Sankaran Nair vs Vaniamkulam Panchayat

V.P. Gopalan Nambiyar, J.—The Vaniamkulam Private Market, situated within the Jurisdiction of the Panchayat of that name, is owned by the Kavalappara Estate, now under the management and supervision of the petitioner-Receiver. It was governed originally by the Madras Local Boards and District Boards Act, while the area remained part of the Madras Estate; and since its transfer to the Kerala State, is governed, by the Kerala Panchayats Act 1960 (Act 32 of 1960) hereinafter referred to as the Act. Clauses 1 and 4 of Section 86 of the Act read: 86. Licensing of private markets--(1) No person shall open a new private market or continue to keep open a private market unless he has obtained a licence from the Panchayat to do so. Such licence shall be got renewed by the Licence every year.

(4) When a licence granted under sub-section (2) permits the licensee to levy any fee from the private market, a licence fee not exceeding 33 1/3 per-cent of the gross income of the owner from the market in the proceeding year shall be charged by the Panchayat.

Provided that in the case of a new market the licence fees shall be fixed by the Panchayat at rates which shall not be less than the amounts given hereunder, namely, if the area of the market is not more than 25 cents Rs. 50/- if the area is above 25 cents but not more than 50 cents Rs. 100/- if the area is above 50 cents Rs. 150./-

For the year 1967-68 a licence fee of Rs. 6585/- was demanded from the petitioner in respect of the Vaniamkulam private market; and for the years 1968-69 and 1969-70 the amounts demanded on that account were Rs. 9017 and Rs. 12799-67 respectively. By these writ petitions, the petitioner seeks to impugn the validity of the demand.

The vires of section 86 (4) itself, has not been challenged. The impost was attacked as unsustainable as a tax, for being outside the taxing entries in the Constitution; and if it were, as bad on account of noncompliance with the provisions of the Act and the Rules which prescribe the procedure for imposition of the various taxes sanctioned by the Act. As a fee it was attacked on the ground that there is no sufficient quid pro quo to justify the levy. For the Panchayat, the levy was sought to be sustained as a tax, and alternatively as a fee. Attempt was also made to sustain it as a third category of impost, namely, as a licence fee. 2. Before examining the rival contentions, it is necessary to notice the scheme and frame work of the Act. Chapter IV of the Act is entitled. ''Taxation, and Finance''. The Chapter provides for the levy of profession tax, building tax vehicles tax, service tax for sanitation, water supply street lighting etc. and a duty on transfer of property. Section 66--A newly introduced by the Amending Act 1 of 1969 provides for imposition of a land cess on every land in the Panchayat area other than what may be exempted by the Government in public interest. The cess is to be calculated at the rate of 1/16 percent of the capital value of the land Prior to the 1969 amendment with certain variations, section 66 (2) provided for the levy of land cess. Section 76 provides for the constitution of a Panchayat fund into which all monies received by the Panchayat shall be credited and which shall be applied and disposed of in accordance with the provisions of the Act. Section 77 provides for expenditure debitable to the Panchayat Fund. The same enacts that the fund may be applied to all objects authorised by the Act and the Rules made thereunder, and, in general, for everything necessary for safety, convenience health, education convenience, comfort, and welfare of the inhabitants of the panchayat area. Chapter V is entitled: "Public safety. Convenience and Health". Section 86 occurs in this Chapter. The Kerala Panchayat Taxation and Appeal Rules 1963 provide for the procedure for levy, assessment, and collection of the taxes "enumerated by the Act." Rule 3 requires a tax to be levied by a resolution of the Panchayat specifying the rate of tax and the date from which it is to be levied. Before passing the resolution, the inhabitants of the Panchayat have to be notified of the intention to levy a tax, and be afforded a reasonable opportunity of preferring objections to the proposed levy. Then we have the Kerala Public and Private Market Rules, 1964 which provide inter alia for the licensing of private markets, the form and particulars of the application to be made for the purpose, the powers to be exercised by the Panchayat in respect of any public or private market, and other allied matters.

