Supreme Court of India
M/S. DEWAN CHAND BUILDERS & CONTRACTORS.versusUNION OF INDIA & ORS.
- Citation
- 2011 INSC 810
- Decided
- 18 November 2011
- Disposal
- Dismissed
- Bench
- D K JAIN
Holding
The levy of cess under the Building and Other Construction Workers Welfare Cess Act, 1996 is a fee, not a tax, and is constitutionally valid within Parliament's competence under Entry 97 of List I.
Summary
The appellant, Dewan Chand Builders & Contractors, challenged the constitutional validity of the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 and the accompanying Welfare Cess Act, arguing that the cess imposed on construction costs was a tax rather than a fee and thus beyond Parliament's legislative competence. The central issue was whether the cess is a fee, earmarked for the welfare of construction workers, or a tax, which would fall under State List powers. The Supreme Court examined the purpose of the levy, the presence of a quid pro quo relationship, and the statutory scheme, concluding that the cess is a fee designed to fund specific welfare boards and is not merged into the general revenue. Relying on precedents such as Hingir Rampur Coal Co. Ltd. and Kesoram Industries, the Court held that the levy satisfies the criteria of a fee and is within Parliament's competence under Entry 97 of List I. Consequently, the Court dismissed the appeals, upholding the constitutional validity of the Acts.
Issues considered
- Whether the cess levied under the Building and Other Construction Workers Welfare Cess Act, 1996 is a fee or a tax.
- Whether Parliament has legislative competence to enact the Cess Act under Entry 97 of List I of the Seventh Schedule.
- Whether the levy violates constitutional provisions on taxation (Article 265) and the right to dignity (Article 21).
Legislation cited
- Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996s. 1(4), s. 2(i)(iii)
- Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Central Rules, 1998
- Building and Other Construction Workers Welfare Cess Act, 1996s. 14, s. 3, s. 4
- Building and Other Construction Workers Welfare Cess Rules, 1998
Subjects
Fee vs TaxConstruction Workers WelfareConstitutional validityLegislative competenceQuid pro quoArticle 21Article 265Parliamentary powerBuilding and Other Construction Workers Act
Judgment
[2011) 13 (ADDL.) S.C.R 214
A M/S. DEWAN CHAND BUILDERS & CONTRACTORS.
v.
UNION OF INDIA & ORS.
(Civil Appeal No. 1830 of 2008)
NOVEMBER 18, 2011
8
[D.K. JAIN AND ASOK KUMAR GANGULY, JJ.]
The Building and other Construction Workers Welfare
Gess Act, 1996 - The Building and other Construction
C Workers (Regulation of Employment and Conditions of
Service) Act, 1996 - Constitutional validity of - Gess levied
under the Scheme of the Gess Act - 'Fee' or 'Tax' - Held: Is
a fee and not a tax - Gess on the cost of construction incurred
by the employers on the building and other construction works
D is for ensuring sufficient funds for the Welfare Boards to
undertake social security schemes and welfare measures -
Funds, so collected is set apart for the benefit of the building
and construction workers; appropriated specifically for
performance of specified purpose and is not merged in the
E public revenue for the benefit of the general public - Nexus
between the cess and the purpose for which it is levied is
established, satisfying the element of quid pro quo in the
scheme - Thus, the said Acts are constitutionally valid and
within the competence of Parliament as levy under the
F impugned enactments is a fee referable to Entry 97 of List-I,
Seventh Schedule of the Constitution - Quid pro quo -
Maxims.
The Building and other Construction Workers
(Regulation of Employment and Conditions of Service) Act,
G 1996 - The Building and Other Construction Workers
(Regulation of Employment and Conditions of Service)
Central Rules, 1998 - The Building and Other Construction
Workers Welfare Gess Act, 1996 - The Building and Other
Construction Workers Welfare Gess Rules, 1998 - Object of
H 214
DEWAN CHAND BUILDERS & CONTRACTORS v. 215
UNION OF INDIA & ORS.
the enactments - Held: Is to regulate the employment and A
conditions of service of building and other construction
workers, traditionally exploited sections of the society and to
provide for their safety, health and other welfare measures.
Tax or Fee - Determination of the character of a levy - B
True test - Held: Is the primary object of the levy and the
essential purpose intended to be achieved.
Writ petitions were filed challenging the
constitutional validity of the Building and other
Construction Workers (Regulation of Employment and C
Conditions of Service) Act, 1996; the Building and Other
Construction Workers (Regulation of Employment and
Conditions of Service) Central Rules, 1998; the Building
and Other Construction Workers Welfare Cess Act, 1996;
and the Building and Other Construction Workers D
Welfare Cess Rules, 1998. The High Court held that the
said Acts and the Rules are constitutionally valid and
within the competence of the Parliament as the levy
under the impugned enactments is a "fee", referable to
Entry 97 of List-I of the Seventh Schedule of the E
Constitution. Aggrieved, appellant-contractor engaged in
building and other construction works, filed the instant
appeals.
