1. This is an application by the Maharaja Shri Umaid Mills Ltd., Pali, under Article 226 of the Constitution praying for a writ in the nature of prohibition or any other appropriate direction or order against the State of Rajasthan and the Inspector of Factories and Boilers, Jaipur, prohibiting the latter from realizing license fees from the applicant under the Indian Factories Act.
2. The applicant is running a cloth and yarn mill at Pali. Rules under the Factories Act 1948 were published by the State of Rajasthan in August, 1952. According to these rules, certain fees are to be charged from all factories according to horse power installed and the number of persons employed in the factory during the year The charge is on a sliding scale, and the applicant was required to pay Rs. 2,000/- per year for obtaining a licence under the Indian Factories Act.
The applicant attacks the realization of this Hence fee on the following grounds :
(1) that this fee is a tax, and the Rajasthan State has no authority to levy such a tax and
(2) that this fee amounts to a tax on professions, trades, callings and employments, and cannot be more than Rs. 250/- per annum in view of Article 276(2) of the Constitution.
The applicant made representations against the realization of this fee from it, and also pointed out that, under the agreement between the applicant and the former State of Marwar of which the present state of Rajasthan, is the successor, there was no necessity of obtaining a license every year, and for this reason also the fee could not be levied.
It is also contended that the levy of this fee was a restraint on the applicant's fundamental right to carry on trade or business, and was therefore, illegal under Article 19.
3. The application has been opposed on behalf of the State, and it is urged that the levy is a licence fee and not a tax, and the State of Rajasthan has the authority under law to levy such a fee.
It is further submitted that if it is a restriction on carrying on trade or business, it is a reasonable restriction.
It is also urged that Article 276(2) has no application to the facts of this case, and that the agreement between the former state of Marwar and the applicant cannot take away the authority of the State to insist on yearly licence and payment of necessary fee therefor.
It was also urged that the fees were never levied for the purposes of raising public revenue, but were merely meant to finance the Inspectorate of Factories which looks after the welfare of labour, etc., according to the Factories Act, and that the income from the fees is less than the amount spent on the Inspectorate of the Factories.
Finally, it was urged that the applicant has a remedy by a civil suit, and therefore this Court should not use its extraordinary powers under Article 226 of the Constitution in its favour.
4. The main question, which has been canvassed before us, is whether this levy is a tax or a fee.
It is urged that there is a well-recognised distinction between a tax and a fee, and that this levy amounts to a tax which the State of Rajasthan is not entitled to impose. Authorities on public finance certainly recognize the distinction between a tax and a fee. Generally speaking, a tax is an impost levied by the State for purposes of raising revenue. The person, who has to pay the tax, has no option but to do so provided the tax is validly imposed, and cannot object to it on the ground that the State does not render him any particular service in lieu of the tax.
A fee, on the other hand, is not generally meant to augment general revenues. It is levied for some service rendered by the State to the particular person concerned, and the levy gene rally takes place when the particular person asks for permission to do something for which regulations exist. As the levy is not meant to augment the general revenue of the State, it is fixed generally at such a level as to meet the expenses of the services rendered by the State in connection with the matters for which the fee is levied.
5. This distinction, however, is not always kept in mind rigorously in legislative enactments, and many a time what is called a fee is really a tax meant for raising revenues. Further, constitutionally speaking, a fee is also a tax for the purposes of Article 265 of the Constitution for no fee can be levied without the authority of law. So far, therefore, as a tax is concerned, there is no difficulty, for it is meant for raising revenue, and must be governed by the authority of law as provided in Article 265.
So far, as fees are concerned, they have to be divided into two parts. There are some fees which are really taxes though they are called fees. In their case, all the incidents of a tax apply, and the limitations to which fees are subject do not apply. As an example of this kind, we may mention Court-fees under the court-fees Act. Though it may be said that court-fees are charged from parties who come to court it is still true that the Court-fees Act, generally speaking, is a measure for raising revenue for the State. Then there are fees strictly so called, which are not meant for raising revenue, but for meeting the expenses of the departments of the Government created for regulating professions, trades, callings and employments from which licence fees are levied. The contention of the State is that the licence fees in this case are of the third kind, and are justified under the law in force.
