1. Petitioners in these writ petitions conduct chit funds on securing registration under Section 3 of the Tamil Nadu Chit Funds Act, 1961 (T.N. Act 24 of 1961)(hereinafter referred to as the Act). They seek for a declaration that the amendments effected to Article 1 and insertion of Article 8-A to Appendix II of the Tamil Nadu Chit Funds Rules, 1964 (hereinafter referred to as the Rules) are unconstitutional and illegal. The amendments were made in exercise of the powers conferred under Section 63 of the Act. These amendments came into force with effect from 21.10.1981 consequent to its publication in the Fort St. George Gazette : of G.O.Ms. No. 1075, Commerical Taxes and Religious Endowments, dated 23.9.1981. The amendments are to the following effect.
In exercise of the powers conferred by Section 63 of the Tamil Nadu Chit Funds Act, 1961 (Tamil Nadu Act 24 of 1961) the Governor of Tamil Nadu hereby makes the following amendments to the Tamil Nadu Chit Funds Rules, 1964.
In the said Rules, in Appendix II, in the Table of Fees (1) for Article 1 and the countries relating thereto the following Article and entries shall be substituted, namely:
Rate of Fees
a) for chits for a term of less than Per subscriber or instalment whichever
one year Re. 1 is higher subject to a minimum of Rs. 50.
b) For chits for a term of one year Per subscriber or instalment whichever
and above Rs. 2.50 is higher subject to a minimum of Rs. 50.
i) for chit amount of value upto Rs. 5,000 Per subscriber or instalment whichever
- Rs. 5. is higher subject to a minimum of Rs. 50.
ii) for chit amount of value between Per subscriber or instalment whichever
Rs. 5,001 and Rs. 10,000 - Rs. 5. is higher subject to a minimum of Rs. 50.
iii) for chit amount of value between Per subscriber or instalment whichever
Rs. 10,001 and Rs. 20,000 - Rs. 5. is higher subject to a minimum of Rs. 50.
iv) for chit amount of value between Per subscriber - or instalment whichever
Rs. 20,001 and Rs. 30,000 - Rs. 10. is higher subject to a minimum of Rs. 50.
v) for chit amount of value between Per subscriber or instalment whichever
Rs. 30,001 and Rs. 40,000 - Rs. 12. is higher subject to a minimum of Rs. 50.
vi) for chit amount of value between Per subscriber or instalment whichever
Rs. 40,001 and Rs. 50,000 - Rs. 15. is higher subject to a minimum of Rs. 50.
vii) for chit amount of value exceeding Per subscriber or instalment whichever
Rs. 50,000 - Rs. 20. is higher subject to a minimum of Rs. 50.
(2) In Article 8, in Clause (b) for the letters and figures Rs. 50 'occurring in two places, the letters and figures 'Rs. 250' shall be substituted;
(3) after Article 8, as so amended, the following Article and entries shall be inserted, namely:
8A. For filing Balance-sheets audited and certified by Chartered Accountant.
(a) Where the chit amount does not exceed Rs. 500 - Rs. 10.00.
(b) When the chit amount exceeds Rs. 500 for the first Rs. 500 as under Sub-clause (a) and for every Rs. 500 or part thereof in excess of Rs. 500 subject to the maximum of Rs. 250. The fee leviable under this clause 'shall not exceed Rs. 250.
2. Petitioners state that to start or conduct any chit, under Section 3, they will have to apply to the Registrar for registration of the by-laws of the chit, and as per Rule 4, such application for registration has to be made by the Foreman under Form II and it shall be accompanied by the fees set out in Appendix II. Section 53(a) provides that Government may from time to time prescribe the fee that shall be paid to the Registrar for the registration of the by-laws of the chit under Section 3. Rule 42 states that fees payable to the Registrar for matters specified in Section 53 shall be as set out in the Appendix II and shall be paid in cash. Article No. 1 in Appendix II as originally framed provided only Rs. 25 for the registration of the by-laws, and an amendment was made on 2.11.1979 revising the rates of registration as follows:
Chlt amount Fees leviedUpto Rs. 5,000 50Above Rs. 5,000 andupto Rs. 10,000 100Above Rs. 10,000 andupto Rs. 20,000 150Above Rs. 20,000 200
It is by virtue of the amendment made in G.O.Ms. No. 1075, Commercial Taxes and Religious Endowments, dated 23.9.1981 (hereinafter referred to as G.O), the fees payable are charged on the basis of number of subscribers or instalments of the Chit whichever is higher. This imposition being disproportionate to the, services rendered and having no nexus to the object of regulating the chits, it is illegal, unconstitutional and ultra vires of the provisions of the Act.
3. For the first time, for balance sheets audited by a Chartered Accountant a fee is imposed under Article 8-A. The rate of fee is the same fee which is charged when audited by chit auditors, having no nexus to the extent of service rendered by the Department. As for the increase made under Article 8, it is not challenged in these petitions. As Section 53 does not authorise imposition of fees for balance-sheets filed under Section 16 of the Act, and Section 63 alone having been invoked in carrying out the amendments, it is ultra vires of the Act. No service is rendered by the Registrar on receiving the balance-sheets and preserving them. The essential element of quid pro quo in the imposition of these fees is absent. So far as the Foremen are concerned, the Registrars do not render any special service in furtherance of his business and the fee collected has no correlation to the expenses incurred in rendering service, if any. The only ground relied upon in the impugned G.O. is that, to bring about rationalisation in rates, the fee for registration has been revised, taking into account the number of subscribers or the instalments whichever is higher, instead of the slab system which was prevailing prior to 21.10.1981. If whatever done by the Registrar at the time of registration are looked into the basis now adopted is highly irrational and unreasonable, and the imposition is disproportionate and not at all commensurate to the nature of service claimed to be rendered. Merely because in the neighbouring State of Kerala, a higher levy is imposed, the respondents have chosen to rely upon it so as to augment the general revenues of the State, and hence it is not a fee but a tax, which is not authorised under the Act.