The question which arose for consideration in the
instant appeals was whether the cess levied under the F
scheme of the Building and Other Construction Workers
Welfare Cess Act, 1996, was a 'fee' or a 'tax'.
Dismissing the appeal, the Court
G
HELD: 1.1 It is clear from the scheme of the Building
and other Construction Workers (Regulation of
Employment and Conditions of Service) Act, 1996 for
short the 'BOCW' Act that its sole aim is the welfare of
building and construction workers, directly relatable to
H
216 SUPREME COURT REPORTS (2011] 13 (ADDL.) S.C.R.
A their constitutionally recognised right to live with basic
human dignity, enshrined in Article 21 of the Constitution
of India. It envisages a network of authorities at the
Central and State levels to ensure that the benefit of the
legislation is made available to every building and
B construction worker, by constituting Welfare Boards and
clothing them with sufficient powers to ensure
enforcement of the primary purpose of the BOCW Act.
The means of generating revenues for making effective
the welfare provisions of the BOCW Act is through the
C Building and Other Construction Workers Welfare Cess
Act, 1996 (for short the CESS Act) [Paras 5 and 6] [223-
H; 224-A-C]
1.2 The Statement of Objects and Reasons to the
BOCW Act explained that it had been considered
D "necessary to levy a Cess on the cost of construction
incurred by the employers on the building and other
construction works for ensuring sufficient funds for the
Welfare Boards to undertake the social security Schemes
and welfare measures." Simultaneously with the
E enactment of the BOCW Act, the Parliament enacted the
Cess Act. The Statement of Objects and Reasons to the
Cess Act noted that the intention was to "provide for the
levy and collection of a Cess on the cost of construction
incurred by the employers for augmenting the resources
F of the Building and Other Construction Workers' Welfare
Boards constituted by the State Governments under the
Building and Other Construction Workers (Regulation of
Employment and Conditions of Service) Ordinance,
1995." [Para 7] [174-D-F]
G 1.3 It is manifest from the overarching schemes of the
BOCW Act, the Cess Act and the Rules made thereunder
that their sole object is to regulate the employment and
conditions of service of building and other construction
workers, traditionally exploited sections in the society
H and to provide for their safety, health and other welfare
DEWAN CHAND BUILDERS & CONTRACTORS v. 217
UNION OF INDIA & ORS.
measures. The BOCW Act and the Cess Act break new A
ground in that, the liability to pay Cess falls not only on
the owner of a building or establishment, but under
Section 2(i)(iii) of the BOCW Act "in relation to a building
or other construction work carried on by or through a
contractor, or by the employment of building workers B
supplied by a contractor, the contractor." The extension
of the liability on to the contractor is with a view to
ensure that, if for any reason it is not possible to collect
Cess from the owner of .the building at a stage
subsequent to the completion of the construction, it can c
be recovered from the contractor. The Cess Act and the
Cess Rules ensure that the Cess is collected at source
from the bills of the contractors to whom payments are
made by the owner. In short, the burden of Cess is
passed on from the owner to the contractor. [Para 8) [226- D
H; 227-A-D]
2.1 The true test to determine the character of a levy,
delineating 'tax' from 'fee' is the primary object of the levy
and the essential purpose intended to be achieved. There
is no doubt that the Statement of Objects and Reasons E
of the Cess Act, clearly spells out the essential purpose,
the enactment seeks to achieve i.e. to augment the
Welfare Fund under the BOCW Act. The levy of Cess on
the cost of construction incurred by the employers on the
building and other construction works is for ensuring F
sufficient funds for the Welfare Boards to undertake
social security schemes and welfare measures for
building and other construction workers. The fund, so
collected, is directed to specific ends spelt out in the
BOCW Act. Therefore, applying the aforesaid principle, it G
is clear that the said levy is a 'fee' and not 'tax'. The said
fund is set apart and appropriated specifically for the
performance of specified purpose; it is not merged in the
public revenues for the benefit of the general public and
as such the nexus between the Cess and the purpose for H
218 SUPREME. COURT'R-EPORTS (2011] 13 (ADDL.) S.C.R
A which it is levied gets established, satisfying the element
of quid pro quo in the scheme. With these features of the
Cess Act in view, the subject levy has to be construed
as 'fee' and not 'tax'. [Paras 18 and 19] [232-D-H; 233-A]
2.2 In the instant case, there does exist a reasonable
8
nexus between the payer of the Cess and the services
rendered for that industry and therefore, the said levy
cannot be assailed on the ground that being in the nature
of a 'tax', it was beyond the legislative competence of
Parliament. There is no infirmity in the conclusions
C arrived at by the High Court while upholding the validity
of the impugned Acts. The appeals are dismissed with
· costs, quantified at Rs. 25,000/- in each set of appeals.
