IMPORTANT POINT
Cess is a tax which generates revenue which is utilized for a specific purpose.

Headnote:Andhra Pradesh Rural Development Act, 1996 — Sections 7 and 9 — Cess @ 5% to be levied and collected on advolerem on quantum of purchase of goods — Writ challenging constitutional validity of Act and that levy of cess was invalid — Question was whether the impost in question was a fee or a tax — Cess is a tax which generates revenue which is utilized for a specific purpose — Difference between a tax and a fee — Fee is a charge for a special service rendered by some governmental agency — Change in concept of a fee — No longer necessary that some specific service must be rendered to particular individual or individuals from whom fee is being realized — What has to be seen is whether there was a broad and general correlationship between totality of fee on one hand and totality of expenses of services on the other — No averment by petitioners in writ petition that there was no broad correlation between amount realized as cess and amount spent for purposes mentioned in Section 9 of the Act — No reason to interfere with judgment upholding constitutional validity of the Act.
       Held : Hence ordinarily a cess is also a tax, but is a special kind of a tax. Generally tax raises revenue which can be used generally for any purpose by the State. For instance, the Income Tax or Excise Tax or Sales Tax are taxes which generate revenue which can be utilized by the Union or State Governments for any purpose, e.g. for payment of salary to the members of the armed forces or civil servants, police, etc. or for development programmes, etc. However, cess is a tax which generates revenue which is utilized for a specific purpose. For instance, health cess raises revenue which is utilized for health purposes e.g. building hospitals, giving medicines to the poor etc. Similarly, education cess raises revenue which is used for building schools or other educational purposes.(Para 13)
       However, in such matters nomenclature is not very important and we have to see the nature of the levy. Hence, what is called a cess may be in reality a fee depending on its nature.(Para 14)
       It is well settled that the basic difference between a tax and a fee is that a tax is a compulsory exaction of money by the State or a public authority for public purposes, and is not a payment for some specific services rendered. On the other hand, a fee is generally defined to be a charge for a special service rendered by some governmental agency. In other words there has to be quid pro quo in a fee vide Kewal Krishan Puri vs. State of Punjab (AIR 1980 SC 1008).(Para 15)
       In the present case, there is no averment by the petitioner in the writ petition that there is no broad correlation between the amount realized as a cess and the amounts spent for the purposes mentioned in Section 9 of the Act, namely, to provide and accelerate rural development including the construction of rural road and bridges and storage facilities for storing growth and for maintaining and strengthening of the Public Distribution System. All that has been alleged by the petitioner in para 5 of the affidavit to the writ petition is that no specific benefit is given to the dealer from whom the cess is collected.(Para 19)
       Thus the factual averment in the writ petition is limited to the plea that there is no specific service rendered to a particular dealer from whom the fee is realized. There is no factual averment that there is no broad correlation between the total amount of cess realized and the total value of the service being rendered to the people living in the rural areas.(Para 20)
       As already stated above, the concept of fee has undergone a sea change, and hence the writ petition is liable to fail on the mere ground that the writ petition was drafted under a total misconception about the legal position. As already stated above, the concept of fee has undergone a sea change, while the writ petition has been drafted in the light of the old concept of fee and not the new concept which was subsequently developed by the Supreme Court.(Para 21)
       In our opinion the cess in question is in substance a fee as it is being levied for rendering to the rural public the service of rural development for the purposes stated in para 9 of the Act. Clearly roads, bridges and storage facilities have to be built in rural areas for progress, and naturally this will require generating funds. Thus even if no specific service is rendered to any particular individual from whom the fee has been realized, the cess in question is nevertheless a fee, for the reasons already mentioned above. Services are being rendered to the people in the rural areas as mentioned in Section 9 of the Act.(Para 27)
       No doubt, as stated above, there has to be a broad correlation between the total amount of fees generated by the impugned cess and the total value of the services rendered, but there is no specific averment in the writ petition that there is no such broad correlation. It is true that if, say, Rs. 100 crores revenue is generated every year by this cess, it is not necessary that this entire amount of Rs. 100 crores must be spent for the purposes mentioned in Section 9, and it will suffice if a substantial part of this Rs. 100 crores is spent for such purposes. At the same time we would like to clarify that if, say, Rs. 100 crores is generated by the cess in question and only Rs. 1 crore or Rs. 50 lacs is spent for the purpose mentioned in Section 9, obviously there would not be a such a case a broad correlation between the fees being realized and the service rendered.(Para 28)
       Hence, while we uphold the validity of the Act, we leave it open to the petitioners (or any other person concerned) in the special circumstances of the case, to file a fresh petition, wherein he can make a specific averment that there is no broad correlation between the total amount of cess being realized every year under the Act and the total value of the services being rendered every year in accordance with Section 9.(Para 29)

