of the consolidated fund. It is earmarked and set apart for the purpose of services for which it is levied. There is, however, an element of compulsion in the imposition of both tax and fee. When the Legislature decides to render a specific service to any area or to any class of persons, it is not open to the said area or to the said class of persons to plead that they do not want the service and therefore they should be exempted from the payment of the cess. Though there is an element of quid pro quo between the tax-payer and the public authority there is no option to the tax-payer in the matter of receiving the service determined by public authority. In regard to fees there is, and must always be, co-relation between the fee collected and the service intended to be rendered. Cases may arise where under the guise of levying a fee Legislature may attempt to impose a tax; and in the case of such a colourable exercise of legislative power Courts would have to scrutinise the scheme of the levy very carefully and determine whether in fact there is a co-relation between the service and the levy or whether the levy is either not co-related with service or is levied to such an excessive extent as to be a pretence of a fee and not a fee in reality. In other words, whether or not a particular cess levied by a statute amounts to a fee or tax would always be a question of fact, to be determined in the circumstances of each case. The distinction between a tax and a fee is, however, important and it is recognised by the Constitution, Several Entries in the. Three Lists empower the appropriate Legislatures to levy taxes; but apart from the power to levy takes thus conferred each List specifically refers to the power to levy fees in respect of any of the matters covered in the said List excluding of course the fees taken in any Court.

……..It is true that when the Legislature levies a fee for rendering specific services to a specified area or to a specified class of persons or trade or business, in the last analysis such services may indirectly form part of services to the public in general. If the special service rendered is distinctly and primarily meant for the benefit of a specified class or area the fact that in benefiting the specified class or area the State as a whole may ultimately and indirectly be benefited would not detract from the character of the levy as a fee. Where, however, the specific service is indistinguishable from public service, and in essence is directly a part of it, different considerations may arise. In such a case it is necessary to enquire what is the primary object of the levy and the essential purpose which it is intended to achieve. Its primary object and the essential purpose must be distinguished from its ultimate or incidental results or consequences. That is the true test in determining the character of the levy.

In Parton v. Milk Board (Victoria), (1949) 80 CLR 229 the validity of the levy imposed on dairymen and owners of milk depots by Section 30 of the Milk Board Act of 1933 as amended by subsequent Acts of 1936-1939 was challenged, and it was held by Dixon, J. that the levy of the said contribution amounted to the imposition of a duty of excise. This decision was substantially based on the ground that the statutory board “performs no particular service for the dairyman or the owner of a mill depot for which his contribution may be considered as a fee or recompense”; that is to say the element of quid pro quo was absent qua the persons on whom the levy had been imposed. Therefore, none of the decisions on which Mr. Amin has relied can assist his case.”

Since no service is rendered or intended to be rendered to the petitioners and also since the fee collected is intended to augment the resource mobilisation of the State, the inference is that what is levied is not fee but tax.

23. In Aswathanarayana Setty v. State of Karnataka . ILR 1989 KAR 1. the Supreme Court took the following view while considering the point of legality of the levy of Court fees ad-valorem on the value or amount of suits and appeals without the prescription of any upper limit under the provisions of the Karnataka Court Fees and Suits Valuation Act, 1958:—

“Another review of all the earlier pronouncements of this Court on the conceptual distinction between a ‘fee’ and a ‘tax’ and the various contexts in which the distinction becomes telling is an idle parade of familiar learning and unnecessary. What emerges from these pronouncements is that if the essential character of the impost is that some special service is intended or envisaged as a quid pro quo to the class of citizens which is intended to benefited by the service and there is a broad and general correlation between the amount so raised and the expenses involved in providing the services, the impost would be character of a ‘fee’ notwithstanding the circumstance that the identity of the amount so raised is not always kept distinguished but is merged in the general revenues of the State and notwithstanding the fact that such special services, for which the amount is raised, are, as they very often do, incidentally or indirectly benefit the general public also. The test is the primary object of the levy and the essential purpose it is intended to achieve. The correlationship between the amount raised through the ‘fee’ and the expenses involved in providing the services need not be examined with a view to ascertaining any accurate, arithmetic equivalence or precision in the correlation; but it would be sufficient that there is a broad and general correlation. But a fee loses its character as such if it is intended to and does go to enrich the general revenues of the State to be applied for general purposes of Government. Conversely, from this latter element stems the sequential proposition that the object to be served by raising the fee should not include objects which are, otherwise, within the ambit of general Governmental obligations and activities. The concept of fee is not satisfied merely by showing that, the class of persons from whom the fee is collected also derives some benefit from those activities of Government. The benefit the class of payers of fee obtain in such a case is clearly not a benefit intended as special service to it but derived by it as part of the general public.”

(Emphasis supplied)

In another paragraph, the Court further observed:—

“A fee is, therefore, a charge for the special service rendered to a class of citizens by Government or Governmental agencies and is generally based on the expenses incurred in rendering the services.”

24. In the light of the above discussion and on application of well established legal principles, I am of the opinion that the impugned order is unsustainable.

25. For the reasons stated above, these Writ Petitions are allowed and the impugned order bearing No. CI 17 SPD 83 dated 25-8-1983 is quashed. Enhanced tender form fee paid by petitioners on the basis of the impugned order, if any, shall be refunded to the petitioners.

In the circumstances of these cases, there will be no order as to costs.