4. On behalf of the respondents, in the counter-affidavit filed in W.P. Nos. 10552 of 1981 and 1333 of 1982, it is contended that the levy of fees formerly prescribed had no relation to the duration of chit5 and in respect of chits of longer duration and larger number of instalments, greater amount of services had to be rendered, in that, more minutes were filed and hence, it is equitable and fair to fix the fee for registration of by laws taking into account the number of instalments or duration of a chit whichever is higher. While revising rates, these facts were taken into consideration. The Registrar of Chits has to check up whether the Foremen have taken proper surety for future payment of subscriptions from the prized subscribers; whether proper receipts were obtained by due dates; and whether the prized amounts have been deposited into the bank etc., The extracts filed in respect of removal, substitution and assignment, etc., have to be verified and when chits are for longer duration, the transactions will be more, and therefore, the verification process would impose greater responsibility on the Registrar of Chits. Considerable time is taken in watching the filing of various documents by the Foremen on due dates in proper form. The balance-sheet under Section 16 when filed requires to be verified for its correctness with relevant records such as bylaws, chit agreements, commencement certificates, minutes etc., It is only on being fully satisfied that the procedures prescribed under the Act and the Rules have been complied with, the Chit Register will be in a position to release security to the Foreman. All these are done not only in the interests of the subscribers but also in the interests of the Foreman as well, and if these requirements have not been complied with; he would be liable to be punished by being prosecuted as provided under Chapter XI of the Act, which would disentitle him from securing registration of other chits. All these scrutinies are to benefit him to continue to be Foreman for chits registered by him under the Act. The cost incurred in extending services to the Foremen and subscribers being commensurate as furnished in the counter affidavit, there is an element of quid pro quo as enunciated in more than one Supreme Court decision.
5. Section 16 directs every Foreman to prepare and file with the Registrar a balance-sheet regarding every chit. Rule 26 prescribes the form of the balance-sheet which should be in Form X, and Rule 27 contemplates that it should be filed once in a year and also at the expiry of the period of the termination of chits. The fees levied are approximately equal to the amount spent for the services rendered. The staff who are engaged is disclosed in para 8 of counter-affidavit in W.P. No. 1333 of 1982, and the receipts and expenditures during the years mentioned therein would only show that it was not done to augment the revenue. The State had to provide at considerable expense, receptacles and iron safes for the preservation of records and securities, and this revision has taken place nearly after two decades, and intended to cover the reasonable expenses incurred for rendering services.
6. Under Section 16, a balance-sheet can be duly audited either by auditors duly qualified to act as auditors of companies under the Companies Act, 1956 or by a chit auditor appointed under Section 51(2). Merely because a balance sheet is prepared by a Chartered Accountant, it does not mean that the Registrar is bound to act upon it as a conclusive document and that there is no need for him to verify the correctness of the balance-sheet with other documents. A balance-sheet is a very important document to find out whether the Foremen have conducted the chit according to the rules and whether the prized winners have been paid the amounts, and other relevant details has to be looked into to know the financial stability and credibility of1 the Company. Hence, the Registrar has to scrutinise it with connected records to find out the correctness of the balance-sheet prepared by a Chartered Accountant. If any deviations are disclosed in the balance-sheet, then the Chit Registrar has to take further action. Before ordering release of security deposits to Foremen, the Registrar has to satisfy himself that the requirements of Section 12(3)(i) to (iii) are complied with. The whole matter has got to be thoroughly examined to see whether a particular year's transactions fully reflect the scope of each chit and whether the collections and disbursements including the commission retained by the Foreman, have all been done in conformity with the Act and the Rules. Therefore, it cannot be contended by petitioners that the Registrar does not extend any service commensurate to the fee imposed when audited balance-sheets are filed. Hence, the enhancement of fees in respect of two items which are challenged in these writ petitions is commensurate with the services extended, and not intended to augment the general 'revenue of the State. Inspite of Chit Funds Act, 1982 (Central Act 40 of 1982) coming into force in so far as Tamil Nadu is concerned on 13.4.1984, the provisions of Tamil Nadu Act 24 of 1961 and the Rules framed thereunder continue to apply to the chits in operation on the commencement of the 'Act and hence, the levy of fees for balance-sheets filed subsequent to 13.4.1984 for chits already registered is valid. Hence, none of the contentions raised by the petitioners could invalidate the imposition and collection of fees on the basis of revised rates.
7. A reply-affidavit is filed stating that the shift from slab basis to number of subscribers or instalments whichever is higher basis is irrational, because it does not increase the services rendered to Foreman and in no manner increases the work of Chit Registrar at the time of registration, because thereafter fees are levied' for each and every stage of the conduct of the chits. Petitioners are only aggrieved regarding the increase in fees for registration of the by-laws and for balance-sheets on ad valorem basis when filed with the certificate of a Chartered Accountant. The expenses incurred and the amount collected as disclosed in the counter - affidavit only shows that the revisions were made to augment the revenue of the State.
8. When minutes for every instalment are being filed, they disclose the required particulars. What are looked at in balance-sheets is to find out the total amount collected and the commission received and no other. They do not refer to all the receipts and expenditures of each chit. It is like insisting the Banking Company to file a balance-sheet for each account, which is an impossibility of performance. From the balance-sheet, Registrar cannot ascertain the expenditure for each chit as the firm engages and spends for the whole work of all the chits. In practice, Registrar does not insist all the columns to be filled in the balance-sheet and they relate only to the amount collected in one year and the amount of commission deducted. Even the Chit Auditor does only these things. As for other particular, they are to be culled out from the minutes filed for every instalment, for which separate fees are collected. The present basis adopted results in highly disproportionate amounts being collected as indicated in para 5 of the reply-affidavit, which is incommensurate with the services rendered by the Registrar. In the absence of break-up figures for the amounts claimed to be spent, it would not be safe to act upon them, when Sub-Registrar does all the functions of Chit Registrar in some places. As for providing iron safe and receptacles, they cannot form part of any services rendered for the benefit of Foreman from whom the fee is collected. Hence, as claimed, they are entitled to the writs of declaration.