[Paras 23 and 25] [235-8-D-E]
D Hingir Rampur Coal Co. Ltd. Vs. State of Orissa 1961
(2) SCR 537; State of WB. Vs. Kesoram Industries Ltd. & Ors.
(2004) 10 sec 201 - relied on.
The Commissioner, Hindu Religious Endowments.
E Madras Vs. Sri Lakshmindra Thirtha Swamiar of Sri Shirur
Mutt AIR 1954 SC 282; Kewal Krishan Puri and Anr. Vs. State
of Punjab and Anr.(1980) 1 SCC 416; Sreenivasa General
Traders and Ors. Vs. State of Andhra Pradesh and Ors. (1983)
4 SC 353 - referred to
F Case Law Reference:
AIR 1954 SC 282 Referred to Para 15
1961 (2) SCR 537 Referred to Para 15
G
(2004)10 sec 201 Referred to Para 17
(1980) 1 sec 416 Referred to Para 21
(1983) 4 SC 353 Referred to Para 22
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
H 1830 of 2008.
DEWAN CHAND BUILDERS & CONTRACTORS v. 219
UNION OF INDIA & ORS.
From the Judgment & Order dated 28.02.2007 of the High A
Court of Delhi at New Delhi in Civil Writ Petition No. 3620 of
2003.
WITH
C.A. Nos. 1831 & 1832 of 2008. B
S. Ganesh, R.P. Bhatt, Uday Joshi, Nar Hari Singh, Vikas
Mehta, R.C. Kaushik, Anupam Varma, Pukhrambam Ramesh
Kumar, Vishal Anand, Vishnu Sudarshan, S. Wasim A. Qadri,
Sadhna Sandhu, C.K. Sharma, Anil Katiyar, Aditya Sharma,
A.N. Terdal, D.S. Mahra for the appearing parties. c
The Judgment of the Court was delivered by
D.K. JAIN, J.: 1. These appeals, by special leave, arise
out of judgment and final order dated 28th February, 2007 in
W.P.(C)_ No.3620/2003 [connected with W.P.(C) Nos.216-17 D
of 2006); W.P.(C) Nos.7480-81/2006 & CM No. 5879/2006,
and W.P.(C) Nos.7485-87/2006 & CM No.5886/2006]
rendered by the High Court of Delhi, whereby, the said petitions
were dismissed with costs of '25000/-. The High Court has held
that The Building and Other Construction Workers (Regulation E
of Employment and Conditions of Service) Act, 1996 (for short
"the BOCW Act'); The Building and Other Construction Workers
(Regulation of Employment and Conditions of Service) Central
Rules, 1998, (for short the "1998 Central Rules"); The Building
and Other Construction Workers Welfare Cess Act, 1996 (for F
short "the Cess Act") and The Building and Other Construction
Workers Welfare Cess Rules, 1998 ( for short "the Cess
Rules") are constitutionally valid and within the competence of
the Parliament as the levy under the impugned enactments is
a "fee", referable to Entry 97 of List-I of the Seventh Schedule G
of the Constitution of India.
2. Since all the appeals involve a common pure question
of law, these are being disposed of by this common judgment.
For deciding the subject issue before us viz. constitutional
validity of the Cess Act, even a reference to the factual aspects H
220 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R
A is unnecessary, except to note that the appellant in these
appeals is a contractor, engaged in building and other
construction works in the National Capital Territory of Delhi.
3. However, before addressing the contentions advanced
B on behalf of the parties, it will be useful to survey the relevant
provisions of both the Acts and the Rules.
4. The background in which the BOCW Act was enacted,
is set out in the Statement of Objects and Reasons, appended
to the Bill preceding its enactment. To better appreciate the
C legislative intent, it would be instructive to refer to the following
extract from the Statement of Objects and Reasons :
"It is estimated that about 8.5. Million workers in the country
are engaged in building and other construction works.
D Building and other construction workers are one of the
most numerous and vulnerable segments of the
unorganized labour in India. The building and other
construction works are characterized by their inherent risk
to the life and limb of the workers. The work is also
characterized by its casual nature, temporary relationship
E
between employer and employee, uncertain working hours,
lack of basic amenities and inadequacy of welfare
facilities. In the absence of adequate statutory provisions,
the requisite information regarding the number and nature
of accidents is also not forthcoming. In the absence of
F such information, it is difficult to fix responsibility or to take
any corrective action.
Although the provisions of certain Central Acts are
applicable to the building and other construction workers
G yet a need has been felt for a comprehensive Central
Legislation for regulating their safety, health, welfare and
other conditions of service."
5. A fairly long preamble to the BOCW Act is again
H indicative of its purpose. It reads thus:
DEWAN CHAND BUILDERS & CONTRACTORS v. 221
UNION OF INDIA & ORS. [D.K. JAIN, J.]