6. It is also urged in the alternative on behalf of the State that where fees are levied under an Act passed by Parliament, the distinction between tax and fees is of no value, and therefore the fact that the levy in this case is called a fee is not material because it is in reality a tax. We may point out that this alternative argument is not quite in conformity with the case put forward on behalf of the State in their objection where the levy is called a fee strictly so called.
7. The first question, to which we address ourselves, is whether there is authority of law, as required by Article 265 of the Constitution, for this levy, whether it is a tax or a fee strictly so called. On that point, it is enough to say that Section 6 of the Indian Factories Act provides that the Provincial Government may make rules for the regulation of factories, and also require their registration and licensing and prescribe fees payable for such registration and licensing and for the renewal of licences.
The State of Rajasthan has made rules in exercise of the powers conferred under this section read with Section 112 of the Factories Act. In these rules, called the Rajasthan Factories Rules, 1951, necessary provisions have been made for the regulation of factories in Rajasthan, and a sliding schedule has been provided fixing fees for various factories based on horse power and the maximum number of persons employed during the year. These fees range from a minimum of Rs. 19/- to a maximum of Rs. 2000/-.
The applicant's case is covered by the maximum, it has been urged that this sliding scale is hit by Article 14; but obviously there is a reasonable basis for classification of factories according to horse power, and the maximum number of persons employed during the year. Therefore, whether the levy is a tax or a fee strictly so called, there is authority of law behind it, and the condition required by Article 265 is satisfied.
8. The next point, that is urged, is that it was illegal for the State to prescribe a fee above Rs. 250/- in view of Article 276(1) and (2) of the Constitution which reads as follows :
'(1) Notwithstanding anything in Article 246, no law of the Legislature of a State relating to taxes for the benefit of the State or of a municipality, District Board, Local Board or other local authority therein in respect of professions, trades, callings or employments shall be invalid on the ground that it relates to a tax on income.
(2) The total amount payable in respect of any one person to the State or to any one municipality, district board, local board or other local authority in the State by way of taxes on professions, trades, callings and employment shall not exceed two hundred and fifty rupees per annum :'
What we have to see is whether this fee can be called a tax in respect of professions, trades, callings or employments. We are of opinion that this levy cannot be called a tax on professions, trades, callings and employments, for the intention was not to levy any tax on the trade, carried on by the applicant, which is manufacturing of cloth and yarn. If the intention was to levy a tax on the trade carried on in a factory, the horse-power installed in that factory, and the number of persons employed therein would have no relevance to the fixation of the tax. The levy may have amounted to a tax on the trade carried on by the applicant if, for example, the levy was on the cloth or yarn produced by the applicant. We may in this connection refer to -- Secretary, Municipal Committee, Karanja v. New East India Press Co., Ltd., Bombay', AIR 1949 Nag 215 (A), to show what is a tax on trade. There the tax was on so much load of ginned cotton at so much per load. That would, in our opinion, be a tax on trade; but a levy of the kind before us cannot, in our opinion, be called a tax on trade, because it has no connection whatsoever with the trade of the factory whether the trade carried on is cloth manufacturing, or jute manufacturing or steel manufacturing or anything else. The tax depends on the horsepower installed and the maximum number of persons employed. Obviously therefore the tax is not on the trade carried on by the applicant. It is a tax on all factories, whatever may be their trade, for purposes of license and registration with a view to regulating the factories. We: are, therefore, of opinion that Article 276(2) does not hit this levy.
