Holding

Rule 17 is ultra vires the Jammu and Kashmir Excise Act, constitutes a tax not a fee, and must be struck down.

Summary

The Supreme Court examined whether Rule 17 of the Jammu and Kashmir Distillery Rules, 1946—requiring licensees to pay 50% of the salaries of excise officers posted at their distilleries—constituted a valid fee or an impermissible tax. Mis. Gupta Modern Breweries contended that the rule exceeded the rule‑making power under Section 25 of the Jammu and Kashmir Excise Act, 1901, suffered from excessive delegation, lacked a quid‑pro‑quo between services rendered and charge, and violated Articles 14 and 265 of the Constitution. The Court held that the rule had no statutory backing, was in fact a tax, and its imposition by a rule was ultra vires the Act and unconstitutional. Accordingly, the rule was struck down and the State was ordered to refund the amounts collected with statutory interest. The appeal was allowed and the orders of the lower courts were set aside.

Issues considered

Whether Rule 17 is within the rule‑making power granted by Section 25 of the Jammu and Kashmir Excise Act, 1901
Whether the charge under Rule 17 is a fee or a tax and whether it can be imposed by a rule under Article 265
Whether Rule 17 violates the constitutional guarantee against arbitrariness under Article 14
Whether there is a quid pro quo between the services rendered by the excise department and the charge imposed
Whether the decision striking down Rule 17 should operate prospectively or retrospectively with respect to refunds

Legislation cited

Constitution of Indias. 110(2), s. 14, s. 19(1)(g), s. 199(2), s. 265

Subjects

TaxFeeExciseArticle 265Article 14Delegated legislationUltra viresJammu and Kashmir Excise ActRule 17Refund

Judgment

MIS. GUPTA MODERN BREWERIES A
v.
STATE OF JAMMU & KASHMIR & ORS.

APRIL 19, 2007

[H.K. SEMA AND V.S. SIRPURKAR, JJ.] B

Taxation:

Jammu and Kashmir Distillery Rules, 1946-Rule 17-Stipulating that
expenditure on salary of excise department posted at the appellant's distillery C
to be recovered from the appellant-Reasonableness of-Held: Unreasonable
and arbitrary-Excise department rendering services to ensure that the
denaturing of spirit is done properly by manufacturer and also for specifically
seeing that the denatured spirit does not go out of hands, either of distillery
owner or retail seller-As there is no correlation between expenditure incurred D
by government and fees sought to be charged under Rule 17, Provision
thereof is tax and not fee-Since Rule 17 does not have statutory backing,
imposition thereunder is impermissible-Jammu and Kashmir Excise Act,
1901-s.25.

Tax and fee-Distinction between-Discussed E
Constitution of India, 1950: Art.265-Tax-lmposition of-Held, can
be only by way of legislation and not by way of bye laws and rules.

On 5.9.1973, an order was passed by the Excise Commissioner under
Rule 17 of the Jammu and Kashmir Distillery Rules, 1946 that charges on F
account of salary of Excise Department staff were to be recovered from
management at 50% of total expenses. The Excise Commissioner made a
demand for payment of salaries of Excise personnel posted at appellant's
distillery. The appellant unsuccessfully filed writ petition before High Court.

In appeal to this Court, appellant contended Rule 17 does not have the G
statutory backing; that the Rule is in excess of the rule making power in
Section 25 of the Jammu and Kashmir Excise Act, 1901 and suffers from
excessive delegation; that Rule seeks to get breweries to pay for the salaries
and costs of the government officials involved in revenue collection and it is
343 H
344 SUPREME COURT REPORTS [2007] 5 S.C.R.

A manifestly unjust and arbitrary; that Rule imposes a tax not a fee without the '
authority of law and, therefore, contrary to Article 265 of the Constitution;
and lastly that the Rule is unreasonable and arbitrary and hence contrary to
Article 14 of the Constitution.