"An Act to regulate the employment and conditions of A
service of building and other construction workers and to
provide for their safety, health and welfare measures and
for other matters connected therewith or incidental thereto."
Further, Section 1(4) of the BOCW Act makes it clear that B
it:
"...... applies to every establishment which employs, or had
employed on any day of the preceding twelve months, ten
or more building workers in any building or other
construction work.'' C
Some of the definitions under Section 2 of the BOCW Act,
relevant for these appeals are:
(b) "beneficiary" means a building worker registered D
under Section 12;
(c) "Board" means a Building and Other Construction
Workers' Welfare Board constituted under sub-
section (1) of Section 18;
E
(d)
(e) "building worker" means a person who is employed
to do any skilled, semi-skilled or unskilled, manual,
supervisory, technical or clerical work for hire or
reward, whether the terms of employment be F
expressed or implied, in connection with any
building or other construction work but does not
include any such pers.on-
(i) who is employed mainly in a managerial or G
administrative capacity; or
(ii) who, being employed in a supervisory
capacity, draws wages exceeding one
thousand six hundred rupees per mensem or H
. 222 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A exercises, either by the nature of the duties
attached to the office or by reason of the
powers vested in him, functions mainly of a
managerial nature;
B (f)
(g) "contractor" means a person who undertakes to
produce a given result for any establishment, other
than a mere supply of goods or articles of
manufacture, by the employment of building
C workers or who supplies building workers for any
work of the establishment; and includes a sub-
contractor;
(h)
D (i) "employer", in relation to an establishment, means
the owner thereof, and includes,-
(i) in relation to a building or other construction
work carried on by or under the authority of
E any department of the Government, directly
without any contractor, the authority specified
in this behalf,· or where no authority is
specified, the head of the department;
(ii) in relation to a building or othEir construction
F
work carried on by or on behalf of a local
authority or other establishment, directly
without any contractor, the chief executive
officer of that authority or establishment;
G (iii) in relation to a building or other construction
work .carried on by or through a contractor,
· or by the employment of building workers
supplied by a contractor, the contractor;
H
DEWAN CHAND BUILDERS & CONTRACTORS v. 223
UNION OF INDIA & ORS. [D.K. JAIN, J.]
supplied by a contractor, the contractor; A
Q)
(k) "Fund" means the Building and Other Construction
Workers' Welfare fund of a Board constituted under
sub-section (1) of Section 24." B
The scheme of the BOCW Act is that it empowers the
Central Government and the State Governments to constitute
Welfare Boards to provide and monitor social security
schemes and welfare measures for the benefit of the building c
and other construction workers. Section 7 requires every
employer in relation to an establishment to which the BOCW
Act applies to get such establishment registered. Section 10
makes this requirement mandatory and therefore, without such
registration, the employer of an establishment, to which the· D
BOCW Act applies, cannot employ building workers.
Chapter IV of the BOCW Act contains provisions
stipulating the registration of building workers as beneficiaries
and requires certain contributions to be made by such
beneficiary at such rate per month as may be specified by the E
State Government. Where the worker is unable to pay his
contribution due to any financial hardship, the Board can waive
the payment of such contribution for a period not exceeding
three months at a time.
F
Chapter V of the BOCW Act sets out the constitution and
functions of the Building and Other Construction Workers'
Welfare Boards. Section 24 sets out the provision for the
constitution of the Welfare Fund and its application.
Part Ill of Chapter VI of the BOCW Act contains provisions G
concerning the safety, health and welfare of the construction
workers generally and with reference to specific kinds of
activities.
It is thus, clear from the scheme of the BOCW Act that its H
224 SUPREME COURT REPORTS [2011] 13 (ADDL.) SC R
A sole aim is the welfare of building and construction workers.
directly relatable to their constitutionally recognised right to live
with basic human dignity, enshrined in Article 21 of the
Constitution of India. It envisages a network of authorities at the
Central and State levels to ensure that the benefit of the
B legislation is made available to every building and construction
worker, by constituting Welfare Boards and clothing them with
sufficient powers to ensure enforcement of the primary purpose
of the BOCW Act.
6. The means of generating revenues for making effective
C the welfare provisions of the BOCW Act is through the Cess
Act. which is questioned in these appeals as unconstitutional.
7. The Statement of Objects and Reasons to the BOCW
Act explained that it had been considered "necessary to levy a
D Gess on the cost of construction incurred by the employers on
the building and other construction works for ensuring sufficient
funds for the Welfare Boards to undertake the social security
Schemes and welfare measures." Simultaneously with the
enactment of the BOCW Act, the Parliament enacted the Gess
E Act. The Statement of Objects and Reasons to the Cess Act
noted that the intention was to "provide for the levy and collection
of a Gess on the cost of construction incurred by the employers
for augmenting the resources of the Building and Other
Construction Workers' Welfare Boards constituted by the State
F Governments under the Building and Other Construction
Workers (Regulation of Employment and Conditions of Service)
Ordinance. 1995."
