Supreme Court of India
DELHI RACE CLUB LTD.versusUNION OF INDIA AND ORS.
- Citation
- 2012 INSC 282
- Decided
- 13 July 2012
- Disposal
- Dismissed
- Bench
- D K JAIN
Holding
The licence fee is a regulatory fee, the delegation under Section 11(2) is constitutionally valid, and the fee increase is reasonable; therefore the appeal is dismissed.
Summary
The Delhi Race Club challenged the constitutional validity of the Mysore Race Courses Licensing Act, 1952 (as extended to Delhi) and its 2001 amendment that raised the licence fee for horse racing ten‑fold. The club argued that Section 11(2) gave the Administrator unfettered power to fix fees without guidance, amounting to excessive delegation, and that the levy was a tax lacking quid pro quo and therefore illegal. The Supreme Court examined the nature of the levy, applying the test that the primary object and essential purpose determine whether a charge is a tax or a fee. It held that the fee is a regulatory fee aimed at controlling and promoting horse racing, that the Act provides sufficient policy guidance for the delegate, and that the increase is reasonable in view of inflation and regulatory costs. Consequently, the delegation is permissible and the fee is constitutional, leading to dismissal of the appeal.
Issues considered
- The constitutionality of Section 11(2) of the Mysore Race Courses Licensing Act, 1952 as a delegation of legislative power without adequate guidance
- Whether the licence fee imposed under the Act is a tax or a regulatory fee, and the relevance of quid pro quo
- Whether the ten‑fold increase in the licence fee is unreasonable or excessive
Legislation cited
- Constitution of India
- Mysore Race Courses Licensing Act, 1952s. 11, s. 11(2), s. 3, s. 4
- Union Territories (Laws) Act, 1950
Subjects
delegation of legislative powerregulatory feelicence feeexcessive delegationtax vs feequid pro quohorse racing regulationconstitutional lawsection 11(2)inflation adjustment
Judgment
[2012] 8 S.C.R. 1
DELHI RACE CLUB LTD. A
v.
UNION OF INDIA AND ORS.
(Civil Appeal No.6461 of 2003)
JULY 13, 2012
B
[D.K. JAIN AND ANIL R. DAVE, JJ.]
Mysore Race Courses Licensing Act, 1952 (as extended
to the Union Territory of Delhi in 1984) - s. 11 - Horse racing
- Licence fee leviab/e in terms of the 1985 Rules framed u/ C
s. 11 of the 1952 Act - Delegation of legislative power u/s. 11
of the 1952 Act - Challenged as unconstitutional and ultra
vires for allegedly conferring unguided, uncontrolled and
unfettered power on the Administrator to fix the licence fee -
Held: Delegation of non-essential legislative function of D
fixation of rate of imposts is a necessity to meet the
multifarious demands of a welfare state - Such delegation is
permissible as long as legislative policy is defined in clear
terms, which provides guidance to the delegate - In the instant
case, challenge to constitutionality of s. 11 (2) of the 1952 Act E
was based on the premise that no guidance, check, control
or safeguard is specified in the 1952 Act - This principle,
however, applies only to the cases of delegation of the function
of fixation of rate of tax and not a fee - Since the levy involved
in the present case is a fee and not tax, and the scheme of F
the 1952 Act clearly spells out the object, policy and the
intention with which it has been enacted, therefore, the 1952
Act does not warrant any interference as being an instance
of excessive delegation - Constitution of India, 1950 -
Delegation of legislative power - Delegation of non-essential G
legislative function.
Delhi Race Course Licensing Rules, 1985 - r. 6 - Horse
racing - Licence fee /eviable in terms of the 1985 Rules
framed uls. 11 of the 1952 Act - Nature of the impost - Tax
1 H
2 SUPREME COURT REPORTS (2012] 8 S.C.R.
A or fee - Held: The true test to determine the character of a
levy, is the primary object of the levy and the essential
purpose intended to be achieved - In the instant case, the
nature of the impost is not merely compulsory exaction of
money to augment the revenue of the State but its true object
B is to regulate, control, manage and encourage the sport of
horse racing as is distinctly spelled out in the ·1952 Act and
the 1985 Rules - Wide powers have been conferred on various
authonties to enable them to supeNise, regulate and monitor
the activities relating to the race course with a view to secure
c proper enforcement of the provisions - Therefore, the levy
involved in the present case is a 'fee' and not 'tax' - Mysore
Race Courses Licensing Act, 1952 (as extended to the Union
Territory of Delhi in 1984) - s. 11 - Delhi Race Course
Licensing (Amendment) Rules, 2001.
D Delhi Race Course Licensing Rules, 1985 - r.6 - Delhi
Race Course Licensing (Amendment) Rules, 2001 - Horse
racing - Licence fee leviab/e in terms of the 1985 Rules (as
amended in 2001) challenged on the ground that it Jacked
any element of 'quid pro quo' - Held: The licence fee imposed
E in the present case is a regulatory fee and is, thus, not
conditioned by the fact that there must be a quid pro quo for
the seNices rendered - The Government need not render
some defined or specific seNices in return as long as the
licence fee satisfies the limitation of being reasonable - If
F there is a broad correlation between the expenditure which the
State incurs and the fees charged, the fees can be sustained
as reasonable - Taxation - 'Quid pro quo'.
Delhi Race Course Licensing Rules, 1985 - r. 6 - Delhi
G Race Course Licensing (Amendment) Rules, 2001 - Licence
fee prescribed in the 1985 Rules framed u/s. 11 of the 1952
Act - Ten-fold enhancement of the licence fee in view of
amendment in terms of the 2011 Rules - Propriety - Validity
of the 2001 Rules and of the charging section i.e. s.11(2) of
the 1952 Act - Challenge to - Held: The challenge to validity
H
DELHI RACE CLUB LTD. v. UNION OF INDIA AND 3
ORS.
of s. 11 (2) of the 1952 Act was raised after almost 15 years of A
the commencement of the 1952 Act - The appellant Race
Course had been regularly paying the licence fee and the
present challenge was made only when quantum of licence
fee was increased by the Government on account of non-
revision of the same since the commencement of the 1952 B
Act - Evidently, inflation during this period was taken as the
criterion for increasing the quantum of the fee - The increase
was reasonable keeping in view the fact that the expenditure
incurred by the Government in carrying out the regulatory
activities for attaining the object of the 1952 Act would have c
proportionately increased - Also, an institution of the size of
the appellant Race Course should not cloak its objection to
increase in the rate of licence fee and present them as a
challenge to the constitutionality of the charging section - The
licence fee has a broad co-relation with the object and D
purpose for which the 1952 Act and the 2001 Rules have been
enacted - Both s.11(2) of the 1952 Act as well as the 2001
Rules do not suffer from any legal infirmity - Mysore Race
Courses Licensing Act, 1952 (as extended to the Union
Territory of Dellli in J984) - s. 11.
E
Constitution of India, 1950 - Delegation of legislative
power - For fixation of rate of tax - Scope - Held: While
delegating the power of fixation of rate of tax, there must be
in existence, inter-alia, some guidance, control, safeguards
and checks in the concerned Act - Taxation. F
On 19th October, 1984, the Central Government had
extended the Mysore Race Courses Licensing Act, 1952
to the Union Territory of Delhi, as it existed then, with
certain amendments. In exercise of the powers conferred G
under Section 11 of the 1952 Act, vide notification dated
1st March 1985, the Administration of the Union Territory
of Delhi, notified the Delhi Race Course Licensing Rules,
1985, rule 6 whereof prescribed licence fee rates.