9. Then we come to consider the argument that because of the agreement between the applicant and the former State of Marwar, it is not open to the State of Rajasthan, which is the successor of the former state of Marwar to insist on a renewal of license every year, and demand necessary fee thereon. We are of opinion that there is no force in this argument. It was open to the State to pass a law regulating all factories, and an agreement entered into between the applicant and the former State of Marwar cannot take away the power of the State to do so. As soon as the Indian Factories Act was extended to Rajasthan, and the rules were framed thereunder prescribing fees for renewal of licence the law would apply to the applicant irrespective of any agreement that might have been entered into between him and the former state of Marwar. The applicant, therefore, can not avoid paying renewal fees on the basis of any agreement.
10. Then we come to the argument that the levy of this fee is an unreasonable restriction on the trade of manufacturing cloth and yarn, and therefore is void under Article 19(1)(g) of the Constitution,
We are of opinion that there is no force in this argument. Under Clause 6 of Article 19, the State has the right to make any law imposing, in the interests of the general public, reasonable restrictions on the exercise of the right conferred by Article 19(1)(g). The Indian Factories Act, and the rules framed thereunder, particularly the rule as to registration and taking out of licenses, appear to us to impose a reasonable restriction on the right of carrying on the trade of manufacturing, as it is necessary, in the interests of the general public, that factories, where large number of people work, should be properly supervised, and should have proper conditions of work as prescribed in the rules. The payment of fees for this purpose is also, in our opinion, justified, as State has to maintain an establishment for purposes of supervision, and the expenses of that establishment have to be met, and this is only a method of meeting those expenses.
11. Then we come to the main question whether these fees are a tax or fees strictly so called, and if the latter whether the State of Rajasthan is entitled to make a charge according to the schedule prescribed in the rules.
In this connection, we have to see whether the law, under which the fees are charged, is a law for raising revenue primarily. It is admitted that the Indian Factories Act, under section 6 of which these fees are charged, is not a law primarily for raising revenue. It is a law for regulation of factories, and incidentally in one section out of 120, it mentions levy of fees for purposes of licensing and registration and renewal of licences. It seems to us, considering the Act as a whole, that the intention of the framers of the Act was to levy certain fees under Section 6 in order to meet the expenses of supervision, which became necessary in view of the various regulatory provisions of the Act, and the Rules framed thereunder. It cannot be said, therefore, that the fee levied under Section 6 is a tax meant for purposes of raising revenue.
They properly appear, in the context in which they are found, to be meant for purposes of defraying the expenses of the organisation which it would be necessary to set up for purposes of inspection to see that the Act and the rules framed thereunder for the benefit of the general public are carried out by the factories. It must, therefore, be held that the fees prescribed by Section 6 of the Indian Factories Act are in the nature of fees strictly so called, and not a mere tax for purposes of raising revenue.
12-13. We may also here deal with the argument on behalf of the State that where fees are prescribed by an Act of the Parliament or Central legislature, the distinction between fees and taxes is immaterial, and all fees prescribed by a central Act must be held to be taxes pure and simple.
We are of opinion that this argument cannot be accepted in this wide form, though there may be certain fees which are nothing more than a tax. It is equally true that there are other fees which are what we have called fees strictly so called, and not mere taxes for purposes of raising revenue. That there is a distinction between a tax and fee, so far as the central legislature is concerned, is clear from the various entries in List I, and List III of the Seventh Schedule of the Constitution. List I is the Union List. It provides, in various items from item 82 to item 92, for what are called taxes and duties.
These are taxes meant for the purpose of raising revenue for the State. Item 96 provides for fees in respect of any of the matters in this list, but not including fees taken in any court. Therefore fees are a different item altogether, and though sometimes they may be in the nature of a mere tax, they need not necessarily be so always. Similarly, the concurrent List III provides in item 44 for certain kinds of stamp duties which are obviously taxes meant for raising revenue. But in item 47 provision is made for fees in respect of any of the matters in this List, but not including fees taken in any court. It is obvious, therefore, that a distinction is recognised between taxes and fees where legislative power is in Parliament, though, as we have already pointed out, some fees may be nothing more or less than taxes.