Section 2(a) of the Gess Act defines the term "Board" to
mean the Board constituted by the State Government under
G sub-section (1) of Section 18 of the BOCW Act. Section 2(d)
of the Gess Act adopts all of the definitions contained in the
BOCW Act and reads as under:
"2(d) words and expressions used herein but not defined
H and defined in the Building and Other Construction
DEWAN CHAND BUILDERS & CONTRACTORS v. 225
UNION OF INDIA & ORS. [D.K. JAIN, J.]
Workers (Regulation of Employment and Conditions of A
Service) Act, 1996 shall have the meanings respectively
assigned to them in that Act."
Section 3 of the Cess Act, the charging Section, reads as
under: B
"3. Levy and collection of Cess: (1) There shall be levied
and collected a Cess for the purpose of the Building and
Other Construction Workers (Regulation of Employment
and Conditions of Service) Act, 1996, at such rate not
exceeding two per cent, but not less than one per cent of C
the cost of construction incurred by an employer, as the
Central Government may, by notification in the Official
Gazette, from time to time specify.
(2) The Cess levied under Sub-section (1) shall be D
collected from every employer in such manner and at such
time, including deduction at source in relation to a building
or other construction work of a Government or of a public
sector undertaking or advance collection through a local
authority where an approval of such building or other E
construction work by such local authority is required, as
may be prescribed.
(3) The proceeds of the Cess collected under Sub-section
(2) shall be paid by the local authority or the State
Government collecting the Cess to the Board after F
deducting the cost of collection of such Cess not exceeding
one per cent of the amount collected.
(4) Notwithstanding anything contained in Sub-section (1)
or Sub-section (2), the Cess leviable under this Act G
including payment of such Cess in advance may, subject
to final assessment to be made, be collected at a uniform
rate or rates as may be prescribed on the basis of the
quantum of the building or other construction work
involved." H
226 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A Section 4 of the Gess Act requires "every employer" to file
a return in the manner prescribed. Section 5 spells out the
process for the assessment of the Gess payable, while, Section
8 provides for interest payable in the event of a delayed
payment of Gess. Section 9 stipulates penalty for non-payment
B . of the Gess within the specified time. There is an internal
mechanism of appeal under Section 11 for an employer who
is aggrieved by the assessment order made under Section 5.
In exercise of the power conferred under Section 14 of the
Gess Act, the Central Government framed the Gess Rules. Rule
C 3 thereof defines the cost of construction for the purpose of levy
of Cess as under:
"3. Levy of Gess- For the purpose of levy of Cess under
Sub-section (1) of Section 3 of the Act, cost of construction
D shall include all expenditure incurred by an employer in
connection with the building or other construction work but
shall not include-
-cost of land;
E -any compensation paid or payable to a worker or
his kin under the Workmen's Compensation Act, 1923."
Rule 4 of the Cess Rules makes it mandatory for deduction
of Cess payable at the notified rates from the bills paid for the
F building and other construction work of a Government or a
Public Sector Undertaking. Rule 5 prescribes the manner in
which the proceeds of Cess collected under Rule 4 shall be
transferred by such Government office, Public Sector
Undertakings, local authority, or Cess collector, to the Board.
G The powers of the Assessing Officer and the Board of
Assessment are enumerated in Rules 7 to 14 of the Cess
Rules.
8. It is manifest from the overarching schemes of the
BOCW Act, the Cess Act and the Rules made thereunder that
H their sole object is to regulate the employment and conditions
DEWAN CHAND BUILDERS & CONTRACTORS v. 227
UNION OF INDIA & ORS. [D.K. JAIN, J.]
of service of building and other construction workers, A
traditionally exploited sections in the society and to provide for
their safety, health and other welfare measures. The BOCW Act
and the Cess Act break new ground in that, the liability to pay
Cess falls not only on the owner of a building or establishment,
but under Section 2(i)(iii) of the BOCW Act "in relation to a B
building or other construction work carried on by or through a
contractor, or by the employment of building workers supplied
by a contractor, the contractor." The extension of the liability on
to the contractor is with a view to ensure that, if for any reason
it is not possible to collect Gess from the owner of the building c
at a stage subsequent to the completion of the construction, it
can be recovered from the contractor. The Cess Act and the
Cess Rules ensure that the Cess is collected at source from
the bills of the contractors to whom payments are made by the
owner. In short, the burden of Cess is passed on from the owner D
to the contractor.
