Judgement

KRISHNA IYER, J.:- The die-hard tax - fee dilemma survives, as these appeals, by special leave, attest, long after this court has dispelled the fiscallegal confusion on the point in a series of rulings. The cases before us were provoked by a sudden escalation of licence fee imposed on all hoteliers by the common appellant the Madurai Municipal Council (now it is a Corporation, but that makes no difference) (Council for short). The scale of fees which perhaps, merely defrayed the cost of issuing the licence, was moderate to begin with and paid periodically by the respondents who run hotels within the municipal limits: but their present grievance is that the resolution of December 28, 1965, whereby a sharp spurt in the rates of fee was brought about, has been tainted with unconstitutionality .

2. The authority to justify the levy qua fee, must render some special services to the category from whom the amount is exacted and the total sum so collected must have a reasonable correlation to the cost of such services. Where these dual basic features are absent, you cannot legally claim from the licensee under the label fee .

3. This court has, as late as the Salvation Army case. (1975) 1 SCC 509 set out the tests beyond doubt. When the respondents. (writ petitioners) challenged the fee raise, the plea in defence first was that the impost was a fee strictly so-called, that it was requitted by adequate benefits and that the larger lay-out on the inspecting staff and allied items, both necessitated and validated the new increase, However, on later and better reflection, may be the inspirational source for which was stated to be this Court s pronouncement in the Liberty Cinema case (1965) 2 SCR 477, the Council rightly abandoned the fee-cum-quid pro quo formula and anchored itself on the right to exact the higher rate as a tax on land and building under Entry 49 of List II, in the Seventh Schedule read with Section 321 (2) of the Madras District Municipalities Act, 1920 (for short, the Act). This volteface, as it were, was not objected to by the opposite party and the writ petitions and writ appeal were disposed of on that footing. The learned Single Judge upheld the levy but the appellate Bench upset it. The appellant Council has journeyed to this Court to repair the blow on its revenue since there are 1,200 and odd hotel-keepers similarly situated in the Madurai Municipal limits, although only four have figured as respondents here.The financial dimension of the decision is, indeed, considerable.

4. Shri Chellaswamy, counsel for the Council, has been refreshingly fair in his submissions and consistently with the case urged in the High Court to support the levy, has grounded his defence of the fee-hike on the taxing power of the municipal body under the Act. The core of the matter, therefore, is whether the context and next of the statute and other surrounding circumstances warrant the validation of the levy as a tax in essence be its name what it may.

5. Let us formulate the problems for facility of logical handling. Agreed as both parties now are, that this licence fee stands or falls as a tax the principal question is whether the fee provided for in Section 321(2) of the Act under which it is collected is a tax at all having regard to the anatomy of the Act. If it can be so regarded the next point is whether Entry 49 of List II can bring within its constitutional compass the licence fee for running a hotel trade. Thirdly, if that is permissible, are there other incurable infirmities? These apart, some matters of subsidiary moment do arise and may be considered in the appropriate sequence.

6. The initial terminological hurdle in the way of the appellant is that Section 321(2) of the Act authorizes the collection of a Licence fee in contradistinction to property tax in Section 78 of the Act. (of Ajoy Kumar v. Local Board. (1965) 3 SCR 47. Naturally Shri A. K. Sen counsel for the contestants, insisted that the Act had made