1. These appeals have been preferred by the City Corporation of Calicut against the judgment of Gopalan Nambiyar, J., in Original Petition Nos. 2962 & 3037 of 1965. The petitioners challenged the validity of the levy by the Corporation, of licence fee for soaking coconut husks in soaking pits in their property. The Corporation would justify the impost under Section 299 read with Section 387 and Schedule IV of the Calicut City Municipal Act, (Act 30 of 1961) renamed as the Kerala Municipal Corporation Act (Act 13 of 1964). The case of the petitioners is that as a fee the levy is not justified by the provisions of the statute and as a tax it is beyondthe power of taxation conferred on the Corporation. The stand taken by the Corporation on the other hand is that the levy is a tax. Alternatively it is also contended by the Corporation that it is a 'fee for licence'. The learned Single Judge has held in his judgment dated 8-2-1967 that as a fee the levy is unsustainable since no positive service is rendered by the Corporation in return for the fee levied. As a tax the learned Judge's view is that it is beyond the power of taxation conferred on the Corporation, Accordingly it has been held by the learned Judge that the levy of licence fee for soaking coconut husks is illegal.
2. The question for decision in these appeals is whether the levy of licence fee for soaking coconut husks is sustainable under any of the provisions of the Calicut City Municipal Act (hereinafter to be referred to as 'the Act'). The Corporation would trace its power to impose the impugned levy to Sections 299 and 387 of the Act. We are extracting these two sections:
'299. ...... ...... ...... ...... ...... ......
(1) No place within the limits of the city shall be used for any of the purposes mentioned in Schedule IV without a licence obtained from the Commissioner and except in accordance with the conditions specified therein.'
X X X X X
387. ...... ...... ...... ...... ...... ......
(1) Every licence or permission granted under this Act or any rule or bye-law made under it shall specify the period, if any, for which and the restrictions, limitations, and conditions subject to which the same is granted, and shall be signed by the Commissioner.
(2) (a) Save as otherwise expressly provided in, or may be prescribed under, this Act, for every such licence or permission, fees shall be paid in advance on such units and at such rates as may be fixed by the council.
X X X X X'
The above Sections speak of the imposition of licence fee. The learned counsel for the Corporation classified fees referred to in the above sections under three heads and they are; (a) fee for licence, (b) fee for services rendered and (c) fee in the nature of a tax. We have carefully examined all these three heads, in the light of relevant decisions of the Supreme Court and we are not satisfied that the impugned fee could be brought under any one of them. The law stands settled by a series of decisions of the Supreme Court beginning with AIR 1954 SC 282, 388 and 400, Shrirur Mutt case, Ratilal v. State of Bombay and Sri Jagannath v. State of Orissa and ending, as told at the Bar, in the recent decision in Nagar Mahapalika Varanasi v. Durga DasBhattacharya, Civil Appeal No. 558 of 1967=(AIR 1963 SC 1119), that without a special benefit accruing to the payer in return, the levy cannot be justified. The position has been placed beyond doubt by the Supreme Court in the following words in AIR 1954 SC 388:--
'Fees 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 the payments are demanded. Thus in fees there is always an element of 'quid pro quo' which is absent in a tax,'
Distinguishing licence fee from a tax the learned Judges would further observe:--
'A tax is in the nature of a compulsory exaction of money by a public authority for public purpose, the payment of which is enforced by law. The other characteristic of a tax is, that the imposition is made for public purpose to meet the general expenses of the State without reference to any special advantage to be conferred upon the payers of the tax. Thus, although a tax may be levied upon particular classes of persons or particular kinds of property, it is imposed not to confer any special benefit upon individual persons and the collections are all merged in the general revenue of the State to be applied for general public purposes. Tax is a common burden and the only return which the tax-payer gets is participation in the common benefits of the State.'
Adverting to some of the characteristics of a fee the learned Judges would again observe:--
'In order that the collections made by the Government can rank as fees, there must be correlation between the levy imposed and the expenses incurred by the State for the purpose of rendering such services. Thus two elements are 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 and in the second place, the amount collected must be ear-marked to meet the expenses of rendering these services and must not go to the general revenue of the State to be spent for general public purpose.'
3. In the above background we would approach the first head namely a fee for licence. The fee coming under this head is the money paid for a licence or permission to run a particular trade or calling:
'A licence is merely a permission granted to a particular person to do a particular thing at a fixed place during a determinate period. The fee attached to such a permit is a specific sum of money to be collected from the licenseefor the purpose of covering the expenses of the licence, its registration, inspection and supervision. Fees levied on licences of premises ought not to be greater than a sum to cover the costs of the regulation.' (Cunliffe J., in ILR 5 Rang 212=(AIR 1927 Rang 183) quoted by their Lordships in the Liberty Cinema Case.)