9. By the time these petitions have been argued out, advocates appearing for the petitioners and learned Additional Government Pleader have adverted to the under mentioned decisions for comprehending as to whether the impugned levy is a fee or not.
10. In A.I.R. 1954 S.C. volume there are three decisions reported at pages 282, 388 and 400. In the first one known as Shirur Mutt case 1954 S.C.3. 335 : (1954) S.C.R. 1005 : (1954) 1 M.L.J. 596 : (1954)67 L.W. 1220 : A.I.R. 1954 S.C. 282 it was held that a fee is generally defined to be a charge for a special service rendered to individuals by some governmental agency and that the fee so is taken for the varying abilities of different recipitionts to pay. It was further held that it is not possible to formulate a definition that would be applicable to all cases, and that the element of compulsion or coerciveness is present in all kinds of impositions and that fee is no exception, and the primary distinction between a tax and a fee is that a tax is levied as a part of a common burden, while a fee is a payment for a special benefit or privilege, and that public interest is the basis of all impositions, but in a fee it is some special benefit which the individual receives. Hence it was held that a fee is regarded as a sort of return or consideration for services rendered, and it is absolutely necessary that there must be a correlation to the expenses incurred by the Government in rendering the said services. One more factor taken into account was that if the money so collected is appropriated specifically for the performance of such work and is not. merged in the public revenues for the benefit of the general public, then it could be counted as fees and not as tax.
In the second case known as R.P. Gandhi's case : 1SCR1055 analysing the provisions of the Bombay Public Trusts Act, reported at page 388, it was pointed out that though primarily fee is imposed in public interest, it is for some special service rendered or some special work done for the benefit of those from whom the payments are demanded and that quid pro quo is always an element which is present in fees, but absent when tax is imposed. It was further held that there are two essential elements to find out whether the payment is a fee or not. They being:
(1) It must be in consideration of certain services which the individuals accepted either willingly or unwillingly.
(2) It must be earmarked to meet the expenses of rendering such services and shall not go to the general revenue of the State to be spent for general public purposes.
In the third decision reported at page 400 Sri Jagannath v. State of Orissa : 1SCR1046 the same principles have been reiterated.
11. In Hingir - Rampur Coal Co. v. State of Orissa : 2SCR537 , four out of five learned Judges of the Supreme Court have laid down the following essential features between a tax and fee.
(1) Tax and fee are compulsory extractions of money by public authorities and there is no generic difference between them.
(2) A fee levied is essentially for services rendered and as such there is an element of quid pro quo between the person who pays the fee and the public authority which imposes it.
(3) Services rendered may be to a specific area or to a specific class of persons or trade or business in any local area and as a condition precedent for the same, a fee could be collected.
(4) Fee so collected is earmarked and set apart for the purpose of services for which it is levied and does not become a part of the consolidated fund. When a fee is imposed for services rendered, the payer has no right to opt out of it.
(5) In the absence of co-relation between the fees collected and the services extended, it loses the characteristics of fee.
(6) Whether the demand made is a fee or a tax is always a question of fact to be determined in the circumstances of each case.
(7) In extending services to a specified class', if indirectly other members of the public are also benefited, it would not detract from the character of the levy as a fee.
(8) The truer test in determing its character is to find out what is the primary object of levy and the essential purpose hich it is intended to achieve.
11. It is in Liberty Cinema Case : 2SCR477 , three of the five learned Judges of the Supreme Court held that what was levied as licence fee under Calcutta Municipal Act was only a tax. Learned Counsel for the petitioners relied upon it to contend that unless the State is able to justify that the levy is for services rendered and intended to confer a special benefit on the person on whom it is imposed, and that in the instant case, the Foreman does not derive any of the benefits under the impugned levy therefore, the demand is illegal.
12. Learned Additional Government Pleader would refer to para 6 of the judgment in Liberty Cinema Case : 2SCR477 , wherein it is stated that Corporation of Calcutta itself contended that the levy was only a tax and not a fee and further did not dispute that if the levy was a fee in the sense mentioned, then it would be invalid. The concluding sentence in the said paragraph is to the following offect:.A discussion of these aspects of fees, will be unprofitable and will only cloud the point really in issue.
Hence his submission is that, whatever had been discussed in the judgment as to what would be a fee cannot be understood as at variance with what had been held in Hingir Rampur Coal Co. v. State of Orissa : 2SCR537 . In the light of the subsequent decisions of the Supreme Court, his further submission is that the services rendered by the State need not be confined only to the persons on whom it is imposed, but when the primary object and the essential purpose have to be looked into, it would take within its fold the benefits derived by subscribers as well.
13. On what is a fee, it was held in Corporation of Calcutta v. Liberty Cinema : 2SCR477 that:
(1) nothing turns on the actual word used as there is no rigid technical meaning in English language for 'fee' indicating that levy is only in return for service.
(2) Articles 110(2) and 199(2) of the Constitution of India go to show that fee for licence and fee for services rendered are different kinds of levy and that the former is not intended to be a fee for services rendered
(3) The provisions of the Act must be looked into to determine the correct character of the imposition.
(4) It must confer a special benefit on the person on whom it is imposed.
14. In D.C & G. Mills Co. v. Chief Commissioner Delhi : 2SCR348 , the factors taken into account, to ascertain the nature of levy of fees are:
(i) the entire scheme of the Act, obligation and nature of work done by authorities are to be looked into.
