Supreme Court of India

KRISHI UPAJ MANDI SAMITI AND ORS.versusORIENT PAPER AND INDUSTRIES LTD.

Citation: 1994 INSC 509
Decided: 9 November 1994
Bench: P B SAWANTS C AGRAWAL

Holding

The market fee levied under Section 19 is a valid fee, justified by the services rendered by the market committees, and the buyer (Orient Paper Mills) is liable to pay it.

Summary

Orient Paper Mills bought bamboos from the State Forest Department at depots located within the market area of the Krishi Upaj Mandi Samiti (the appellant). The Samiti levied market fees on the purchase under Section 19 of the Madhya Pradesh Krishi Upaj Mandi Adhiniyam, 1973. The mill challenged the levy in a writ petition; the Madhya Pradesh High Court held the fee unjustified because no direct benefit was shown to the buyer and, as both parties were traders, the fee should be paid by the seller (the Forest Department). On appeal, the Supreme Court examined whether the levy qualified as a fee (not a tax) and whether there was a sufficient nexus between the fee and the services rendered by the market committees (auction platforms, godowns, staff, etc.). The Court held that the fee was a valid fee, that the committees’ services bore a reasonable relationship to the fee, and that under Section 19(2) the buyer remains liable to pay the fee even if the seller collects it on behalf of the committee. The High Court’s decision was set aside and the appeal allowed.

Issues considered

The validity of the market fee levied under Section 19 of the M.P. Krishi Upaj Mandi Adhiniyam, 1973 on the purchase of bamboos.
Whether the fee has a sufficient nexus with services rendered by the market committees to qualify as a fee rather than a tax.
Whether the liability to pay the fee falls on the buyer or the seller when both parties are traders under the proviso of Section 19(2).
Whether the sale of bamboos at forest depots falls within the definition of ‘market area’ under the Act.

Legislation cited

Constitution of Indias. 110, s. 266
M.P. Krishi Upaj Mandi Adhiniyam, 1973s. 17, s. 19, s. 3, s. 31, s. 37, s. 38, s. 39, s. 4, s. 43, s. 5, s. 6, s. 7

Subjects

market feefee vs taxagricultural produce marketSection 19nexus of serviceMadhya Pradeshconstitutional lawpublic levytaxation

Judgment

A KRISHI UPAJ MANDI SAMIT! AND ORS.
v.
ORIENT PAPER AND INDUSTRIES LTD.

NOVEMBER 9, 1994

B [P.B. SA WANT AND S.C. AGRAWAL, JJ.]

MP. Krishi Upaj Mandi Adhiniyam, 1973.

Section 19-Levy of market fee on sale and purchase of bamboos-
Existence of nexus between fees levied and services rendered-No direct
c benefit to buyers-No bar to levy-Transaction between traders-Liability
on the buyer not seller-Distinction between tax andfee-Explained

The respondent-Mills purchased bamboos as raw material under a
contract with the State Government. The bamboos were supplied to the
respondent-Mills by the Forest Department of the State Government at
D various forest depots established for the purpose. After taking delivery from
the forest depots, the respondent transported the same to its factory. The
forest depots from which the respondent purchased the bamboos and its
factory fell withm the market area ofthe appellant-Committees.

The appellants levied market fees on the sale and purchase of
E bamboos under Section 19 of the M.P. Krishi Upaj Mandi Adhiniyam,
1973. The respondent challenged the said levy by way of a writ petition
before the·High Court which upheld its contention that the levy was not
justified because there is no direct or indirect benefit conferred by the
appellants either on the purchasers or traders of bamboos as a class.
F The High Court further held that, while selling the bamboos, the
forest department would be a trader and hence the sale of bamboos
would be a sale by a trader to a trader. In such a case the market fee
shall be collected and paid by the seller, i.e.; the Forest Department and
not by the respondent. Aggrieved by the High Court's judgment, the
G appellants preferred the present appeal.

Allowing the appeal, this Court

HELD : 1.1. Though levying of fee is only a particular form of the
exercise of the taxing power of the State, the Constitution has placed
H fee under a separate category for purposes of legislation. (399-G)
392
KRISHI UPAJ MANDI SAMITI v. ORIENT PAPER 393

1.2. Tax is a compulsory exaction of money by public authority for A
public purposes enforceable by law and is not payment for services
rendered. Fee is a charge for a special service rendered to individuals
or a class by some governmental agency. The element of compulsion or
coerciveness is present in all kinds of impositions though in different
degrees and it is not totally absent in fees. Hence it cannot be the sole or
even a material criterion for distinguishing a tax from fee. The B
distinction between a tax and fee lies primarily in the fact that a tax is
levied as a part of the common burden while a fee is a payment for a
special benefit or privilege. (400-A, C, E, F)

1.3. There is really no generic difference between tax and fee and
the taxing power of the State may manifest itself in three different C
forms, viz.; special assessments, fees and taxes. In determining whether
the levy is a fee, the true test must be whether the primary and essential
purpose is to render specific services to a specific area or classes. I~ is
not a postulate of a fee that it must have relation to the actual service
rendered. However, the rendering of service has to be established. The D
service, further, cannot be remote. Absence of uniformity is not a
criterion on which alone it can be said that the levy is of the nature of a
tax. Also it is not necessary that the amount of fees collected by the
Government should be kept separately. (401-D, 402-E, 403-A)

Commissioner, Hindu Religious Endowments, Madras v. Sri E
Lakshmindra Thirtha Swamiar of Shirur Mutt, [1954) SCR 1005, Sri
Jagannath Ramuni Das and Anr. v. The State of Orissa and Anr., [1954)
SCR 1046, Ratilal Panchanand Gandhi v. The State of Bombay and Ors.,
[1954) SCR 1055, The Corporation of Calcutta and Anr. v. Liberty Cinema
[1965) 2 SCR 477, Keva/ Krishna Puri and Anr. v. State of Punjab and
Ors., [1979) 3 SCR 1217; Southern Pharmaceuticals and Chemicals, F
Trichur and Ors. v. State of Kera/a and Ors., (1982] 1 SCR 519 and Om
Prakash Agarwal v. Giri Raj Kishori and Ors., (1986] 1 SCR 149, relied
on.

- Mathews v. Chicory Marketing Board, (60) CLR 263, referred to.
G
2. In the instant case, the services that are rendered by the market
committees, among others, are covered auction platform and open
auction platform, godowns, shops-cum-godowns, office building,
provision of all categories of staff and their training, office equipment,
security guards, water coolers, rest house for agriculturists, and
canteen building and so o~. The Income and Expenditure Account of H
394 SUPREME COURT REPORTS [1994) SUPP. S S.C.R.

A the appellant for the five years, viz.; 1985-86 to 1989-90 would show
that there is a reasonable nexus between .the market fees levied and the
expe11ses incurred on the services rendered to the buyers and sellers of
the agricultund pr9duce. The fact that the respondent-mills may not be
the direct beneficiary of any one or some of the facilities, or does not
make use of them, does not absolve it from payment of the market fees.
B The said machinery and the facilities are meant for the benefit of all the
buyers and sellers of all the agricultural produce within the market
area. (415-B-C-D, H, 418-F)

3. The market fee has to be paid by the respondent-Mills if not to
the market committee directly, at least to the Forest Department ~nder
C Section 19 (2) of the Act. It is immaterial for this purpose whether the
bamboos were purchased by the respondent-Mills for selling them or
for using them as their raw material in the manufacture of paper. The
liability of the respondent-Mills to pay the market fees is in no way
negated on that account. The provision requiring the seller to collect
the market fees in such cases is made for the convenience of collection
D · of the fees. The provision is enabling and does not prevent the
Committee itselffrom collecting the fee, if it so proposes. (421-C-E)

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1810 of
1991.

E From the Judgment and Order dated 7.9.90 of the Madhya Pradesh
High Court in M.P. No. 315of1989.

A.K. Sanghi for the Appellant.

R.F. Nariman and Ms. Suman Khaitan for the Respondent.
F
The Judgment of the Court was d~livered by

SAWANT, J. The respondent-Orient Paper Mills [for short 'Mifls']
purchases bamboos as raw material under a contract with the State
Government which holds monopoly in regard to bamboos as a forest
G produce in view of the provisions of the M.P. Van Upaj [Vyapar
Viniyaman] Adhiniyam, 1969 [No. 9 of 1969]. The baml:ioos are supplied
to the respondent-Mills by the Forest Department of the State Government
at various forest depots established for the purpose. After taking delivery
from the forest depots, the Mills transports the same to its factory situated
in Amlai in the district of Shahdol [M.P.]. It is not disputed the forest
H depots from which the Mills purchases the bamboos fall within the market
KRISHI UPAJ MANDI SAMITlv. ORIENT PAPER [SAWANT, J.] 395

area of the appellant-Krishi Upaj Mandi Samitis [for short 'Committees'] A
and the factory of the Mills also falls within the market area of Krishi Upaj
Mandi Samiti, Budhar [M.P.].