Counsel for the Panchayat sought to sustain levy as a tax under Entry-49 of List II of the 7th Schedule to the Constitution, viz. Taxes on lands and buildings. The Government Pleader who appeared for the State contended that it was difficult to sustain the levy as a tax and sought to support it only as a fee, and as an intermediate category of impost, namely a licence fee. To this extent he made common cause with the Panchayat which sought to sustain the levy on those additional grounds also. Assuming that on the strength of the decision in Ajoy Kumar Mukherjee Vs. Local Board of Barpeta, a tax on land may well be levied depending on the use to which the land is put as a private market, quite irrespective of whether it is levied on a person having no interest at all in the land, we are of the opinion that on the scheme and the provisions of the Act, the levy in question cannot be salvaged as a tax. We are aware that, as ruled in the Corporation of Calcutta and Another Vs. Liberty Cinema, the location of the statutory provision sanctioning the impost is not decisive of the character of the levy imposed by it. But we find it difficult to hold that the Act, while providing for a land cess which was admittedly a tax on land-under section 66-A (and u/s 66 (2) before the 1969 amendment) in Chapter IV, at the same time provided for a different type of tax on land in chapter V, by providing for the impugned levy. To so hold, would lead us to the further illogicality--as counsel for the Panchayat was obliged to admit--that, while the generality of taxes in Chapter IV is governed by the Taxation and Appeal Rules 1963, this one kind of tax on land alone would fall outside its purview and be governed by the provisions of the Public and Private Market Rules, 1964. That, in its turn, would mean that, while in respect of land cesses and other taxes in Chapter IV the inhabitants of the Panchayat are entitled to be notified of the proposed levy, and afforded an opportunity for objections, these safeguards are absent in the case of the impugned levy. This appears to us to cut across the very scheme of the provisions of the Act and the Rules, a process, not sanctioned, as we understand it, by pronouncement of the Supreme Court in Corporation of Calcutta and Another Vs. Liberty Cinema, . We are therefore of the opinion that the impugned levy cannot be sustained as a tax having regard to the scheme and the framework of the Act. Were it to be construed as a tax, we are further of the view that the procedure for imposing the tax sanctioned by Rules 3 of the Taxation and Appeal Rules, 1963 has not been followed; and for that reason again, the levy should be invalid. That the Rule had not been complied with, was admitted by Counsel for the Panchayat.

We may at this stage deal with the contention raised by Counsel for the Panchayat and the Government Pleader that the levy can well be sustained under the Police power of the State to regulate certain trades and incidentally to raise revenues in the course of such regulation. Reliance was placed for this purpose on the regent Full Bench Judgment of this court in O.P. No. 995 etc. of 1970. It is a sufficient answer to this contention to state that neither the Act nor the Rules give such a power to the Panchayat. No authority was cited to us to trace such inherent power in a Panchayt or a local body. The scheme and the provisions of the Act also seem to militate against the existence of such a power in the Panchayat.

Next, we shall examine the question whether the levy in question can be sustained as a fee. The scheme of the Act seems to us to indicate that the levy was meant to operate as a fee. After the decision of the Supreme Court in the Corporation of Calcutta and Another Vs. Liberty Cinema, it should be taken as well settled that before a levy can be sustained as a fee there must be "special benefit" to the payer of of the fee in addition to what is enjoyed by the general public. The principle has been followed by the Full Bench decisions of this court in Travancore Tea Estate Co. Ltd. v. Executive Officer, Elappara Panchayat & others (1968 KLT 776). Arya Vaidya Pharmacy Ltd v. Health Officer, Ernakulam (1968 KLT 789); City Corporation of Calicut v. Sadasivan and Others (1968 K. L. T. 589); and Commissioner, Municipal Council Tellicherry v. Ramesh S.M. Prabhu (1968 KLT 628).