Subsequently, on 7th March 2001, in exercise of the
H
4 SUPREME COURT REPORTS [2012] 8 S.C.R.
A powers conferred under Section 11 of the 1952 Act, the
Lt. Governor of the National Capital Territory of Delhi
enacted the Delhi Race Course Licensing (Amendment)
Rules, 2001 and enhanced the licence fee rates by ten
times. The appellant filed writ petitions challenging the
B said two notifications dated 19th October, 1984 and 7th
March, 2001 as illegal. The petitions were dismissed by
the High Court.
In the instant appeal, the appellant inter a/ia raised
C the following contentions, viz. 1) that Section 11 (2) of the
1952 Act was ipso facto bad in law, unconstitutional and
ultra-vires as it conferred unguided, uncontrolled and
unfettered power on the Administrator to fix licence fee;
and 2) that the licence fee could not be demanded
inasmuch as it lacked any element of quid pro quo.
D
Dismissing the appeal with costs, the Court
HELD:1. From the conspectus of the views on the
question of nature and extent of delegation of legislative
E functions by the Legislature, two· broad principles
emerge, viz. (i) that delegation of non-essential legislative
function of fixation of rate of imposts is a necessity to
meet the multifarious demands of a welfare state, but
while delegating such a function, laying down of a clear
legislative policy is pre-requisite and (ii) while delegating
F the power of fixation of rate of tax, there must be in
existence, inter-alia, some guidance, control, safeguards
and checks in the concerned Act. As long as the
legislative policy is defined in clear terms, which provides
guidance to the delegate, delegation of non-essential
G legislative function is permissible. The question of
application of the second principle will not arise unless
the impost is a tax. [Para 16) [22-8-E]
Corporation of Calcutta & Anr. v. Liberty Cinema AIR
H (1965) SC 1107: 1965 SCR 477; Devi Das Gopal Krishnan
DELHI RACE CLUB LTD. v. UNION OF INDIA AND 5
ORS.
& Ors. v. State of Punjab & Ors. 1967 (3) SCR 557; The A
Municipal Corporation of Delhi v. Bir/a Cotton, Spinning and
Weaving Mills, Delhi & Anr. AIR (1968) SC 1232: 1968 SCR
251 and In re. Delhi Laws Act, 1912 AIR 1951 SC 332: 1951
SCR 747 - referred to.
B
Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. The Assistant
Commissioner of Sales Tax & Ors. (1974) 4 SCC 98: 1974
(2) SCR 879 - cited.
2. The pivotal question to be determined in the
present case is the nature of the impost. The true test to C
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. In the instant case, it
is plain from the scheme of the 1952 Act that its sole aim
is regulation, control and management of horse-racing. D
Such a regulation. is necessary in public interest to
control the act of betting and wagering as well as to
promote the sport in the Indian context. To achieve this
purpose, licences are issued subject to compliance with
the conditions laid down therein, which inter a/ia include E
maintenance of accounts and furnishing of periodical
returns; amount of stakes which may be allotted for
different kinds of horses; the measures to be taken for
the training of the persons to become jockeys, to
encourage Indian bred horses and Indian jockeys; the F
inclusion and association of such persons as the
government may nominate as stewards or members in the
conduct and management of the horse-racing. The
violation of the conditions of the licence or the 1952 Act
is penalised under the 1952 Act besides a provision for G
cognizance by a court not inferior to a Metropolitan
Magistrate .. To ensure compliance with these conditions,
the Delhi Race Course Licensing Rules, 1985 empower
the District Officer or an Entertainment Tax Officer to
conduct inspection of the race club at reasonable times.
H
6 SUPREME COURT REPORTS [2012] 8 S.C.R.
A Thus, the nature of the impost is not merely compulsory
exaction of money to augment the revenue of the State
but its true object is to regulate, control, manage and
encourage the sport of horse racing as is distinctly
spelled out in the 1952 Act and the 1985 Rules. For the
B purpose of enforcement, wide powers are conferred on
various authorities to enable them to supervise, regulate
and monitor the activities relating to the race course with
a view to secure proper enforcement of the provisions.
Therefore, the levy involved in the present case is a 'fee'
C and not 'tax'. [Paras 17, 19] [22-F; 25-A-G]
Hingir Rampur Coal Co. Ltd. v. State of Orissa 1961 (2)
SCR 537 and State of WB. v. Kesoram Industries Ltd. & Ors.
(2004) 1o sec 201: 2004 (1) SCR 564 - relied on.
D The Commissioner, Hindu Religious Endowments,
Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt
AIR 1954 SC 282: 1954 SCR 1005 - referred to.
3. The challenge to the constitutionality of Section
11(2) of the 1952 Act was based on the premise that no
E guidance, check, control or safeguard is specified in the
Act. This principle, however, applies only to the cases of
delegation of the function of fixation of rate of tax and
not a fee. Since the levy involved in the present case is
a fee and not tax, and the scheme of the 1952 Act clearly
F spells out the object, policy and the intention with which
it has been enacted, therefore, the 1952 Act does not
warrant any interference as being an instance of
excessive delegation. [Para 28] [33-F-G]
G 4.1. While it is true that 'quid pro quo' is one of the
determining factors that sets apart 'tax' from a 'fee' but
the concept of quid pro quo requires to be understood in
its proper perspective. A licence fee imposed for
regulatory purposes is not conditioned by the fact that
H there must be a quid pro quo for the services rendered,
DELHI RACE CLUB LTD. v. UNION OF INDIA AND 7
ORS.
but that, such licence fee must be reasonable and not A
excessive. It would again not be possible to work out with
arithmetical equivalence the amount of fee which could
be said to be reasonable or otherwise. If there is a broad
correlation between the expenditure which the State
incurs and the fees charged, the fees could be sustained B
as reasonable. [Paras 20, 25] [26-A-B; 31-B-D]
4.2. In the present case, the object of the 1952 Act,
as synthesized from its provisions, is to regulate, monitor,
control and encourage the sport of horse-racing. For this
purpose, licences are issued subject to certain C
conditions. The compliance with the licence conditions
is inevitable for renewal of the licences as well as
significant to avoid any penalty under the 1952 Act. To
ensure such compliance, district officers/ entertainment
tax officers are entrusted with the duty of inspection. The D
nature of inspection enjoined by the 1952 Act is not of a
general nature but requires expertise and training and
also constant vigil on the activities of the race course.
The expenses incurred in carrying out such regular
inspections have to be considerable. Hence, the licence E
fee imposed in the present case is a regulatory fee and
need not necessarily entail rendition of specific services
in return but at the same time should not be excessive.