2. Under Section 3 of the M.P. Krishi Upaj Mandi Adhiniyam, 1973
[for short 'the Act'], the State Government is empowered to declare by a
notification its intention to establish a market for regulating the purchase B
and sale of such agricultural produce and in such area as may be specified
in the notification, and invite objections for the same. Under Section 4
thereof, after the expiry of the period specified in the notification and after
considering the objections and suggestions as may be necessary, the State
Government is authorised to establish by another notification a market, for
the areas specified in the notification issued under Section 3 or in any C
portion thereof. Under Section 5, in every market area, there has to be a
market yard and there may be more than one sub-market yard. For every
market yard or sub-market yard, there has to be a market proper. On the
establishment of market under Section 4, Section 6 prohibits local
authorities from setting up or establishing or continuing or using or D
allowing to be set up, established,. continued or used, any place in the
market area for the marketing of any notified agricultural produce.
Likewise, no person is pennitted to use any place in the market area for the
marketing of the notified agricultural produce or operate in the market area
any market function otherwise than in accordance with the provisions of the
Act. The exception to this prohibition is in favour of [a] a person who E
himself is a seller of the product concerned, and whose sale does not exceed
four quintals at a time to a person who putchases it for his own domestic
consumption, [b] produce which is brought by head loads, [c] produce
which is purchased or sold by petty traders, [d] produce which is imported
from outside India, [e] ·produce which is purchased by various fair price
shop dealers from the F6od Corporation of India, the Madhya Pradesh State F
Commodities Trading Corporation or any other agency or institution
authorised by the State Government for distribution of essential
commodities through the public distribution system, and [t] the transfer of
the agricultural produce to a co-operative society for the purpose of
securing an advance therefrom.
G
The Samitis. or Market Committees are established under Section 7 of
.. the Act. Under Section 19 [ 1] of the Act, the Committees have been given
power to levy market fees on notified agricultural produce brought for sale
or sold in the market area under their jurisdiction at such rate as may be
fixed by the State Government from time to time subject to the minimum
rate of fifty paise and a maximum rate of two rupees for every one hundred H
396 SUPREME COURT REPORTS [1994) SUPP. S S.C.R.

A rupees of the price in the manner prescribed. Under Section 19 [2], the
market fees are payable by the buyer of such produce ·and is not to be
deducted from the price payable to the seller. It is only if the buyer of the
produce cannot be identified that all fees are payable by the seller or by the
person who brought the produce for sale in the market area. Provided
further that in case of a commercial transaction between the traders in the
B market area, the market fees are to be collected and paid by the seller.·
Section 19(6] provides that no notified agricultural produce nor any product
processed therefrom shall be removed out of the market proper except in
accordance with a permit issued by the market committee. Sub-section [7]
thereof provides that the market committee may levy and collect entrance
fee on vehicles plying on hire, which may enter into market area at such
c rate as may be specified in the bye-laws.

_ Section 31 prohibits any person from operating in the market area in
respect of the notified agricultural produce as commission agent, trader,
broker, weigh-man, hammal, surveyor, warehouseman, owner or occupier
of processing or pressing factories or as other market functionary except in
D accordance with the provisions of the Act and the rules and the bye-laws
made thereunder. Section 32 requires every person specified in Section 31
who desires to operate in the market area to apply to the market committee
for the grant of a licence. The application has to be accompanied by such
fees as the Director of Marketing appointed by the State Government may
subject to the minimum, prescribe in this behalf. Under Section 33, the
E
market committee is given power to cancel or suspend the licence for
reasons and under the procedure laid done therein. Section 38· provides for
the constitution of a Market Committee Fund in which all the moneys
received by the market committee are paid and from which all expenditure
incurred by the committee is defrayed. Section 39 lays down the purposes
F for which the market committee fund is to be expended. They are:

"39. Application ofmarket committee fund- Subject to the
provisions of section 38, the market committee fund may be
.expended for the following purposes only namely -
.....
·G (i] the acquisition of a site or sites for the market yards;

[ii] the maintenance and improvement of the. market yards;

(iii] the construction and repairs of buildings, necessary for
the purposes of the market and for convenience or safety of
H the persons using the market yard;
KRISHI UPAJ MANDI SAMITI v. ORIENT PAPER [SA WANT, J.] 397

[iv] the maintenance of standard weights and measures; A
[v] the meeting of establishment charges including
payments and contribution towards provident fund, pension
and gratuity of the officers and servants employed by a
market committee;
B
[vi] the payment of interest on the loans that may be raised
for the purpose of the market and provisions of sinking fund
in respect of such loans;

[vii] the collection and dissemination of information
relating to crops statistics and marketing of agricultural C
produce;

[viii] (a) the expenses incurred in auditing the accounts of
the market committee;

{b) payment of honorarium to Chairman, . travelling D
allowance of Chairman, Vice-Chairman and other members
of the market committee and sitting fees payable to member
for attending the meeting;

(c) contribution to State Marketing Development Fund;
E
(d) meeting any expenditure for carrying out order of the
State Government and any other work entrusted to market
committee under any other Act;

(e) contribution to any scheme for increasing agriculturists
in the market area; F
(f) to develop necessary infrastructure within a radius of one
kilometer from the market yard/sub-market yard for
facilitating the flow of notified agricultural produce with the
prior sanction of the Director and with the prior permission
of the local authority concerned for using their land for this G
purpose;

(g) to provide for development of agricultural produce in
the market area;

(h) payment of expenses on elections under this Act. H
398 SUPREME COURT REPORTS (1994] SUPP. 5 S.C.R.

A [ix] any other purpose whereon the expenditure to the
market committee fund is in· the public interest, subject to
the prior sanction of the State Government."

Section 43 provides for the constitution of a Market Development Fund
and every market committee is required to pay every three months, to the
B Marketing Board constituted under the Act such percentage not exceeding
50 percent of its gross receipts comprising of lice:ising fees and market fees
as the State Government may by notification declare from time to time. All
expenditure incurred by the Board according to the object sanctioned by it
has to be defrayed out of the said Fund.

C 3. It appears that the Committees levied fees on the sale and purchase
of bamboos. The Mills challenged the said levy by way of a writ petition in
the M.P. High Court on the ground that the Act was ultra vires the
Constitution, that the requirement of obtaining the licence under Section 32
and of paying the market fee under Section 19 of the Act was also
unconstitutional.
D
The High Court relied upon a decision of the same Court in Misc.
Petition No. 4063 of 1986 decided on 12th January, 1988 and allowed the:
writ petition. The High Court by the said decision of 12th January, 1988
had repelled the challenges to the constitutional validity of the Act and its
provisions, but had upheld the contention of the petitioners that the levy
E was not justified on the ground that it was not established that any direct or
indirect benefit was conferred either on the purchasers or traders of
bamboos as a class by the market committee. For the purpose, the High
Court relied upon a decision in Om Parkash Agarwal Etc. Etc. v. Giri
Kishori and others Etc. Etc. AIR (1986) SC 726. The High Court further
held that in view of the return filed on behalf of the State Government,
F while selling the bamboo$, the Forest Department would be a trader within
the meaning of the Act and hence the sale of bamboos by the State
Government to the petitioners would be a sale of a notified agricultural
produce by a trader to a trader and in such a case the second proviso to sub-
section [2] of Section 19 of the Act will be attracted. That proviso
contemplates that in case of a commercial transaction between traders in the
G
market area, the market fee sqall be collected and paid by the seller.
Consequently, according to the High Court, even if it was accepted for the
sake of argument, that market fee on sale of bamboos by the State
Government to the petitioner was leviable, it wa:; not to be paid through the
market committees by the petitioners who are the buyers; but it has to be
H collected and p~id by the Forest Department of the State Government.
KRISHI UPAJ MANDI SAMIT! v. ORIENT PAPER (SAWANT, J.] 399

Hence, the market committees cannot require the petitioners to pay the A
market fee directly to them. While allowing the present writ petition on this
ground, the Court also observed as follows:

"At this place, however, we wish to make it clear if in future
any serVice is rendered by any market committee with
regard to transactions of sale and purchase in the various B
forest depots it would be open to the concerned market
committee to lay a claim to levy market fee in the changed
circumstances. It is further made clear that since that
contingency is not stated to have so far arisen in these cases,
we are not expressing any opinion with regard to any claim
about market fee that may be made by the concerned C
market committee, if any of the paper mjlls actually sells
some stock of bamboos as contemplated by the M.P. Van
Upaj (Vyapar Viniyaman] Sanshodhan Adhiniyam, 1986
[No. 15of1987]".

