1. In these petitions the true scope of sub-section (2) of section 8 of the Central Sales Tax Act, 1956, to be referred to hereinafter as 'the Act' comes for consideration.
2. The petitioners in these cases are dealers in raw silk. The period with which we are concerned in these cases is from 1st July, 1957, to 31st March, 1958.
3. It may be remembered that Article 286 of the Constitution stood amended as a result of the Constitution Sixth Amendment Act. The amended Article 286(3) which is relevant for our purpose reads thus :
'Any law of a State shall, in so far as it imposes, or authorises the imposition of, a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade a commerce, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may be law specify.'
4. It is in pursuance of the amended provisions contained in clauses (2) and (3) of Article 286 that Parliament enacted 'the Act'. Goods specified in section 14 of that Act were declared to be goods of special importance in inter-State trade or commerce.
5. As per section 6 of the Act, it is provided that subject to the other provisions contained in the Act, every dealer dealer shall, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint, not being earlier than thirty days from the date of such notification, be liable to pay tax under this Act on all sales effected by him in the course of inter-State trade or commerce during any year on and from the date so specified. The necessary notification came into force on 1st July, 1957. There is no doubt that the transactions with which we are concerned in these cases are transactions effected in the course of inter-State trade or commerce. A dealer in raw silk was exempt from taxation both under the Mysore Sales Tax Act, 1948, as well as under the Mysore Sales Tax Act, 1957, if he had obtained a licence as required by these Acts. Admittedly, the petitioners had obtained the required licences. But for the coming into force of 'the Act' on 1st July, 1957, petitioners would not have been liable to be assessed to any tax on the disputed turnover. The question for our consideration is whether any additional burden is cast on the petitioners in view of the provisions contained in 'the Act'. Even the petitioners do not dispute that they have to pay the licence fee in accordance with the rates prescribed under the appropriate Mysore Sales Tax Law.
6. Section 6 of 'the Act' is the charging section. We have already noted that section. The next relevant section is section 8. In this case we are mainly concerned with sub-section (2) of section 8 which reads :
'(2) The tax payable by any dealer in any case not falling within sub-section (1) in respect of the sale by him of any goods in the course of inter-State trade or commerce shall be calculated at the same rates and in the same manner as would have been done if the sale had, in fact, taken place inside the appropriate State, and for the purpose of making any such calculation any such dealer shall be deemed to be a dealer liable to pay tax under the sales tax law of the appropriate State, notwithstanding that he, in fact, may not be liable under that law.'
7. It is neither the case of the petitioners nor that of the revenue that the transactions concerned in these cases fall within the ambit of sub-section (1) of section 8, though it may be mentioned at this stage that the stand taken by the assessee before the Tribunal was that the disputed transactions are covered by sub-section (1) of section 8. That stand has been given up. Hence, we need only consider the extent of liability of the petitioners under section 8(2).
8. The dispute centres round the question whether the petitioner's liability to pay tax would be satisfied if he pays the licence fee at the rate and manner prescribed under the earlier law. For answering this question, we have to examine the language of section 8(2). The relevant portion of section 8(2) (which we have already noted) says that the tax payable by any dealer in any case in respect of the goods in question 'shall be calculated at the same rates and in the same manner as would have been done if the sale had, in fact, taken place inside the appropriate State.'
9. This takes us to the question whether the licence fee that was levied on the petitioner was 'tax' as mentioned in section 8(2). If we came to the conclusion that the fee imposed on the petitioners was in fact tax then the liability of the petitioners cannot be more than what it would have been if the transactions had taken place prior to 1st July, 1957. If licence free paid by them is held to be not 'tax' then their liability to be taxed at the rate and manner they would have been taxed under the appropriate State law, had they not taken the licences, is not open to dispute. Therefore, in these cases the only question that need be considered is whether the licence fee imposed on the petitioners was in reality a tax. The Tribunals below have come to the conclusion that the fee levied on the petitioners is not tax and, therefore, they are liable to be taxed afresh. Is this conclusion correct
10. It is well established that the mere fact that the Legislature labels a particular levy as 'fee' is not conclusive in the matter. The licence fee levied on a dealer under the Mysore Sales Tax Act, 1948, is based on his turnover. The maximum fee leviable is Rs. 1,000. It is not alleged or proved that the State rendered any services to the dealers excepting registering their names and issuing licences. No quid pro quo as such is established. In these circumstances, we have to consider whether, though the statute says that what is imposed on the dealer is licence fee, in reality it is so
11. The distinction between fee and tax was considered by the Supreme Court in Commissioner, Hindu Religious Endowments v. Lakshmindra Thirtha Swamiar : 1SCR1005 . The relevant discussion is found in paragraphs 43 to 49 of that judgment. Mukherjea, J., (as he then was) brought out the distinction between 'fee' and 'tax' thus :
'A neat definition of what 'tax' means has been given by Latham, C.J., of the High Court of Australia in Mathews v. Chicory Marketing Board (60 C.L.R. 263 at p. 276). '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 taxpayer's consent and the payment is enforced by law : vide Lower Mainland Dairy v. Crystal Dairy Ltd. ( A.C. 168). 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. 1, page 203. Another feature of taxation is that as it is a part of the common burden, the quantum of imposition upon the taxpayer 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 the 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 .......
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.
A most common illustration of this type of cases is furnished by the licence fees for motor vehicles. Here the costs incurred by the Government in maintaining an office or bureau for the granting of licences may be very small and the amount of imposition that is levied his based really not upon the costs incurred by the Government but upon the benefit that the individual receives. In such cases, according to all writers on public finance, the tax element is predominant, vide Seligman's Essays on Taxation, page 409, 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 ...
But 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 or 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. That in itself might not be conclusive, but in this case there is total absence of any correlation between the expenses incurred by the Government and the amount raised by contribution under the provision of section 76 and in these circumstances the theory of a return or counter-payment or quid pro quo cannot have any possible application to this case.'
12. Every on of the considerations that weighted with the Supreme Court in the above case is present in these cases. In the instant case, as mentioned earlier, a heavy sum is imposed as licence fees. No quid pro quo is established. The imposition is more or less on the basis of turnover of the business. We are told by the learned Government Pleader that it works out at the rate of about 1/2 per cent. The tax collected is credited to the consolidated fund. The expenses are met from general fund. In these circumstances, the one and the only conclusion possible is that the 'fee' levied on the petitioners under the Mysore Sales Tax Laws was in fact 'tax' as understood in sub-section (2) of section 8. If that be so, we have no doubt that it is so, the petitioners are not liable to pay any amount in excess of the amount that they would have been liable to pay under the State law as licence fee if the disputed transactions had been intra-State transactions. So far as the levy made for the period upto 1st July, 1957, no objection is taken. Therefore the same is upheld.
13. In the result, these petitions are allowed. The orders of the Sales Tax Appellate Tribunal are set aside and these cases are remitted to the Tribunal for determining the tax in accordance with the directions given above. In this Court, the parties will bear their own costs.
14. Petitions allowed.