Judgement

This is an appeal against the Judgment of our learned brother, Umamaheswaram, J., quashing the resolution passed by the Guntur Municipality levying a fee on sellers occupying road margins.

2. On 2-2-1955 the Municipal Council, Guntur, passed a resolution under Ss. 270 and 312 of the Madras District Municipalities Act (Act V of 1920) (hereinafter referred to as the Act). In and by the said resolution the Municipality levied a tax on persons selling or displaying for sale any articles or animals on the margins of public roads at the following rates :

Re. 0-3-0 per basket;

Re. 0-6-0 per Jalla; and

Re. 0-2-3 per square yard of occupied space.

3. The right to collect the said amount was farmed out to the 2nd respondent. The petitioner filed the petition under Art. 226 of the Constitution of India, contending inter alia that the Municipality was not authorised to levy tax on persons vending their articles on the margins of public roads and that even if the tax was deemed to be a licence fee they had no right to collect the same as they were not spending any sum whatsoever for discharging any obligation under the resolution.

He further pleaded that he was entitled to the free use of the roads of the Municipality without any restriction under Art. 19 (1) (d) of the Constitution, and that the restriction imposed by the resolution that a person should not use the same except on payment of a fee to the Municipality was unreasonable and void.

4. In the counter filed to the said petition the Municipality pleaded that the levy was neither a tax nor a licence fee but was only rent to be collected from those who occupy any road margin. They also denied that the petitioner had any fundamental right to use the road margins without any restriction by the Municipality. In the rejoinder the petitioner reiterated the plea that the levy was essentially a tax which the Municipality had no right to impose.

5. Before the learned Judge, the advocate appearing for the Municipality clarified its position by stating that though the notification levying the fee was issued under S. 270 of the Act, it must be regarded as one under S. 183 (3) of the Act and that the amount sought to be collected from persons occupying road margins should be regarded as rent. The learned Judge after considering the argument came to the conclusion that there was no relationship of landlord and tenant between the Municipality and the sellers and that the fees were collected only in respect of the right exercised by the sellers to vend their goods and not for the occupation of the road margins.

On the assumption that the levy was a fee in respect of the right exercised by the sellers to vend their goods, the learned Judge held that as it was not stated that any extra expenses were incurred by the Municipality for the regulation of the trade or business, the levy was invalid. On those conclusions, the learned Judge quashed the resolution, hence the appeal.

6. The learned Advocate-General who appeared for the Municipality before us adopted a different line of argument which was inconsistent and contrary to the admissions made both in the counter filed by the Municipality and in the arguments advanced before the learned Judge. He took the position that the levy was not rent but it was either a tax or a fee which the Municipality was authorised to levy under S. 270 of the Act.

If it was a pure question of law arising on the admitted facts, it might be that there was some justification to allow the Advocate-General to strike a new line altogether. But where the arguments depend upon going back on the admissions of fact made by the Municipality in the counter-affidavit, there cannot be any justification whatsoever for allowing the appellant to raise it for the first time in the appellate Court.

As we have noticed in the counter-affidavit it was definitely stated that the levy was rent payable in respect of the occupation of the road margins and indeed before the learned Judge it was even argued that S. 270 was quoted in the resolution by mistake and that it should have been S. 183 of the Act. The argument before the learned Judge proceeded on the basis that the legal relationship between the parties was that of lessor and lessee and that the levy was rent whereas before us it is contended that the payment is either a tax or a fee.

We cannot therefore, allow the Advocate-General to raise this plea for the first time before us. But more to respect the arguments advanced rather than any necessity to decide the point raised, we shall express our opinion. Further as the point now raised by the Advocate-General is definitely raised in another Writ Petition which is posted along with this appeal, a discussion on the question will not be merely of academic interest but would be useful in the connected petition.

7. The argument of the learned Advocate-General may be summarised thus: Under the Government of India Act, 1915, the Madras Legislature had plenary powers and therefore they had ample powers to authorise the Municipality to levy taxes in respect of the vending of articles on road margins. By enacting S. 270 of the Act they authorised the Municipality to levy a tax in respect of such vending.

Under the Constitution also the Legislature has the right to make such law as item 5 of List II of the 7th Schedule, namely, "Local Government etc." is comprehensive enough to take in a right to levy a tax in respect of the aforesaid subject-matter and by reason of item 66 they have the right to make a law levying fees also in respect of the same subject-matter. Section 270 of the Act confers such a power on the Municipality and under that section they can either levy a tax or a fee for the purpose of regulating the sale or exposure for sale of any articles in or on any public street or part thereof.