We are not concerned in this appeal with the vires of the Act or of the D
levies of the ·market fees or of the requirement of a licence and of the
payment of the licence fees since those contentions are not raised before us
on behalf of the Mills and they have been expressly given up. There is also
no cross appeal on the said point. The limited controversy before us is
whether the finding of the High Court that the levy of the market fees is not E
justified because there is no direct or indirect benefit conferred by the
market committee either on the purchasers or traders of bamboos as a class,
is valid or not.

4. We may now refer to the authorities cited at the bar.

The earliest decision of this Court on the definition of 'fee' and 'tax' F
and the distinction between the two is of the Constitution Bench of seven
learned Judges in. commissioner, Hindu Religious Endowments, Madras v.
Sri Lakshmindra Thirtha Swamiar of Sri Shriur Mutt; (1954) SCR 1005. It
was observed then that though levying of fee is only a particular form of the
exercise of the taxing power of the State, our Constitution has placed fee G
under a separate category for purposes of legislation, and at the end of each
one of the three Legislative Lists, it has given power to the particular
Legislature to legislate on the imposition of fee in respect of every one of
the items dealt with in the list itself. Referring then to the definition of 'tax',
the Court referred to the decision of the Australian High Court in Mathews
v. Chicory Marketing Board, 60 CLR 263. There 'tax' is defined as a H
400 SUPREME COURT REPORTS [1994] SUPP. 5 S.C.R.,

A compulsory exaction of money by public authority for public purposes
enforceable by law and is not payment for services rendered. The Court
then observed that the essence of taxation is compulsion, that is to say, it is
imposed under statutory power without the tax-payer's consent and the
payment is enforced by law. The second characteristic of tax according to

B
the Court is that it is an imposition made for public purpose without
reference to any special benefit to be conferred on the payer of the tax. The -·-
levy of tax is for the purposes of general revenue which when collected
forms part of the public revenue of the State. There is no quid pro quo
between the tax-payer and the public authority. It is a part of the common
burden and the quantum of imposition upon the tax-payer depends
generally upon his capacity to pay. Referring to the definition of 'fee', the
c Court observed that a fee is generally defined to be a charge for a special
service rendered to individuals by some governmental agency. The amount
of fee levied is supposed to be based on the expenses incurred by the
Government in rendering the service though in some cases the costs are
arbitrarily assessed. Ordinarily, the fees are uniform and no account is taken
of the varying abilities of different recipients to pay. These are some .of the
D general characteristics of fee but as there may be various kinds of fees, it is
not possible to formulate a definition that would be applicable to all cases. .
The Court then referred to the contention with regard to the distinction
between a tax and fee in the compulsory nature of the former and the
voluntary nature of the latter and observed that a careful examination will
reveal that the element of compulsion or coerciveness is present· in all kinds
E of impositions though in different degrees and that it is not totally absent in
fees. Hence it cannot be the sole or even a material criterion for
distinguishing a tax from fee. Compulsion lies in the fact that payment is
enforceable by law against a man in spite of his unwillingness or want of ,-
. consent and this element is present in taxes as well as in fees. In some cases
F whether a man would come within the category of a service receiver may
be a matter of his choice, but that by itself could not constitute a major test
which can be taken as the criterion of these species of imposition. The ~

distinction betwe~n a tax a fee lies primarily in the fact that a tax is levied
as a part of the common burden while a fee is a payment for a special
benefit or privilege. Fees confer a special capacity although the special
.'
G advantage is secondary to the primary motive of regulation in the public
interest Public interest seems to be at the basis of all impositions but in a fee
it is some special benefit which the individual receives. The special benefit
accruing to the individual is the reason for payment in the case of fees. In I_
the case. of a tax, the particular advantage if it exists at all, is an incidental
result of State action. A fee is a sort of return or consideration for services
H rendered and hence it is primarily necessary that the levy of fee .should on
KRISHI UPAJ MANDI SAMITI v. ORIENT PAPER [SA WANT, J.] 401

the face of the legislative provision be co-related to the expenses incurred A
by Government in rendering the services. As indicated in Article 110 [2] of
the Constitution, ordinarily there are two classes of cases where
Government imposes fees upon persons. In the first class of cases,
Government simply grants a permission or privilege to a person to do
something which otherwise that person would not be competent to do, and
extracts fees either heavy or moderate from that person in return for the B
privilege that is conferred. A most common illustration of this type of cases
is furnished by the licence fees for motor vehicles. Here the costs incurred
by the Government in maintaining an office or bureau for the granting of
licences may be very small and the amount of imposition that is levied is
based really not upon the costs incurred by the Government but upon the
benefit that the individual .receives. In such cases, the tax element is C
predominant and if the money paid by licence-holders goes for the upkeep
of roads and other matters of general public utility, the licence fee cannot
but be regarded as a tax. In the other class of cases, the Government does
some positive work for the benefit of persons, and the money is taken as the
return for the work done or services rendered. If the money thus paid is set D
apart and appropriated specifically for the performance of such work and is
not merged in the public revenues for the benefit of the general public, it
could be counted as fees and not a tax. There is really no generic difference
between tax and fee, and the taxing power of a State may manifest itself in
three different forms known respectively as special assessments, fees and
taxes. Our Constitution has for legislative purposes made a distinction E
between a tax and a fee and, as stated above, while there are various entries
in the Legislative Lists with regard to various forms of taxes, there is an
entry at the end of each one of the three Lists as regards fees which could
be levied· in respect of any of the matters that is included in it. The
implication seems to be that fee has special reference to Government action
undertaken in respect of any of those matters. F
In Mahant Sri Jagannath Ramanuj Das and Anr. v. The State of Orissa
and Anr., [1954] SCR 1046.• the Constitution Bench of five learned Judges
upheld the annual contribution provided in Section 49 of the Orissa Hindu
Endowments Act, 1939 as fee on the same reasoning as in the earlier
decision of seven learned Judges. G
In Ratikll--Panachand Gandhi v. The State of Bombay and Others,
[i954] SCR 1055, the validity of the contribution imposed under Section 58
of the Bombay Public Trust Act, 1950 fell for consideration. The Court
held that as the contribution was levied purely for the purposes of due
administration of the trust property and to defray the expenses incurred in H
402 SUPREME COURT REPORTS [1994] SUPP. 5 S.C.R.

A connection with the same, no objection could be taken to the provisions of
the Section on the ground of its infringing the fundamental rights of the
appellants. The Court referred to its earlier decision in Shirur Mutt case
[supra] and the observations made and principles laid down there and
reiterated the same.

B In The Hingir-Rampur Coal Co. Ltd and Ors. v. The State of Orissa
and Ors., (1961] SCR 537, the Constitution Bench of five learned Judges,
reiterated that although there can be no generic difference between a tax
and fee since both are compulsory exaction of money by public authorities,
there is this distinction between them that whereas the tax. is imposed for
public purposes and requires no consideration to support it, a fee is levied
c essentially for services rendered and there must be an element of quid pro
quo between the person who pays it and the public authority that imposes it.
While a tax invariably goes into the consolidated fund, a fee is earmarked
for the specified services in a fund created for the purpose. Whether a case
is one or the other would naturally depend on the facts of each case. If in
the guise of a fee, the Legislature imposes a tax, it is for the Court on a
D scrutiny of the scheme of the levy to determine its real character. The
distinction is recognised by the Constitution which while empowering the
appropriate Legislatures to levy taxes under the Entries in the three Lists
refers to their power to levy fee in respect of any such matters, except the
fees taken in Court. In determining whether the levy is a fee, the true test
E must be whether its primary and essential purpo&e is to render specific
services to a specified area or class, it being of no consequence that the
State may ultimately and indirectly be benefited by it. The amount of the
levy must depend on the extent of the services sought to be rendered and if
they are proportionate, it would be unreasonable to say that since the impost
is high, it must be a duty of excise. Nor can the method prescribed by the
F legislature for recovering the levy by itself alter its character. The method is
a matter of convenience and though relevant, has to be tested in the light of
other relevant circumstances.

In H.H. Sadhundra Thirtha Swamiar v. The Commissioner for. Hindu
Religious and Charitable Endowments, Mysore, (1963] Supp. 2 SCR 302,
G the Constitution Bench of five learned Judges on the same reasoning as in
the earlier decision of seven learned Judges in Shirur Mutt Case [supra],
upheld the contributions levied under the amended Section 76 [I] of the
Madras Religious Endowments Act, 1951 as fee since the said contributions
went into .a-separate fund and not the consolidated fund of the State and
were. earmarked for defraying the expenses for rendering services. The
H contributions. were not even payable to the Government but to the
KRISHI UPAJ MANDI SAMITI v. ORIENT PAPER [SAWANT,J.] 403

Commissioner and hence th~y were not levied as a tax but only as a fee. It A
was observed further that a fee does not cease to be of that character merely
because, there is an element of compulsion in it nor is it a postulate of a fee
that it must have relation to the actual service rendered. Absence of
uniformity is not a criterion on which alone it can be said that the levy is of
the nature of a tax. The legislature has power to enact appropriate
· retrospective legislation declaring levies as fees by denuding them of the B
characteristics of tax.