Allowing the appeal, the Court
B
HELD: 1. It is now well settled principle of law that the regulatory powers
are generally to be widely construed. However, empowering the State lo-

Government to impose taxes, fees or duties and such demands must be
authorized by the Statute and must contain sufficient guidelines.
(Para 22) [350-H)
c
2. Under the Constitutional scheme, taxes are distinct from fees. Excise
is a form of tax. It is self-evident from various constitutional provisions: (i)
The concept of a Money Bill in Articles 110(2) and 199(2) clearly postulate
that taxes should be voted on by Parliament. (ii) The taxes and excise in the
Union List are to be found in List I, Entries 82-92B; and (iii) The taxes in the
D
Stafe List are to be found in List II, Entries 42-63 (iv) Excise is specifically
dealt with in List I, Entry 84 and List II, Entry 51(v) List II, Entry 51 specifically ~
deals with excise on alcohol (vi) Fees are specifically dealt with in both these
lists (List I, Entry 96 and List II, Entry 66) and are a distinct concept that has
to be voted by Parliament. Thus, taxes, excise and fees must be voted by
E Parliament. Tax under Article 265 can only be imposed by way of legislation
and it is impermissible to be imposed by way of bye-laws or rules.
[Paras 33 and 34) [354-G-H; 355-A-C, DJ

Government ofAndhra Pradesh v. Mis Anabeshahi Wine and Distilleries
Pvt. Ltd., [1988) 2 SCC 25, held inapplicable.
F
Mis Gujchem Distillers India Ltd. v. State of Gujarat, [1992) 2 SCC 399,
distinguished.

Corporation of Calcutta v. Liberty Cinema, [1965) 2 SCR 477, relied
on.
G Khoday Distilleries Ltd. v. State of Karnataka, (1995) 1 SCC 574;
Khoday Distillers Ltd. v. State of Karnataka, (1996] 10 SCC 304; A.N. I>
Parasuraman v. State of Tamil Nadu, [1989) 4 SCC 683; Kunj Behari Lal
Butai/ v. State of H.P., [2000] 3 SCC 40; Devi Das Gopal Krishnan v. State of
Punjab, [1967] 3 SCR 557; Indian Mica Micanite Industries v. The State of
H Bihar, [1971) 2 SCC 236; Commissioner of Central Excise v. Chhata Sugar
GUPTA MODERN BREWERIES v. STATE OF JAMMU & KASHMIR 345
Co. Ltd (2004) 3 SCC 466 and Mis Lilasons Breweries (Pvt.) Ltd. v. State of A
Madhya Pradesh, (19921 3 SCC 293, referred to.

3.1. The respondents were rendering service by deputing excise staff
not only for the purpose of ensuring that the denaturing of spirit is done
properly by the manufacturer but also for the purpose of specifically seeing
that the de-natured spirit does not go out of the hands, either of the distillery B
owner or a retail seller or any licensee or permit holder contrary to law. It is,
•. ..J therefore, clear that there was no co-relationship between the expenses
incurred by the Government and the fee sought to be raised under Rule 17.
There is no quid pro quo between the fee charged and the services rendered.
(Para 351 (355-F) C

State of Punjab v. Devans Modern Beweries Ltd., (20041 11 SCC 26;
K.T. Moopil Nair v. State of Kera/a, (1961) 3 SCR 77; Ahmedabad Urban
Development Authority v. Sharadkumar Jayantikumar Pasawal/a, [1992) 3
SCC 285; Hindustan Times v. State of UP., (2003) 1SCC591; Bimal Chandra
Banerjee v. State of MP., (1970) 2 SCC 467 and The Commissioner, Hindu D
Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri
Shirur Mutt, (1954) SCR 1005, relied on.

3.2. Rule 17 has no statutory backing and it is in excess of the Act. It
is manifestly unjust and arbitrary. Provision of Rule 17 is clearly a tax and
not a fee. Imposition of tax or fee on the citizens for the services that the E
State renders to itself and not the tax payers is clearly impermissible,
arbitrary and unjustifiable. (Para 35) (356-D-E)

Federation of Mining Associations of Rajasthan v. State of Rajasthan,
(1992( Supp. 2 SCC 239, held inapplicable.
~- F
4. The respondents are directed to refund the payment so made in the
interregnum with interest calculated at the statutory rate. [Para 39) (357-CI

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2700-2701 of
2000.
G
,, From the Judgment and Order dated 11.02.2000 of the High Court of
Jammu & Kashmir at Jammu in LPA No. 159of1990 and OWP No. 549of1981.

