The judgment establishes the principle that for a fee to be sustained, there must be 'quid pro quo' and a special service rendered to the payer of the fee. It also emphasizes the mandatory procedure for imposition of taxes under the Kerala Municipalities Act.

1. In this, as in Writ Appeal Nos. 107 & 108 of 1967 which we have already disposed of, the questions are common. The present appellant is the Municipal Council, Tellicherry represented by its Commissioner. The Municipality demanded from one Ramesh S. M. Prabhu, Proprietor of Medical & Allied Supplies, Tellicherry, licence fee for running the medical shop. The demand was made under S.284 of the Kerala Municipalities Act (hereinafter to be referred to as "the Act") which reads

"284. Purposes for which places may not be used without licence. (1) The council may publish a notification in the Gazette and by beat of drum that no place within municipal limits shall be used for any one or more of the purposes specified in Schedule III without the licence of the commissioner and except in accordance with the conditions specified therein and where the licence is for keeping hostels, restaurants, eating houses, coffee houses, laundries or running barber saloons the licence issued by the commissioner shall always contain and be deemed to contain a condition that admission or service therein shall be available to any member of the public:

x x x x".

In the respondent's medical shop he has stored chemical preparations which would fall under item 20 of Schedule III. The item reads:

"Chemical preparations Storing, packing, pressing, cleansing, preparing or manufacturing by any process whatever."

So, under S.284 read with item 20 of Schedule III, a person running a medical shop where chemical preparations are stored, packed or manufactured has to take a licence on payment of a licence fee. The Municipality seeks to justify the levy, as a fee for licence imposed for raising revenue for the Municipality, and also for the regulation of the trade in question. In the alternative, the Municipality would also contend that the levy is sustainable as a ‘tax'. But according to the respondent, the levy is unsustainable either as a fee for licence, or as a tax. As a fee it is wanting in quid pro quo and as a tax it is beyond legislative competence, and cannot be brought under any of the legislative entries in the State List of the Constitution. In Writ Appeal Nos. 107 and 108 of 1967, we had occasion to advert in detail to these questions, and there we have held that a fee for licence like the one under consideration cannot be sustained either as a "fee" or as a "tax" or "fee in the nature of a tax". There the levy impugned was fee sought to be imposed on soaking of husks. We have held in that case on the authority of relevant decisions of the Supreme Court that without quid pro quo a fee can on no account be sustained.

"Fees are payments primarily in the public interest, but for some special service rendered or some special work done for the benefit of those from whom the payments are demanded. Thus in fees there is always an element of 'quid pro quo" which is absent in a tax. (Ratilal v. State of Bombay AIR. 1954 SC. 388)".

This has been reaffirmed by the Supreme Court in subsequent decisions like the Liberty Cinema Case (AIR. 1965 SC. 1107) and the recent case of Nagar Mahapalika Varanasi v. Durga Das Biattacharya & others (Civil Appeal No. 558 of 1967). The Municipality was not able to point out any service being rendered to the respondent, to justify the exaction of the fee from him. The levy cannot be justified on the ground, that to meet the statutory needs of the municipality money is required and unless its revenue is augmented from such sources, the day to day administration Of the municipality Would be difficult. Licence fee cannot be imposed for reimbursing the cost of the ordinary municipal services which the municipality is bound under the statute to provide to the general public. Unless special service is rendered to the payer of the fee, the levy cannot be justified. S.135 of the Act provides that "all moneys received by the municipal council shall constitute a fund which shall be called the municipal fund and shall be applied and di