In any case, the appellant has not challenged the amount
of the levy as unreasonable and expropriatory or F
excessive. [Para 26] [31-D-G]
4.3. The argument on behalf of the appellant that
inspection does not constitute a service rendered in lieu
of the fee charged, is equally fallacious. The scheme of
the 1952 Act; its object as elucidated in its provisions and G
Rules made therein; nature of conditions imposed in the
licences; inspection to ensure its compliance and non-
renewal of the licence as well as penalty in case of
contravention of the licence conditions, make the Act fall
H
8 SUPREME COURT REPORTS [2012] 8 S.C.R.
A in the category of imposts where contributions are
required to be made for the purpose of maintaining an
Authority and the staff for supervising and controlling a
public activity viz. the horse racing. Besides, the
presence of a large institution like the race course enjoins
B additional burden on the civic authorities to maintain and
develop the surrounding area for the convenience of the
public at large. The licence fee levied in the present case,
being regulatory in nature, the Government need not
render some defined or specific services in return as long
C as the fee satisfies the limitation of being reasonable. The
licence fee charged has a broad co-relation with the
object and purpose for which the 1952 Act and the Delhi
Race Course Licensing (Amendment) Rules, 2001 have
been enacted. [Paras 26, 27] [31-H, 32-A, E-G]
D AP. Paper Mills Limited v. Government of A.P. & Anr
(2000) 8 SCC 167; Delhi Cloth & General Mills Co. Ltd. v.
The Chief Commissioner, Delhi (1969) 3 SCC 925 and
Secunderabad Hyderabad Hotel Owners' Association & Ors.
v. Hyderabad Municipal Corporation, Hyderabad & Anr.
E (1999) 2 sec 274: 1999 (1) SCR 143 - relied on.
Sreenivasa General Traders and Ors. v. State of Andhra
Pradesh and Ors. (1983) 4 SCC 353: 1983 (3) SCR 843;
Kewal Krishan Puri v. State of Punjab (1980) 1 SCC 416:
F 1979 (3) SCR 1217; Corporation of Calcutta & Anr. v. Liberty
Cinema AIR (1965) SC 1107: 1965 SCR 477; Vam Organic
Chemicals Ltd. & Anr. v. State of U.P. & Ors. (1997) 2 SCC
715: 1997 (1) SCR 403; P. Kannadasan v. State of T.N.
(1996) 5 SCC 670: 1996 (4) Suppl. SCR 92; State of Tripura
G v. Sudhir Ranjan Nath (1997) 3 SCC 665: 1997 (2) SCR 29;
B.S.E. Brokers' Forum, Bombay & Ors. v. Securities and
Exchange Board of India & Ors. (2001) 3 SCC 482 - referred
to.
Shannon v. Lower Mainland Dairy Products Board AIR
H 1939 PC 36 - referred to.
DELHI RACE CLUB LTD. v. UNION OF INDIA AND 9
ORS.
The Delhi Cloth & General Mills Co. Ltd. v. The Chief A
Commissioner, Del/Ji & Ors. (1970) 2 SCC 172: 1970 (2)
SCR 348 - cited.
5. Further, the challenge to the validity of Section
11(2) of the 1952 Act was raised after almost 15 years of
8
its coming into force. The appellant, since the
commencement of the 1952 Act, had been regularly
paying the licence fee and the present challenge was
made only when quantum of the licence fee was
increased by the Government on account of non-revision C
of the same since the commencement of the 1952 Act.
Evidently, the inflation during this period was taken as the
criterion for increasing the quantum of the fee. It is a
reasonable increase keeping in view the fact that the
expenditure incurred by the Government in carrying out
the regulatory activities for attaining the object of the 1952 D
Act would have proportionately increased. Also, an
institution of the size of the Race Course should not cloak
their objection to an increase in the rate of licence fee and
present them as a challenge to the constitutionality of the
charging section. [Para 29) [34-A-D] E
6. In conclusion, it is held that Section 11 (2) of the
1952 Act as well as 2001 Rules do not suffer from any
legal infirmity. [Para 30) [34-E]
Case Law Reference: F
1965 SCR 477 referred to Para 8
1967 (3) SCR 557 referred to Para 8
1968 SCR 251 referred to Para 8 G
1974 (2) SCR 879 cited Para 8
1970 (2) SCR 348 cited Para 9
1979 (3) SCR 1217 referred to Para 9
H
10 SUPREME COURT REPORTS (2012] 8 S.C.R.
A 1999 (1) SCR 143 relied on Para 9
(2000) 8 sec 167 relied on Para 9
2001 (3) sec 482 referred to Para 9
1951 SCR 747 referred to Para 15
B
1954 SCR 1005 referred to Para 17
1961 (2) SCR 537 relied on Para 17
2004 (1) SCR 564 relied on Para 18
c
1983 (3) SCR 843 referred to Para 20
AIR 1939 PC 36 referred to Para 21
1997 (1) SCR 403 referred to Para 23
D 1996 (4) Suppl. SCR 92 referred to Para 23
1997 (2) SCR 29 referred to Para 23
(1969) 3 sec 925 relied on Para 26
E CIVIL APPELLATE JURISDICTION : Civil Appeal No.
6461 of 2003.
From the Judgment & Order dated 5.2.2003 of the High
Court of Delhi at New Delhi in Civil Writ Petition No. 2278 of
2002.
F
S.K. Gupta, Shagun Bhargava, B. Vijayalakshmi Menon
for the Appellant.
T.S. Doabia, Rekha Pandey, Rashmi Malhotra, Anil
G Katiyar, D.S. Mahra for the Respondents.
The Judgment of the Court was delivered by
D.K. JAIN, J. 1. This is an appeal from a judgment, dated
5th February, 2003, rendered by the High Court of Delhi at New
H Delhi in CWP No.2278/2002. By the impugned judgment, the
DELHI RACE CLUB LTD. v. UNION OF INDIA AND 11
ORS. [D.K. JAIN, J.]
High Court has upheld the validity of the Delhi Race Course A
Licensing (Amendment) Rules, 2001.
2. On 19th October, 1984, the Central Government in
exercise of its powers under Section ~ of the Union Territories
(Laws) Act, 1950, extended the Mysore Race Courses
8
Licensing Act, 1952 (for short "the Act") to the Union Territory
of Delhi, as it existed then, with certain amendments. The
Preamble to the said Act reads thus:
"Whereas it is expedient to make provision for the
licensing regulation, control and management of horse- C
racing on race-course and all matters connected therewith
in the Union Territory of Delhi"
Further, Section 3 of the Act reads as follows:
"3. Prohibition of horse-racing on unlicensed race- D
courses- No horse-race shall be held save on a race
course for which a licence for horse racing granted in
accordance with the provisions of this Act, is in force."
Section 4 which lays down the procedure for issuing the E
licences for horse racing reads as follows:
"4. Licences for horse-racing- (1) The owner, lessee or
occupier of any race course may apply to the Government
for horse-racing on such race-course or for arranging for F
wagering or betting in such race-course on a horse, race
run or some other race-course either within the Union
territory of Delhi or Outside the Union territory of Delhi.
(2) The Government may (if in its opinion public interest
so requires) withhold such licence or grant it subject to G
such conditions and for such period as they may think fit.
(3) In particular and without prejudice to the generality of
the foregoing power, such conditions may provide for-
H
12 SUPREME COURT REPORTS [2012] 8 S.C.R.
A (a) the payment of a licence fee;
(b) the maintenance of such accounts and furnishing of
such returns as are required by the United Provinces
Entertainment and Betting Tax Act, 1937 as extended to
B the Union territory of Delhi;
· (c) the amount of stakes which may be allotted for different
kinds of horses;
(d) the measures lo be taken for the training of persons to
C become Jockeys;
(e) the measures to be taken to encourage Indian bred
horses and Indian Jockeys;
(f) the inclusion or association of such persons as the
D Government may nominate as Stewards or members in the
conduct and management of horse-racing;
(g) the utilisation of the amount collected by the licensee
in the conduct and management of horse-racing;
E
(h) such other matters connected with horse-racing and the
maintenance of the race-course for which in the opinion
of Government it is necessary or expedient to make
provision in the licence ..... ."