WITH
Civil Appeal No. 2702 of2000. H
346 SUPREME COURT REPORTS (2007] 5 S.C.R.

A Dr. Rajeev Dhawan, E.C. Agrawala, Mahesh Agarwal, Rishi Agrawala
and Gaurav Goel for the Appellant.

S.R. Singh, Anis Suhrawardy and S. Mehadi Imam for the Respondents.

The Judgment of the Court was delivered by
B
H.K. SEMA, J. I. These appeals have a chequered history. We shall,
however, notice few facts leading to the filing of the present appeals, strictly
for the purpose of disposal of these appeals.
,.
2. The Jammu and Kashmir Excise Act, 1901 (hereinafter the Act) was
c passed on 4.12.190 I.

3. The Jammu and Kashmir Distillery Rules 1946 (hereinafter the Rules)
were framed on 29.6.1946.

4. On 5.9.1973, an order was passed by the Excise Commissioner under
D Rule 17 of the Rules that charges on account of salary of Excise Department
staff were to be recovered from management at 50% of total expenses. This
order was, however, withdrawn on l.4.ICJ74. On 13.8.1981, the Excise f
Commissioner, withdrew the exemption granted by an order dated 5-9-1973. By
an order dated 10.9.1981, the Excise Commissioner made a demand for payment
of salaries of Excise personnel posted at appellant's distillery. Notice of
E demand was issued on 6.10.1988. On 28.9.1981, the appellant filed first OWP
No. 549 of 1981 challenging Rule 17 as being ultra vires the Act. The High
Court stayed the recovery proceedings. The appellant has also filed Writ
Petition No. 1208 of 1989 challenging the demand made on October 6, 1989
on account of staff charges, which was dismissed by the learned Single Judge
·+
F by its order dated 27th September, 1990. Aggrieved thereby, the appellant
preferred LPA (W) No.159 of 1990, which was dismissed by the Division
Bench by the impugned order. Hence the present appeals.

5. Section 25 of the Act empowers the Government to frame rules. The
relevant portion for the present purpose reads:-
G
"25. The Government may from time to tim~ frame rules- .>

.............................
.............................

H (g) for the inspection and supervision of stills, distilleries, private
GUPTA MODERN BREWERIES v. STATE OF JAMMU & KASHMIR [H.K. SEMA, J.] 347

warehouses and breweries; A
(o) generally to carry out the provisions of this Act or of any
other law for the time being in force and relating to the Excise revenue."

6. Rule 17 of the Rules is claimed to stream from Section 25, which has
been assailed as ultra vires the Act reads:- B
"The licensee shall, if required by the Excise and Taxation Commissioner,
make into the Government treasury such payment as may be demanded
on account of the salaries of the Government excise establishment
posted to the distillery, but he shall not make any direct payment to
any member of such establishment." c
7. The validity of the Rules has been challenged before the learned
Single Judge, before the LPA Bench and before this Court on the grounds
that (a) Rule does not have the statutory backing; (b) Rule is in excess of the
rule making power in Section 25 of the Act and suffers from excessive
delegation; (c) Rule seeks to get breweries to pay for the salaries and costs D
of the government officials involved in revenue collection and it is manifestly
unjust and arbitrary; (d) Rule imposes a tax not a fee without the authority
of law and, therefore, contrary to Article 265 of the Constitution; and lastly
(e) The Rule is unreasonable and arbitrary and hence contrary to Article 14
of the Constitution.
E
8. Before we proceed further to answer the aforesaid questions, we may
at this stage, point out that this Court held that a trade in liquor is res extra
commercium and, therefore, not entitled to the protection of Article 19(1)(g),
but any licensing, regulation or imposition in respect of the liquor trade
cannot be arbitrary and discriminatory. p
9. In Khoday Distilleries Ltd. v. State of Karnataka, [1995] 1 SCC 574,
it is said that the State can adopt any mode of selling the licenses for trade
or business with a view to maximize its revenue so long as the method
adopted is not discriminatory."
G
10. In Khoday Distilleries Ltd. v. State ofKarnataka, [1996] 10 SCC 304,
it is said in paragraph 13:

" .....Although the protection of Article 19(1)(g) may not be available
to the appellants, the rules must, undoubtedly, satisfy the test of
Article 14, which is a guarantee against arbitrary action. However, H
348 SUPREME COURT REPORTS [2007] 5 S.C.R.

A one must bear in mind that what is being challenged here under
Article 14 is not executive action but delegated legislation. The tests
of arbitrary action which apply to executive actions do not necessarily
apply to delegated legislation. In order that delegated legislation can
be struck down, such legislation must be manifestly arbitrary; a law
which could not be reasonably expected to emanate from an authority
B delegated with the lawmaking power"

(emphasis supplied)

It is, therefore, clear that even in dealing with the liquor trade, the government
cannot be manifestly unjust or arbitrary.
c
11. Dr. Rajeev Dhawan, learned senior counsel, appearing for the
appellants, contended that the concept of reasonableness applicable to
delegated legislation and more generally to actions under Articles 14 and 21
is that the action should not be manifestly unjust and arbitrary. According
D to him, Rule 17 suffers from excessive delegation and is manifestly unjust and
arbitrary.

12. Per contra Mr.S.R. Singh, learned senior counsel, appearing for the ~
respondents, contended that such payment postulated under Rule 17 is neither
fee nor tax but such payment is being demanded in lieu of for parting with
E the exclusive right and privileges granted to the appellant for the services
rendered to the appellant.

13. We may at this stage notice that both the learned Single Judge and
the Division Bench erroneously relied on the decision rendered by this Court
in Government of Andhra Pradesh v. Mis Anabeshahi Wine and Distilleries
F Pvt. Ltd., [ 1988] 2 sec 25. In Anabeshahi 's case (supra) the fee was imposed
by Section 28(2) of the A.P. Excise Act, 1968 itself. Section 28 reads as under:-

28. Form and conditions of licence etc.: (I) Every permit issued or
licence granted under this Act shall be issued or granted on payment
G of such fees, for such period, subject to such restrictions and
conditions, and shall be in such form and shall contain such particulars,
as may be prescribed.

(2) The conditions prescribed under Sub-section (I) may include
provisions of accommodation by the licensee to excise officers at the
H licenced premises on the payment of rent or other charges for such
GUPTA MODERN BREWERIES v. STATE OF JAMMU & KASHMIR [H.K. SEMA,J.] 349
accommodation at or near the licensed premises and the payment of A
') the costs, charges and expenses (including the salaries and allowances
of the excise officers) which the Government may incur in connection
__,
with the supervision to ensure compliance with the provisions of this
Act, the rules made thereunder and the licence.

14. Similarly, Rule 15 was framed consistent with Section 28 of the Act. B
Rule 15 reads:

-< 15. (a) The licensee shall, if required by the Commissioner provide
-<
within the premises of the distillery or at such site as may be approved
by the Commissioner buildings for the office and residence of the
staff posted under Rule 14. c
(b) The licensee shall, if required by the Commissioner, deposit into
the Government Treasury such amount as may be demanded towards
the salaries and allowances of the Government establishment posted
at the distillery, but he shall not make any direct payment to any
member of such establishment. D

15. A perusal of the aforesaid provisions, it clearly appears that Sections
-)
and Rules provides that the salary and allowances described as establishment
charges which were sought to be recovered as such under the impugned
notice of demand.
E
16. Admittedly, in the present case there is no such provision in the Act
or Rules. Therefore, the decision in Anabeshahi 's case (supra) is not applicable
in the facts of the case at hand.