In Corporation of Calcutta and Another v. Liberty Cinema (1965) 2
SCR 4 77, the facts were that under Section 413 of the Calcutta Municipal
Act, 1951, no person was permitted to keep open any cinema house for
public amusement without a licence granted by the Municipal Corporation. C
Under Section 548 [2), for every licence under the Act, a fee could be
charged at such rates as may from time to time be fixed by the Corporation.
In 1948, the appellant-Corporation fixed fees on the basis of annual
valuation of the cinema house and it was paid by the respondent. In 195~,
the appellant changed the basis of assessment of the fee and levied it at ·
rates prescribed per show according to the sanctioned seating capacity of D
the cinema house. The respondent-cinema, therefore, moved the High Court
by a writ petition and the petition was allowed. In appeal to this Court, the
appellant-Corporation contended that [i) the levy was a tax and not a fee in
return for services, and [ii) Section 548 [2) did not suffer from the vice of
excessive delegation. On behalf of the respondent, it was contended that [i) E
the levy was a fee in return for the services to be rendered and not a tax,
and since it was not commensurate with the costs incurred by' the
Corporation in providing the services, the levy was invalid; [ii) If Section
548 authorised a levy of tax as distinct from fee, it was invalid as it
amounted to illegal delegation of legislative function to the appellant to fix
the amount of tax without any guidance for the purpose, and [iii) the levy
was invalid as violating Articles 19 [l) (f) and (g) of the Constitution. By F
majority, it was held that the levy was not a fee but a tax. While dealing
with the difference between tax and a fee in this context, the Court referred
to the earlier decisions of this Court viz., Commissioner, Hindu Religious
Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shriur
Mutt, [1954) SCR 1005, The Hingir-Rampur Coal Co. Ltd and Ors. v. The G
State of Orissa and Ors., [1961) 2 SCR 537 and H.H. Sadhundra Thirtha
Swamiar v. The Commissioner for Hindu Religious and Charitable
Endowments, Mysore, (1963) Supp. 2 SCR 302 and observed that the
decisions of this Court established that in order to made a levy a fee for
services rendered, the levy must confer special benefit on the persons on
whom it is imposed. H
404 SUPREME COURT REPORTS [1994] SUPP. 5 S.C.R.

A In Keva/ Krishna Puri and Anr. v. State of Punjab and Ors., [1979] 3
SCR 1217, where the levy of market fees by the market committees, as in
the present case, though under a different Act, viz., the Punjab Agricultural
Produce Markets Act, 1961 specifically fell for consideration before the
Constitution Bench of five learned Judges, it was held that the impost of fee
and the liability to pay it is on a particular individual or a cla'is of
B individuals. They are under the obligation to submit accounts, returns or the
like to authorities concerned in cases where quantification of the amount of
fee depends upon the same. They have to undergo the botheration and
harassment sometimes justifiably and sometimes unjustifiably, in the
process of discharging their liability to pay the fee. The authorities levying
the fee deal with them and realise the fee from them. By operation of the
c economic laws in certain kinds of imposition of fee, the burden may be
passed on to different other persons one after the other. In that case,, the
market committees and the market boards assume to themselves the liberty
of utilising and spending the realisations from market fees to a considerable
extent as if it was a tax although in reality it was not so. It was further held
D that rendering some service, however, remote the service may be, cannot,
strictly speaking, satisfy the element of quid pro quo, required to be
established in cases of the impost of fee. Registration fee, however, had to
be taken to stand on a different footing altogether. In the case of such a fee,
' the test of quid pro quo is not to be satisfied ~· ·ith such close or proximate
relationship as in the case of many other fees. By and large, the registration
E fee is ~barged as a regulatory measure. The Court then culled the following
principles from the conspectus of various authorities on the subject :
'
[i] That the amount of fee realised must be ear-marked for
rendering services to the licensees in the notified market
area and a good and substantial portion of it must be shown
F to be expended for this purpose.

[ii] That while rendering services in the market area for the
purpose of facilitating the transactions of purchase and sale
with a view to achieve the objects of the marketing
legislation it is not necessary to confer the whole of the
G
benefit on the licensees but some special benefits must be
conferred on them which have direct, close, and reasonable
correlation between the licensees and the transactions.

[iv] That while conferring ·some special benefits on the
H licensees it is permissible to render such service in the
KRISHI UPAJ MANDI SAMITI v. ORIENT PAPER [SAWANT, J.] 405

market which may be in the general interest of all A
concerned with the transaction taking place in the market.

[v] That spending the amount of market fees for the purpose
of augmenting the agricultural produce, its facility of
transport in villages and to provide other facilities meant
mainly or exclusively for the benefit of agriculturists is not B
permissible on the ground that such services in the long run
go to increase the volume of transactions in the market
ultimately benefiting the traders also. Such an indirect and
remote benefit to the traders is in no sense a special benefit
to them.
c
[vi] That the element of quid pro quo may not be possible,
or even necessary, to be established with arithmetical
exactitude but even broadly and reasonably it must be
established by the authorities who charge the fees that the
amount is being spent for rendering services to those on D
whom falls the burden of the fee.

[vii] At least a good and substantial portion of the amount
collected on account of fee, may be in the neighbourhood of
two-thirds or three-fourths, must be shown with reasonable
certainty as being spent for rendering services of the kind E
mentioned above.

Referring to the provisions of the impugned Act, the Court further held
that the whole object of the Act was to supervise and control the transaction
of purchase by the traders from the agriculturists in order to prevent
exploitation of the latter by the former. The supervision and control could F
be effective only in specified localities and places and not through the
extensive market area. The fee levied was not on the agricultural produce in
the sense of imposing any kind of tax or duty on the agricultural produce.
Nor was it a tax on the transaction of purchase or sale. The levy was an
impost on the buyer of the agricultural produce in the market in relation to
transaction of his purchase. The agriculturists were not required to share G
any portion of the burden of this fee. In case the buyer was not a licensee,
the responsibility of paying the fee was of the seller who may realise the
same from the buyer. But such a contingency could not arise in respect of
the transaction of a sale by an agriculturist of his agricultural produce in the
market to a dealer who must be a licensee. Probably such an alternative
provision was meant to be made for outside buyers who were not licences H
406 SUPREME COURT REPORTS [1994] SUPP. 5 S.C.R.

A when they bought their agricultural produce from or through the licensees.
Every market committee was obliged under sub-section [2] (a) of Section
27 of that Act to pay out of its fund to the marketing board as contribution
such percentage of its income derived from licence fee, market fee and
fines levied by the Courts as specified therein. The purpose of this
contribution was to enable the Board to defray expenses of the office
B establishment of the Board and such other expense incurred by it in the
interests of the Committees in general. The purposes for which the
Marketing Development Fund might be expended were enumerated in
Section 26 and the purpose for which the Market Committee Funds might
be expended were catalogued in Section 28 of that Act. The whole of the
State was divided into market areas. The propaganda in favour of
c agricultural improvement and expenditure for production and betterment of
agricultural produce would be in the general interest of agriculture in the
market area. It was not permissible to spend the market fees realised from
the traders for any purpose calculated to promote the national or public
interest. No market committee could be permitted to utilise the fund for an
ulterior purpose, however benevolent, laudable and charitable the object
D might be. The whole concept of fee would collapse if the amount realised
by the market committees could be permitted to be spent in that fashion.
Technically and legally one may not have any objection to the expenditure
of such money for the purposes mentioned m clauses (x), (xi), (xiii) and
(xvii). The Court also held that it was not necessary to strike down any
clauses of Section 28 as being unconstitutional merely on the ground that
E the expenditure authorised therein went beyond the purposes of the
utilisation of market fees. However, where a concrete case comes where the
spending of money cannot be reasonably connected with the purposes for
which the market fee can be sp~nt, the Courts may have to deal with the
question as to whether such expenditure can be met from the market fees
realised. The State Agricultural Marketing Board constituted under the Act
F
is the central controlling and superintending authority over all the
marketing committee~, the primary function of which is to render servis;es
in the market. The parting with thirty percent of the income by a market
committee in favour of the Board is not so excessive or unreasonable so as
to warrant the interference on the ground of violation of the principle of
G quid pro quo in the utilisation of the market fee. :rhe Marketing
Development Fund can be validly spent for the purposes mentioned in
clauses [i], (ii], (iii], [iv], first part of [v], [vi], [vii], [viii], [ix], [xii], the
first part o( clause [xiii], [xiv], [xv] and [xvi]. The fund cannot be expended
for the purposes mentioned in the second part of clause [v], clauses [x],
[xi], the second part of clause [xiii] and clause [xvii]. The purpose of the
H law will be served by restricting the operation of Section 26 to the purposes
KRISHI UPAJ MANDI SAMITI v. ORIENT PAPER [SAW ANT, I.] 407

for which it could be validly spent, it is not necessary to strike down the A
provisions of Section 26 for that purpose. The market fee cannot be spent
on the construction of link roads although transportation is very essential
for the development of a market and to enable the growers of the
agricultural produce to bring the same to the market. The impost must be
correlated with the service to be rendered to the payers of the fees as
pointed out above. If insecticides and pesticides are for use at the place B
where actually the marketing operaticns are carried on, it would be
justifiable expenditure. But if they are meant to be supplied to the
agriculturists for use at their village homes or in their fields, the market fee
cannot be spent for the purpose. The charging of fee at the rate of Rs. 2 per
Rs. I 00 was not considered unjustifiable. The Court observed that any
increase in the rate should be correlated to the expenditure made strictly for C
the purposes mentioned above.