F Sections 5, 6 and 7 respectively enumerate penalties for taking
part in horse races on unlicensed race-course and for
contravention of conditions of licence. Section 9 envisages that
cognizance of the offences under the Act can be taken by a
court not inferior to that of a Metropolitan Magistrate. Section
G 11, the pivotal provision, which empowers the Government to
make rules, reads as follows:
"11. Power to make rules-(1) The Government may, by
notification in the Delhi Gazette, make rules for the purpose
of carrying into effect the provisions of this Act.
H
DELHI RACE CLUB LTD. v. UNION OF !NOIA AND 13
ORS. [D.K. JAIN, J]
(2) In particular and without prejudice to the generality of A
the foregoing powers; such rules may provide for all or any
of the following matters, namely:-
(i) the form and manner in which applications for
licences are to be made;
B
(ii) the fees payable for such licences;
(iii) the period for which licences are to be granted;
(iv) the renewal, modification and cancellation of C
licences."
3. In furtherance of the power conferred under Section 11
of the Act, by a notification dated 1st March 1985, the
Administration of the Union Territory of Delhi, notified the Delhi
Race Course Licensing Rules, 1985 [for short "1985 Rules"]. D
Rules 4 and 5 of the 1985 Rules lay down the procedure for
submission of application for grant of licence for horse racing
and the validity period of such licence respectively. Rule 6
prescribes the rate of 'Licence fee'. It reads as follows :
E
"6. Licence fee-The fee for the grant or renewal of a
licence for horse racing on the race course shall be a sum
of rupees two thousand (Rs.2000/-) per day on which race ·
is held. The fee for the grant or renewal of a licence for
arranging for wagering or betting on a horse race run on
F
any other race course, within or outside the Union Territory
of Delhi, shall be rupees five hundred (Rs.500/-) per race
day on which race is held."
Rule 12 of the 1985 Rules, material for our purpose, confers
power of inspection and states as under: G
"12. Inspection- The District Officer or any other officer
not below the rank of Entertainment Tax Inspector shall have
access to the licensed race course at all reasonable times
with a view to satisfy himself that the provisions of the Act H
14 SUPREME COURT REPORTS [2012) 8 S.C.R.
A and these Rules are being complied with and that the
conditions of the licence are duly observed."
4. On 7th March 2001, in exercise of the powers conferred
under Section 11 of the Act, the Lt. Governor of the National
Capital Territory of Delhi enacted the Delhi Race Course
8
Licensing (Amendment) Rules, 2001 (for short "2001 Rules")
and enhanced the aforesaid licence fee rates to Rs.20,000/-
and Rs.5,000/- respectively.
5. On 31st January, 2002, Commissioner of Excise,
C Entertainment & Luxury Tax (respondent no.3 in this appeal)
issued a demand letter to Delhi Race Club, a body corporate,
the appellant in this appeal, informing them that the licence fee
deposited by them was short by Rs.17 ,80,000/- for the year
2001-02 and by Rs.18 Lacs for the year 2002-03. Validity of
D the demand notice was questioned by the appellant by way of
a writ petition in the High Court of Delhi, on the grounds that
both the notifications, dated 19th October, 1984 and 7th March,
2001 were illegal in as much as : (i) delegation of powers under
Section 11 of the Act to the Lt. Governor, to fix the licence fee
E without any guidelines is excessive delegation of legislative
power and is therefore, ultra vires, (ii) in the absence of an
element of quid pro quo, the licence fee charged was not in
the nature of a fee but a tax and (iii) the ten fold increase in
licence fee was highly excessive. However, it appears that
F based on the arguments advanced by the learned counsel, the
High Court framed two key questions viz. (i) Is the licence fee
under Rule 6 of the 1985 Rules a "fee" or not ? and (ii) If it is a
fee, is it excessive or not?
6. Answering both the questions against the appellant, the
G High Court concluded that the licence fee in question is not a
compensatory fee and consequently there was no requirement
of a quid pro quo; the licence fee is in the nature of a regulatory
fee and therefore, would not require any quid pro quo in the
form of any social service and when the impost of Rs.2,000/-
H and Rs.500/- in the year 1984 was not regarded by the
DELHI RACE CLUB LTD. v. UNION OF INDIA AND 15
ORS. [D.K. JAIN, J.]
appellant as being excessive, keeping in mind the high rate of A
inflation between 1984 and 2001, the enhanced rates of
Rs.20,000/- and Rs.5,000/- in the year 2001 could not be said
to be excessive. Hence, the appellant's writ petition having
been dismissed, they are before us in this appeal.
7. At the outset, Mr. S. K. Bagaria, learned senior counsel
B
appearing for the appellant, submitted that he would confine his
submissions only to the two issues relating to the excessive
delegation of power in the matter of fixation of licence fee and
that the fee levied is in fact a tax and therefore, ultra-vires entry
66 of List II in the Seventh Schedule of the Constitution of India C
and would not press the issue that the fee levied is excessive.
8. Learned counsel strenuously urged that Section 11 (2)
of the Act confers unguided, uncontrolled and unfettered power
on the Administrator to fix licence fee and thus, ipso facto bad D
in law, unconstitutional and ultra-vires. Learned counsel traced
the evolution of law in this regard by referring to several
decisions of this Court. The main thrust of his submissions was
based on the decision of this Court in Corporation of Calcutta
& Anr Vs. Liberty Cinema', wherein it was held that the function E
of fixing the rate of tax is not an essential function and can be
delegated, but such delegation has to be under some
guidance. He invited our attention to the case of Devi Das
Gopal Krishnan & Ors. Vs. State of Punjab & Ors.2, wherein
while explaining the ratio of the decision in Liberty Cinema
F
(supra) and emphasising the necessity of some guidance while
delegating the power to fix the rate of tax, it was observed that
the doctrine of constitutional and statutory needs would not
afford reasonable guidelines in the fixation of such rates of tax.
Reliance was also placed on The Municipal Corporation of
Delhi Vs. Bir/a Cotton, Spinning and Weaving Mills, Delhi & G
Anr. 3 , wherein, the Constitution Bench of this Court, while
1. AIR (1965) SC 1107.
2. 1967 (3) SCR 557.
3. AIR (1968) SC 1232. H
16 SUPREME COURT REPORTS [2012) 8 S.C.R
A observing that guidance and control must necessarily be
present while delegating a legislative function, discussed
various forms of such guidance depending upon the facts of
each delegation, and held that the form of guidance to be given
in a particular case, depends on a consideration of the
s provisions of the particular Act in question includir.g the nature
of the body to which the function has been delegated. Lastly,
reference was made to the case of Gwalior Rayon Silk Mfg.
(Wvg.) Co. Ltd. Vs. The Assistant Commissioner of Sa/es Tax
& Ors. 4 , wherein the above mentioned principles were
C reiterated. According to the learned counsel, Section 4(3) of
the Act merely provides for the conditions, subject to which a·
licence may be granted but does not contain any guidance or
policy relating to fixation of the licence fee. Similarly, Rule 13(2)
of the 2001 Rules confer power of inspection of the licensed
race course and has nothing to do with the licence fee or its
0
rates. Thus, the learned senior counsel asserted that in the
present case, Section 11 (2) of the Act confers unguided,
unfettered and arbitrary power on the Government to fix the
licence fee without a minute shred of guidance of any manner
and hence is beyond the limits of permissible delegatio11 and
E therefore, deserves to be struck down as unconstitutional.