17. In the case of Mis Gujchem Distillers India Ltd. v. State of Gujarat,
..,.. [1992] 2 SCC 399, the levy of supervisory charges is traceable to Section 58- F
A of the Bombay Prohibition Act of 1949. There is no such provision in the
J & K Excise Act.

18. Dr. Dhawan referring to Rule 17 contended that it suffers from
excessive delegation, as it is manifestly unjust and arbitrary. In this connection
G
he contended that Section 25(o) required that the rules should seek to carry

-· ... out the provisions of the Act or of any other law relating to the excise
revenue. It is his say, that a disjunctive reading would be violative of both
the grammar and the intent if the word 'generally' is given too wide an
interpretation and the word 'and' is read as 'or'. Section 25(o) would become
wholly and completely unguided and applicable to just about anything. The H
350 SUPJLME COURT REPORTS [2007) 5 S.C.R.

A restraining element in Section 25(o) is the fact that it must relate to "excise
revenue".

19. Excise revenue is defined in Section 3 of the Act. It reads:

'"Excise revenue' means revenue derived or derivable from any duty,
B fee, tax, fine or confiscation imposed or ordered under the provisions
of this Act...."

20. According to Dr. Dhawan, the term fee as defined in Section 3 is not
the kind of fee that falls under Rule 17 and therefore, the fee for the purpose
of Rule 17 is not authorised by the Act. He also referred to various sections
C under the Act where the terms duty and fee are mentioned and their collection
is specifically authorised:
Section 5(a) Payment of duty for import
Section 6 Pa~ment of fee or duty for export

Sections 8-10 Permits for transport
D
Sections 11-A 12-A Licenses for possession
Section 16 Imposition of duty
Section 17(d) Imposition of duty by fees for
manufacture
E Section 18 Framing of duties
Section 22(a) Fee or duty for licenses
Section 24 Recovery of duties
Section 24·8 Refund of duty, tax or fee

F 21. He, therefore, contended that when the legislation intended the Act
itself indicates where a tee or duty or tax may be charged. He, therefore,
argued that to include in Section 25(o) the power to impose any independent
fee not authorised by statute, makes Section 25( o) overbroad and without any
guidelines whatsoever. He further contended that Rule 17 is also traceable to
G Section 25(g), which deals with inspection and supervision of distilleries,
private warehouses and breweries and does not contain any provision for the
imposition of a duty, tax or fee.
22. It is now well settled principle of law that the regulatory powers are
generally to be widely construed. However, empowering the State Government
to impose taxes, fees or duties and such demands must be authorised by the
·H Statute and must contain sufficient guidelines.
GUPTA MODERN BREWERIES v. STATE OF JAMMU&KASHMIR[H.K. SEMA,J.] 351
23. In the case of A.N. Parasuraman v. State of Tamil Nadu, (1989] 4 A
~
. A sec 683, this Court pointed out as under:-
"The point dealing with legislative delegation has been considered in
numerous cases of this Court, and it is not necessary to discuss this
aspect at length. It is well established that determination of legislative
policy and formulation of rule of conduct are essential legislative B
functions which cannot be delegated. What is permissible is to leave
to the delegated authority the task of implementing the object of the
Act after the legislature lays down adequate guidelines for the
.... exercise of power. "

(emphasis supplied) C
24. In the case of Kunj Behari Lal Butail v. State of H.P., [2000] 3 SCC
40, it was pointed out in Paragraph I4 as under:

"14. We are also of the opinion that a delegated power to legislate by
making rules for carrying out the purposes of the Act" is a general D
delegation without, laying down any guidelines; it cannot be so
exercised as to bring into existence substantive rights or obligations
-) or disabilities not contemplated by the provisions of the Act itself'. ,

25. In the case of Devi Das Gopal Krishnan v. State of Punjab; [1967]
3 SCR 557, it was pointed out at 565-566 as under: E

"Under that section the Legislature practically effaced itself in the
matter of fixation of rates and it did not give any guidance either
underthat section or under any other provisions of the Act-no other
provision was brought to our notice. The argument of the learned F
counsel; that such a policy could be gathered from the constitutional
provisions cannot be accepted, for, if accepted, it would destroy the
doctrine of excessive delegation. It would also sanction conferment of
power by Legislature on the executive Government without laying
down any guide-lines in the Act. The minimum we expect of the
Legislature is to lay down in the Act conferring such a power of G
fixation of rates clear legislative policy or guide-lines in that regard.
... As the Act did not prescribe any such policy, it must be held that
section 5 of the said Act, as it stood before the amendment, was
void."

