1. This petition under Article 236 of the Constitution raises the question whether the imposition authorised by the Punjab Tobacco Vend Pees Act, 1964, constitutes a tax or a licence fee.
2. The petitioner, who is carrying on business as a dealer in cigarettes and bidis in Sonepat, has been required to take on a distributing agent's licence on payment of a licence fee of Rs. 500/-under Rule 4 of the rules framed under the Tobacco Vend Fees Act, 1954. He declines to take out the licence in question and challenges the validity of the rule on various grounds, among others, being that the State Government is imposing a tax in the garb of a licence fee, that the licence fee is discriminatory and that it amounts to unreasonable restriction on trade and business.
3. A licence fee on the sale of tobacco was imposed for the first time by the Punjab Tobacco Vend Pees Act, 1934, which was enacted with the object of regulating the sale of manufactured tobacco in municipal and certain other areas. Section 3 imposed a statutory obligation on all vendors of tobacco to take out a dealer's licence and Section 4 declared that every licence shall be granted on payment of such fees as may be prescribed by the State Government.
The State Government prescribed an annual licence fee at the rate of Rs. 2/- in the year 1935 but increased it to Rs. 3/- in 1939, Rs. 5/- in 1941 and Rs. 20/- in 1950/ The Act of 1934 was repealed in the year 1952 but was re-enacted in substantially the same form in the year 1954. Rule 4 of the rules framed under the new Act authorises the issue of the following kinds of licences on the fees mentioned against each, namely-
(1) Manufacturer's or distributing agent's licence ..............Rs. 500/- per annum (2) Licence for a dealer who Has more than one assistant or employee ..............Rs. 240/- per annum (3) Licence for a dealer who has only one assistant or employee ..............'Rs. 60/- per annum (4) Licence for a dealer or hawker who has no assistant or employee ..............Rs. 30/- per annum.
4. The Constitution confers ample power on a State Legislative to divide the various business vocations into classes for the purpose of levying taxes and fees and to levy varying amounts on different professions, trades, callings and employments. A licence is a privilege granted by the State to do something which without the grant would be illegal, and a licence fee is an imposition or exaction on the right to use or dispose of property, to pursue a business, occupation or calling or to exercise a privilege.
A licence fee is imposed primarily with the object of reimbursing the 'State for the services rendered by it, while a tax is exacted with the object or providing revenue for the State and enabling it to carry 011 the duties of Government -- Retilal Panachand v. State of Bombay', AIR 1954 SC 388 (A). A licence is a price paid for a privilege while a tax is an enforced contribution levied on persons, property or income for governmental needs 'Pittsburgh Rly. Co. v. City of Pittsburgh', 60 A 1077 at p. 1078 (B).
Charges may be levied either for purposes of regulation or for purposes of revenue or for both purposes. If the primary object of the charge is to regulate or restrain it is a licence fee; if on the other hand the primary object is to produce revenue it is a licence tax.
5. In order to determine whether licence legislation is a regulatory or a revenue measure, itis necessary to examine the operation, practical results and incidents and the substance and natural and legal effects of the language employed in the statute by which the charge has been imposed. Although the name by which the Legislature chooses to designate a particular charge is not conclusive, it is an important factor in determining whether the particular imposition is a tax or a. licence fee -- 'Flint v. Stone Tracy Co.' (1911) 220 US 107 (C),; -- 'Camas Stage Co. v. Kozer', (1922) 25 Am LR 27 (D).
It is necessary also to ascertain the power, whether regulatory or taxing, under which the amount is demanded and the purpose for which the demand is made. If the amount is exacted solely for revenue purposes and the payment thereof confers a right to carry on the business or occupation without the performance of any further conditions it is a tax -- 'Tarver v. Albany', 127 Se A 58 (E).
If, on the other hand, the charge is levied for the purpose of regulating a business or occupation and the statute requires compliance with certain conditions in addition to the payment of the prescribed sum, such a sum is a licence proper imposed by virtue of the power to regulate -- 'United Artists Corporation V. James', 23 P Supp 353 (F).
The amount of the imposition, or exaction must also be taken into consideration, for the amount of the charge may be so heavy or burdensome as to lead one irresistibly to the conclusion, considering the nature of the business or occupation to which it was applied, that although it was described as a fee it was in substance and effect, a tax.
If the amount exacted is required to cover the actual expenses of issuing the licence and inspecting and controlling the business or occupation it is a licence fee proper and not a tax. But the mere fact that these fees yield a revenue In excess of that required for the purpose of regulation will not convert the fees into a tax where the object of the imposition is not to raise revenue but to regulate or control the particular business. Young blood v. Sexton, (1875) 20 Am. Bep. 654 (G). It is absolutely impossible to fix a rate which will just suffice to regulate without yielding any revenue whatever.
6. But a question may well be asked what is the amount which may legitimately be charged on account of a licence which is issued for purposes of regulation only. It has been said that it is within the discretion of the legislative authority to impose such reasonable fee for a licence required for the purpose of regulation as it may think fit to impose; but the amount of fees must bear some reasonable relation to the extent and nature of the services rendered, AIR 1954 S.C. 388 (A).