9. Mr. Bagaria also submitted that in the absence of any
element of fee, as no services were being provided to the
appellant against the fee charged, licence fee cannot be
F demanded, in as much as it lacked any element of quid pro
quo. Referring to the decisions of this Court in The Delhi Cloth
& General Mills Co. Lid. Vs. The Chief Commissioner, Delhi
& Ors. 5; Kewal Krishan Puri Vs. State of Punjab•;
Secunderabad Hyderabad Hotel Owners' Association & Ors.
G Vs. Hyderabad Municipal Corporation, Hyderabad & Anr. 7 ;
4. (1974) 4 sec 98.
s. (1970) 2 sec 172.
s. (1980) 2 sec 274.
H 7. (1999) 2 sec 274.
DELHI RACE CLUB LTD. v. UNION OF INDIA AND 17
ORS. [D.K. JAIN, J.]
A.P. Paper Mills Limited Vs. Government of A.P. & Anr8; A
B.S.E. Brokers' Forum, Bombay & Ors. Vs. Securities And
Exchange Board of India & Ors. 9 and Liberty Cinema case
(supra) learned counsel argued that even though quid pro quo
may not be required if the fee is classified as regulatory fee,
nevertheless there must be a broad co-relation between the fee B
levied and the expenses incurred for rendition of services. It
was contended that when a question arises whether the levy is
in the nature of a fee, the duties and obligations imposed on
the inspecting staff and the nature of the work done by them
has to be examined for the purpose of determining the c
rendering of the services, which would make the levy a fee.
10. Per contra, Mr. T.S. Doabia, learned senior counsel
appearing on behalf of respondent nos.2 and 3, submitted that
the Act does not suffer from the vice of excessive delegation
as the scheme of the Act provides enough guidelines to fix the D
rate of licence fee. To buttress his argument, he relied upon the
Preamble and the text of Section 4 of the Act as also Rule 13(2)
of the 1985 Rules. Drawing support from Liberty Cinema
(supra) and Municipal Corporation of Delhi (supra) learned
counsel contended that the nature and extent of guidance is to E
be ascertained from the broad features and objects sought to
be achieved by a particular statute and not on the touchstone
of a rigid uniform rule. According to the learned counsel,
Section 4(3) of the Act, relating to the conditions of licence, itself
provides the parameters to be kept in view while fixing the F
licence fee and are thus, sufficient guidelines in the matter of
fixation of such licence fee. Rebutting the submissions of the
appellant that the levy cannot be demanded as there was no
quid pro quo involved, learned senior counsel submitted that
there is an inherent distinction between the fee for services G
rendered; i.e. compensatory fee and a license fee which is in
the nature of a regulatory fee, where no quid pro quo was
8. (2000) 8 sec 167.
9. (2001) 3 sec 482. H
18 SUPREME COURT REPORTS (2012] 8 S.C.R.
A
necessary. In support, reliance was placed on the decisions of
this Court in Liberty Cinema (supra); Secunderabad
Hyderabad Hotel Owners' Association (supra) and A.P. Paper
Mills Ltd. (supra) wherein it was held that a licence fee is
regulatory when the activities for which a licence is granted,
B require to be regulated or controlled. The fee which is charged
for regulation of such activity would be classifiable as a fee and
not a tax, although no services are rendered. He thus, submitted
that the present fee being a regulatory fee, charged for the
purpose of monitoring the activities to ensure that the licencees
C comply with the terms and conditions of licence, does not
necessarily have to satisfy the test of quid pro quo and hence
is valid. Although it was never the case of the respondents
before the High Court, yet Mr. Doabia endeavoured to submit,
in the alternative, that the impugned impost could be justified
D as a tax.
11. Learned counsel also urged that the fact that the levy
had been challenged after a long delay was by itself sufficient
for the High Court to dismiss the writ petition.
E 12. Before addressing and evaluating the rival
submissions on the first issue, it'would be useful to first survey
the decisions heavily relied upon by the learned counsel,
wherein the question as to the limits of permissible delegation
of legislative power by a legislature to an executive/another
F body has been examined in extenso.
13. Liberty Cinema (supra), on which heavy reliance was
placed by Mr. Bagaria, related to a levy imposed on cinema
houses under the Calcutta Municipal Act, 1951. The levy was
G quashed by a learned Single Judge on the grounds that : (i)
the levy being in the nature of a licence fee and not a tax, did
not pass the test of legality on account of there being no
correlation between the amount charged from the theatre
owners and the services rendered to them or the expenses
H incurred by the Municipality in regard to the issue of licences
DELHI RACE CLUB LTD. v. UNION OF INDIA AND 19
ORS. [D.K. JAIN, J.]
and (ii) Section 548(2) of the said Act, which authorised the A
Corporation to levy a tax, is unconstitutional as suffering from
the vice of excessive delegation as it laid down no principle;
indicated no policy and afforded no guidance for determining
the basis or the rate on which the tax was to be levied and is,
therefore, void. Corporation's appeal before the Division Bench B
being unsuccessful, the matter reached this Court. By majority,
Corporation's appeal was allowed and impost was upheld as
a tax. However, while upholding the validity of levy, speaking
for the majority, Sarkar, J. observed that when the power to fix
rates of tax is left to another body, the legislature must provide c
guidance for such fixation. Nevertheless, the validity of the
guidance cannot be tested by a rigid uniform rule and must
depend on the object of the Act which delegated the power to
fix the rate. Thus, it was held that the power to fix the rate of
tax can be delegated but some guidance has to be specified D
in the Act.
14. A similar question arose in Devi Das (supra) where
the Constitution Bench, while endorsing the opinion rendered
in Liberty Cinema (supra), held that there can be no general
principle that the doctrine of constitutional and statutory needs E
would always afford reasonable guidelines in the fixation of
rates of taxation. Each statute has to be examined to find out
whether there are guidelines therein which prevent delegation
from being excessive. The Constitution Bench summarised the
law on the subject of excessive delegation as follows: F
"The Constitution confers a power and imposes a duty on
the legislature to make laws. The essential legislative
function is the determination of the legislative policy and
its formulation as a rule of conduct. Obviously it cannot
abdicate its functions in favour of another. But in view of G
the multifarious activities of a welfare State, it cannot
presumably work out all the details to suit the varying
aspects of a complex situation. It must necessarily
delegate the working out of details to the executive or any
H
20 SUPREME COURT REPORTS [2012] 8 S.C.R.
A other agency. But there is a danger inherent in such a
process of delegation. An overburdened legishture or one
controlled by a powerful executive may unduly overstep the
limits of delegation. It may not lay down any policy at all; it
may declare its policy in vague and general terms; it may
B not set down any standard for the guidance of the
executive; it may confer an arbitrary power on the executive
to change or modify the policy laid down by it without
reserving for itself any control over subordinate legislation.
This self effacement of legislative power in favour of
c another agency either in whole or in part is beyond the
permissible limits of delegation. It is for a Court to hold
on a fair, generous and liberal construction of an
impugned statute whether the legislature exceeded such
limits. But the said liberal construction should not be
D carried by the Courts to the extent of always trying to
discover a dormant or latent legislative policy to sustain
an arbitrary power conferred on executive authorities. It
is the duty of the Court to strike down without any
hesitation any arbitrary power conferred on the executive
by the legislature."