It may be mentioned here that the purposes mentioned in Section 26
and 28 of Punjab Agricultural Produce Marketing Act which fell for
consideration there are similar to the provisions of the M.P. Krishi Upaj
Mandi Adhiniyam, 1973. D
In Southern Pharmaceuticals and Chemicals, Trichur and Ors. etc. v.
State of Kera/a and Ors. etc., [1982] 1 SCR 519, which is a decision of
three learned Judges, what fell for consideration was the validity of the levy
of supervisory charges under the Kerala Abkari Act, 1967. In this
connection, it was observed that it was increasingly realised that merely E
because the collections for the services rendered or grant of a privilege or
licence, are taken to the Consolidated Fund of the State and are not
separately appropriated towards the expenditure for rendering the service is
not by itself decisive of the nature of the levy. That is because the
Constitution did not contemplates it to be an essential element of a fee that F
it should be credited to a separate fund and not to the consolidated fu.nd. It
was also increasingly realised that the element of quid pro quo stricto sensu
was not always a sine qua non of a fee. The Court therefore, observed that
it is needless to stress that the element of quid pro quo was not necessarily
absent in every tax. The Court then quoted with approval the observations
of Seervai in his Constitutional Law in Shirur Mutt Case [supra] that the G
attention of this Court does not appear to have been drawn to Articl~ 266
which requires that ail revenues of the Union of India and the States must
go into the respective Consolidated Funds and all other public moneys must
go into the respective accounts of the Union and the States. If the services
rendered are not by a separate body like the Charity Commissioner, by a
Government Department, the ·character of imposition would not change H
408 SUPREME COURT REPORTS (1994] SUPP. 5 S.C.R.

A because under Anicle 266, the moneys collected for the services rendered
must be credited to the Consolidated Fund. After referring to the decision in
Keva/ Krishan Puri 's Case the Court observed that the observations made
in that case, viz., the element of quid pro quo must be established, were not
intended and meant as laying·down a rule of universal application. In that
case, the Court was considering the rate of market fee and whether the
B increase in the rate from Rs. 2 for every Rs. 100 to Rs. 3 was justified ..
There was no material placed to justify the increase in the rate of fee an~
therefore, the Court took the view there that it partook the nature of a tax.
The Court thus observed that it seems the Court in that case, proceeded on
the assumption that the element o( quid pro quo must always be present in
fee but the traditional concept of quid pro quo was undergoing a
c transformation. The question of co-relationship between services rendered
and the fee levied was essentially a question of fact.

In Sreenivasa General Traders and Ors. etc. v. State of Andhra
Pradesh and Ors. Etc., [1983! 3 SCR 843, a Bench of three learned Judges
considered the validity of a levy of market fee under the Andhra Pradesh
D [Agricultural Produce and Livestock] Market Act, 1966. The Court held
that the provisions of Section 7 [6] of that Act which prohibited any person
purchasing, producing or selling any notified agricultural produce, livestock
and products of livestock in a notified market area but outside the market in
that area were valid having regard to the purpose· and object of the
legislation. The Court further held that the levy of market fee under Section
E 12 [ 1] of that Act on the transactions effected by the petitioners from their
business· premises located in the notified market area but outside the market
proper was legal. The petitioners' contention to the contrary proceeded on
the wrong assumption because, firstly, in view of the express prohibition
contained in Section 7 [6] of the Act, the petitioners could not carry on such
a trade without resorting to the market proper. The contravention of Section
F 7 [6] was penalty an offence under Section 23 [l] of that Act. Secondly, the
establishment of regulated market for agricultural produce is a service
rendered to those who are engaged in the business of purchase and sale of
such commodity. That duty of the market committee does not end with the
establishment of the markets but extends under Section 15 of that Act to
G providing facilities in the market. The service rendered by market
committees and facilities so provided are not confined to the market proper
but extends to the notified area. The Court held by referring to Kewal
Krishan Puri's Case [supra] that there ·was no substance in the contention
of the petitioner that since the market committees do not provide any
additional facilities to justify increase in the rate in the market fee, the
H increase was illegal. The Court pointed out that the said decision does not
KRISHI UPAJ MANDI SAMITI v. ORIENT PAPER [SA WANT, .T.] 409

lay down any legal principle of general applicability and was clearly A
distinguishable on the facts. According to the Court, in that case, the
increase in the market fees was quashed because the income of the market
fee had become a source of revenue. The market committees throughout the
State were left with huge surplus funds and the State Government had
directed the market committees to contribute a large sum of money to a
medical college and deposit the surplus amount with the State Agricultural B
Marketing Board, and the B~ard in tum advanced interest-free loans to
marketing federations. Even after incurring the said unauthorised
expenditure, the market committees were left with huge surplus and were
required to make donations to many educational institutions. The marketing
committees also spent large sums on general improvement of the municipal
area. The Punjab Act permitted diversion of funds for any purpose C
calculated to promote the general interest of the committees or the national
or public interest. The Court further observed that the traditional view that
there must be quid pro quo for a fee had undergone a sea-change. The
distinction between a tax and fee lies primarily in the fact that a tax is
levied as a part of the common burden while a fee is for payment of a
specific benefit or privilege although the special advantage is secondary to D
the primary duty of regulating any public interest. If the element of revenue
for general purpose of the State predominates, the levy becomes a tax. In
regard to fees, there is and must always be a correlation between the fee
collected and the services intended to be rendered. In determining whether
the levy is a fee or tax, the true test must be whether its primary and E
essential purpose is to render specific services to a specified area or class. It
may be of no consequence that the State may ultimately and indirectly be
benefited by it. The power of any legislature to levy a fee is conditioned by
the fact that it must be by and large a quid pro quo for services rendered.
Every co-relationship between the levy and the services rendered is one of
general character and not a mathematical exactitude. All that is necessary is F
that there should be a reasonable relationship between the levy of fee and
the services rendered. There is no postulate of a fee that it must have a
direct relation to the actual services rendered by the authority to each
individual to obtain the benefit of the service. It is now increasingly realised
that merely because the collections for the services rendered or for grant of
a privilege or licence are taken to the consolidated fund of the State and not G
separately appropriated towards the expenditure for rendering the service, is
not by itself decisive of the nature of the levy whether it is a fee or a tax.
The Court further held that presumably, the attention of the Court in the
Shirur Mutt Case was not drawn to Article 266 of the Constitution. The
Constitution nowhere contemplate it to be an essential element of a fee that
it should be credited to a separate fund and not to the consolidated fund. H
410 SUPREME COURT REPORTS [1994] SUPP. S S.C.R. .

A The element of quid pro quo in the strict sense is not always sine qua non
for a fee. The element of quid pro quo is not necessarily absent in every tax.
The Court forther held that the increase in the rate of market fee in that case
from 50 paise to Re.' l was not illegal on the ground that there was no
correlation between the increase and the services rendered. The levy of
market fee was correlated to the purposes mentioned in Section 15 of that
B Act. All the moneys received by a market committee from the traders on
sale of agricultural produce had to be paid into a fund called the Market
Committee Fund and all expenditure incurred had to be defrayed out of that
fund and any surplus had to be invested in the prescribed manner. The
purposes mentioned in Section 15 of that Act are all purposes which were
extremely beneficial to the growers and the traders. The increase was
c justified also because the cost of rendering services had correspondingly
increased over the years. Moreover, the market committees are rendering
services some of which were obligatory duties. The Court also held that it is
not always possible to work out in mathematical precision the amount of
fee required for the services to be rendered each year and to collect just that
amount which was sufficient for meeting the expenditure in that year. In
D some years, the income of the market committee by way of market fee and
licence fee may exceed the expenditure and in another year when the
development works are in progress for providing modem infrastructure
facilities, the expenditure may be far in excess of the income. It is wrong to
take any one particular year or a few years into consideration to decide
whether the fee is commensurate with the services rendered. An overall
E view has to be taken in dealing with the question whether there is quid pro
quo.

