Tax Lecture-1

Dr. Haribansh Singh

Tax and Fee

 Tax and Fee
• 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 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.
•  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.
• In taxation parlance, the expression 'fee' has acquired a distinct concept, and the
Constitution has made a clear distinction between fees and taxes when conferring
legislative powers.
• Cooley defines 'tax' as burdens or charges imposed by legislative power upon persons
or property, to raise money for public purposes.
• A tax is a compulsory exaction of money by public authority for public purposes
enforceable by law and is not payment for services rendered. (Latham, C.J., of the High
Court of Australia in Matthesus v. Chicory Marketing Board 60 Com. L.R. 263 at 276)
• The well-marked distinction which the Constitution makes between fee and tax found
in the three legislative lists may be noticed also in Articles 110 and 199 of the
Constitution. While Article 109 (1) provides that a Money Bill shall not be introduced in
the Council of State, Article 110 (2) provides, A Bill shall not be deemed to be a Money
Bill by reason only that it provides for the imposition of fines or other pecuniary
penalties, or for the demand or payment of fees for licences or fees for services
tendered, or by reason that it provides for the imposition, abolition, remission,
alteration or regulation of any tax by any local authority or body for local purposes.
• The Constitution recognises a clear distinction between a tax
and a fee. entries 82 to 92 of Union list enumerate the taxes
which Parliament may impose. Item 96 empowers Parliament to
legislate in respect of "fees in respect of any of the matters in
this List, but not including fees taken in any Court.“
• In State list, items 45 to 63 deal with specific taxes which might
be imposed exclusively by the State Legislatures. Entry 66
enables the State to impose"fees taken in respect of any of the
matters in this List but not including fees taken in any Court". 
• Entry 47, it enables the Legislatures to impose "fees in respect of
any of the matters in that List but not including fees taken in any
Court"
 Commissioner of Hindu Religious Endowments, Madrass
v.
Sri Lakshmindra Thirtha Swamiar of Sri Sirur Mutt
(1954) S.C.J. 335 : (1954) 1 M.L.J. 596, 292 at 615 : (1954) S.C.R. A.I.R. 1954 S.C. (the first Sirur Mutt case )

• where the validity of the levy of contribution under the Madras Hindu
Religious and  Charitable Endowments Act (section 76) was questioned, the
distinction between 'tax' and 'fee' is thus brought out
• The characteristic of tax is that the levy is for the purpose of general
revenue which, when collected, forms part of the public revenues of the
State, that the object of the tax is not to confer any specific benefit upon
any particular individual, that there is no element of quid pro quo between
the tax-payer and the public authority, and that it is a feature of taxation
that it is part of the common burden and the quantum of imposition upon
the tax-payer depends generally upon his capacity to pay.
• The Court striking down he contribution levied under Section 76 of the
Madras Hindu Religious and Charitable Endowments Act (section 76) as a
tax and not a fee and as beyond the legislative power of the State.
• The Court held that the material fact which negatives
the theory of fees in the present case is that the
money raised by levy of the contribution is not
earmarked on specified for defraying the expenses
that the Government has to incur in performing the
services. All the collections go to the Consolidated
Fund of the State and all the expenses have to be met
not out of these collections but out of the general
revenues by a proper method of appropriation as is
done in case of other Government expenses.
 The Court made distinction in Tax and Fee
(in Sri Sirur Mutt case)

• (1) taxes were imposed by a statutory power without the tax-payer's consent the payment
being enforced by law.
• (2) A tax is an imposition made for public purpose without reference to any special benefit to
be conferred on the payer of the tax.
• (3) A tax was levied for the purposes of general revenue which when collected formed part of
the public revenues of the State. 
• (4) a fee is a charge for special service rendered to individuals by some governmental agency.
• (5) 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
• (6) "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. Fee
confers 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. Public interest seems to be the basis of all impositions, but in
a fee it is some special benefit which the individual receives
 H. H. Sudhundra Thirtha Swamiar vs Commissioner For Hindu
Religious Endowment on 20 November, 1962
1963 AIR 966, 1963 SCR Supl. (2) 302

• The validity of the levy came up again for consideration after certain
amendments were made by the Government to section 76 .The levy by
the amendment was constituted into a separate fund and the amounts
raised specifically earmarked for defraying expenses for rendering
services. They did. not go into the consolidated fund of the State, but
were included in a separate fund and the contributions were payable to
the Commissioner under the Act.
• The validity of the amended, legislation was upheld by the Supreme Court
by observing that the State Legislature has power to levy a fee under the
Seventh Schedule, List III, Entry 28 read with Entry 47. The Legislature
was, therefore, competent to levy a fee for rendering services in
connection with the maintenance, supervision and control over the
religious institutions and it was competent to levy the fee retrospectively.
Mahant Sri Jagannath Ramanuj Das and another vs The State Of Orissa And
Another 1954 AIR 400, 1954 SCR 1046