E
(Emphasis supplied by us)
15. Our attention was also invited to a seven Judge Bench
decision in Municipal Corporation of Delhi (supra) where the
F majority again took the view that the legislature can delegate
non essential legislative functions, but while delegating such
functions, the<e must be a clear legislative policy which serves
as guidance for the authority on which the function is delegated.
As long as a legislative policy can be culled out with sufficient
G clarity or a standard is laid down, Courts should not interfere
with the discretion that undoubtedly rests with the legislature in
determining the extent of delegation necessary in a particular
case. On a review of a number of decisions on the point,
including In re. Delhi Laws Act, 1912' 0, Liberty Cinema (supra)
H 10. AIR 1951 SC.332.
DELHI RACE CLUB LTD. v. UNION OF INDIA AND 21
ORS. [D.K. JAIN, J.]
and Devi Oas (supra), Wanchoo C.J. (speaking for himself and A
Shela!, J.) observed that what guidance should be given and
to what extent and whether guidance has been given in a
particular case at all depends on a consideration of the
provisions of the particular Act with which the Court has to deal
with including its preamble. It was also observed that the nature B
of the body to which delegation is made is also a factor to be
taken into consideration in determining whether there is
sufficient guidance in the matter of delegation. However, what
form the guidance should take is again a matter which cannot
be stated in general terms. It will depend upon the C
circumstances of each statute under consideration; in some
cases guidance in broad general terms may be enough; in
other cases more detailed guidance may be necessary. In the
same decision, Shah J. (speaking for himself and Vaidialingam
J.) after analyzing the cases on the point of delegation of
legislative function by the Legislature, culled out the following D
principles:
"(i) Under the Constitution the Legislature has plenary
powers within its allotted field; (ii) Essential legislative
function cannot be delegated by the Legislature, that is, E
there can be no abdication of legislative function or
authority by complete effacement, or even partially in
respect of a particular topic or matter entrusted by the
Constitution to the Legislature; (iii) Power to make
subsidiary or ancillary legislation may however be F
entrusted by the Legislature to another body of its choice,
provided there is enunciation of policy, principles, or
standards either expressly or by implication for the
guidance of the delegate in that behalf. Entrustment of
power without guidance amoupts to excessive delegation G
of legislative authority; (iv) Mere authority to legislate on a
particular topic does not confer authority to delegate its
power to legislate on that topic to another body. The power
conferred upon the Legislature on a topic is specifically
entrusted to that body, and it is a necessary intendment H
22 SUPREME COURT REPORTS [2012] 8 S.C.R.
A of the constitutional provision which confers that power that
it shall not be delegated without laying down principles,
policy, standard or guidance to another body unless the
Constitution expressly permits delegation; and (v) the
taxing provisions are not exception to these rules."
B
16. From the conspectus of the views on the question of
nature and extent of delegation of legislative functions by the
Legislature, two broad principles emerge, viz. (i) that delegation
of non essential legislative function of fixation of rate of imposts
is a necessity to meet the multifarious demands of a welfare
C state, but while delegating such a function laying down of a clear
legislative policy is pre-requisite and (ii) while delegating the
power of fixation of rate of tax, there must be in existence, inter-
a/ia, some guidance, control, safeguards and checks in the
concerned Act. It is manifest that the question of application of
D the second principle will not arise unless the impost is a tax.
Therefore, as long as the legislative policy is defined in clear
terms, which provides guidance to the delegate, such
delegation of a non essential legislative function is permissible.
Hence, besides the general principle that while delegating a
E legislative function, there should be a clear legislative policy,
these judgments, which were vociferously relied upon before
us, will have no bearing unless the levy involved is tax.
17. Therefore, the pivotal question to be determined is the
F nature of the impost in the present case. The characteristics
of a fee, as distinct from tax, were explained by this Court, as
early as in The Commissioner, Hindu Religious Endowments,
Madras Vs. Sri Lakshmindra Thirtha Swamiar of Sri Shirur
Mutt" (commonly referred to as the 'Shirur Mutt's Case'). The
ratio of this decision has been consistently followed as locus
G classicus in subsequent decisions dealing with the concept of
'fee' and 'tax'. A Constitution Bench of this Court in Hingir
Rampur Coal Co. Ltd. Vs. State of Orissa 12 was faced with the
11. AIR 1954 SC 282.
H 12. 1961 (2) SCR 537.
DELHI RACE CLUB LTD. v. UNION OF INDIA AND 23
ORS. [D.K. JAIN, J.]
challenge of deciding upon the constitutional validity of the A
Orissa Mining Areas Development Fund Act, 1952, levying
cess on the colliery of the petitio.ner therein. The Bench
explained different features of a 'tax', a 'fee' and 'cess' in the
following passage:
B
''The neat and terse definition of Tax which has been given
by Latham, C.J., in Matthews v. Chicory Marketing
Board (1938) 60 C.L.R. 263 is often cited as a classic on
this subject. "A tax", said Latham, C.J., "is a compulsory
exaction of money by public authority for public purposes C
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
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 D
for public purposes and is not, and need not, be supported
by any consideration of service rendered in return, a fee
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 E
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
services or in return for them cess is levied against the said
area or the said class of persons or trade or business the F
cess is distinguishable from a tax and is described as a
fee .. "
It was further held that,
"It is true that when the Legislature levies a fee for G
rendering specific services to a specified area or to a
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 H
24 SUPREME COURT REPORTS [2012] 8 S.C.R.
A of a specified class or area the fact that in benefitting the
specified class or area the State as a whole may ultimately
and indirectly be benefitted would not detract from the
character of the levy as a fee. Where, however, the specific
service is indistinguishable from public service, and in
B 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 intended to achieve. Its primary object and the
essential purpose must be distinguished from its ultimate
c or incidental results or consequences. That is the true test
in determining the character of the levy .... "
(Emphasis supplied by us)
18. Recently in State of W B. Vs. Kesoram Industries Ltd.
D & Ors. 13 , a Constitution Bench of this Court, relying upon the
decision in Hingir Rampur Coal Co. Ltd (supra), explained the
distinction between the terms 'tax' and 'fee' in the following
words: (SCC HN)
E "The term cess is commonly employed to connote a tax
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
F 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 persons from
whom the fee has been collected. Availability of indirect
benefit and a general nexus between the persons
G bearing 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 .... "
(Emphasis supplied by us)
H 13. (2004) 1o sec 201.
DELHI RACE CLUB LTD. v. UNION OF INDIA AND 25
ORS. [D.K. JAIN, J.]
19. In the light of the tests laid down in Hingir Rampur A
(supra) and followed in Kesoram Industries (supra), it is
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. In the instant
case, it is plain from the scheme of the Act that its sole aim is B
regulation, control and management of horse-racing. Such a
regulation is necessary in public interest to control the act of
betting and wagering as well as to promote the sport in the
Indian context. To achieve this purpose, .licences are issued
subject to compliance with the conditions laid down therein, c
which inter a/ia include maintenance of accounts and furnishing
of periodical returns; amount of stakes which may be allotted
for different kinds of horses; the measures to be taken for the
training of the persons to become jockeys, to encourage Indian
bred horses and Indian jockeys; the inclusion and association D
of such persons as the government may nominate as stewards
or members in the conduct and management of the horse-
racing. The violation of the conditions of the licence or the Act
is penalised under the Act besides a provision for cognizance
by a court not inferior to a Metropolitan Magistrate. To ensure E
compliance with these conditions, the 1985 Rules empower the
District Officer or an Entertainment Tax Officer to conduct
inspection of the race club at reasonable times. Thus, the nature
of the impost is not merely compulsory exaction of money to
augment the revenue of the State but its true object is to
regulate, control, manage and encourage the sport of horse F
racing as is distinctly spelled out in the Act and the 1985 Rules.