The distinction between tax and fee has been finally laid down by the Supreme Court to the effect that if a privilege was conferred on a person or a particular class of persons the levy of fees in respect of the privilege so conferred would be in the nature of a tax and it need not have any relation to the services rendered. Even if the imposition be regarded as a fee, it is for the petitioner to establish that the said fee is not proportionate to the services rendered by the Municipality and the petitioner has failed to do so in this case.

That apart, the petitioner has no fundamental right to vend his articles on the road margins and even if he possessed any such right, the levy of fees is a reasonable restriction within the meaning of Art. 19 (4) of the Constitution.

8. The learned Counsel for the 1st respondent assumed for the purpose of the argument that both under the Government of India Act, 1915, and also under the Constitution the Legislature has the power to authorise the Municipality to impose a tax on persons vending their articles on road margins. But he contended that S. 270 does not authorise the Municipality to levy a tax but only enables it to levy a fee for the purpose of regulating the sale of articles in a public road.

As the right is only to levy a fee it must satisfy the legal requirement, namely that the Municipality has incurred extra expenses for the regulation of the trade or business and that the levy must be reasonable and must be proportionate to the expenses that may be incurred by the Municipality for the purpose of regulating the said business. In this case, there is neither allegation, nor proof that the levy is made to cover the proportionate expenses which may have to be incurred for the regulation of the trade. Assuming that the levy is in the nature of a tax the Municipality has not complied with the conditions laid down in the Act.

9. In view of the line of argument pursued by the learned counsel for the 1st respondent, it is not necessary to express our view on the question whether under the Government of India Act or under the Constitution of India the Legislature has the power to authorise a Municipality to levy a tax for the purpose of regulating the sale of articles in or on a public street. As the said power is assumed the only question is whether S. 270 of the Act enables the Municipality to levy such a tax.

10. Before we consider the said question, it may be convenient at this stage to notice the essential characteristics of a tax and a fee and the difference between the two. There is a long catena of Madras decisions wherein this question was considered.

It would suffice for the present purpose to refer to the latest of those decisions as the learned Judges therein have reviewed all the earlier decisions. That is the decision of a Division Bench of the Madras High Court consisting of the Chief Justice and Venkataramana Ayyar, J., in Varadachari v. State of Madras, 1952-2 Mad LJ 410 : (AIR 1952 Mad 764) (A), at p. 412 (of Mad LJ) : (at p. 785 of AIR), the learned Judges summarised the legal position thus.

"It is now well established that there is a fundamental difference between a tax and a licence fee. The issue of licences to regulate particular branches of business or specified trades or occupations and other matters is part of what in American Constitutional Law is called the police power of the State. For the grant of licence a fee may be charged to cover probable expenses which may have to be incurred for the regulation of the particular trade or business or calling in respect of which the licence fee is required. The licence fee is not intended to raise revenues for the general purpose of the authority levying the fee. For such purposes the levy should be in the shape of a tax. The licence fee must be reasonable, whereas a tax need not be."

"In laying down these general principles, Courts have always kept in view the essential difference between a licence fee and a tax, namely, that in the case of a licence fee imposition is intended to re-imburse the authority in any amount expended by it in respect of the particular business or matter which is intended to be regulated, whereas a tax is the recognised method of raising revenues for general purposes."

11. On the facts of that case the learned Judges held that the fees charged were not reasonable and that they had no relation to the services rendered.

12. But strong reliance is placed upon the decision of the Supreme Court in Commissioner of Hindu Religions Endowments, Madras v. Lakshmindra Thirtha Swamiar, 1954-1 Mad LJ 596 : (AIR 1954 SC 282) (B), in support of the contention that the law on the subject has been revolutionised and that the distinction between the two concepts of tax and fee was effaced. In that case one of the questions was whether the levy under S. 76 of the Madras Hindu Religious and Charitable Endowments Act (Act XIX of 1951) of an annual contribution on all religious institutions was a tax and not a fee and therefore beyond the power of the State Legislature.