JUDGMENT

Markandey Katju, J. — Civil Appeal Nos. 5120-5132 of 1999 have been filed against the Judgment and Order dated 25.9.1998 of the High Court of Andhra Pradesh passed in Writ Petition Nos. 19213, 19299, 19384, 19385, 19387, 19388, 19389, 19523, 19526, 19707, 19709, 19915 and 22448 of 1998, by which the Constitutional validity of the Andhra Pradesh Rural Development Act, 1996 has been upheld.

2. Heard Shri M.N. Rao, learned Senior counsel for the appellants, and Shri Rakesh Dwivedi, learned Senior counsel for the respondents.

3. Most of the petitioners-appellants are registered firms, while some of them are individual traders engaged in the business of rice milling. It is alleged that they are regularly submitting returns to the Commercial Tax Authorities reflecting their turnovers of purchase of paddy as well as sale of rice every year and accordingly they pay purchase and sales tax. They are challenging the levy of cess under the Andhra Pradesh Rural Development Act, 1996 (hereinafter referred as “the Act”) which levies cess in addition to the purchase or sales tax being paid by them. It is alleged that the aforesaid cess under the Act does not fall under any of the entries in List-II or List III of the Seventh Schedule to the Constitution. Hence it is alleged that the aforesaid levy of cess is invalid.

4. Entry 54 of List II of the Seventh Schedule no doubt empowers of the State Legislatures to levy tax on purchase or sale of goods, but since the goods in question have been declared as declared goods under the Central Sales Tax Act, it is submitted by the appellant that the maximum sale or purchase tax can be 4% and the appellants have already paid more than that as sale/purchase tax. Hence it is contended that the levy of cess under the Act is invalid.

5. On the other hand, Shri Rakesh Dwivedi, learned Senior counsel for the State of Andhra Pradesh, has submitted that the cess in question is in fact a fee, and hence it comes under Entry 66 of List-II of the Seventh Schedule to the Constitution.

6. Shri Rao, learned Senior counsel for the appellants contended that there was no quid pro quo in the levy of the cess, and hence it cannot be said to be a fee. He has invited our attention to the allegation in para 5 of the affidavit in support of the writ petition, where it has been alleged “The cess is collected from dealer and nothing is done specially to benefit the dealer. The cess partakes the character of a tax”.

7. A copy of the Andhra Pradesh Rural Development Act, 1996 has been annexed as annexure P-1. In the Statement of Objects and Reasons of the Act, it is stated :

“It is observed that the development in the rural areas in the State has not been accelerated due to paucity of funds. The Government are of the view that there is an imperative need to provide financial assistance for the development of rural areas in the State by creating infrastructure facilities, so that the economic activities in the rural areas will increase and thereby contribute for the growth of the economy. With a view to generating funds for the purpose of development of the rural areas, it is considered desirable to levy a cess @ 5% on the advalorem basis on the quantity of the purchase of goods specified in the Schedule appended to the Bill.”

8. Section 3 of the Act empowers the State Government by notification to establish the Andhra Pradesh Rural Development Board.

9. Section 7(1) states : “There shall be levied and collected by the Government a cess @ 5% on the advolerem on the quantum of purchase of goods”.

10. Section 8 establishes a fund to be called “The Andhra Pradesh Rural Development Fund” which vests in the Board. The purpose of this fund has been mentioned in Section 9 which states :

“9. Purpose for which the Fund may be applied : The Fund shall be applied for the purposes herein specified :

(i)to provide and accelerate comprehensive rural development including the construction of rural roads and bridges;

(ii)to augment storage facilities

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2006 Supreme(SC) 705

IMPORTANT POINTCess is a tax which generates revenue which is utilized for a specific purpose.

Cases Referred (11)

IMPORTANT POINT
Cess is a tax which generates revenue which is utilized for a specific purpose.