14. Reference was also made to iem 97 of List I in this connection. That is the residuary item which gives powers to the Parliament to impose any tax not mentioned in List II or List III. It is, however, unnecessary to refer to item 97 of List I for justifying Section 6 of the Indian Factories Act. The justification for that section, to our mind, is clear in item 36 of the concurrent List III. It deals with factories, and item 47 deals with fees relating to any matter in this List. It may be mentioned that the Indian Factories Act, 1948, was passed when the Government of India Act was in force. That Act contained item 26 of List III of that Act corresponding to item 36 of List III of the Constitution, and items 25 and 36 of List III of that Act corresponding to item 47 of List III of the Seventh Schedule in the Constitution. There was thus clear provision in these items for the enactment of the Factories Act and levying of fees in connection therewith, and it is, therefore, not necessary to go to item 97 of List I of the Seventh Schedule of the Constitution to seek Justification for it.
It may also be pointed out that there was no item corresponding to item 97 in the Government of India Act, when the Factories Act was passed in 1948. The only corresponding provision that existed was Section 104 of the Government of India Act, 1935. But it is no one's case that the Indian Factories Act, 1948, was passed under the powers conferred by that section.
We are, therefore, of opinion that the fees sanctioned by section 6 of the Indian Factories Act are fees strictly so called, and are not mere taxes for the purpose of raising revenue.
15. If a levy is a fee strictly so called, it is subject to the limitations, which we have mentioned above, namely that it should not be levied for purposes of augmenting general revenues, and should be for some service rendered by the State and should be preceded by permission sought by the subject. In the case of this levy, it is obvious that it is being collected for service rendered by the State, namely inspection of factories to see that regulations are carried out, and comes into, force only when some one applies for permission to start a factory or keep it running year by year.
In the affidavit filed by the State, it was said that the income realised from these fees was less than the expenses incurred by the State for the Inspectorate of Factories. The applicant, however, challenged this statement, and we asked the State to submit an account of what they collected and what they spent since the levy was imposed. The account that has been submitted shows that Rs. 65,000/- were realized on this account in the financial year 1952-53, while about Rs. 23,500/- were spent in that financial year. It is urged that this shows that the levy is meant to augment general revenues and is not meant for purposes of defraying the expenses connected with the Inspectorate of Factories.
It has, however, been pointed out on behalf of the State that as the rules came into force from 1-9-1952, and the fees were levied on the basis of calendar years, there was collection for two years, i.e., 1952 and 1953 in the financial year 1952-53. That is why the income came to be Rs. 65,000/- otherwise it would not have been more than Rs. 33,000/- for one year. Further the account shows that in the year 1953-54, it is estimated that the income would come to Rs. 50,000/-, while the expenditure is estimated to be about Rs. 45,000/-.
It has also been pointed out that as the Inspectorate was organised in the financial year 1952-53, some vacancies could not be filled, and that is why the expenditure was low in the financial year 1952-53. It is also pointed out that there is likelihood of an increase in the expenditure in the near future, and the income from the fees may not then be sufficient for even meeting the expenses of the Inspectorate. If we leave out of account the extraordinary circumstances, which were prevalent in the financial year 1952-53 both on the side of income and of expenditure, it does seem that the income derived from the fees is more or less of the order of the amount which will have to be spent on the Inspectorate of factories.
Taking a comprehensive view therefore and keeping in mind future years, it cannot be said with any degree of force that the income derived from the fees is not reasonably commensurate with the expenditure on the Inspectorate of Factories, and that the fees have been pitched high in order to augment general revenues. Barring, therefore, the exceptional circumstances prevailing in the financial year 1952-53, we are of opinion that the charges in the schedule to be found in Rule 5 of the Rajasthan Factories Rules 1951 are reasonable as fees, and are not meant for purposes of augmenting general revenues.
16. In this view of the matter, we are of opinion that there is no force in this application,and hereby dismiss it with costs to the State.