In dealing with that question Mukherjea, J., as he then was formulated some positive and negative tests to ascertain whether a levy is a tax or a fee, some of the relevant observations of the learned Judge may be extracted. He accepts the neat definition of tax given by Latham, C. J., of the High Court of Australia, in Matthess v. Chicory Marketing Board, 60 CL R 263, 276 (C), that

"a tax is a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment for services rendered."

In regard to fee the learned Judge observes : "A fee is generally defined to be a charge for a special service rendered to individuals by some governmental agency. The learned Judge rejects the distinction sought to be made between a tax and a fee and states that a fee is something voluntary whereas a tax is compulsory. The learned Judge also notices the well-settled characteristics of a fee when he says :

"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 co-related to the expenses incurred by Government in rendering the services."

13. Then the learned Judge proceeds to state : As indicated in Art. 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."

14. After giving the illustration of licence fees for motor vehicles as coming under that class of cases, the learned Judge says :

"In such cases according to all the writers on public finance, the tax element is predominent and if the money paid by licence-holders goes for the upkeep of roads and other matters of general public utility, the licence-fee cannot but be regarded as a tax."

"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."

15. The learned Judge concludes :

"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."

16. From the aforesaid extracts, it is manifest that the learned Judge does not strike a new line or revolutionise the well-settled definition of a fee as understood and laid down by a long catena of Madras decisions. On the other hand the learned Judge accepted the said definition when he says that a fee is a sort of return or consideration for services rendered and that it should on the face of the legislative provision be co-related to the expenses incurred by the Government in rendering the services.

The only new departure from the Madras decisions may be said to be the approach to the question. What matters is not the nomenclature given to a particular levy but the purpose for which it is made. This decision was made on 16-3-1954. On the same day the Supreme Court delivered another Judgment in Ramanuj Das v. The State of Orissa, 1954-1 Mad LJ 591 : (AIR 1954 SC 400) (D), wherein a similar question was considered. Mukherjea, J., who delivered that Judgment also summarised his view expressed in the earlier one at p. 595 (of Mad LJ) : (at p. 403 of AIR) as follows :-

"As has been pointed out in the Madras appeal, there is no generic difference between a tax and a fee and both are different forms in which the taxing power of a State manifests itself. Our Constitution, however, has made a distinction between a tax and a fee for legislative purposes and while there are various entries in the three lists with regard to various forms of taxation, there is an entry at the end of each one of these lists as regards fees which could be levied in respect of every one of the matters that are included therein.

A tax is undoubtedly in the nature of a compulsory exaction of money by a public authority for public purposes, the payment of which is enforced by law. But the essential thing in a tax is that the imposition is made for public purposes to meet the general expenses of the State without reference to any special benefit to be conferred upon the payers of the tax. The taxes collected are all merged in the general revenue of the State to be applied for general public purposes.

Thus a tax is a common burden and the only return which the tax payer gets is the participation in the common benefits of the State. Fees, on the other hand, are payments primarily in the public interest but for some special service rendered or some special work done for the benefit of those from whom payments are demanded. Thus in fees there is always an element of quid pro quo which is absent in a tax. Two elements are thus essential in order that a payment may be regarded as a fee.

In the first place it must be levied in consideration of certain services which the individuals accepted either willingly or unwillingly. But this by itself is not enough to make the imposition a fee, if the payments demanded for rendering of such services are not set apart or specifically appropriated for that purpose but are merged in the general revenue of the State to be spent for general public purposes."

17. The above is a neat summary of what the learned Judge expressed in great detail in the earlier decision. The aforesaid remarks show clearly that though both a tax and a fee are different forms in which the taxing power of a State manifests itself, there is a clear distinction between the two and that distinction is maintained by the Constitution. A fee must be levied in consideration of certain services and it should be set apart or specially appropriated for that purpose, whereas a tax is a common burden for public purpose.

It appears from the learned Judges remarks, though he does not specifically state so, that a similar levy may be imposed either as a tax or as a fee and it takes the character of a fee or a tax depending upon the purpose for which it is levied and the manner in which the collections are appropriated.

18. Bearing the aforesaid principles in mind, we shall proceed to consider whether in the instant case the levy is a tax or a fee. The Madras District Municipalities Act in Part III, Ch. VI, provides for Taxation and Finance. Section 78 enables the Municipal Council to levy a property tax, a profession tax, a tax on carriages and animals and a tax on carts.