26. In the cases aforesaid where fees akin to Rule 17 were imposed were H
352 SUPREME COURT REPORTS [2007] 5 S.C.R.

A cases where the imposition was specifically imposed by the statute. It is,
therefore, clear that Rule 17 has no statutory backing. :r
27. The case of the respondents is that Rule 17 intended that in lieu of
parting with exclusive right and privileges granted to the appellant and for the
services rendered and therefore it is neither fee nor tax. It is contended that
B the Government was rendering service to the appellant by deputing excise
staff not only for the purpose of ensuring that the denaturing of spirit is done
properly by the manufacturer but also for the purpose of specifically seeing
that the de-natured spirit does not go out of the hands, either of the distillery ...
owner or a retail seller or any licensee or per holder contrary to law. It is
further argued that there was co-relationship between the services rendered
.. -

c and the fee levied was essential.

28. The question as to whether the tax payers or license holders would
have to pay for the official staff of the State for supervising collection of the
revenue, has been set at rest by the Constitution Bench of this Court in the
D case of Indian Mica Micanite Industries v. The State of Bihar, [1971] 2 SCC
236. It is held in paragraph 17 as under:

" ... the only services rendered by the Government to the appellant and \-
to other similar licensees is that the Excise Department have to maintain
an elaborate staff not only for the purposes of ensuring that denaturing
E is done properly by the manufacturer but also for the purpose of
seeing that the subsequent possession of denatured spirit in the
hands either of a wholesale dealer or retail seller or any other licensee
or permit-holder is not misused by converting the denatured spirit
into alcohol fit for human consumption and thereby evade payment
of heavy duty. So far as the manufacturing process is concerned, the
F appellant or other similar licensees have nothing to do with it. They
are only the purchasers of manufactured denatured spirit. Hence the
cost of supervising the manufacturing process or any assistance
rendered to the manufacturers cannot be recovered from the consumers
like the appellant. Further under Rule 9 of the Board's rules, the actual
G cost of supervision of the manufacturing process by the Excise
Department is required to be borne by the manufacturer. There cannot
be a double levy in that regard. In the opinion of the High Court the
,' ...
subsequent transfer of denatured spirit and possession of the same
in the hands of various persons such as whole-sale dealer, retail '
dealer or other manufacturers also requires close and effective
H
GUPTA MODERN BREWERIES v. STATE OF JAMMU & KASHMIR [H.K. SEMA, J.) 353

supervision because of the risk of the denatured spirit being converted A
into palatable liquor and thus evading heavy duty. Assuming this
conclusion to be correct, by doing so, the State is rendering no
service to the consumer. It is merely protecting its own rights. Further
in this case, the State which was in a position to place material before
the Court to show what services had been rendered by it to the B
appellant and other similar licensees, the costs or at any rate the
probable costs that can be said to have been incurred for rendering
those services and the amount realised as fees has failed to do so.
On the side of the appellant, it is alleged that the State is collecting
huge amount as fees and that it is rendering little or no service in
return. The co-relationship between the services rendered and the fee C
levied is essentially a question of fact. Prima facie, the levy appears
to be excessive even if the State can be said to be rendering some
service to the licensees. The State ought to be in possession of the
material from which the co-relationship between the levy and the
services rendered can be established at least in a general way. But the D
State has not chosen to place those materials before the Court.
-)
Therefore the levy under the impugned Rule cannot be justified."