The amount of licence fee need not be confined to the mere expenses of issuing the licence but may include any reasonably proper cost of supervision, inspection, examination and regulation of the business in respect of which the licence is issued. Varadachari v. State of Madras, AIR, 1952 Mad. 764 (H).
7. It is not possible to lay down any hard and fast rules for the purpose of determining whether a particular fee is reasonable or otherwise, for what is reasonable must necessarily depend upon the character of the business regulated and the extent of regulation undertaken. In City of Tucson v. Stewart, 45 Airz 36(I), the Court observed:
'What is a reasonable licence fee must depend upon the sound discretion of the legislative body Imposing it having reference to the circumstances and necessities of the case. It will be presumed the amount of the fee is reasonable unlessit contrarily appears upon the face of the ordinance, bye-law or law itself, or is established by proper evidence.
In determining whether a fee required for a licence is excessive or not, the expenses or amount of regulatory provisions and the nature of the subject of regulation should be considered, and if the amount is wholly out of proportion to the expenses involved it will be declared a tax'. It will be seen, therefore, that although the ultimate power of deciding whether a licence fee is reasonable or excessive vests in a Court of law, the Court will be most reluctant to declare a licence fee to be unjust or unreasonable unless the objector establishes a flagrant case and oppressive abuse of power by the authority imposing the fee Lyons v. Cooper, (1888) 39 Kan. 324 (J).
8. Judged in the light of the above tests it appears prima facie that the Act of 1954 is a regulatory measure. It was enacted with the object of licensing the possession and sale of tobacco and has been designated by the Legislature as the Punjab Tabacco Vend Pees Act, 1954. It prohibits the dealing in manufactured tobacco without licence and requires that in addition to taking out a dealer's licence on payment of such fee as may be prescribed by the State Government the dealer shall comply with the terms and conditions of the licence issued to him.
Officers have power to enter and inspect places in which manufactured tobacco is kept for sale, to examine and take into possession accounts maintained in such places, to investigate offences punishable under the Act and to grant ball to persons who are alleged to have contravened the provisions of the Act. A person who sells manufactured tobacco without a dealer's licence and a holder of a dealer's licence who commits a breach of the conditions subject to which the licence has been granted is punishable with a fine which may extend to Rs. 500/-.
These provisions appear to indicate that the Act of 1954 has been enacted principally with the object of regulating and restraining the sale of tobacco and not with the object of providing revenue for the State.
9. Mr. H. L. Sarin, who appears for the petitioner, contends that although the Act of 1954 confers full power on Government to grant licences for the privilege of carrying on the trade in tobacco and although the power to licence as a means of regulating carries with it the corresponding power to charge a fee sufficient to defray the expenses of issuing the licence, the power to licence and regulate could not give the right to use a licence as a means of revenue or confer any authority to impose a tax under the cloak of licence fee.
The State in the present case has been increasing the licence fee from time to time and has in fact Increased it from Rs. 2/- per annum in the year 1934 to Rs. 500/- per annum in the year 1954 with the object presumably of augmenting its revenue. This extraordinary and phenomenal increase, it is contended, must have resulted in a yield unreasonably disproportionate to the cost of regulation and must be attributed to a desire on the part, of Government to use the licence as a mode of taxation for revenue.
No facts have, however, been alleged on which to raise the conclusion that the aggregate income of the fees recovered from the licensees is greatly in excess of the cost of administration of the Act of 1954, excepting the circumstances that if the Act could be administered properly with a fee of Rs. 2/- per annum it must be assumed that the fee of Rs. 500/- which is now being charged covers much more than the cost of administration.
10. Government have made a categorical denial of the assertion that receipts from duties under the Act of 1954 are greatly in excess of the expenditure incurred by the State in the regulation of the business for which it is exacted. According to the written statement presented by Government, the annual income- from the Punjab Tobacco Vend Fees Act, 1954, during the year 1955-56 was estimated at Rs. 5,00,000/- while the total cost of administration of the Department is about Rs. 35,00,000/-.
The staff for the administration and supervision of the Act of 1954 is a composite one and administers not only the Tobacco Vend Fees Act, 1954, but also the Punjab Excise Act, the Punjab Sales Tax Act and certain other allied enactments. The petitioner had the burden of showing that the fee demanded of him was wholly out of proportion to the expenses incurred by the State in regulating the trade, but he has not been able to invite our attention to any piece of evidence which might impose the inference which his counsel wishes us to draw.
I am accordingly of the opinion that neither the Act of 19S4 nor the rules which have been framed in exercise of the powers conferred by the said Act can be invalidated on the ground only that the imposition yields a revenue in excess of that required for the purpose of regulation.
11. In AIR 1954 S.C. 388 at p. 395 (A), their Lordships of the Supreme Court expressed the View that a payment cannot be regarded as a fee unless the amount collected is earmarked to meet the expenses of rendering certain services and unless it is kept out of the general revenues of the State for being spent for general public purposes.