• The validity of a contribution levied under the

Orissa Hindu Religious Endowments Act was
upheld as a special fund was created to which
the collections were to be credited and that
the expenses of the administration of the
commissioner and his staffs were directed to
be met out of this fund.
 Ratilal Panachand Gandhi vs The State Of Bombay 
1954 AIR 388, 1954 SCR 1035

• The validity of a contribution levied under the Bombay Public

Trust Act was 1950 upheld as a special fund was created to
which the collections were to be applied exclusively for payment
of charges for expenses incidental to the regulation of public
trusts and for carrying into effect the provisions of the Act.
• The collections, therefore, are not merged in the general
revenue, but they axe earmarked and set apart for this particular
purpose.
•  The Court further that it is not a tax but a fee which comes
within the purview of entry 47 of List III in Schedule VII of the
Constitution.
 P. V. Jagannath Rao & Ors vs State Of Orissa & Ors 
1969 AIR 215, 1968 SCR (3) 789

•  The Court pointed out that 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 individual
accepted either willingly or unwillingly. But this by itself is
not enough to make the imposition a fee, if the payment
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.
 The Indian Mica and Micanite Indus tries Ltd. v. The State of
Bihar and others (1971)

• The Court observed that before any levy can be

upheld as a fee, it must be shown that the levy
has reasonable correlations with the services
rendered by the Government. In, other words.
the levy must be proved to be a quid pro quo for
the services rendered. But in these matters it will
be impossible to have an exact correlationship.
The correlationship expected is one of a general
character and not as of arithmetical exactitude".
 Secretary, Government Of Madras, Home Department and another
vs Zenith Lamp & Electrical
1973 AIR 724, 1973 SCR (2) 973

• The validity of enhancement of court fee by Rule 1 of High Court Fees Rules 1956
under the Madras Court Fees and Suits Valuation Act, 1955 was challenged.
• The Court held that the fees must have relation to the administration of civil justice.
• The legislature is not competent to do, and that is to make litigants contribute to the
increase of general public revenue. In other words, it cannot tax litigation and make
litigations pay, say for road building or education ,or other beneficial schemes that a
State may have.
• There must be a correlationship between the fees collected and the cost of
administration of civil justice.

• The case was remanded to the High Court for determination of the question How
much money spent in the State on Civil Justice.. Various items both on the receipts
side and the expenditure side must be carefully analysed to see what items or
portion of items should be credited or debited to the administration of civil justice
 Municipal Corporation Of Delhi vs Mohd. Yasin Etc
1983 SCR (2) 999, 1983 SCC (3) 229

• In this case, Fees for slaughtering animals at slaughter houses enhanced by the
Municipal Corporation, eightfold. The Legality of the enhancement was
challenged.
• The main issue was Whether the enhanced fee for slaughtering animals was
wholly disproportionate to the cost of the services and supervision and
therefore, not a fee, but a tax.
• The Court held that the increase of the slaughtering fee from 0.25 P to Rs. 2.00
per animal in the case of small animals and from rupee 1.00 to Rs. 8.00 in the
case of large animals was wholly justified, in the Circumstances of the case.
• The Supreme Court held that though a fee must have relation to the services
rendered, or the advantage conferred, such relation need not be direct; a mere
casual relation may be enough; In fact the special benefit or advantage to the
payers of the fees may even be secondary as compared with the primary
motive of regulation in the public interest;
 Sreenivasa General Traders & Ors. Etc. vs State Of Andhra Pradesh & Ors.
1983 AIR 1246, 1983 SCR (3) 843

• Under the Andhra Pradesh (Agricultural Produce and Livestock) Markets Act,
1966, Section 12 empowers the State Government to authorise the Market
Committees to levy a fee on agricultural produce purchased or sold within the
market. It was enhanced from 25 paisa per hundred to Rs. 1.
• The Court held that the traditional view that there must be actual quid pro quo
for a fee has undergone a sea change. The distinction between a tax and a fee lies
primarilyin the fact that a tax is levied as part of a common burden, while a fee is
for payment of a specific benefit or privilege although the special advantage is
secondary to the primary motive of regulation in public interest.
• The power of any legislature to levy a fee is conditioned by the fact that it must
be "by and large" a quid pro quo for the services rendered. However,
correlationship between the levy and the services rendered is one of general
character and not of Mathematical exactitude. All that is necessary is that there
should be a reasonable "relationship" between levy of the fee, and the service
rendered.
 Corporation Of Calcutta And another vs Liberty Cinema 
1965 AIR 1107, 1965 SCR (2) 477

