The levy of licence fee must correlate with the cost of issuing the licence, provide a service to the payer of the fee, and comply with the mandatory provisions of the Act in relation to the imposition of a tax.

Headnote:
licence fee - validity of levy under Calicut City Municipal Act - S.299, S.387 - The court held that the levy of licence fee for soaking coconut husks is illegal as it does not correlate with the cost of issuing the licence, no service is rendered to the payer of the fee, and the mandatory provisions of the Act in relation to the imposition of a tax have not been followed.
Fact of the Case:

The City Corporation of Calicut levied licence fee for soaking coconut husks in soaking pits on private property. The petitioners challenged the validity of the levy, arguing that it was not justified by the provisions of the statute and was beyond the power of taxation conferred on the Corporation.
Finding of the Court:

The court found that the levy of licence fee for soaking coconut husks was illegal as it did not correlate with the cost of issuing the licence, no service was rendered to the payer of the fee, and the mandatory provisions of the Act in relation to the imposition of a tax had not been followed.
Issues: The main issue was whether the levy of licence fee for soaking coconut husks was sustainable under the provisions of the Calicut City Municipal Act.
Ratio Decidendi: The court held that the levy of licence fee for soaking coconut husks was illegal as it did not correlate with the cost of issuing the licence, no service was rendered to the payer of the fee, and the mandatory provisions of the Act in relation to the imposition of a tax had not been followed.
Final Decision: The court dismissed the appeals without costs.

Judgment :-

1. These appeals have been preferred by the City Corporation of Calicut against the judgment of Gopalan Nambiyar, J. in Original Petition Nos. 2962 & 3037 of 1965. The petitioners challenged the validity of the levy by the Corporation, of licence fee for soaking cocount husks in soaking pits in their property. The Corporation would justify the impost under S.299 read with S.387 and Schedule IV of the Calicut City Municipal Act, (Act 30 of 1961) renamed as the Kerala Municipal Corporations Act (Act 13 of 1964). The case of the petitioners is that as a fee the levy is not justified by the provisions of the statute and as a tax, it is beyond the power of taxation conferred on the Corporation The stand taken by the Corporation on the other hand is that the levy is a tax. Alternatively it is also contended by the Corporation that it is a "fee for license". The learned Single Judge has held in his judgment dated 8-2-1967 that as a fee the levy is unsustainable since no positive service is rendered by the Corporation in return for the fee levied. As a tax the learned judges's view is that it is beyond the power of taxation conferred on the Corporation. Accordingly it has been held by the learned judge that the levy of licence fee for soaking coconut husks is illegal.

2. The question for decision in these appeals is whether the levy of licence fee for soaking, cocount husks is sustainable under any of the provisions of the Calicut City Municipal Act (hereinafter to be referred to as "the Act".) The Corporation would trace its power to impose the impugned levy to S.299 and 387 of the Act. We are extracting those two sections: "199:

(1) No place within the limits of the city shall be used for any of the purposes mentioned in Schedule IV without a licence obtained 'rom the commissioner and except in accordance with the conditions specified therein."

X X X X X

387:

(1) Every licence or permission granted under this Act or any rule or bye-law made under it shall specify the period, if any, for which and the restrictions, limitations and conditions subject to which the same is

granted, and shall be signed by the Commissioner.

(2) (a) Save as otherwise expressly provided in, or may be prescribed under, this Act, for every such licence or permission, fees shall be paid in advance on such units and at sued rates as may be fixed by the council.

X X XX X"

The above sections speak of the imposition of license fee. The learned counsel for the Corporation classified fees referred to in the above sections under three heads and they are: (a) fee for licence, (b) fee for services rendered and (c) fee in the nature of a tax. We have carefully examined all these three heads in the light of relevant decisions of the Supreme Court and we are not satisfied that the impugned fee could be brought under any one of them. The law stands settled by a series of decisions of the Supreme Court beginning with AIR. 1954 SC. 282,388 and 400 (Shrirur Mutt case, Ratilal v. State of Bombay and Sri. Jagannath v. State of Orissa) and ending, as told at the Bar, in the recent decision in Nagar Miahapalika Varanasi v. Durga Das Bhattacharya & Others (Civil Appeal No. 558 of 1967), that without a special benefit accruing to the payer in return, the levy cannot be justified. The position has been placed beyond doubt by the Supreme Court in the following words in Ratilal v. State of Bombay (AIR. 1954 SC. 388 ):

"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."

Distinguishing licence fee from a tax the learned judges would further observe:

"A tax is in the nature of a compulsory exaction of money by a public authority for public purpose, the payment of which is enforced by law. The other characteristic of a tax is, that the imposition is made for public purpose to

Click Here to Read the rest of this document