The court established that collection charges under the Revenue Recovery Act are applicable only when arrears are collected under the provisions of the Act, and not merely on the initiation of revenue recovery proceedings.

K.S. Radhakrishnan, J.

1. The question involved in this case is as to whether respondents 2 to 4 arelegally entitled to recover commission or collection charges on initiation ofrevenue recovery proceedings, eventhough no amount was recovered throughthe proceedings initiated under S.71 of the Revenue Recovery Act, 1968.

2. Petitioner is a registered society, set up and developed at the instance ofthe Kerala Khadi and Village Industries Board for the purpose ofmanufacturing and supplying 7-Spindle Muslin Charkhas. Petitioner hadavailed of a loan from the respondent Board. Total amount advanced by theBoard was Rs. 17,85,871. Petitioner could not repay the amount due tovarious financial difficulties. Board then initiated action for recovery of theamount. Total amount due to the Board as on 31.3.1985 was Rs.23,50,303.67. There was some litigation between the petitioner and therespondent Board. However, no amount was recovered from the petitionerthrough revenue recovery proceedings.

3. In order to amicably settle the matter, petitioner sent a latter dated17.11.1994 putting forward certain suggestions/proposals to the Board.Respondent Board vide their letter dated 21.1.1995 informed the petitionerthat it was prepared to settle the accounts as suggested by petitioner,provided petitioner was prepared to accept the conditions mentioned in thatletter. However, with regard to condition No.3, petitioner informed the Boardthat petitioner would remit collection charges at the rate of 5% if demanded bythe revenue department. Petitioner subsequently by letter dated 2.3.1995informed the Board that claim for collection charges was illegal and requestedthe Board not to include the amount towards collection charges in the finalpayment to the Board. Board by letter dated 21.3.1995 requested thepetitioner to remit the outstanding amount of Rs. 23,50,303.67 and Rs.35,255/- towards contingency charges. Board also requested the petitioner toremit an amount of Rs. 1,17,515/- towards collection charges stating that itwould be refunded if the revenue department did not make any claim for it.

4. Petitioner complied with all the conditions mentioned in Ext. P2 letter andremitted the entire amount of Rs.25,03,073.67 on 24.3.1995. Pursuant to this,Board vide letter dated 7.4.1995 informed the District Collector the factum ofremittance of the entire amount by the petitioner and requested him to returnthe RRC. It is evident from the said communication, Ext. P5, that respondentBoard had stated that no amount was realised through revenue recoveryproceeding. Petitioner later made repeated representations for refund of theamount of Rs. 1,17,515/- paid towards collection charges. However, no actionhas been taken by the Board. Petitioner then issued a lawyer notice to therespondent dated 7.6.1995 directing the Board to pay the amount with 18%interest. Since no action has been taken, petitioner has approached this Courtfor a declaration that petitioner is not liable to pay any amount as collectioncharges as arrears were not collected/realised under the provisions of theRevenue Recovery Act. Petitioner also is seeking a direction to the Board torefund the amount of Rs. 1,17,515/- with interest at 18% from 24.3.1995 tilldate of actual payment/ realisation.

5. Counsel for the respondent Board submitted that revenue recovery chargeshas to be remitted in the office of the District Collector, since they haveinitiated proceedings. It was pointed out by counsel for the Board thateventhough the amount was not realised through revenue recoveryproceedings, as per S.7 of the R.R. Act and other Governments orders, ademand notice was served on the petitioner on 4.8.1987. As per the Act 5% oftotal dues should be paid to revenue authorities as collection charges, whichaccording to Board, is a mandatory provision. They relied on Circular dated13.10.1992 which says that collection charges shall be deducted from theamount recovered and the balance alone shall be payable to the instit