Section 79 prescribes for special taxation such as a tax on persons travelling by railway from any station notified under S. 116 in or near the Municipality. Section 80-A specifically enacts that nothing in this part of this Act shall authorise a municipal council to levy any tax which the State Legislature has no power to impose in the State under the Constitution. Sections 81 to 92 provide for property tax.

Sections 93 to 97 deal with profession tax. Sections 98 to 104 prescribe for a tax on carriages and animals. Sections 105 to 115 provide for a tax on carts. Section 116 speaks of a pilgrim tax. Sections 117 to 124-A make general provisions regarding taxation and finance. The said sections lay down a preliminary procedure for levying a tax, the method of assessment, the conditions under which exemptions can be given and the manner in which the tax could be recovered. The Municipality is not authorised expressly to levy taxes other than those provided for in Ch. VI.

A tax on a persons right to vend articles on a road margin may with a stretch of the language be brought under the heading profession tax. But it is not contended that the tax was levied under Ch. VI of Part III. It is not also argued that the conditions laid down for the imposition of a tax or those for recovering it have been complied with by the Municipality.

It follows that the levy in question cannot be sustained on the basis of the express powers of taxation conferred on the Municipality. Therefore the Advocate-General is forced to argue that the levy of tax was made under S. 270 of the Act. Section 270 runs :

"The executive authority may, with the sanction of the Council, prohibit by public notice or licence, or regulate the sale or exposure for sale of any animals or articles in or on any public street or part thereof;"

19. Reliance is placed upon the words "regulate the sale or exposure for sale of any articles" and it is contended that the sale can be regulated by imposing tax on the persons who sell the articles. Section 270 finds a place in Ch. XII headed Licences and Fees and the various sections in that Chapter provide for control by the Municipality of specific vocations or places in regard to which special and particular supervision is necessary.

Section 245 compels persons owning places in which animals are kept to take out a licence. Section 246 confers a power on the executive authority to control stables, cattle sheds and cow-houses. Section 249 enables the Municipality to notify the places which cannot be used for specific purposes without a licence. Section 250 prevents persons from constructing factories or workshops in which steam or other power is to be employed without the permission of the executive officer and the following sections give power of supervision to the executive officer and other authorities in connection with the said factories.

Sections 254 and 255 provide for slaughtering houses and for the taking out of a licence for running them. Section 258 regulates the milk trade. Section 259 provides for the maintenance and control of public markets. Section 262 lays down the conditions and the manner in which private markets may be licenced and supervised and also prescribes the fee for such licences.

Section 269 regulates the conditions under which butchers, fish-mongers and poulterers can carry on their trades. Section 270-B makes a provision for establishing public cart stands and for the collection of fees in regard to them. Section 270-E provides for private cart stands. Section 271 imposes a duty upon the executive authority to make provision for the constant and vigilant inspection of various articles brought to any place for purposes of sale.

Section 272 empowers the executive authority to enter any slaughter-house or other place where food is exposed for inspection. Sections 279 to 285 prescribe the conditions under which places for the disposal of dead bodies can be set apart or constructed and the manner in which the dead bodies can be disposed of. Similar provisions are made for controlling dangerous diseases, etc.

20. Section 270 is inserted in Ch. XII in the context of the provisions made for the control of private markets and the vending of specific articles. If S. 270 was intended to cover a case of general taxation it would have found a place in Ch. VI of Part III, under the heading "Taxation and Finance" whereas it is found in Part IV, Ch. 12, dealing with Licences and Fees. It cannot be disputed that before Madras Act V of 1920 was passed, there was a clear distinction between a tax and a fee and that distinction was recognised by Courts.

Presumably with that knowledge the Legislature made act v of 1920 maintaining that clear distinction between the two categories of imposition and allocating them to different chapters prescribing separate procedure. It is not ordinarily permissible to efface the distinction and to hold that the items enumerated under the heading Licences and Fees possess the same characteristics as those detailed under Ch. VI, Part III.

Further the items in Ch. XII all relate to the regulation of particular subjects in regard to which a licence or a permit from the Municipality is required and the special services of the Municipality are necessary.

Section 321 (2) clearly says that save as otherwise expressly provided in or may be prescribed under this Act for every such licence or permission fees may be charged on such units and at such rates as may be fixed by the Municipal Council.". Section 321 (3) prescribes the manner of collection of such fees and S. 321(6) imposes a duty upon the executive officer to inspect the places in respect of which a licence or permission is required under the Act.