For the purpose of enforcement, wide powers are conferred
on various authorities to enable them to supervise, regulate
and monitor the activities relating to the race course with a view
to secure proper enforcement of the provisions. Therefore, by G
applying the principles laid down in the aforesaid decisions, it
is clear that the said levy is a 'fee' and not 'tax'.
20. The appellants have also challenged the nature of the
impost, as according to them it is a tax imposed under the guise H
26 SUPREME COURT REPORTS (2012] 8 S.C.R.
A of a fee, since there is no quid pro quo or any broad co-relation
between the impost and the services rendered in return, rather.
there is no service in return at all. While it is true that 'quid pro
quo' is one of the determining factors that sets apart 'tax' from
a 'fee' but the concept of quid pro quo requires to be
B understood in its proper perspective. It can be traced back to
the decision of this Court in Sreenivasa General Traders and
Ors. Vs. State of Andhra Pradesh and Ors. 14 , wherein a Bench
of three learned Judges, analysed, in great detail, the principles
culled out in Kewal Krishan Puri (supra). Opining that the
c observation made in the said decision, seeking to quantify the
extent of correlation between the amount of fee collected and
the cost of rendition 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
0 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 Court echoed the following views insofar as the
actual quid pro quo between the services rendered and payer
of the fee was concerned:
E "31. The traditional view that there must be actual quid pro
quo for a fee has undergone a sea change in the
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
F benefit or privilege although the special advantage is
secondary to the primary motive of regulation in public
interest. !f 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
G the fee collected and the service intended to be rendered.
In determining whether a levy is a fee, the true test must
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
H 14. (1983) 4 SC 353.
DELHI RACE CLUB LTD. v. UNION OF INDIA AND 27
ORS. [D.K. JAIN, J.)
indirectly be benefitted by it. The power of any legislature A
to levy a fee is conditioned by the fact that it must be "by
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 B
necessary is that there should be a "reasonable
relationship" between the levy of the Fee and the services
rendered.
32. There is no generic difference between a tax and a C
fee. Both are compulsory exactions of money by public
authorities. Compulsion lies in the fact that payment is
enforceable by law against a person inspite of his
unwillingness or want of consent. A levy in the nature of fee
does not cease to be of that character merely because
there is an element of compulsion or coerciveness present D
in it, nor is it a postulate of a fee that it must have direct
relation to the actual service rendered by the authority to
each individual who obtains the benefit of the service. It is
now increasingly realized that merely because the
collections for the services rendered or the grant of a E
privilege or licence are taken to the consolidated fund of
the State and not separately appropriated towards the
expenditure for rendering the service is not by itself
decisive. Presumably, the attention of the Court in Shirur
Mutt case (AIR 1954 SC 282: 1954 SCR 1005) was not F
drawn to Article 226 of the Constitution. The Constitution
nowhere contemplates it to be an essential element of
fee that it should be credited to a separate fund and not
to the consolidated fund. It is also increasingly realised
that the element of quid pro quo in the strict sense is not G
always a sine qua non for a fee. It is needless to stress
that the element of quid pro quo is not necessarily absent
in every tax.
•••
H
28 SUPREME COURT REPORTS [2012) 8 S.C.R.
A 7. It is not always possible to work out with mathematical
precision the amount of fee required for the services to
be rendered each year and to collect only just that
amount which is sufficient for meeting the expenditure in
that year. In some years, the income of a market
B 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 modern
infrastructure facilities, the expenditure may be far in
excess of the income. It is wrong to take only one particular
c year or a few years into consideration to decide whether
the fee is commensurate with the services rendered. An
overall picture has to be taken in dealing with the question
whether there is quid pro quo i.e. there is correlation
between the increase in the rate of fee from 50 paise to
rupee one and the services rendered ..... "
D
21. It is pertinent to note that in Liberty Cinema (supra),
the Court had identified the existence of two distinct kinds of
fee and traced its presence to the Constitution itself. It was
observed that in our Constitution, fee for licence and fee for
E services rendered are contemplated as different kinds of levy.
The former is not intended to be a fee for services rendered.
This is apparent from a bare reading of Articles 110(2) and
199(2) of the Constitution, where both the expressions are used,
indicating thereby that they are not the same. Quoting Shannon
F Vs. Lower Mainland Dairy Products Board 15 , with approval, it
was observed thus :-
"if licences are granted, it appears to be no objection that
fees should be charged in order either to defray the costs
of administering the local regulation or to increase the
G
general funds of the Province or for both purposes ... It
·- cannot, as their Lordships think, be an objection to a
licence plus a fee that it is directed both to the regulation
of trade and to the provision of revenue."
H 15. AIR 1939 PC 36.
DELHI RACE CLUB LTD. v. UNION OF INDIA AND 29
ORS. [D.K. JAIN, J.]
22. The same principle was reiterated in Secunderabad A
Hyderabad Hotels Owners' Association case (supra) where the
existence of two types of fee and the distinction between them
has been highlighted as follows:
"9. It is, by now, well settled that a licence fee may be either 8
regulatory or compensatory. When a fee is charged for
rendering specific services, a certain element of quid pro
quo must be there between the service rendered and the
fee charged so that the licence fee is commensurate with
the cost of rendering the service although exact arithmetical C
equivalence is not expected. However, this is not the only
kind of fee which can be charged. Licence fee can a/so
be regulatory when the activities for which a licence is
given require to be regulated or controlled. The fee which
is charged for regulation for such activity would be validly
classifiable as a fee and not a tax although no service is D
rendered. An element of quid pro quo for the levy of such
fees is not required although such fees cannot be
excessive."
(Emphasis supplied by us) E
23. Dealing with such regulatory fees, this Court in Vam
Organic Chemicals Ltd. & Anr. Vs. State of U.P. & Ors16 .;
observed that in case of a regulatory fee, like the licence fee,
no quid pro quo is necessary, but such fee should not be F
excessive. The same distinction between regulatory and
compensatory fees has been highlighted in P. Kannadasan Vs.
State of T.N.' 7 ; State of Tripura Vs. Sudhir Ranjan Nath'";
B.S.E. Brokers' Forum case (supra) and followed in several
later decisions.
G
24. In A.P. Paper Mills Ltd. (supra), a bench of three
16. (1997) 2 sec 715.
17. (1996) 5 sec 670, para 36.