9. Although both the statutes were enacted in 1996, the
·central Government in exercise of its powers under Section 62
of the BOCW Act notified the Delhi Building and Other
Construction Workers (RE&CS), Rules, 2002 (for short "the E
Delhi Rules") vide Notification No. DLC/CLA/BCW/01/19 dated
10th January, 2002. Accordingly, Government of NCT of Delhi
constituted the Delhi Building and Other Construction Workers
Welfare Board vide Notification No. DLC/CLA/BCW/02/596
dated 2nd September, 2002. Thus, the Gess Act and the Gess F
Rules are operative in the whole of NCT of Delhi w.e.f. January,
2002.
10. As noted above, the principal ground for challenge to
the validity of the Gess Act is the lack of legislative competence G
of the Parliament. Mr. Uday Joshi, learned counsel appearing
on behalf of the appellant, strenuously urged that the impost
levied by the Gess Act is a compulsory and involuntary exaction,
made for a public purpose without reference to any special
benefit for the payer of the Gess. It was argued that there exists H
228 SUPREME COURT REPORTS [2011) 13 (ADDL) S C.R
A no co-relationship between the payee of the Cess and the
services rendered and therefore, the levy is in effect a tax. It
was submitted that the maintenance of a separate corpus, i.e.,
Building and Other Construction Workers Welfare Fund, which
also vests in the State, is a cloak to cover the true character of
B the levy, which is to be utilized for the benefit of the building
worker, is in fact a 'tax.'
11. Asserting that the Cess Act in fact provides for the levy
of tax although it is termed as Cess, it was contended that no
tax can be levied or collected in terms of Article 265 of the
c Constitution of lndi~. except by authority of law. In other words,
the power to make a legislation imposing a tax has to be traced
with reference to a specific Entry in the Lists in the Seventh
Schedule to the Constitution. According to the learned counsel,
the subject matter of the present statute i.e. the Cess Act being
D fully covered by Entry 49 in List II (State List) pertaining to taxes
on "lands and buildings", the powP.r to levy Cess would not be
available to the Parliament, based on the assumption of
residuary power.
E 12. Per contra, Mr. RP. Bhatt, learned senior counsel
appearing on behalf of the respondents, defending the
constitutional validity of the subject legislation, stressed that the
Cess Act is within the legislative competence of Parliament with
reference to Entry 97 of List I in the Seventh Schedule. In the
F written submissions filed on behalf of the respondents, it is
pleaded that the charging Section in the Cess Act makes it
clear that the levy is attracted when there is an activity of
building and construction. The collection of cess on the cost of
construction is for enhancing the resources of the Building &
G other Construction Workers' Welfare Boards constituted under
the BOCW Act. The Cess so collected is directed to a specific
end spelt out in the BOCW Act itself; it is set apart for the benefit
of the building and construction workers; appropriated
specifically for the performance of such welfare work and is not
merged in the public revenues for the benefit of the general
H public.
DEWAN CHAND BUILDERS & CONTRACTORS v. 229
UNION OF INDIA & ORS. [D.K. JAIN, J.)
13. It is evident from the contentions raised on behalf of A
the appellant that there is a two pronged attack on the legislative
competence of the Parliament to enact the Cess Act: (i) it is a
'tax' and not a 'cess' because no element of quid pro quo exists
between the payer of the cess and the beneficiary and (ii) if it
is a 'tax' then it is a tax on "lands and buildings" falling within B
the ambit of Entry 49 List II (the State List) of the Seventh
Schedule, ousting the legislative competence of the Parliament.
14. Thus, the core issue arising for consideration is
whether the cess levied under the scheme of the impugned C
Cess Act is a 'fee' or a 'tax'. Before embarking on an evaluation
based on the said submissions, it would be apposite to briefly
examine the concept of 'tax' and 'fee'.
15. The question whether a particular statutory impost is
a 'tax' or 'fee' has arisen as a challenge in several cases D
before this Court, which in turn necessitated the demarcation
between the concepts of 'Cess', 'tax' and 'fee'. The
characteristics of a fee, as distinct from tax, were explained as
early as in The Commissioner, Hindu Religious Endowments,
Madras Vs. Sri Lakshmindra Thirtha Swamiar of Sri Shirur E
Mutt (generally referred to as the 'Shirur Mutt's' Case'). The
ratio of this decision has been consistently followed as a locus
classicus in subsequent decisions dealing with the concept of
'fee' and 'tax'. The Constitution Bench of this Court in Hingir
Rampur Coal Co. Ltd. Vs. State of Orissa2 was faced with the F
challenge to the constitutional validity of the Orissa Mining
Areas Development Fund Act, 1952, levying Cess on, the
petitioner's colliery. The Bench explained different features of
a 'tax', a 'fee' and 'cess' in the following passage:
"The neat and terse definition of Tax which has been given G
by Latham, C.J., in Matthews v. Chicory Marketing
Board (1938) 60 C.L.R. 263 is often cited as a classic on
1. AIR 1954 SC 282.
2 1961 (2) SCR 537. H
230 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A this subject. "A Tax'', said Latham, C.J., "is a compulsory
exaction of money by public authority for public purposes
enforceable by law, and is not payment for services
rendered". In bringing out the essential features of a tax
this definition also assists in distinguishing a tax from a
B Fee. It is true that between a tax and a fee there is no
generic difference. Both are compulsory exactions of
money by public authorities; but whereas a tax is imposed
for public purposes and is not, and need not, be supported
by any consideration of service rendered in return, a fee
c is levied essentially for services rendered and as such
there is an element of quid pro quo between the person
who pays the fee and the public authority which imposes
it. If specific services are rendered to a specific area or
to a specific class of persons or trade or business in any
local area, and as a condition precedent for the said
D
services or in return for them cess is levied against the
said area or the said class of persons or trade or
business the cess is distinguishable from a tax and is
described as a fee. Tax recovered by public authority
invariably goes into the consolidated fund which ultimately
E is utilised for all public purposes, whereas a cess levied
by way of Fee is not intended to be, and does not become,
a part of the consolidated fund. It is earmarked and set
apart for the purpose of services for which it is levied."
F (Emphasis supplied by us)
It was further held that,
"It is true that when the Legislature levies a fee for
rendering specific services to a specified area or to a
G specified class of persons or trade or business, in the last
analysis such services may indirectly form part of services
to the public in general. If the special service rendered is
distinctly and primarily meant for the benefit of a specified
class or area the fact that in benefiting the specified class
H or area the State as a whole may ultimately and indirectly
DEWAN CHAND BUILDERS & CONTRACTORS v. 231
UNION OF !NOIA & ORS. [D.K. JAIN, J.]
be benefited would not detract from the character of the A
levy .as a fee. Where, however, the specific service is
indistinguishable from public service, and in essence is
directly a part of it, different considerations may arise. In
such a case it is necessary to enquire, what, is the primary
object of the levy and the essential purpose which it is B
intended to achieve. Its primary object and the essential
purpose must be distinguished from its ultimate or
incidental results or consequences. That is the true test
in determining the character of the levy."
(Emphasis supplied by us) C
16. On the basis of the above considerations, this Court
in the aforementioned case, examined the scheme of the Act
impugned in that case in depth and opined that the primary and
the principal object of the Act was to develop the mineral areas D
in the State and to assist in providing more efficient and
extended exploitation of its mineral wealth. The Cess levied did
not become a part of the consolidated fund and was not subject
to an appropriation in that behalf. It went into a special fund
earmarked for carrying out the purpose of the Act and thus, its E
existence established a correlation between the Cess and the
purpose for which it was levied, satisfying the element of quid
pro quo in the scheme. These features of the Act impressed
upon the levy the character of a 'fee' as distinct from a 'tax'.
17. Recently in State of WB. Vs. Kesoram Industries Ltd.
F
& Ors. 3, the Constitution Bench of this Court, was faced with a
challenge to the Constitutional validity of the levy of Cesses on
coal-bearing lands; tea plantation lands and on removal of
bricks earth. Relying on the decision in Hingir Rampur Coal
Co. Ltd (supra), speaking for the majority, R.C. Lahoti, J. (as G
His Lordship then was), explained the distinction between the
terms 'tax' and 'fee' in the following words: (SCC HN)
"The term cess is commonly employed to connote a Tax
3. (2004) 10 sec 201. H
232 SUPREME COURT REPORTS [2011) 13 (ADDL) S.C.R
A with a purpose or a tax allocated to a particular thing.
However, it also means an assessment or levy. Depending
on the context and purpose of levy, cess may not be a tax;
it may be a fee or fee as well. It is not necessary that the
services rendered from out of the Fee collected should be
B directly in proportion with the amount of Fee collected. It
is equally not necessary that the services rendered by the
Fee collected should remain confined to the person from
whom the fee has been collected. Availability of indirect
benefit and a general nexus between the persons bearing
c the burden of levy of fee and the services rendered out of
the fee collected is enough to uphold the validity of the fee
charged."
18. In the light of the tests laid down in Hingir Rampur
(supra) and followed in Kesoram Industries (supra), it is
D manifest that the true test to determine the character of a levy,
delineating 'tax' from 'fee' is the primary object of the levy and
the essential purpose intended to be achieved.