In the Corporation of Calcutta v. Liberty Cinema, AIR 19G5 SC 1107 their Lordships held:--
'The licence fees are in respect of what are called dangerous and offensive trades, that is to say, it is necessary in the interests of the City that the Corporation shall know where such trades are being carried on and shall be in a position to see that they are carried on in a proper manner without causing unnecessary nuisance to other people or danger to the public generally.'
But it is to be remembered that in such cases the fee collected must have correlation to the expenses incurred in issuing the same. To quote the words of their Lordships in AIR 1954 SC 282:--
'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.'
If more than what is required to issue the licence is levied, the tax element will predominate since the excess collected will go to the general fund to be utilised for matters of general public utility and in such cases the levy would assume the character of a tax and not fee. In the cases before us we are not told that the fee collected from the petitioners for soaking husks is set apart for the purpose of meeting the expenses of the licence. Nor is there any data placed before us by which the expenses incurred could be gauged. It was argued before us that for a simple fee for licence granted for carrying on an activity, no quid pro quo is needed. In such cases the fee will in fact be a tax and thus we are taken to the third category namely fee in the nature of a tax. The Corporation, in our view, cannot impose a tax in the guise of a fee. In Hardwar Municipality v. Raghubir Singh, AIR 1966 SC1502, the question arose whether the toll on vehicles leaving the Municipality could be justified when the Municipal Act provided levy of tolls only on vehicles entering the Municipality. The learned Judges held:--
'Toll as such can only be collected under the Municipalites Act from vehicles entering the Municipal limits. This, exhausts all the powers delegated by the Legislature to the municipal Boards and that power cannot be extended either by considerations derived from the nature of tolls or from the residuary clause.'
Thus even if the licence fee is construed as a tax, the levy cannot be justified.
4. In N. M. C. S. & W. Mills v. Ahmedabad Municipality, AIR 1967 SC 1801 the validity of the assessment-book relating to Special Property section, prepared and published by the Municipal Corporation of the city of Ahmedabad which sought to impose property tax on properties described as special properties like textile Mills, factories, buildings etc, on a flat rate, was challenged. The Court held:--
'If the State Legislature had power to levy a tax, only on land and buildings the same cannot be levied on machinery contained in or situate on the building even though the machinery was there for the use of the building for a particular purpose. Therefore, Rule 7 (2) of the rules framed under the Bombay Act 59 of 1949 was beyond the legislative competence of the State. The rule also suffers from another defect, namely, that it does not lay down any principle on which machinery is to be specified by public notice by the Commissioner to be deemed to form part of such building for the purpose of fixing the rateable value. It, therefore, depends on the arbitrary will of the Commissioner as to what machinery he would specify and what he would not. Moreover, he is the only person who can examine this question.'
The levy was accordingly cancelled.
5. It is thus clear that the Corporation cannot impose a levy on an activity as if they are imposing a tax on land. Without following the procedure contemplated in Sections 98 to 138 of the Act, a tax cannot be imposed. In the present case it was conceded that the procedure was not complied with. This question came up before the Supreme Court in the recent case, Civil Appeal No. 558 of 1967=(AIR 1968 SC 1119) and their Lordships have laid down the law in the following terms:--
'It was, however, contended for the appellant that under Section 294 of the Act the Municipal Board has authority to impose a licence fee by enacting a bye-law for that purpose under Section 298 of the Act. It was said that Section 294 of the Act contemplates the charge of afee not only in the restricted sense of a fee for which a quid pro quo is provided but also in the sense of a fee in which the taxation element is predominant. It was hence argued that the procedural machinery for the imposition of tax contemplated under Sections 131 to 135 of the Act need not be followed in such a case. We are unable to accept this argument as correct. According to the scheme of the Act there is a sharp and clear distinction between taxes properly so called and fees. There is a logical and clear-cut division of the Act into several Chapters, and taxes, by whatever designation they may be called, are all comprehended and dealt with in Chapter V and by that Chapter alone. And what is permitted to be imposed by Section 294 which occurs in Chapter VIII is only a fee in the restricted sense as distinguished from a tax. To put it differently, the Act contemplates only two categories of impost i.e., taxes enumerated in Chapter V and fees mentioned in Sections 293, 293-A and 294 of Chapter VIII. It is not contemplated in the scheme of the Act that there should be a third category of impost of licence fee which is in the nature of a tax for which the procedure contemplated by Chapter IX is applicable. In our opinion, the scheme of Chapter VIII of the Act shows that the provisions contained therein are meant for the purpose of regulation of certain trades and professions and for maintenance of public safety and convenience of the inhabitants of the municipality. The fees mentioned in Section 294 are meant to be imposed for the purpose of regulation of trade and professions and for rendering services. It is not contemplated by the Act that licence fees imposed by Section 294 should be merged in the public revenues of the municipality and should go for the upkeep of the roads and other matters of general public utility. It is therefore not permissible for the Municipal Board to impose a tax on the respondents under the guise of a licence fee without following the mandatory procedure for imposition of the taxes prescribed by Sections 131 to 135 of the Act; otherwise there will be a circumvention of the provisions of Sections 131 to 135 of the Act. It is manifest that Section 294 of the Act must be interpreted in such a manner as to prevent the circumvention of the safeguards of the provisions of Sections 131 to 135 of the Act'.