The learned counsel for the petitioner contends that as the income derived from the licences issued under the Act of 1954 is collected and received into the treasury of the State and is appropriated for the payment of the expenses of the State it cannot be earmarked for the administration of the Act and cannot therefore be deemed to be an imposition of the nature of a fee.
The learned Advocate-General points out, and in my opinion correctly, that it is not possible for any income from fees being kept out of the treasury and utilized for a particular purpose, for Article 266 of the Constitution declares that all revenues received by the Government of a State shall form one consolidated fund to be entitled 'the Consolidated Fund of the State'.
The expression 'revenues' appearing in this Article has not been denned but there can be no manner of doubt that it means 'the income of the nation derived from its taxes, duties or other sources, for the payment or the nation's expenses.' It is a term generally 'used In referring to income of a Government or governmental sub-division and as so used means all the public moneys which the State collects and receives from whatever source and in whatever manner.'
If all the Income of the State, must, in view of the constitutional requirements, be credited to and form part of the Consolidated Fund of the State, it is obvious that the income derived by the State from the imposition of licence fees cannot be kept out of the general revenues or be earmarked for special purposes.
12. Again, it is contended that this imposition is discriminatory and violative of the provisions of Article 14 for two reasons: First, because it applies only to dealers in tobacco who carry on business within the limits of municipalities, notified areas etc., and not to manufacturers and dealers who carry on their business in other parts ofthe State; and secondly, because it discriminates between dealer and dealer requiring higher fees from some and lower fees from others.
13. Ever-since the dawn of civilization lay-makers in all countries have been continuously engaged in classifying persons and objects for the purpose of legislation and in passing laws applicable only to persons or objects within a particular class. The Constitution of India has fully preserved and safeguarded this power subject only to one limitation, namely that the classification should be reasonable and not arbitrary and must rest upon some ground of difference which bears a Just or proper relation to the attempted classification so that all persons similarly circumstanced shall be treated alike.
The essence of the constitutional right of equal protection of the laws is that every one is entitled to stand before the law on equal terms with, to enjoy the same rights and privileges as are' enjoyed by, and to bear the same burden as are imposed upon, others in a like situation. It does not ' forbid discrimination with respect to things that are different or deprive the State of the power to resort to classification of subjects for legislative action or prohibit legislation which is limited to the territory within which it is to operate.
It is open to the Legislature to decide for itself whether certain laws shall extend to the whole State or to one or more parts of the State, for there is nothing in Article 14 which requires uniformity throughout the State. All that is necessary is that the laws shall operate with substantial equality and uniformity on all persons and classes similarly situated within the territory to when they apply.
A law is not void or inoperative because certain areas are included while others are omitted from the operation of the statute North Western Laundry v. Des Moines, (1916) 239 US 486 (K), or because it imposes restrictions on the conduct of certain businesses in designated localities, Hadacheck v. Sebastian, (1916) 239 U.S. 394 (L); and provisions and statutes establishing one system of laws in courts in one portion of the territory of the State different from that in the remaining portion is not in violation of the provision, relating to the equal protection of the law Bowman v. Lewis. (1880) 101 U.S. 22 (M).
14. Nor is there any substance in the objection that while prescribing licence fees under the Act of 1954 the State has discriminated between dealer and dealer by imposing 'different fees on different classes of dealers in tobacco. Licensed dealers in tabacco have been divided by the rules made under the Act of 1954 into four classes, the basis of the classification being the size and importance of the establishment in which they carry on their work.
This classification is neither arbitrary nor unreasonable, for substantial differences in the size and importance of the establishment in which the business, is conducted may be made the basis of classification. It is said that while a licence tax on a trade or business must be uniform and reasonable as to the class singled out, persons engaged in such trade or business may be sub-classified and a different licence tax' Imposed on each subdivision provided the. classification is made upon a natural and reasonable basis Danville v. Quakermaid, 43 Am. L. Rule 590 (N).
It is open to the Legislative power to sub-classify tobacco dealers according to whether theirs is a wholesale or retail business Hodge V. Muscatine County, (1905) 196 U. S. 276 (O), or according to the amount, quantity or number of sales.
15. The objection that the Act of 1954 is obnoxious to the provisions of Article 19 is equally futile, for although every citizen of India is at liberty to pursue a lawful calling of his own choosing, this right is subject to the paramount right of the State to impose such reasonable restrictions as the protection of the public may require.
The Constitution does not confer unfettered discretion on any person to conduct a business so as to injure the public at large or any substantial group thereof. The Legislature has decided that no person shall carry on any business in tobacco unless he has obtained a licence in this behalf and I am unable to hold that this requirement is either unreasonable or not in the public interest.
16. For these reasons I am of the opinion that neither the Act of 1954 nor rule 4 of the rules framed thereunder can be regarded as invalid on any of the grounds relied upon by the petitioner. The petition must accordingly be dismissed with costs.
Bishan Narain, J.
17. I agree.