19. There is no doubt in our mind that the Statement of
E Objects and Reasons of the Cess Act, clearly spells out the
essential purpose, the enactment seeks to achieve i.e. to
augment the Welfare Fund under the BOCW Act. The levy of
Cess on the cost of construction incurred by the employers on
the building and other construction works is for ensuring
F sufficient funds for the Welfare Boards to undertake social
security schemes and welfare measures for building and other
construction workers. The fund, so collected, is directed to
specific ends spelt out in the BOCW Act. Therefore, applying
the principle laid down in the aforesaid decisions of this Court,
G it is clear that the said levy is a 'fee' and not 'tax'. The said fund
is set apart and appropriated specifically for the performance
of specified purpose; it is not merged in the public revenues
for the benefit of the general public and as such the nexus
between the Cess and the purpose for which it is levied gets
established, satisfying the element of quid pro quo in the
H
DEWAN CHAND BUILDERS & CONTRACTORS v. 233
UNION OF INDIA & ORS. [D.K. JAIN, J.]
scheme. With these features of the Gess Act in view, the A
subject levy has to be construed as 'fee' and not a 'tax'. Thus,
we uphold and affirm the finding of the High Court on the issue.
20. At this juncture, we may also deal with the argument
of learned counsel appearing for the appellant that, since there B
exists no 'quid pro quo' between the payer (contractors) of the
fee and the ultimate beneficiary (workers) of the services
rendered, the said levy is in fact a tax. While it is true that 'quid
pro quo' is one of the determining factors that sets apart a 'tax'
from a 'fee' but the concept of quid pro quo requires to be C
understood in its proper perspective.
21. A Constitution bench of this Court in Kewal Krishan
Puri and Anr. Vs. State of Punjab and Anr. 4, while dealing with
provisions of the Punjab Agricultural Produce Markets Act,
1961, held that the element of quid pro quo must exist between D
the payer of the Fee and the special services rendered. Taking
note of the well recognized distinct connotations between 'tax'
and 'fee', the Bench observed that a 'fee' is a charge for special
service rendered to individuals by the Governmental agency
and therefore, for levy of fee an element of quid pro quo for the E
services rendered was necessary; service rendered does not
mean any personal or domestic service and it meant service
in relation to the transaction, property or the institution in respect
of which the fee is paid. A significant principle deduced in the
said judgment was that the element of quid pro quo may not be F
possible, or even necessary, to be established with arithmetical
exactitude but even broadly and reasonably it must be
established, with some amount of certainty, reasonableness or
preponderance of probability that quite a substantial portion of
the amount of fee realized is spent for the special benefit of its G
payers. Each case has to be judged from a reasonable and
practical point of view for finding an element of quid pro quo.
22. In Sreenivasa General Traders and Ors. Vs. State of
4. 1sao (1) sec 416. H
234 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A Andhra Pradesh and Ors. 5, a Bench of three learned Judges,
analysed, in great detail, the principles culled out in Kewal
Krishan Puri (supra). Opining that the observation made in the
said decision, seeking to quantify the extent of correlation
between the amount of fee collected and the cost of rendition
B of service, namely: "At least a good and substantial portion of
the amount collected on account of fees, may be in
neighbourhood of two-thirds or three-fourths, must be shown
with reasonable certainty as being spent for rendering services
in the market to the payer of fee" appeared to be an obiter, the
c Court echoed the following views insofar as the actual quid pro
quo between the services rendered and payer of the fee was
concerned:
"The traditional view that there must be actual quid pro
quo for a fee has undergone a sea change in the
D subsequent decisions. The distinction between a tax and
a fee lies primarily in the fact that a tax is levied as part of
a common burden, while a fee is for payment of a specific
benefit or privilege although the special advantage is
secondary to the primary motive of regulation in public
E 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, correlation between
the fee collected and the service intended to be rendered.
In determining whether a levy is a fee, the true test must
F be whether its primary and essential purpose is to render
specific services to a specified area of 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
G and large" a quid pro quo for the services rendered.
However, correlationship between the levy and the
services rendered (sic or) expected is one of general
character and not of mathematical exactitude. All that is
necessary is that there should be a "reasonable
H 5. (1983) 4 sec 353.
DEWAN CHAND BUILDERS & CONTRACTORS v. 235
UNION OF INDIA & ORS. [D.K. JAIN, J.]
relationship" between the levy of the Fee and the services A
rendered."
(Emphasis supplied)
23. Viewed from this perspective, the inevitable conclusion
is that in the instant case there does exist a reasonable nexus B
between the payer of the Cess and the services rendered for
that industry and therefore, the said levy cannot be assailed on
the ground that being in the nature of a 'tax', it was beyond the
legislative competence of Parliament.
c
24. Having reached the conclusion that the levy by the
impugned Act is in effect a 'fee' and not a 'tax', we deem it
unnecessary to deal with the second limb of the challenge, viz.
the impost is a tax on "lands and buildings", covered by Entry
49 in List II of the Seventh Schedule. D
25. In view of the aforegoing discussion, we do not find
any infirmity in the conclusions arrived at by the High Court while
upholding the validity of the impugned Acts. All the appeals,
being bereft of any merit are dismissed with costs, quantified
at Rs. 25,000/- in each set of appeals. E
N.J. Appeals dismissed.
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