1a. (1997) 3 sec 665, 673. H
30 SUPREME COURT REPORTS [2012] 8 S.C.R.
A learned Judges of this Court was called upon to examine the
validity of the revision of licence fee under the Andhra Pradesh
Factories Rules, 1950. The levy of licence fee was challenged
inter-alia on the grounds that the fee imposed being in fact a
tax, the State had no power to levy the same; the Rules or the
B Factories Act, 1948, did not provide any criteria or guidelines
for fixation of licence fee and that the State had no power to
impose or enhance the licence fee for any alleged services
rendered or proposed to be rendered under other legislations
other than the concerned Act, as the power is delegated under
c that particular Act only. On an analysis of the provisions of that
Act and the Rules made thereunder, the Court came to the
conclusion that the licence fee in this case was a regulatory fee
and not a fee for any special services rendered; there was no
mention of any special service to be rendered to the payer of
D the licence fee in the provisions and the purpose of the licence
was to enable the authorities to supervise, regulate and monitor
the activities relating to factories with a view to secure proper
enforcement of the provisions. It was observed that the nature
of the provisions made it clear that for proper enforcement of
E the statutory provisions, persons possessing considerable
experience and expertise were required. On the question
whether the element of quid pro quo, as it is understood in
common legal parlance, was applicable to a regulatory fee, as
in that case, speaking for the bench, 0. P. Mahapatra, J.,
concluded thus:
F
"32. From the conspectus of the views taken in the decided
cases noted above it is clear that the impugned licence
fee is regulatory in character. Therefore, stricto sensu the
element of quid pro quo does not apply in the case. The
G question to be considered is if there is a reasonable
correlation between the levy of the licence fee and the
purpose for which the provisions of the Act and the Rules
have been enacted/framed. As noted earlier, the High
Court has answered the question in the affirmative. We
H have carefully examined the provisions of the Act and the
DELHI RACE CLUB LTD. v. UNION OF INDIA AND 31
ORS. [D.K. JAIN, J.]
Rules and also the pleadings of the parties. We find that A
the High Court has given cogent and valid reasons for the
findings recorded by it and the said findings do not suffer
from any serious illegality. It is our considered view that the
licence fee has correlation with the purpose for which the
statute and the rules have been enacted." B
25. Thus, it is clear that a licence fee imposed for
regulatory purposes is not conditioned by the fact that there
must be a quid pro quo for the services rendered, but that, such
licence fee must be reasonable and not excessive. It would
again not be possible to work out with arithmetical equivalence C
the amount of fee which could be said to be reasonable or
otherwise. If there is a broad correlation between the
expenditure which the State incurs and the fees charged, the
fees could be sustained as reasonable.
D
26. As noted above, in the present case, the object of the
Act, as synthesized from its provisions, is to regulate, monitor,
control and encourage the sport of horse-racing. For this
purpose, licences are issued subject to certain conditions. The
compliance with the licence conditions is inevitable for renewal E
of the licences as well as significant to avoid any penalty under
the Act. To ensure such compliance, as aforesaid, district
officers/ entertainment tax officers are entrusted with the duty
of inspection. The nature of inspection enjoined by the Act is
not of a general nature but requires expertise and training and F
also constant vigil on the activities of the race course. The
expenses incurred in carrying out such regular inspections have
to be considerable. Hence, in our opinion, the licence fee
imposed in the present case is a regulatory fee and need not
necessarily entail rendition of specific services in return but at G
the same time should not be excessive. In any case, the
appellant has not challenged the amount of the levy as
unreasonable and expropriatory or excessive. The argument on
behalf of the appellant that inspection does not constitute a
service rendered in lieu of the fee charged, based upon the H
32 SUPREME COURT REPORTS [2012] 8 S.C.R.
A observations in the Liberty Cinema case (supra) is equally
fallacious. In Delhi Cloth & General Mills Co. Ltd. Vs. The
Chief Commissioner, Delht19 while holding that the levy involved
in that case was a fee as opposed to tax, this Court held as
follows:
B
".... In each case where the question arises whether the levy
is in the nature of a fee the entire scheme of the statutory
provisions, the duties and obligations imposed on the
inspecting staff and the nature of work done by them will
have to be examined for the purpose of determining the
c rendering of the services which would make the levy a fee.
It is quite apparent that in the Liberty Cinema case it was
found that no service of any kind was being or could be
rendered and for that reason the levy was held to be a tax
and not a fee .... "
D
The observations made in the Delhi Cloth and General
Mills (supra) apply squarely to the instant case. The scheme
of the Act; its object as elucidated in its provisions and Rules
made therein; nature of conditions imposed in the licences;
E inspection to ensure its compliance and non-renewal of the
licence as well as penalty in case of contravention of the licence
conditions, make the Act fall in the category of imposts where
contributions are required to be made for the purpose of
maintaining an Authority and the staff for supervising and
F controlling a public activity viz. the horse racing. Besides, the
presence of a large institution like the race course enjoins
additional burden on the civic authorities to maintain and
develop the surrounding area for the convenience of the public
at large. This Court echoed a similar view in the
G Secunderabad Hyderabad Hotels Owners' Association case
(supra) as follows:
"(8) .... Undoubtedly, the Corporation has the general duty
to provide scavenging and sanitation services including
H 19. (1969) 3 sec 925.
DELHI RACE CLUB LTO. v. UNION OF !NOIA AND 33
ORS. [O.K. JAIN, J.]
removal of garbage and maintaining hygienic conditions A
in the city for the benefit of all persons living in the city.
Nevertheless, hotels and eating houses by reason of the
nature of their occupation, do impose an additional burden
on the municipal corporation in discharging its duties of
lifting of garbage, maintenance of hygiene and sa:nitation B
since a large number of persons use the premis~s either
for lodging or for eating; the food is prepared in large
quantity unlike individual households and the resulting
garbage is also much more than what would otherwise be
in the case of individual households ..... " c
27. Thus, the licence fee levied in the present case, being
regulatory in nature, the Government need not render some
defined or specific services in return as long as the fee satisfies
the limitation of being reasonable. We may reiterate here that
the amount of licence fee charged from the appellant has not D
been challenged as being excessive. Thus, in light of the above
•
observations relating to inspection and other provisions of the
Act, we hold that the licence fee charged has a broad co-
relation with the object and purpose for which the Act and the
2001 Rules have been enacted. E
28. As noted above, challenge to the constitutionality of
Section 11 (2) of the Act was based on the premise that no
guidance, check, control or safeguard is specified in the Act.
This principle, as we have distinguished above, applies only F
to the cases of delegation of the function of fixation of rate of
tax and not a fee. As we have held that the levy involved in the
present case is a fee and not tax, the ratio of the above-
mentioned cases, relied upon by the learned Senior Counsel,
will have no application in determining the question before us. G
The scheme of the Act clearly spells out the object, policy and
the intention with which it has been enacted and therefore, the
Act does not warrant any interference as being an instance of
excessive delegation.
29. Before we part with the judgment, it is pertinent to note H
34 SUPREME COURT REPORTS [2012] 8 S.C.R.
A that the challenge to the validity of Section 11 (2) of the Act was
raised after almost 15 years of its coming into force. The
appellant, since the commencement of the Act, had been
regularly paying the licence fee and the present challenge was
made only when quantum of the licence fee was increased by
B the Government on account of non revision of the same since
the commencement of the Act. Evidently, the inflation during this
period was taken as the criterion for increasing the quantum
of the fee. It is a reasonable increase keeping in view the fact
that the expenditure incurred by the Government in carrying out
c the regulatory activities for attaining the object of the Act would
have proportionately increased. It is also relevant to note that
an institution of the size of the Race Course should not cloak
their objection to an increase in the rate of licence fee and
present them as a challenge to the constitutionality of the
charging section.
0
30. In view of the aforegoing discussion, we are in
agreement with the High Court that Section 11(2) of the Act as
well as 2001 Rules do not suffer from any legal infirmity. This
appeal, being bereft of any merit, is dismissed accordingly, with
E costs, quantified at Rs.50,000/-.
B.B.B. Appeal dismissed.
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