• . The respondent is a firm owning a cinema house. and carrying on business of public cinema
shows.
• Section 443 of the Act provides that no person shall without a licence granted by the Corporation
keep open any cinemahouse for public amusement. It, however, does not say that any fee is to
be paid for the licence. But sub-s. (2) of S. 548 says that for every licence under the Act, a fee
may, unless otherwise provided, be charged at such rate as may from time to time be provided.
• By a resolution passed on March 14, 1958 the Corporation changed the basis of assessment of
the licence fee with effect from April 1, 1958. Under the new method the fee was to be assessed
at rates prescribed per show according to the sanctioned seating capacity of the cinema houses.
• The Court held that the levy under S. 548 is not a fee as the Act does not provide for any services
of special kind being rendered resulting in benefits to the person on whom it is imposed. The
work of inspection done by the Corporation which is only to see that the terms of the licence are
observed by the licensee is not a service to him. No question here arises of correlating the
amount of the levy to the costs of any service. The levy is a tax.

• The fixing of rates may be left to a non- legislative body. The Court held that section 548 is valid
legislation.
 State Of Tripura & Ors vs Sudhir Ranjan Nath 
on 13 February, 1997

• The Gauhati High Court has declared Rule 3 of the Transit Rules framed by the Government of
Tripura under Section 41 and 42 of the Indian Forest Act, 1927 as illegal and ultravires the
Constitution. The correctness of the said decision is challenged by the State of Tripura. In
exercise of the powers conferred upon it by the Act, the State government has framed the
Transit Rules.
• The High Court has declared that the levy of application fee of Rupees one thousand and of
licence fee of Rupees two thousand amounts to levy of tax and is bad. This is on the ground
that the State has not established the service rendered in lieu of the said fees.
• The Supreme Court held that the reason for which Rule 3 has been held to be in contravention
of Article 301 of the Constitution are unsustainable in law. The impugned Rule 3 is made by the
State as the delegate of the Parliament to carry out the purposes of the Act. Rule 3 of the
Tripura Transit Rules cannot be said to be violative of Article 301 nor is it required to comply
with the requirement of the proviso to clause (b) of Article 304 of the Constitution.
• The Court observed that the fee imposed by sub-rules (3) and (4) is a fee within the meaning of
clause (c) of sub-section (2) of section 41. It is regulatory fee and not compensatory fee. The
distinction between compensatory fee and regulatory fee is well established by several
decisions of this Court.
 Vam Organic Chemicals Limited & ... vs The State Of Uttar
Pradesh & Others
21 January, 1997

• The Supreme Court held that there is a distinction

between a fee charged for licence, that is
regulatory fees and fees for services rendered as
compensatory fees. In the case of regulatory fees,
like the licence fees, existence of quid pro quo is
not necessary although the fee imposed must not
be, in the circumstances of the case, excessive,
keeping in view the quantum and nature of the
work involved in the required supervision.
 B.S.E. Brokers Forum, Bombay & Ors vs Securities & Exchange
Board Of India & Ors
on 1 February, 2001

• The validity of Regulation 10 of the Securities & Exchange Board of India

(Stock Brokers and Sub- brokers) Regulations, 1992 was challenged.
• SEBI required an application for registration of stock brokers. They have to
submit application with required fees for registration on the following
basis: Registration Annual Fees Fees (Rs.) (Rs.) Category A 5 Lakhs 10.000
Category B 3 Lakhs 5.000 Category C 1 Lakh 4.000 Category A.
• The Supreme Court held that as the regulatory fee is concerned, the
service to be rendered is not a condition precedent and the same does
not lose the character of fee provided the fee so charged is not excessive.
It is also not necessary that the services to be rendered by the collecting
authority should be confined to the contributories alone.  If the levy is for
the benefit of the entire industry, there is sufficient quid pro quo between
the levy recovered and services rendered to the industry as a whole. 
 Sona Chandi Oal Committee&Ors vs State Of
Maharashtra on 16 December, 2004
• Wherein, the upper limit of Rs. 500/- has been increased to Rs. 5,000/- by the impugned
amendment. It was alleged that Levy of licence fee or inspection fee is, in fact, a tax. The High
Court held that the fee charged was regulatory in nature to further the objects of the Act so as to
control and supervise the functioning of the money lenders in order to protect the debtors. Such
an exercise was a must for fulfilling the purpose of the Act for which infrastructure was required.
Taking note of the heavy increase in the Pay and Allowances of Establishment and the receipt
from inspection and licence fee, it was observed that the same were meagre and not even
sufficient to meet the expenses incurred for the staff looking after the money lending business.
• The Supreme Court clarified that this is the direct service rendered to the money lenders as the
renewal of licence depends upon the inspection of their accounts which is required to be carried
out under the Act.
• This apart the fee charged is regulatory in nature to control and supervise the functioning of the
money lending business to protect the debtors the vast majority of which are poor peasants,
tenants, agricultural labourers and salaried workers who are unable to repay their loans.

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