(ii) The expenses incurred for maintaining the personnel for supervising, controlling and, regulation of the trade can be taken into account to find out the reasonable relationship between the levy and expenses incurred for rendering such services.
It was a case wherein the statistics furnished disclosed that 50% of the amount of licence fee collected was being actually spent on services rendered to factory owners and this was considered to be sufficient correlation to uphold the levy as a fee.
15. In dealing with the payment of Court - fees, in Secretary, Madras Government v. Zenith Lamp : 2SCR973 the two factors that were taken into account are:
(1) Whether there is broad co-relationship, and that
(2) each case has to be considered on a reasonable and practical view point rather than on a pedantic approach.
16. In dealing with the levy of permission fee for construction of buildings under Andhra Pradesh Gram Panchayats Act, the Supreme Court after referring to Shirur Mutt Case 1954 S.C.J. 335 points out that, if there is total absence of any data regarding the essential features of co-relationship, then the levy is illegal; and that the expenses incurred in discharging the obligatory functions under the Act have to be met from and out of the taxes collected and that the fees collected could be only with reference to the services rendered or intended to be rendered to particular persons from whom the fee is collected.
17. In Keval Krishanpuri's case : 3SCR1217 , decided by five learned Judges of the Supreme Court seven salient tests have been laid down to ascertain as to whether the demand is a fee or not.
(1) A good and substantial portion of the amount collected must be expended for the purpose for which it is collected.
(2) The services rendered by the authorities to the licensee must be in relation to the activity carried on by him.
(3) It is not necessary to confer the whole of the benefit on the licenses alone, but it would suffice if some Benefits are conferred on them and which have a direct, close and reasonable correlation between the licensees and the transactions.
(4) In conferring the special benefits on the licensees it could take within its fold services rendered by the authority in the general interest of all concerned with the transactions in question.
(5) Any direct and remote benefits cannot in any sense be a special benefit to the licensee.
(6) Quid pro quo with arithmetical exactitude is not required and authorities must broadly establish that a reasonable amount is spent for rendering services to those on whom falls the burden of paying fees.
(7) At least a good and substantial portion of the amount collected on account of fees, may be in the neighbourhood of two-thirds or three-fourths, must be shown with reasonable certainty as being spent for rendering services.
Immediately following this pronouncement, four of the five learned Judges of the Supreme Court in H.H. Swamiji v. Commissioner : 1SCR368 S.C.I. have stated that the necessity for establishing quid pro quo between the fee and the cost of services rendered is a matter which is no longer in doubt or to be debated in view of the principles enunciated in the decisions. rendered by the Supreme Court from Shirur Mutt Case 1954 S.C.J. 335 upto Keval Krishanpuri's case : 3SCR1217 .
18. As' to what has been laid down in Keval krishanpuri's Case : 3SCR1217 in Southern Pharmaceuticals & Chemicals v. State of Kerala : 1SCR519 . It was held that the observations contained therein pertaining to quid pro quo are not intended and meant as laying down a rule of universal application and that this concept is undergoing a transformation. It was further observed that the element of quid pro quo stricto. sensu is not always a sine quo non of a fee. The Constitution of India did not contemplate crediting it to a separate, fund and not to the consolidated fund. Article 266 of the Constitution of India was relied upon to show that unnecessary exaggeration need not be applied to the aspect of how the collections made had been credited. The levy of fee' may be in consideration for a privilege or licence or for service. To secure the privilege, the licensee has to comply with certain prescribed conditions. When supervision is contemplated under the provisions of the Act, there could be no denying of the fact that the licensee receives services from the authority. If a broad correlation between the fee collected and the expenses on establishment is disclosed, it would be valid, because the personnel of the establishment extend services to the licensee in complying with the provisions of the Act.
19. Even if the benefit of advantage derived by the payer of the fee is secondary, if it be shown that the primary motive of regulation was in public interest, then the imposition of fee is valid, is the view expressed in Delhi Municipality v. Mohd. Yasin : 142ITR737(SC) . The Court further held that in finding out correlation, the Court should not assume the role of a Cost Accountant, as quid pro quo is not in the strict sense the one and the only true index to find out whether it is a fee or not. By referring to Article 110 of the Constitution of India, it was held that there are two classes of cases where fees could be imposed;
(i) where the Government simply granted a permission or privilege to a person to do something which otherwise that person would not be competent to do and extracted from him, in return, heavy or moderate fees.
(ii) Where the Government did some positive work for the benefit of the person and money was taken as a return for the work done and services rendered, such money not being merged in the public revenues for the benefit of general public.
20. As to what is meant by the phrase 'prayer of the fee' used in the earlier decisions, is explained in Sreenivasa General Traders v. State of A.P. : 3SCR843 as follows:
It is obvious that the phrase 'payer of the fee' used by this Court in the authorities referred to above represents collectively the class of persons to whom the benefit --- is directly intended by the establishment of a regulated market in notified agricultural produce, live stock or product of livestocks and not the actual individual who belongs to that class i.e., the trader...
It was then held that what was stated in Kewal Krishan's case : 3SCR1217 must be understood as meaning services to the users of the market as well. As for the view in Kewal Krishan's case about two-thirds or three-fourths of collection being spent on payers of fees, it was also held that it does not lay down a rule of universal application and it was decision confined to the special facts of that case and that it was an obiter.
21. As pointed out in these decisions, as to whether a particular levy is a fee or a tax, it is a question of fact to be determined in the circumstances of each case by reference to the entire scheme of the Act. The duties, obligations and nature of work done by the authority to those connected with the transaction which is subjected to the imposition of fees and ear-marking the funds collected for that specific purpose and several factors indicated in the aforesaid judgment, are to be taken into account, and if the State justifies the levy as a fee based on such tests, then alone it will be valid.