In Om Park.ash Agarwal etc. etc. v. Giri Raj Kishori and Ors. Etc. Etc.,
[1986] l SCR 149], what fell for consideration was the cess imposed under
Section 3 of the Haryana Rural Development Fund Act, 1983. The cess was
F imposed an ad valorem basis at the rate of one percent of the sale proceeds
of the agricultural produce brought or sold or brought for processing in a
notified market area. The dealer in his tum, was entitled to pass o~ the
burden of the case paid by him to the next purchaser of the agricultural
produce from him. Section 4 [l] of the Act provided for the creation of the
G fund called the Haryana Rural Development Fund which was vested in the
State Government and the amount of cess was to be credited to the said
fund. Sub-section (5] of Section 4 of the Act stated that the fund would be
applied by the State Government to meet the expenditure incurred in the
rural areas in connection with the development of roads, hospitals, means of
communication, water supply, sanitation facilities and for the welfare of
H agricultural labour or ·for any other scheme approved by the State
KRISHI UPAJ MANDI SAMITI v. ORIENT PAPER [SA WANT, J.] 411

Government for the development of the rural areas. This Court held that the A
Act was unconstitutional since the State Legislature was not competent to
enact it. The Court held that in the guise of a fee, the legislation imposed a
tax. It was constitutionally impermissible for the State to do so. The Court
pointed out that in the present case, the definition of expression "rural
areas" was vague. There was no specification in the Act that the amount or
a substantial part, of the amount collected by way of cess would be spent on B
any public purposes within the market area where the dealer was carrying
on his business. The purpose for which the fund could be spent were the
same on which any amount collected by way of tax was spent by any State
and there was nothing which was done specially to benefit the dealer. When
any am0unt was spent from the fund, the interest of the dealers was not at
all kept in view even generally. The cess, therefore, partook the character or C
part of the common burden which had to be levied and collected only as a
tax. A dealer who paid the cess may as one of the member of the general
public derive some benefit from the expenditure. The benefit so derived by
him was merely incidental to the fact that he happens to be a person
residing in the State of Haryana. It was not the same as the benefit which a D
dealer in a market area would derive from the expenditure of the fund by a
market committee or as the benefit which a person living in a town would
derive by the expenditure incurred by the municipality concerned. There
was practically no difference between the Consolidated Fund and the Fund
both of which could be spent practically on any public purpose almost
throughout the State. In such a situation, it was difficult to hold that there E
exited any co-relation between the amount paid by way of cess under the
Act and the services rendered to a person from whom it was collected.

In Mis Kishan Lal Lakhmichand and Ors. v. State of Haryana and
Ors., [1993] Supp. 4 SCR 461, which is a decision of a Bench of three
learned Judges, the levy of cess under the Haryana Rural Development Act,
1986 fell for consideration. The Court held that from the scheme of the Act, F
it would be clear that there is a broad, reasonable and general co-

- relationship between the levy and the resultant benefit to the producer of
the agricultural produce, dealer and purchasers as a class though no single
payer of the fee receives direct or personal benefit from those services.
Though the general public may be benefited from some of the services like G
laying roads, the primary service was to the producer, dealer and purchaser
of the agricultural produce. The Court also held that the power of any
legislature to levy a fee is conditioned by the fact that it must be by and
large quid pro quo for the services rendered. However, co-relationship
between the levy and the · services rendered/expected is one of general
character and not of mathematical exactitude. All that is necessary is that H
,
412 SUPREME COURT REPORTS [1994] SUPP. 5 S.C.R.

A there should be reasonable relationship between the levy of the fee and the
services rendered. The Court then held that the case levied therein is a fee
and that the levy for the fund created was to expend for the purposes
enumerated under Section 6 [5] of the Act.
'
5. Thus what emerges from the conspectus of the aforesaid decisions is
B as follows:

[I] Though levying of fee is only a particular form of the exercise of
the taxing power of the State, our Constitution has placed fee under a
separate category for purposes of legislation. At the end of each one of the
three Legislative Lists, it has given power to the particular Legislature to
C legislate on the imposition of fee in respect of every one of the items dealt
with in the list itself, exc.ept fees taken in Court.

.[2] The tax is a compulsory exaction of money by public authority for
public purposes enforceable by law and is not payment for services
rendered. There is no quid pro quo between the tax-payer and the public
D authority. It is a part of the common burden and the quantum of imposition
upon the tax-payer depends generally upon his capacity to pay.

[3] Fee is a charge for a special service rendered to individuals or a
class by some governmental agency. The amount of fee levied is supposed
to be based on the expenses incurred by the Government in rendering the
E service though in some cases the costs are arbitrarily assessed. Ordinarily,
the fees are uniform and no account is taken of the varying abilities of
different recipients to pay. These are various kinds of fees and it is not
possible to formulate a definition that would be applicable to all cases.

[4] The element of compulsion or coerciveness is present in all kinds of
F impositions though in different degrees and it is not totally absent in fees.
Hence it cannot be the sole or even a material criterion for distinguishing a
tax from fee. Compulsion lies in the fact that payment is enforceable by law
against an individual in spite of his unwillingness or want of consent and
this element is present in taxes as well as in fees. 1

G [5] The distinction between a tax and a fee lies primarily in the fact that
a tax is levied as a part of the common burden while a fee is a payment for
a special benefit or privilege. Fees confer a special capacity although the
special advantage is secondary to the primary motive of regulation in the
·public interest. Public interest seems to be at the basis of all impositions but
in a fee it is some special benefit which is conferred and accruing which is
H the reason for imposition of.the levy. In the case .of a tax, the particular
KRISHI UPAJ MANDI SAMITI v. ORIENT PAPER [SA WANT, J.] 413

advantage if it exists at all, is an incidental result of State action. A fee is a A
sort of return or consideration for services rendered and hence it is
primarily necessary that the levy of fee should on the face of the legislative
provision be co-related to the expenses incurred by Government in
rendering the services. As indicated in Article 110 [2] of the Constitution,
ordinarily there are two classes of cases where Government imposes fees
upon persons. The first is of grant of permission or privilege and the second B
for services rendered. In the first class of cases, the cost incurred by the
Government for granting of permission or privilege may be very small and
the amount of imposition levied is based not necessarily upon the costs
incurred by the Government but upon the benefit that the individual
receives. In such cases, the tax element is predominant. If the money paid
by privilege-holders goes entirely for the expenses of matters of general C
public utility, the fee cannot but be regarded as a tax. In the other class of
cases, the Government does some positive work for the benefit of persons,
and the money is taken as the return for the work done or services rendered.

[6] There is really no generic difference between tax and fee and the
taxing power of the State may manifest itself in three different forms, viz., D
special assessments, fees and taxes. Whether a cess is tax or fee, would
depend upon the facts of each case. If in the guise of fee, the Legislature
imposes a tax it is for the Court on a scrutiny of the scheme of the levy, to
determine its real character. In determining whether the levy is a fee, the
true test must be whether its primary and essential purpose is to render E
specific services to a specific area or classes. It is of no consequence that
the State may ultimately and indirectly be benefited by it. The amount of
the levy must depend upon the extent of the services sought to be rendered
and if they are proportionate, it would be unreasonable to say that since the
impost is high it must be a tax. Nor can the method prescribed by the
legislature for recovering the levy by itself alter its character. The method is p
a matter of convenience and though relevant, has to be tested in the light of
other relevant circumstances.

[7] it is not a postulate of a fee that it must have relation to the actual
service rendered. However, the rendering of service has to be established.
The service, further, cannot be remote. The test of quid pro quo is not to be G
satisfied with close or proximate relationship in all kinds of fees. A good
and substantial portion of the fee must, however, be shown to be expended
for the purpose for which the fee is levied. It is not necessary to confer the
whole of the benefit on the payers of the fee but some special benefit must
be conferred on them which has a direct and reasonable correlation to the
fee. While conferring some special benefits on the payers of the fees, it is H
414 SUPREME COURT REPORTS . (1994] SUPP. 5 S.C.R.

