Important points
1. Licence fee collected under the Andhra Pradesh Factories Rules is not a tax but is regulatory fee and not a fee for special services rendered and as such element of quid pro quo does not apply.
2. The revision of licence fee under the Andhra Pradesh Factories Rules vide G.O.Ms. No. 154, E & F Deptt. dated 26.7.1994 enhancing fee from Rs. 20,000 to a maximum of Rs. 18,00,000/- is excessive and arbitrary and therefore quashed.

Headnote:Andhra Pradesh Factory Rules, 1950—G.P. Ms. No. 154, E&F Deptt. dated 26.7.1994—Licence fee—Revision from Rs. 10,000 to maximum of Rs. 18,00,000—Validity of—Licence fee whether tax?—Quid pro quo whether required to validate licence fee?—Licence fee charged is regulatory fee and not a fee for special service rendered—Element of quid pro quo does not apply—Licence fee has co-relation with purpose for which statute and rules have been enacted—Enhanced licence fee grossly high and excessive and arbitrary—Revision of licence fee introduced by G.O.Ms. No. 154, E&F Deptt. dated 26.7.1994 quashed—Judgment will have only prospective operation.
       From of the provisions of the Act and the provisions of the Rules relating to grant of licence it is clear that the licence fee in this case is a regulatory fee and not a fee for any special services rendered. Indeed there is no mention of any special service to be rendered to the payer of the licence fee in the provisions. The purpose of the licence is to enable the authorities to supervise, regulate and monitor the activities relating to factories with a view to secure proper enforcement of the provisions. From the nature of the provisions it is clear that for proper enforcement of the statutory provisions persons possessing considerable experience and expertise are required. The question is whether the element of quid pro quo as it is understood in common legal parlance is applicable to a regulatory fee as in the present case. (Para 24)
       From the conspectus of the views taken in the decided cases noted above it is clear that the impugned licence fee is regulatory in character. Therefore, stricto senso the element of quid pro quo does not apply in the case. The question to be considered is if there is a reasonable co-relation between the levy of the licence fee and the purpose for which the provisions of the Act and the Rules have been enacted/framed. As noted earlier, the High Court has answered the question in the affirmative. We have carefully examined the provisions of the Act and the Rules and also the pleadings of the parties. We find that the High Court has given cogent and valid reasons for the findings recorded by it and the said findings do not suffer from any serious illegality. It is our considered view that the licence fee has co-relation with the purpose for which the statute and the rules have been enacted. (Para 32)
       The question that remains to be considered is whether the enhanced licence fee under challenge is grossly high and excessive, and therefore, arbitrary. On a first look it appeared to us that the enhancement from Rs. 10,000/- to Rs. 18,00,000/- (maximum), was too high. We also did not find any material on record to show that there was justification for the enhancement of the fee to the extent prescribed. There was also no material on record to show existence of co-relation between the expenditure incurred by the Government for enforcement of the Act and the Rules and the enhanced levy. The revision of licence fee introduced by G.O. Ms. No. 154, E & F Deptt. Dated 26.7.1994, is quashed. It is made clear that this judgment will have only prospective operation and no amount collected as licence fee under the impugned Government Order shall be refunded. (Paras 33 and 35)

Judgment

D.P. Mohapatra, J.—Leave granted in SLP (C) No. 12499 of 1999.

2. The controversy raised in all these appeals relates to validity of the revision of licence fee under the Andhra Pradesh Factories Rules, 1950 (hereinafter referred to as the ‘Rules’) which was introduced by the State Government by G.O.Ms. No. 154, E & F Deptt. Dated 26.7.1994. Since common questions of fact and law are involved in the cases they were heard together and they are being disposed of by this common judgment.

3. The appellants who are owners of factories located in the State of Andhra Pradesh challenged the levy of revised licence fee by filing writ petitions before the High Court of Andhra Pradesh. The challenge was on several grounds some of which are not relevant for the purpose of the present proceedings. Suffice it to state that the main grounds on which the revised licence fee was challenged were :

(i) that the Factories Act, 1948 (hereinafter referred to as the ‘Act’) does not impose licence fee as there is no charging section;

(ii) that the fee imposed amount to a fee on production of goods and therefore it is a ‘tax’. The State has no power to levy the tax;

(iii) that the Rules or the Act do not provide any criteria or guidelines for fixation of the licence fee;

(iv) that collection of exorbitant fee to meet the State budget is a colourable exercise of power; so there is legal mala fide in enhancing the licence fee;

(v) that the State has no power to impose or enhance the licence fee for any alleged services rendered or proposed to be rendered under other legislations other than the Act, as the power is delegated under the Act only;

(vi) that the proposed strengthening of the department and additional activities which are to be approved by the State Government cannot be a ground for revising the licence fee prior to increasing such expenditure. The proposal of strengthening the department is with reference to other enactments also;

(vii) the classification shown in the Schedule to Rule 5 itself shows that the classification is discriminatory and unreasonable. So it is violative of Article 14 of the Constitution of India.

4. In the counter affidavit filed on behalf of the respondents the stand taken was that the fee is compensatory in nature. It was averred in counter affidavit inter alia that due to progressive policies of the Government there is a tremendous growth of activity in the State; besides the phenomenal growth of number of factories, complexity of problems which are brought by the hazardous/major factories is multifaceted, thus the problems to be tackled by the Factories Department have become more multifarious and complex. Setting out the various types of jobs handled by the Factories Inspectorate it was stated in the counter affidavit that at present there are about 26,650 factories in the State and 39 Inspectors of Factories in the field. It is further averred in the affidavit that the Factories Department is a Statute enforcing Department for ensuring safety, health and welfare of industrial workers.

5. It is also stated in the counter affidavit that the department proposes to intensify the activities by strengthening and better equipping the department from the additional licence fee.

6. It is also stated in the counter affidavit that the department not only issue licences but also undertakes statutory inspections, safety training programmes etc., for better compliance of various statutory provisions to ensure safety in the industries and in order to concentrate and better monitor these major industries to prevent occurrence of accidents resulting in loss of lives and limbs of workers and loss of properties of the factory, it is essential that the Factories Department should strengthen itself by augmenting its resources and hence the amendment of existing licence fee schedule. Therefore, it was the contention o

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2000 Supreme(SC) 1609

Cases Referred (6)