In the decided cases on this branch of the law, the "Special benefit" has been described as service rendered to the markets in greater measure and continuity than in the case of an ordinary tax payer, the private market owner needing more than ordinary municipal service. It has also been ruled that the municipal authority would be justified in charging a fee which would save it from being out of pocket by reason of the duties imposed for supervision and control of the market (See for instance the decisions in Municipal Corporation of Rangoon v. Pazhundaung Bazar Co. Ltd. & Others. (A.I.R. 1930 Ran 282), carried up in appeal to the Privy Council and reported in AIR 1931 217 (Privy Council) . We need not here consider how the cost of supervision and control is to be apportioned among a number of concerns for whom the supervising agency is necessary, as, in the petitions before us, it was not contended that the Panchayat has any other private market to supervise and control. In Nagar Mahapalika Varanasi Vs. Durga Das Bhattacharya and Others, the licence fee imposed on owners of rickshaws and on rickshaw drivers was sought to be justified by reference to expenses incurred for; (1) laying of by-lanes (2) street lighting (3) for providing parking grounds, and (4) for payment of salary to the staff maintained for issuing licences to the respective rickshaws. It was held by the Supreme Court that the expenditure on the first two heads was incurred by the Municipal Board in discharge of its statutory duties to the general public and cannot be regarded as a special benefit conferred upon the payer of the licence fee. But the other two items of expenditure were taken into account to work out the quid pro-quo at 44% of the levy. This was held insufficient to sustain the levy. Our attention was called by Counsel for the Panchayat to the special benefit conferred upon the owners of the private markets, such as the supervision and control over the markets, the restrictions on the establishment of private markets within a radius of 3 kilo metres from an existing one (rule 26 of the Public and Private Market Rules 1964), the provision of water supply facilities, and the further restriction that trade it self in a private market can only be after taking out a licence from the Panchayat, and so on. We have found it difficult to understand the relevant provisions of the Act or the rules as requiring the maintenance of any special staff, charged with the duty of supervision and control of the private markets alone. We are inclined to think that these provisions to which our attention was called only provide for the discharge or the Pnachayat''s statutory duties to the general public in the interests of public health, sanitation, comfort etc. For instance, despite the averment for the Panchayat that Water supply facilities had been provided near the market, we have found it difficult to hold that this was meant exclusively for the market and not generally for the inhabitants of the Panchayat area. So too, in regard to the sweepers for keeping the market clean. What is more, our real difficulty is that the Panchayat in its counter-affidavit has furnished no data at all, as to the charges incurred by it, specially for the purpose of supervision and control of the private market in question. Nor has it attempted to evaluate the "special benefits" to the private market owners, or to correlate the same to the licence fee collected from them for the years in question. That the assessment was at 33 1/3 % of the income disclosed in the return filed by the private market owner, and accepted by the Panchayat, is hardly sufficient to establish the quid pro-quo for the levy. On the materials placed before us we have no hesitation to hold that the element of quid pro quo has not been established between the levy and the services.

Counsel for the Panchayat placed reliance on the decision of the Supreme Court in H.H. Sudhundra Thirtha Swamiar Vs. Commissioner For Hindu Religious and Charitable Endowments, Mysore, and The Delhi Cloth and General Mills Co. Ltd. v. The Chief Commissioner, Delhi, and others ( AIR 1969 S.C. 481). In the first of these cases, the provisions were designed to confer special benefit on Mathadhipat his and Mutts and they clearly disclosed the incurring of expenses for the purpose of supervision and control of the Mutts. In the Delhi Cloth and General Mills Co.''s case again it was found that the factory inspecting staff was specially designed practically for supervision and running of the factories, and the charges incurred on the maintenance of the staff could well form a sufficient quid pro quo for the levy imposed. Correlation to the extent of 66% between the levy and the services was established, and this was held sufficient to sustain the levy. The cases are therefore distinguishable.

Lastly, it remains for us to deal with the contention raised by Counsel for the Panchayat, and by the Government Pleader, that the levy in question can be justified as an intermediate category of impost, which is neither a tax nor a fee, but only a licence fee, requiring no quid pro quo. Support for the submission was sought to be derived from paragraph 8 of the judgement of the Supreme Court in Liberty Cinema''s case which reads: 8. This contention is not really open to the respondent for S. 548 does not use the words fee'' it uses the words ''licence fee'' and those words do not necessarily mean a fee in return for services. In fact in our constitution fee for licence and fee for services rendered are contemplated as different kinds of levy. The former is not intended to be a fee for services rendered. This is apparent from a consideration of Art. 110 (2) and Art. 199(2) where both the expression are used indicating there by that they are not the same. In Shannoon v. Lower Mainland Dairy Products Board, 1938 A.C. 708; (A.I.R. 1939 P.C. 36) it was observed at pp 721-722 (of AC); (at pp. 3839 of AIR).

If licences are granted, it appears to be no objection that fees should be charged in order either to defray the costs of administering the local regulation or to increase the general funds of the Province or for both purposes--It cannot, as their Lordships think, be an objection to a licence plus a fee that it is directed both to the regulation of trade and to the provision of revenue.

It would therefore, appear that provision for the imposition of a licence fee does not necessarily lead to the conclusion that the fee must be only for services rendered.

It is enough for us to say that, as held in Nagar Mahapalika Varanasi Vs. Durga Das Bhattacharya and Others, (the scheme and, the provisions of the Act do not justify us in holding that it intended to sanction or impose an intermediate category of impost other than a tax or a fee. They leave us in no doubt that it was intended to operate as a fee. We may also mention that Full Bench of this Court in Arya Vaidya Pharmacy Ltd v. Health Officer Ernakulam ( 1968 KLT 789) has ruled, following the earlier Full Bench decision referred to therein, that there is no intermediate category of levy as licence fee, which does not fall within the category of either a tax or a fee.

We allow these writ petitions and quash the demand impugned in all these cases for licence fee in respect of the Vaniamkulam Private Market for the years 1967-68, 1968-69 and 1969-70. There will be no order as to costs.