A permissible to render service in the general interest of all concerned. The
element of quid pro quo is not possible or even necessary to be established .
with arithmetical exactitude. But it must · be established broadly and
reasonably that the amount is being spent for rendering services to those on
whom the burden of the fee falls. There is no postulate of a fee that it must
have a direct relation to the actual services rendered by the authorities to
B each individual to obtain the benefit of the service. The element of quid pro
quo in the strict sense is not always a sine qua non for a fee. The element of
quid pro quo is not necessarily absent in every tax. It is enough if there is a
broad, reasonable and general co-relationship between the levy and the .
resultant benefit to the class of people on which the fee is levied though no
single payer of the fee receives direct or personal benefit from those
C services. It is immaterial that the general public may also be benefited from
some of the services ifthe primary service intended is for the payers of the
fees.

[8] Absence of uniformity is not a criterion on which alone it can be
said that the levy is of the nature of a tax. The legislature has power to enact
D appropriate retrospective legislation declaring levies as fees by denuding
them of the characteristics of tax.

[9]. It is not necessary that the amount of fees collected by the
Government should be kept separately. In view of the provisions of Article
266, all amounts received by the Governments have to be credited to the
E Consolidated Funds and to the · public accounts of the respective
Governments.

6. In the light of the above law which regard to the levy of fee we have
to consider whether the fee levied by the appellant-market committees in·
the present case is illegal. The impugned decision has relied upon the
F earlier decision of the same Court to come to the conclusion that in the
absence of any services rendered by the market committees with regard to
the transactions of sale and purchase of bamboos, the respondent-Mills is
not liable to pay the market fee. It is, therefore, necessary to deaf with the
said earlier decision of the said Court which was delivered on 12th January,
G 1988 in Miscellaneous Petition No. 4063 of 1986 filed by the respondent-
Mills against the State.

As stated at the outset, there is no dispute that bamboo is an
-agricultural produce within the meaning of the Act and is a notified
agricultural produce under it. The respondent-Mills purchases and takes
H delivery of.the bamboos from the forest depots of the Forest Department of
KRISHI UPAJ MANDI SAMITlv. ORIENT PAPER [SAWANT, J.] 415

the State Government. These depots are situated within the market area of A
the appellant-market committees. After taking delivery from the forest
depots, the bamboos are transported by the respondent-Mills to its factory
which is also situated within the market area of one of the committees. The
services which are rendered by the market committees, among others, are as
follows: Covered auction platform and open auction platform, godowns,
shops-cum-godowns, office building, provision of all categories of staff and B
their training, office equipment, badges and uniforms for the staff, books,
magazines and advertisement expenses; weighing instruments and weights,
security guards, water coolers, rest house for agriculturists, tube-well and
pipelines, overhead tanks, pump house, mini-sheds and covered-shed and
parking area, cattle-shed, sanitary blocks, light arrangements with all
fittings, roads, boundary walls, check-posts and canteen building. C
On behalf of the appellant-Committees, their Income and Expenditure
Account for the five years, viz., 1985-86 to 1989-90 has been annexed to
the appeal memo. As is stated in the memo itself, these details were not
filed before the High Comt since the appellants' averments in that behalf in D
the counter filed in the High Court, were not denied by the respondent-
Mills. As per these details, the income from market fee recovered and the
expenditure incurred for the five year period I 985-86 to I 989-90 in the
case of both the appellant-Committees, was as follows:

'-· Income [in Rs.] Expenditure [in Rs.] E
Years Appellant Appellant Appellant Appellant

No. 1 No.2 No. 1 No.2

1985-86 226518.69 1711094.71 166447.15 85ll78.73
F
1986-87 247248.47 1856387.98 254291.20 1356002.44

1987-88 244506.43 33ll000.70 424512.70 30088393.53

1988-89 293449.10 3915838.67 323202.35 2715734.74
G
1989-90 209403.61 3731315.34 322041.70 3442650.67

The expenses are excluding those incurred on capital assets like roads
and buildings. These figures will show that there is a reasonable nexus
between the market fees levied and the expenses incurred on the services
rendered to the buyers and sellers of the agricultural produce. H
416 SUPREME COURT REPORTS [1994] SUPP. S S.C.R.

A What is further, the provisions of Section 17 of the Act cast a duty on
the market committee to provide s~ch facilities for marketing of notified
agricultural produce in the market area as the State Government may from
time to time direct and to do such other acts as may be necessary in relation
to the superintendence and control of the market area for regulating the
marketing of notified agricultural produce in any place in the market area
B and for purposes connected with the said matters. Among other things, the
market committees are required to [i] maintain and manage the market
yards; [ii] provide the necessary facilities for marketing of agricultural
produce in the market yard; [iii] grant or refuse licences to the market
functionaries and renew, suspend or cancel such licences; [iv] supervise the
conduct of the market functionaries; [v] regulate the opening, closing and
c suspending of trading in the market yards; [vi] enforce the conditions of the
licences; [vii] regulate the making, carrying out and enforcement or
cancellation of agreement of sales, the weighment, delivery, payment and
all other matters relating to the marketing of notified agricultural produce;
[viii] provide for the settlement of all disputes between the seller and the
buyer arising out of .any kind of transaction connected with the marketing
D of notified agricultural produce and all matters ancillary thereto; [ix] collect
and maintain information in respect of production, sale, storage, processing,
prices and movement at notified agricultural produce and disseminate such
information as directed by the Director of Marketing appointed by the State
Government under the Act; [x] take all possible steps to prevent
adulteration of goods and promote grading and standardisation of the
notified agricultural produce; [xi] with a view to maintain stability in the
market - {a) take suitable measures to ensure that traders do not buy
agricultural produce beyond their capacity and avoid risk to the sellers in
disposing of the produce; and (b) grant licences only after obtaining
necessary security in cash and bank guarantee according to the capacity of
F the buyers; [xii] levy and recover all moneys related to fees and other
charges due, which the market committee is authorised to receive; [xiii] (a)
ensure payment in respect of transaction which takes place in the market
yard or market proper to be made on the same day to the seller, and in
default to seize the agricultural produce in question along with other
property of the person concerned and to arrange for resale thereof and in
-
G the event of loss, to recover the same from the original buyer together with
charges for recovery of loss, if any from the original buyer and effect .
payment of the price of the agricultural produce to the seller, (b) recover the
charges in respect of weighment and hummal, and to distribute the same to
weighmen and hummals; [xiv] employ the necessary number of officers
and servants for the efficient implementation of provisions of the Act, and
H the rules and the bye-laws made thereunder; [xv] regulate the entry of
KRISHI UPAJ MANDI SAMITI v. ORIENT PAPER [SA WANT, I.] 417

persons and vehicular traffic into the market yard; [xvi] prosecute persons A
for violating the provisio!ls of the Act, and the rules and the bye-laws made
thereunder and to compound such offences if necessary; [xvii] acquire, hold
and dispose of any movable or immovable property for the purpose of
efficiently carrying out its duties; [xviii] institute or defend any suit, action,
proceeding, application or arbitration and compromise such suit action,
proceeding application or arbitration; [xix] make arrangement for B
employing by rotation, weighmen and hummals for weighing and
transporting of goods in respect of transactions held in the market yard;
[xx] to provide on rent storage facilities for stocking of agricultural produce
to agriculturists; [xxi] arrange for preventive measures against spread of
contagious cattle disease.
c
In addition, the market committees are required to contribute to the
Market Committee Fund constituted under Section 38 of the Act and the
said fund is to be utilised for the purposes mentioned in Section 39 of the
Act. Those purposes, among others, are [i) the acquisition of a site or sites
for the market yards; [ii] the maintenance and improvement of the market D
yards; [iii] the construction and repairs of buildings, necessary for the
purposes of the market and for convenience or safety of the persons using
the market yard; [iv] the maintenance of standard weights and measures; [v]
the meeting of establishment charges including payments and contribution
of towards provident fund, pension and gratuity of the officers and servants
employed by a market committee; {vi] the payment of interest on the loans E
that may be raised for the purpose of the market and provisions of sinking
fund in respect of such loans; {vii] the collection and dissemination of
information relating to crops statistics and marketing of agricultural
produce; [viii] (a) the expenses incurred in auditing the accounts of the
market committee; (b) contribution to State Marketing Development Fund;
(c) to develop necessary infrastructure within a radius of one kilometer F
from the market yard/sub-market yard for facilitating the fl<?w of notified
agricultural produce.

Further, as pointed out earlier, every market committee is required to
pay to the State Marketing Development Fund, every three months such G
percentage not exceeding 50 percent of its gross receipts comprising of
licence fees and market fees as the State Government may by notification
declare from time to time. The Marketing Development Fund is applied
under Section 44 of the Act, among others, for [i] market survey and
research, grading standardisation of the agricultural produce and other
allied subjects; [ii] propaganda and publicity and extension services on the H
418 SUPREME COURT REPORTS [1994] SUPP. 5 S.C.R.