In this context when fees are levied presumably under S. 270 to enable the Municipality to regulate the sale or exposure for sale of articles in or on any public street the fees levied cannot in any sense of the term be described as a tax. They are levied for the specific purpose of regulating the sale or exposure for sale of the articles in public streets by persons so doing and therefore they must have some relation to the services rendered by the Municipality to regulate the said sales.

They are not in the nature of a tax imposed for general purposes in the interests of general Revenue. It is not a tax because the Municipality has no authority to levy such a tax and it has not also followed the procedure prescribed for levying taxes. It is only a fee as the levy is to meet the expenditure that may be incurred by the Municipality for regulating the sales.

We have therefore no hesitation in holding that the levy in the instant case is only a fee and not a tax. In this view it is not necessary to consider whether the State Legislature had power before the constitution or subsequent to the constitution to authorise the Municipality to collect taxes on the vending of articles in or on road margins.

21. The next question is whether, if the Municipality levied a fee the fee levied is commensurate with the services rendered by it. Reilly, J., in Corporation of Madras v. Messrs. Spencer and Co. Ltd., ILR 52 Mad 764 : (AIR 1930 Mad 55) (E), held that a licence fee imposed by the Corporation of Madras for storing spirits was unreasonable because the imposition was not with a view to pay for the expenses in connection with the licences but was obviously done to increase the Revenue of the Corporation from liquor. In dealing with the said question, the learned Judge observed :-

"If we accept the proposition that the power of charging licence fees cannot be used for taxation, then we must say that as a whole the fees charged by the Corporation must not be very much in excess of what the duties cast upon them and their staff in connection with the licences cost them.

There is the cost of issuing the licences; there is the cost of inspecting the premises to see whether they are suitable for the purpose proposed; and there is the subsequent cost of inspecting the premises to see that they are being used properly and that the conditions and restrictions imposed by the Commissioner are observed. But roughly speaking, if the fees are charged at so high rate that as a whole they bring in very much more than the cost of those operations to the corporation, then I think, we can rightly say that they are unreasonable.

There is another principle. Although it is almost impossible for the Corporation itself to ascertain, when they are issuing a number of licences to persons engaged in different trades and occupations, exactly what is the cost of any particular licence or of licences for persons engaged in particular trades or occupations - and certainly we could not attempt anything of that sort - yet surely it would be unreasonable if they so fixed the fees that the whole cost incurred by them in connection with all the licences or a grossly disproportionate part of it was imposed on one particular trade or a few particular trades. These principles, I think, may be of help in ascertaining whether a particular fee is reasonable or not.

22. The same view was expressed in Municipal Council, Kumbakonam v. Messrs. Ralli Brothers. 61 Mad LJ 748 : (AIR 1931 Mad 497) (F). The Supreme Court did not lay down any different principle for they stated that if 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 the Government in rendering the services.

In the present case, the petitioner and others vend articles on road margins. There is nothing on record to show that the Municipality has incurred any extra expenditure other than that they had incurred for maintaining the roads as they should do under the Act. The roads would be laid and maintained from and out of the general funds. The only expenditure perhaps that may be attributed to the vending of articles, though it is not stated in the counter, is the proportionate supervisory charges incurred by the Municipality on its officers.

There is no specific evidence as regards the approximate expenditure under this head. The Municipality leased out the right to collect the fees to the 2nd respondent for about Rs. 25,000 and under the agreement between the Municipality and the 2nd respondent he is authorised to levy a tax on fruits and other articles brought in jallas at six annas per day and in baskets at 3 annas per day.

The petitioner in his affidavit says that the 2nd respondent is collecting huge amounts from the petitioner and others similarly situated. The Municipality or the 2nd respondent who must be in a position to satisfy the Court did not attempt to place before it the nature of the services rendered and the income realised by the 2nd respondent.

Indeed, the Municipality, presumably because they could not sustain the levy on the basis of a fee pleaded that the road margins were leased out temporarily to the petitioner and others. We cannot therefore hold on the scanty material placed before us, that the levy is commensurate with the services rendered by the Municipality. It follows that the levy is unreasonable and is, therefore invalid.

23. In this view it is not necessary to consider the other questions raised.

24. In the result we agree with the conclusion arrived at by the learned Judge and dismiss the appeal with costs. Advocates fee Rs. 200.

Appeal dismissed.