22. The first point taken by petitioners is that, there is no power in the State to increase the fees. Amendments were issued by invoking Section 63 of the Act. Learned Counsel for the petitioners submits that when Section 53 specifically provides as to when and under what what circumstances fees could be levied, and Section 16 which deals with balance-sheet, not being enumerated therein, the demand of fees on balance-sheets is ultra vires of the Act. On behalf of the State, it is stated that though Section 63 is mistakenly mentioned in the notification, the power exercised, falls within Section 53(1)(a) and (g). Section 53 enables the Government to prescribe fees in respect of such of those categories listed in Clauses (a) to (f) and other matters as may appear necessary to give effect to the purposes of the Act. Clause (a) deals with the registration of the by-laws of a chit under Section 3. Hence, the enhancement of the rate of fees or revised basis that could be adopted for imposition of registration fee, could be done by invoking Section 53(1)(a). As for balance-sheets, Section 16 is not one of the Sections mentioned in Section 53(1)(a) to (f). But Clause (g) states:
Such other matters as may appear necessary to give effect to the purposes of this Act.
The Act is made to provide for the regulation of Chit Funds in the State of Tamil Nadu. Section 16(2) refers to what a balance-sheet should contain. Rule 26 says that it shall be in Form No. X. When such balance-sheets are filed in the prescribed form, it calls for scrutiny, so that the interests of the subscribers may be safeguarded. This being one of the essential purposes envisaged under the Act, merely because Section 16 is not enumerated in Clauses (a) to (f), it cannot be held that the fee now imposed, relating to balance-sheets would not come within the aforesaid Clause (g). Such power being available under Section 53(1)(g), inclusion of balance-sheets as one of the items in Appendix II is within the ambit of the enabling power under Section 53. As stipulated under Section 53(2), it has been duly published. Though Section 63 is mentioned Section 53(1)(a) and (g) would have been the proper Section to be mentioned therein. Once the power is traceable, an erroneous, indication of Section would not invalidate the valid exercise of power. Such mistakes are avoidable, if proper care is taken.
23. The next point taken is that the object in the impugned G.O. is totally irrelevant to the purposes of the Act. After referring to the then existing rates of registration fee which was on slab basis, the Director of Chits had stated that the said levy has no relation to the duration of the chit or the number of subscribers benefited, and therefore, it will be equitable and fair to fix the fees by taking into account the number of instalments or duration as well as the number of subscribers benefited under the Chit. Hence, taking rates, he had proposed an amendment to the rules. Accepting this claim made by him, the impugned G.O was passed. As to what was the rationalisation claimed at in paragraph 4 of the counter-affidavit in W.P. No. 1333 of 1982, it stated as hereunder:.Considering that in respect of chits of longer duration and larger number of instalments, greater amount of service had to be rendered in that, more minutes etc., were filed, it is equitable and fair to fix the fees for registration of by-laws with regard to number of instalments or duration of chits. The fees were revised taking these facts into consideration. It has also to be verified whether the foreman has taken proper security for future payment of subscriptions from the prized subscriber, whether proper receipts were obtained for the payment of prize moneys and on due dates, if not whether the prize amount has been deposited in a bank as required by the Act by verifying receipts of deposit etc., The extracts filed in respect of removal substitution and assignment etc., have also to be verified and in respect of higher Chit' amounts in long term chits for longer duration these transactions will be more and they impose greater responsibility on the chit Registrar. The work connected with watching the filing of various documents by the Foreman on the due dates and in proper form also takes considerable time....
The rest of the portion in paragraph k deals with its justification regarding fees for filing a balance-sheet. At the time when an application is made for registration under Section 3, none of those factors mentioned therein requires to be done by the Registrar. In paragraph 20, it is stated, I submit that the registration fee has nothing to do with the fee levied for filing of the balance-sheet. They operate in different fields'. When more minutes the filed in respect of chits of longer duration and larger number of instalments, separate fees are collected for 'each minute. Section 10 states that minutes of the proceedings on every drawing shall be drawn up and entered in a book kept for that purpose; It must contain the particulars mentioned in Section 10(2). Under Section 11, every Foreman shall within 15 days of the succeeding month in which one or more instalment of the same chit or one or more instalment of any other chit is drawn, file with the Registrar a copy of the minutes. Rule 14 stipulates some more particulars apart from what are contained in Section 10(2) to be included in the minutes. Section 53(1)(c) authorises the Government to prescribe tees for filing all minutes. Article 4 in Appendix II stipulates the fees for filing a copy of the minutes of proceedings referred to in Section 10 and under Section 11 at Rs. 2. For each minute filed, fee being collected, at the time of registration, as to whether the longer duration or larger number of instalments calls for increase in services to rendered, than what was done when the slab system was in force, is not explained at all. As for the expression 'etc,' no particulars are forth coming. All other aspects referred to more or less are covered separately under Section 53(1)(c) and (f). The impugned G.O except to point out that the Director of Chits felt that the adoption of a different basis would bring about rationalisation of rates, the respondent - State had not placed before Court either in the form of an affidavit or by producing records EJS to what were the equitable factors which were taken into account for. change of basis or in imposing higher rate.