6. Our attention in this connection was invited by the learned Counsel for the appellants to the decision of the Supreme Court in Ajoy Kumar v. Local Board, AIR 1965 SC 1561. There, the question was raised as to the constitutionality of an annual 'tax' levied by Local Boards for the use of any land forthe purpose of holding markets as provided by Section 62 of the Assam Local Self-Government Act (Act No. XXV of 1953). That section reads:--
'62. ...... ...... ...... ...... ...... ...... ...The board at a meeting may grant within the local limits of its jurisdiction a licence for the use of any land as a market and impose an annual tax thereon...............
The Supreme Court held that the word 'thereon' in the section shows that the tax is on the land though the charge would arise only when the land is used as a market. The levy was thus clearly a tax on land and not a fee in the nature of a tax. The case, therefore, has little comparison with the present case. On- the dictum of the Supreme Court in Civil Appeal No. 558 of 1967=(AIR 1968 SC 1119) quoted already, the Corporation's attempt to justify the levy as fee in the nature of a tax must fail. In dealing with the fee coming under the second category namely 'fee for services rendered', the Corporation would raise the contention that the payer of the fee is benefited by the control and regulatory measures taken by them in relation to his business. We are not impressed by this contention either. A like contention raised in the Liberty Cinema Case, AIR 1965 SC 1107 was repelled by the Supreme Court. Their Lordships observed:
'The word 'fees' in List II Entry 66 cannot be construed to mean fees for services specially rendered to the payer but has to be read as including fees for supervision, control and regulation of an activity which the legislature desires to control. The placing of an activity, industrial or commercial, under regulation and control is no doubt done in furtherance of public interest, but so are most of the activities of public bodies. ..................... It was also contended ............that the levy authorised by the section would be in return for work done for securing public health, safety and convenience and was hence a fee. We are wholly unable to accept this contention. Whether a particular levy is a fee or tax has to be decided only by reference to the terms of the section as we have earlier stated. ......... The reference to theheading of Part V can at most indicate that the provisions in it were for conferring benefit on the public at large. The cinema house owners paying the levy would not as such owners be getting that benefit. We are not concerned with the benefit, if any received by them as members of the public for that is not special benefit meant for them. We are clear in our mind that if looking at the terms of the provision authorising the levy, it appears that it is not for special services rendered to the person on whomthe levy is Imposed. It cannot be a feewherever it may be placed in the statute.'
7. The principle is well known that no fee can be imposed in return for the Corporation discharging its statutory duties as a Corporation. On this point the Supreme Court has observed thus in Civil Appeal No. 558 of 1967=(AIR 1968 SC 1119) cited above:--
'The expenditure under these two Items was incurred by the Municipal Board in the discharge of its statutory duty and it is manifest that the licence fee cannot be imposed for reimbursing the cost of ordinary municipal services which the Municipal Board was bound under the statute to provide to the general public.'
By the supervision, control and regulation of the activity the payer of the fee cannot be said to be benefited. The object behind such measures is to detect lapses from or violation of the rules by the licensees and that in effect in the exercise of the ''police power' vested in the Corporation. No cost or fee can justifiably be imposed on the licensees for such measures which the Corporation is bound under the statute to adopt or undertake. On the police power exercisable by the Municipal Corporations the Supreme Court would observe in Civil Appeal No. 558 of 1967= (AIR 1968 SC 1119) cited above:
'It this context it is important to notice that the power to tax is not included in the police power in the American Municipal Law. (Dillon on 'Municipal Corporation', Vol. IV, 5th Edn., p. 2400). It has been held that the police and taxing powers of the legislature though co-existent, are distinct powers. Broadly speaking, the distinction is that the taxing power is exercised for the purpose of raising revenue and is subject to certain designated constitutional limitations, while the police power is exercised for the promotion of the public welfare by means of the regulation of dangerous or potentially dangerous business occupations, or activities, and is not subject to the constitutional restrictions applicable to the taxing power. 'It may consequently be said that if the primary purpose of a statute or ordinance exacting an imposition of some bind is to raise revenue, it represents an exercise of the taxing power, while if the primary purpose of such an enactment is the regulation of some particular occupation, calling, or activity, it is an exercise of the police power, even if it incidentally produces revenue.' (American Jurisprudence, 2nd Edn.; Vol. 16, p. 519)'
To sum up, our conclusions are: (a) as a 'fee for licence', the levy cannot be justified for the reasons that it has nocorrelation with the cost of issuing the licence, (b) as a 'fee for services rendered' it cannot be supported as no service is rendered particularly to the payer of fee, and (c) as a 'fee in the nature of a tax', it is illegal since the mandatory provisions of the Act in relation to the Imposition of a tax have not been followed.
8. The decision under appeal in the circumstances is correct and we would dismiss these appeals but in the circumstances without costs.