(emphasis supplied)

29. In the case of Commissioner of Central Excise v. Chhata Sugar
Co.Ltd, [2004] 3 sec 466, one of the issues was whether the state E
government's administrative charges to collect a levy could be passed on to
the person from whom the tax, fee or l~vy was collected. This Court
categorically held that such an imposition would be a tax and not a fee and
must be duly authorized since it is a tax (at para 14), it is held:-

" .... Hence, administrative charge under the U.P. Act is a tax and not
F
a fee ..... "

30. It is, thus, clear from the aforesaid decisions that imposition of
administrative services is a tax and not a fee. Such imposition without backing
of statutes is unreasonable and unfair.
G
31. In the case of Corporation of Calcutta v. Liberty Cinema, [ 1965] 2
SCR 4 77, it was made clear that the nomenclature is not important. In that
case, the majority judgment took the view that although the imposition under
the Calcutta Municipality Act, 1951 was described as a fee, it was nevertheless
a tax by stating (at pp.SCR 483, 484 & 490): H
354 SUPREME COURT REPORTS (2007] 5 S.C.R.

A ".... Now, on the first question, that is, whether the levy is in return ''1.
for services, it is said that it is so because section 548 uses the word
"fee". But, surely, nothing turns on words used. The word "fee"
cannot be said to have acquired a rigid technical meaning in the
English language indicating only a levy in return for services. No
authority for such a meaning of the word was cited... The Act, therefore,
B did not intend to use the word fee as referring only to a levy in return
for services ... Section 548 does not use the word "fee"; it uses the
words "licence fee" and those words do not necessarily mean a fee
in return for services. In fact in our Constitution fee for licence and
fee for services rendered are contemplated as different kinds of levy.
c The former is not intended to be a fee for services rendered. This is
apparent from a consideration of Art. 110(2) and Art. 199(2) where
both the expressions are used indicating thereby that they are not the
same ... The conclusion to which we then arrive is that the levy under
section 548 is not a fee as the Act does not provide for any services
of special kind being rendered resulting in benefits to the person on
D whom it is imposed. The work of inspection done by the Corporation
which is only to see that the terms of the licence are obsen1ed by the
licensee is not a service to him. No question'here arises of correlating
the amount of the levy to the costs of any service. The levy is a tax.
It is not disputed, it may be stated, that if the levy is not a fee, it must
E be a tax."

(emphasis supplied)

32. In the case of Mis Lilasons Breweries (Pvt.) Ltd v. State of Madhya
Pradesh. (1992] 3 SCC 293, Rule 22 of the M.P. Breweries Rules 1970 to meet
F the annual expenses of the officers was struck down as ultra vires the Act
and beyond the rule making power of the State.

WHY IT IS TAX AND NOT FEE

33. Under the Constitutional scheme, taxes are distinct from fees. Excise
G is a form of tax. It is self-evident from various constitutional provisions:
(i) The concept of a Money Bill in Articles 110(2) and 199(2) clearly
postulate that taxes should be voted on by Parliament
See Corporation of Calcutta, [1965] 2 SCR 477 at 483
H (ii) The taxes and excise in the Union List are to be found in List I,
GUPTA MODERN BREWERIES•'. STATE OF JAMMU & KASHMIR[H.K. SEMA,J.] 355
Entries 82-928; and A
(ili) The taxes in the State List are to be found in List II, Entries 42-
63
(iv) Excise is specifically dealt with in List I, Entry 84 and List II,
Entry 51
B
(v) List II, Entry 51 specifically deals with excise on alcohol
(vi) Fees are specifically dealt with in both these lists (List I, Entry
96 and List JI, Entry 66) and are a distinct concept that has to
be voted by Parliament
Thus, taxes, excise and fees must be voted by Parliament. C
34. In the cases of State of Punjab v. Devans Modern Breweries Ltd.,
[2004] JI SCC 26 at para 25, K.T. Moopil Nair v. State ofKera/a, [1961] 3 SCR
77 at paras 89 & 91, Ahmedabad Urban Development Authority v.
Sharadkumar Jayantikumar Pasawalla, [1992] 3 SCC 285 at paras 6-7,
.Hindustan Times v. State of UP., [2003] 1 SCC 591 at para 30 and Bimal D
Chandra Banerjee v. State of MP., [1970) 2 SCC 467 at para 14, it has been
held that a tax under Article 265 can only be imposed by way of legislation .
and it is impermissible to be imposed by way of bye-laws or rules.