24. When a Foreman starts a chit, under Section 3 he has to apply for registration of the by-laws. It is only thereafter, he can approach' the subscriber and get the chit agreements, as prescribed under Section 5 executed, and file, them under Section 6. He cannot commence the business till he -secures the certificates under Section 7(2). Therefore, when an application is made for registration of by-laws, at that stage, Section 3(3) authorises the Registrar to find out as to whether the by-laws, are in accord with the provisions of the Act or the rules made thereunder. As to what the by-laws should provide, Rule 3 enumerates them. An application for registration is to be in form No. 1 accompanied by fees set out in Appendix II. Hence, the number of the subscribers or the instalments, has no nexus with what are required to be done under Section 3(3) by the Registrar. Whether they are more or less' it was only a question of furnishing particulars and recording them and no more. If for the entire period of the chit except the registration fee, no other fee is demanded and the entire services rendered is covered by this demand alone, then the correlation claimed could be available. Section 53 enables imposition of fees in respect of almost each one of the subsequent stages of the conduct of the chit whenever the authorities are to be approached or they are to exercise their powers. In the context of such provisions having been made in the Act, the registration fees claimed have to be restricted to what are required to be done under Section 3(3). Realising this predicament, the State has not placed before Court as to how and in what manner, the revision effected has brought about rationalisation. As to how and to what extent a chit with a longer duration or instalment could call for increased services so rendered compared with another of lesser duration or instalment, for the purposes mentioned under Section 3 is not exemplified. The only attempt made is to show that later on during the conduct of the chit, it would call for increased services, but this has no relevance in a case of this nature, where for each and every subsequent step taken, chit operator has to pay out fees enumerated in Appendix II. The limited justification spelt out in pare 4 of the counter-affidavit being practically no justification at all and the so-called rationalisation having no nexus with what requires to be done at the stage of registration, the adoption of a' revised basis' in the impugned G.O. is illegal.
25. Learned Additional Government pleaded would then submit that when it is a registration fee, the test of quid pro quo need not be satisfied as it is a regulatory measure, and hence, the extent of services at the stage of registration whether existing or not, cannot be high - lighted.
26. In Kewal Krishan Puri v. Punjab : 3SCR1217 , on referring to The Chief Commissioner, Delhi v. The Delhi Cloth and General Mills Co. Ltd. : 3SCR657 , it is stated as follows:
Rendering some service, however remote the service may be, cannot strictly speaking satisfy the element of quid pro quo required to be established in cases of the impost of fee. But then, as pointed out, in some of the cases noticed earlier the registration fee has been taken to stand on a different footing altogether. In the case of such a fee the test of quid pro quo is not to be satisfied with such direct close or proximate correlation-ship as in the case of many other kinds of fees. By and large registration fee is charged as a regulatory measure.
It is not held that the aspect of services to be rendered is absolved from consideration when registration fee is charged, and what has been pointed out is that the same 'close or proximate correlationship which will have to be established for other categories of fees may not be required when justification is put forth regarding registration fee. In the reply-affidavit, the petitioners have shown that there is a highly disproportionate and irrational increase in registration fees. In spite of the maximum amount of Rs. 200 which was prevailing for a chit of value exceeding Rs. 50,000 and for a term of one year and above, it will be Rs. 1,000, which means fivefold increase. Merely because it is held that registration fee is a regulatory measure, it would not mean that any rate can be fixed having no nexus to what services are contemplated for that purpose under the Act. Furthermore, the increased levy is not due to any amendment effected relating to registration of by-laws calling for nature of services to be extended than what were obtaining prior to the G.O. When the nature and extent of service envisaged under Section 3(3) having remained the same, unless it be shown that for extending the same services, the expenses had increased, the demand made partakes the character of a tax. It is claimed by State that the revision has been made only after two decades. In 1964 it was Rs. 25 for registration of by-laws. It was enhanced in 1969 on slab system which was minimum of Rs. 50 and the maximum at1 200. Hence, it would not be correct on the part of the State to claim that for two decades there had been no revision. Hardly within two years of 1979, the rates having been revised, it is the bounden duty of the State to disclose as to how within a period of two years, the expenditure had increased to such an extent' as to result in such high rates being fixed. As to what are the expenditure incurred and collections made will be dealt with later on. The figures furnished by State go to show that during the relevant years, the income derived is nearly double and more.
27. As for Article 8-A in Appendix II relating to filing of balance-sheets audited and certified by Chartered Accountants are concerned, it is submitted by petitioners that there is a hostile discrimination and it acts as an unreasonable restriction on their trade and it is violative of Articles 14, 19(1)(g) and 301 of the Constitution. Section 16(1) prescribes that every Foreman shall prepare and file with the Registrar a balance sheet duly audited either by auditors duly qualified to act as auditors of companies under the Companies Act, 1956 or by a chit auditor appointed under Section 51(2) of the Act and that it shall contain a summary of the assets and liabilities of the chit and furnish such other particulars as will disclose the nature of the assets and liabilities and how the value of the assets has been arrived at. Rule 26 states that a balance-sheet shall be prepared by the Foreman when the duration of the chit does not exceed one year on the termination of the chit and if it exceeds one year, then on the expiry of every period of 12 months and also on the termination of the chits, it should be filed within two months from the date of the said period. Form No. X catalogues the particulars to be furnished relating to (1) Receipts and Expenditure, (2) Statement of Assets and Liabilities, (3) Details of investments, (4) Assessment of value of investment, and (5) Profit and loss account. The Foreman has to, certify regarding the correctness and also the auditor has to certify stating that the balance-sheet is drawn up in conformity with the provisions of the Act and the Rules framed thereunder. An option is given to a Foreman either to file the balance-sheet audited by a Chartered Accountant or by a Chit Auditor. Under Section 51(2), a Chit Auditor is appointed by the Director of Chits. It is stated by the learned Additional Government Pleader that the Chit Auditors belong to the Department who are not qualified Chartered Accountants, but they are trained to scrutinise chit accounts. The fee charged when a Chit Auditor is approached is the same as charged when a balance-sheet certified by a Chartered Accountant is filed. It is strenuously pleaded by petitioners that when distinctly different services are contemplated as between them, the imposition of the same rate of levy of fees is hostile discrimination and an unreasonable restriction on 'the petitioners' trade. As to what requires to be done by a Chit Auditor call for consideration vis-a-vis what is done when a balance-sheet certified by Chartered Accountant --- is filed before the Registrar. Rule 28 deals with what requires to be done-when a Chit Auditor is approached for certifying balance-sheet and profit and loss account. If a Foreman desires to have the balance-sheet and profit and loss account audited by. a Chit Auditor, after the preparation of the balance-sheet, he must make an application under Rule 28 (1) to the Registrar for such audit to be done specifying whether it shall be at the premises of the Foreman or not and the application is to be accompanied by fees prescribed under Articles 8 of Appendix II. Thereafter, the Registrar will forward the application to the Inspecting Officer, who shall cause the balance-sheet and profit and loss account to be audited by the Chit Auditor, and in turn, he would send it to the Chit Auditor who shall thereupon require the Foreman to produce the chit records on such date, time and place as he may fix and it would then be the duty of the Foreman to produce 'all registers, books of accounts and other records relating to the chit accordingly and furnish such information and give such facilities as may be necessary or required for the proper audit of the balance-sheet and profit and loss account at the time and place fixed by the Chit Auditor'. A notice of not less than seven days shall be given to the Foreman as to the date of audit at the premi(sic) of the Foreman or for the production of registers, books of accounts and other records relating to the chit as the case may be. After scrutiny of all these documents, under Rule 29, the Chit Auditor will prepare his report and issue the certificate in quadruple and send one copy to the Foreman, the second to the Registrar and the third to the Inspecting Officer and keep the last copy for his own file. Rule 30(1) enjoins upon the Foreman to file with the Registrar a copy of the balance-sheet and profit and loss account together with the audit certificate and the auditor's report within one month from the date of the receipt from the Chit Auditor or within four months from the last date of the period covered by the balance-sheet whichever is earlier whereas, when a certificate is secured from a Chartered Accountant, Rule 30(2) directs the Foreman 'to file' with the Registrar the documents which are referred to in Sub-rule (1) of Rule 30 within three months of the expiry of the period with reference to which, the balance-sheet is prepared under Rule 27.