A matters, relating to general improvement of conditions of buying and
selling of agricultural produce; [iii] (a) Giving aid to the market established
for the first time in the form of grants to the extent of fifty thousand rupees
to defray the establishment expenses; (b) Giving aid to financially week
market committees in the Scheduled areas of the State in the form of loans
and or grants; (c) for loans to any market committee for development of r'
B market yard and/or sub-market yard, construction of cold storage and
godown or warehouses; [iv] acquisition or constructions or hiring by less or
otherwise of buildings or land for performing the duties of the Board; [v]
payment of salary, leave allowance, gratuity, other allowances, loans and
advances and provident fund to the officers and servants employed by the
Board and pension and other contribution to the Government servants on
c deputation; [vi] better control of market committees; [vii] meeting any legal
expenses incurred by the Board; [viii] imparting education in regulated
marketing of agricultural produce; [ix] training the officers and staff of the
market committees in the State, provisions for technical assistance to the
market committee in the preparation of site plans and estimates of
D construction and in the preparation of project reports or master plans for
development of market yard and [x] any other purpose of general interest to
regulate marketing of agricultural produce.

It will be obvious from the above purp.:>~es for which the market fee is
to be utilised that the said purposes are in furtherance of the object ()f the
E Act, viz., to regulate the buying and selling of agricultural produce and the
establishment and proper administration of markets for agricultural produce
or the benefit of the agriculturists who are the primary producers of the said
produce. The machinery and the facilities for which the market fees are
being expended are all necessary to provide the necessary infrastructure to
further the object of the Act. But for such infrastructure, the objects of the
F Act cannot be properly and adequately implemented. The fact that the
respondent-Mills may not be the direct beneficiary of any one or some of
the said facilities or does not make ~se of them does not absolve it from
payment of the market fees. The said machinery and the facilities are meant
for the benefit of all the buyers and sellers of all the agricultural produce
within the market area and cannot be denied that they are so. It is further
G
difficult to appreciate the contention that in the circumstances, the
respondent-Mills is not either directly or indirectly a beneficiary of the said
machinery and the facilities as a buyer of the bamboos when the purchase is
admittedly made in the market area as pointed out above. In the
circumstances, the High Court was in error in holding that there was no
H evidence of the services rendered by the Committees.
KRISHI UPAJ MANDI SAMITI v. ORIENT PAPER [SAWANT, J.] 419

7. In this connection, a reference may be made to Keva/ Krishan Puri's A
Case [supra]. There this Court has upheld the legality of the fees levied for
the following purposes st.ated in the Punjab Agricultural Produce Markets
Act, 1961, viz., [i] better marketing of agricultural produce; [ii] marketing
of agricultural produce on co-operative lines; [iii] collection and
dissemination of market rates and news; [iv] grading and standardisation of
agricultural produce; [v] general improvement in the markets; [vi] B
maintenance of the office of the Board and construction and repair of its
office buildings, rest-house and staff quarters; [vii] giving aid to fmancially
weak Committees in the shape of loans and grants; [viii] payment of salary,
travel and leave allowance, gratuity, compassionate allowance,
compensation for injuries or death resulting from accidents while on duty,
medical aid, pension or provident fund to the persons employed by the . C
Board and leave and pension contribution to Government servants on
deputation; [ix] travel!ing and other allowances to the employees of the
Board, its members and members of Advisory Committees; [xii] meeting
any legal expenses incurred by the board; [xiii] imparting education in
marketing; [xiv] construction of godowns; [xv] loans and advances to the D
employees and [xvi] expenses incurred in auditing the accounts of the
Board. All these purposes are also covered by the present Act.

8. The High Court in the present case, accepted the contention of the
writ petitioners before it, i.e., the respondent-Mills herein that so far as the
bamboos grown on private land are concerned, they are to be purchased by
the State Government in view of the provisions contained in the Van Upaj E
Adhiniyam. Further, the sale of such bamboos by the Government takes
place at various forest depots and hence the requirement of the Act that the
agricultural produce shall be sold in the market proper or market area does
not apply to the present case. This also applied to bamboos grown on the
forest land belonging to the Government. The contention advanced on
behalf of the respondent-State Government there that the market fee is F
required to be paid on every agricultural produce brought for sale Of sold in
the market area was rejected by the Court on the ground that the
respondent-Mills did not purchase the bamboos for sale but purchased them
for use as its raw material for manufacture of paper. Secondly, there was
nothing in the return filed by the State Government to show that any G
services were rendered to the respondent-Mills in return for the market fees
levied on them for the purchase of bamboos which transaction took place at
various forest depots. The bamboos were purchased by them not for sale
but for being used for manufacture of paper. Although,. the Court noted the
fact that it is not necessary that each individual trader must be benefited by
the services provided, the Court held that it was necessary to justify the levy H
420 SUPREME COURT REPORTS [1994] SUPP. 5 S.C.R

A by proving that some direct or indirect benefit was conferred either on the
purchasers or traders of bamboos as a class by the market committee. The
Court also held that since the State Government's stand was that the Forest
Department would be a trader within the meaning of the Act while selling
bamboos and since respondent-Mills are also traders according to the State
Government, the sale of bamboos to the respondent by the Forest
B Department would be a sale by a trader to a trader and in such a case, the
proviso to sub-section [2] of Section 19 of the Act shall be attracted. That
proviso contemplates that in a case of commercial transaction between
traders in the market area, the market fee shall be collected and paid by the
seller. Hence, according to the High Court, even if it was accepted for the
sake of argument that market fee on the sale of bamboos by the State
c Government to the respondent-Mills was leviable, it was not to be paid to
the market committee by the respondent-Mills who were the buyers. It was
to be collected and paid by the Forest Department which is the seller.
Hence, the market committees could not require the respondent-Mills to
pay the market fee directly to them.

D 9. We are afraid that on .both these counts, the High Court has
committed errors. As regards the first ground on which the High Court has
set aside the market fee, viz., that the transaction of sale and purchase of the
bamboos at the forest depots is not a transaction in the market proper or
market yard and hence it is not prohibited by the Act, the High Co,urt has
failed to notice the relevant provisions of Section 6 [b] of the Act to which
E a reference has already been made earlier. The provision in terms states that
no person shall, except in accordance with the provisions of the Act and the
rules and the bye-laws made thereunder, use any place in the market area
for the marketing of the notified agricultural produce or .operate in the
market area as a market functionary. The exceptions to this provision are
mentioned in Section 6 [b] itself and the sal1;; of the bamboos at the forest
F depots which are admittedly in the market areas of one or the other
committee, are not covered by any of the exceptions. The prohibition for
sale or purchase of the agricultural produce is not only in the;\ market proper
or market yard area but in the market are~ as a whole. So also Section 31,
as already pointed out, further provides that no person shall, in. respect of
G any notified agricultural produce; operate in the market area as commission
agent, trader, broker, weigh-man,, hammal, surveyor, warehouseman, owner
or occupier of processing or ~ressing factories or such other-market
functionary except in accordance" with the provisions of the Act and the
rules and bye-laws made thereunder. Section 37 requires that every person
who buys notified agricultural produce in the market-area, shall execute an
H agreement in favour of the seller in triplicate in such forms as may .be
KRISHI UPAJ MANDI SAMITI v. ORIENT PAPER [SA WANT, J.] 421

prescribed. One copy of such agreement is to be kept in the record of the A
market committee.

As regards the reliance placed by the High Court on the second proviso
to sub-section (2] of Section 19 of the Act which provides that in case of a
commercial transaction between traders in the market area, the market fee
shall be collected and paid by the seller, we are unable to understand as to B
how the said provision can be pressed into service to negative the levy of
the market fee, even assuming that the Forest Department is for the
purposes of the said provision, a trader when it sells the bamboos. The
Forest Department is required by that provision to collect the fees from the
buyers- in the present case, from the respondent-Mills. The market fee
has, therefore, in any case, to be paid by the respondent-Mills if not to the C
market committee directly, at least to the Forest Department, and it is to be
paid at the time of the purchase of the bamboos. It is immaterial for this
purpose whether the bamboos are purchased by the respondent-Mills for
selling them or for using them as their raw material in the manufacture of
paper. The liability of the respondent-Mills to pay the market fees is in no
way negated on that account. The provision requiring the seller to collect D
the market fees in such cases is made for the convenience of collection of
the fees, as is the similar provision made in the first proviso of the said sub-
section where buyers cannot be identified. The collection made by the
seller, i.e.; the forest depots in the present case is for and on behalf of the
Committee and is eventually to be handed over to the Committee. The
provision is enabling and does not prevent the Committee itself from E
collecting the fee, if it so proposes.

10. We are, therefore, of the view that the High Court was in error in
holding that the levy of market fees in the present case was not legal. The
appeal is, therefore, allowed with costs and the impugnec;l decision of the
High Court is set aside. F
v.s.s. Appeal allowed.

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