WHETHER THERE IS A QUID PRO QUO BETWEEN THE FEE E
CHARGED AND THE SERVICE RENDERED.

35. We have already noted that the plea of the respondents is that it
was rendering service by deputing excise staff not only for the purpose of
ensuring that the denaturing of spirit is done properly by the manufacturer
but also for the purpose of specifically seeing that the de-natured spirit does F
not go out of the hands, either of the distillery owner or a retail seller or any
licensee or permit holder contrary to law. It is, therefore, clear that there was
no co-relationship between the expenses incurred by the Government and the
fee sought to be raised under Rule 17. In other words, there is no quid pro
quo between the fee charged and the services rendered. A Constitution
Bench of this Court in the case of The Commissioner, Hindu Religious G
'<: Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur
Mi;tt, [1954] SCR 1005 (at 1040, 1041 & 1044) held that a fee must be for a
quid pro quo :-

" ... .As the object of a tax is not to confer any special benefit upon
any particular individual, there is, as it is said, no element of quid H
356 SUPREME COURT REPORTS [2007) 5 S.C.R.

A pro quo between the taxpayer and the public authority. Another
feature of the taxation is that as it is a part of the common burden,
the quantum of imposition upon the taxpayer depends generally upon
his capacity to pay. Coming now to fees, 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
B based on the expenses incurred by the Government in rendering the
service, though in many cases the costs are arbitrarily assessed ... but
in this case there is total absence of any co-relation between the
expenses incurred by the Government and the amount raised by
contribution under the provision of section 76 and in these
c circumstances the theory of a return or counter-payment or quid pro
quo cannot have any possible application to this case. In our opinion,
therefore, the High Court was right in holding that the contribution
levied under section 76 is a tax and not a fee and consequently it was
beyond the power of the State Legislature to enact this provision."

D (emphasis supplied)

For the reasons aforestated we hold that:

(a) Rule 17 has no statutory backing and it is in excess of the Act.

(b) It is manifestly unjust and arbitrary.
E
(c) Provision of Rule 17 is clearly a tax and not a fee.

(d) Imposition of tax or fee on the citizens for the services that the
State renders to itself and not the tax payers is clearly
impermissible, arbitrary and unjustifiable.
F 36. This takes us to the last leg of submission of the counsel for the
respondents. It is strenuously urged by the counsel for the respondents that
in the event this Court struck down Rule 17 being ultra vires the Act, such
decision must be prospective and the State should inter alia be permitted to
retain the fees paid by the appellant in the interregnum.
G
37. In support of his contention, counsel for the respondents, relied on
the judgment of this Court rendered in Federation of Mining Associations of
Rajasthan v. State of Rajasthan, (1992] Supp. 2 SCC 239, where this Court
held that the declaration of the act unconstitutional will take effect only from
the date of judgment. The ruling cited above is not applicable in the facts of
H this case for the following reasons:
... GUPTA MODERN BREWERIES v. STATE OF JAMMU & KASHMIR [H.K. SEMA, J.] 357
·.! 38. Firstly, the interim order dated 11.9.2000 passed by this Court clearly A
provided for refund in the following terms:-

"No stay. In case the appeals are ultimately allowed, the respondents
shall pay, on the refund ordered, interest at the statutorY rate".

Secondly, Section 24-B of the Act itself provides as under: B
" ... Any amount of duty, tax, fine or fee paid by any person which was
not payable under this Act shall be refunded to such person along
_, with interest for the period of default at the rate of 2% per month ..... "

39. We, accordingly, direct the respondents to refund the payment so
c
.... made in the interregnum with interest calculated at the statutory rate .

40. In the result, the order of the learned Single Judge and the Division
Bench passed in LPA No.159 of 1990 are set aside. Appeals are allowed. In
the facts and circumstances of the case, parties are asked to bear their own
costs. D
-) D.G. Appeals allowed.