28. Hence, when a balance-sheet certified by a Chartered Accountant is produced, the Registrar would be concerning himself only with regard to the particulars incorporated in the balance-sheet, profit and loss account, the auditor's certificate and the report of the Auditor. Under the rules as framed, there is no need at all for the Foreman to produce before the Registrar 'all registers, books of accounts and other records relating to the chit accordingly and furnish such information and give such facilities as may be necessary or required....' for verifying the correctness of the certificate issued by the Chartered Accountant. Respondents submit that, even when a balance-sheet prepared by a Chartered Accountant is filed, it has to be scrutinised by the Department along with all records and that the expenditure incurred is equal to the amount spent for the services rendered when a Chit Auditor does it. While scrutinising if the Registrar finds that it is not in accordance with the provisions of the Act and the Rules framed thereunder he would have to take suitable action and in appropriate cases before ordering release of the security, they will have to be scrutinised. In conclusion, it is stated as follows:.I submit that pursuant to the filing of the balance-sheet, records have to be verified. The balance-sheet has also got to be examined in detail, to find out whether it is in conformity with the objects of the chit and also whether the figures tally with regard to the collections and payments of prize amounts and whether the prize amount also correctly reflects the scope of each chit and whether the commission of -the Foreman has been correctly worked out. In short, the whole matter has got to be thoroughly examined to see whether that particular year's, transactions fully reflects the scope of each chit and whether the collections and disbursements including the commission retained by the Foreman have all been done in conformity with the Act and the Rules, since it is the subscriber's interest which is paramount. I submit that all these involve the services of the staff of the office of the Registrar.
This claim made is not in accord with what is found in Rule 30(2). Under the Rules only when a Chit Auditor prepares, a balance-sheet, registers, books of accounts and other records and other information have to be furnished under Rule 30(2), they are not required to be submitted. When a Chartered Accountant's certificate is filed, it cannot be said that in all those cases where such certificates are filed, once over the same work done by a Chit Auditor is carried out justifying the same rate of fee being charged. It may be that whenever any irregularities are found, it may call for a fresh clarification from the Foreman, but that would not mean that for all the chits without exception, the Registrar discharges, the same kind of services as done when a Chit Auditor is requisitioned. It must be pointed out that, when fee is collected under Article 8, it includes the services rendered by the Chit Auditor and also the services of scrutiny by the Registrar, who acts upon such certificate; whereas for the same fee paid when a Chit Auditor's certificate is filed, it results only in scrutiny by the Registrar and nothing more. Hence, to treat unlike situations as one and the same and impose same rate of fee, is arbitrary and illegal. When rules themselves do not comtemplate production of registers, books of accounts and other records, the claim made that pursuant to the filing of the balance-sheet, records have to be verified and that the whole matter has got to be thoroughly examined, is. unacceptable. In such of those matters where irregularities are noticed, the Registrar can call for all the records and scrutinise them and thereafter initiate prosecution or take such other action. Such instances would arise in both categories. Hence,
when the rules themselves contemplate a different type of services to be rendered when Chartered, Accountant's certificates are filed, the fee imposable under Article 8-A cannot be the same as in Articles 8 which contemplates more comprehensive services to be rendered. Therefore, as rightly pleaded by the petitioners, the necessary element of quid pro quo is not existing., and furthermore this is an unreasonable restriction on right of trade and the rate fixed is aimed at increasing general revenues. It is of pointed interest to note that right from inception of the Act, such a fee was never contemplated, and that the Director of Chits drew inspiration from what is obtaining in Kerala and his proposals have been just accepted by the Government without any analysis made of what rates could be fixed on conditions prevailing governing the Act in force in Kerala and what nature of services are rendered by those authorities, are not spelt out. These conclusions 'arrived at are not to be understood that the State is disentitled from imposing any fee for filing of such balance-sheets under Article 8-A. A rate which would be commensurate to the nature of services extended by departmental personnel could be fixed, but what is now charged being identical to the fee imposed under Article 8, it is an illegal imposition.
29. Lastly, on behalf of State, it is pleaded that when fee is imposed under an enactment, the entirety of the collections made under different heads must be taken into account as a whole for totality of services rendered, and in the light of the decisions of the Supreme Court if it be disclosed that a good and substantial portion of the amounts recovered, is spent towards all the specific purposes/services contemplated under the Act, then the impugned levies are only fees and not otherwise. By referring to the decision in Keval Krishan Puri v. Punjab : 3SCR1217 , it is poined out that, if the demand made is of a regulatory nature, there is no need to look fo quid pro quo regarding registration fee and it can be any rate as State may choose to fix. As for the nature of services extended, as held in Keval Krisha Puri v. Punjab : 3SCR1217 , Southern Pharmaceuticals & Chemicals v. State of Kerala : 1SCR519 : (1981) T.L.R. 2838 and Sreenivasa General Traders v. State of A.P. : 3SCR843 , the benefits accruing to the payer alone cannot be taken into account, and that benefits accruing to those connected and interwoven with the activities of the payer and who would be benefited by supervisions made over the payer, would also be relevant. The rights of subscribers have to be safeguarded because they are the active participants in the chits, which got registered through the Foreman. Provisions having been made in the Act for penalties to be imposed etc., to safeguard the rights of subscribers, the expenditure incurred in supervision, control and regulation by the constituted authorities under the Act, forms part of the expenditure incurred in extending the special benefits to all of them. In dealing with what benefits accrue to subscribers as well under this Act, in Tuticorin T & C Corporation (P) Ltd. v. State of Madras (1966) 1 M.L.J. 313 it was pointed out that the Act is intended to provide a measure of safety to subscribers. A similar Act enacted for Pondicherry was also held to benefit subscribers C.C. Fund v. Union Territory of Pondicherry : AIR1972Mad99 . Hence, the concept of levy in relation to payer of fees spelt out in Corporation of Calcutta v. Liberty Cinema : 2SCR477 and Govt. of A.P. v. Hindustan Machine Tools : AIR1975SC2037 cannot assist the petitioners, because the traditional concept of quid pro quo is undergoing a sea of transformation as pointed out in Southern Pharmacuticals & Chemicals v. State of Kerala : 1SCR519 .
30. Resting on these contentions, the statement of receipts and expenditure for the period from 1976-77 to 1983-84 as found in page 6 of the counter-affidavit in W.P. No. 1333 of 1982, and the supplemental statement filed later on, are relied upon to plead that quid pro quo is established to a broad and reasonable extent.
31. It is claimed that special staff is employed for discharging the functions and duties under the Act. The hierarchy in the services are furnished in para 8 of the counter-affidavit. Apart from the expenses incurred on them, the Government has spent on receptacles and iron safes for the preservation of records and securities. It has been repeatedly pointed out by the Supreme Court that it is unnecessary for the State to prove with arithmetical exactitude, and that Court need net be called upon to function like a Chartered Accountant, and what is required is to find out whether a broad and reasonable relationship exists between the levy imposed and the services extended.
32. In D.C & G. Mills C. v. Chief Commr. Delhi : 2SCR348 , it was indicated that if 60% of the amount is spent on the specific purposes, it should be a satisfactory proof. In Kewal Krishan Puri v. State of Punjab : 3SCR1217 , one of the seven tests is that at least a good and substantial portion of the amount collected which may be in the neighbourhood of two-thirds and three-fourths must be shown as being spent for the earmarked specific purposes and then it can be taken as a reasonable percentage spent for rendering the services of the kind relied upon by the State. But learned Government Pleader refers to Sreenivasa General Traders v. State of A.P. : 3SCR843 : Southern Pharmeceuticals & Chemicals v. State of Kerala : 1SCR519 to contend that the sixth and seventh tests in Kewal Krishan Puri's Case cannot be understood as laying down rules of universal application and must be confined to the facts of that case.
33. Percentages indicated cannot be relevant indices, but the aspect of quid pro quo is a relevant test to be applied to find out whether there is a broad relationship between the funds recovered and the amounts expended for carrying out the special services contemplated under the Act. As pointed out in H.H. Swamiji v. Commissioner : 1SCR368 S.C.I whether there is fair correspondence or proximation to justify the demand has to be proved by State. In this perspective, even on taking into account totality of income and expenditure for all services rendered under the Act, it transpires that after the increased fee was imposed in 1980-81, in spite of the deficit which was experienced in the earlier years, the excess collected in 1981-82 itself was Rs. 7,95, 519..03. This is nearly 70% more than expenditure. Subsequent years' figures go to show that surplus on hand was more than the amount spent. In the following year also, the same has happened. Now that the Central Act has come into force on 13.4.1984, these figures are apposite. The learned Additional Government Pleader contends that the recoveries hitherto made immediately after the impugned levies cannot alone be taken into account, because in future the situation may change. Since the Act has come to an end, this plea is without substance. As and when the expenditure increases for the services rendered, nothing precludes the State from periodically increasing the fees, so as to be commensurate with the services extended. The totality of recoveries made over a reasonable period of years could certainly be looked into to find out whether the increase is justified or not. Loss was incurred preceding the impugned G.O. is made out. It called for a revision, but that by' itself would not justify a disproportionate increase unrelated to anticipated expenditure, now that the period is circumscribed, the amounts recovered during relevant years subsequent to the impugned levies, can be looked into to find out whether the tests laid down by the Supreme Court are satisfied or not. The income derived by the State, subsequent to the enforcement of the Central Act, is not taken into account. Thus it is quite apparent on particulars furnished by State that the rates fixed were disproportionately high having no nexus to nature of services rendered and is intended to augment revenues partaking the character of tax. Hence, the impugned levies suffer from the vice of arbitrariness, hostile discrimination and unreasonable restriction on trade.
34. For all the reasons above stated, Articles 1 and 8-A in Appendix II to the Tamil Nadu Chit Fund Rules, 1964 are struck down, as invalid, resulting in the writ petitions being allowed with costs. Counsel fee Rs. 250 in each petition.