Holding

The cess imposed under the Andhra Pradesh Rural Development Act, 1996 is a fee and the Act is constitutionally valid under entry 66 of List II.

Summary

The appellants, rice millers, challenged the constitutionality of a 5% cess levied under the Andhra Pradesh Rural Development Act, 1996, arguing that it was neither a tax nor a fee within the constitutional entries and that no specific service was rendered to them. The State contended that the levy was a fee for rural development services and thus fell under entry 66 of List II of the Seventh Schedule. The Supreme Court held that a cess is a special kind of tax but, in substance, the levy in question is a fee because it is imposed to fund specific rural infrastructure projects, and a broad correlation between revenue collected and services rendered suffices. The Court upheld the validity of the Act, dismissed the appeals, and allowed the petitioners to file a fresh petition if they can specifically demonstrate the absence of such correlation. No costs were awarded.

Issues considered

The nature of the levy under the Andhra Pradesh Rural Development Act, 1996: tax or fee?
Whether the cess falls within entry 66 of List II of the Seventh Schedule of the Constitution.
Whether the absence of a direct quid pro quo invalidates the levy as a fee.

Subjects

constitutional validitycessfeetaxentry 66 List IIrural developmentbroad correlationpublic purposelevy

Judgment

VIJA YALASHMI RICE MILL AND ORS. A
V.

THE COMMERICAL TAX OFFICERS, PALAKOL AND ORS.

AUGUST 7, 2006

[ASHOK BHAN AND MARKANDEY KATJU, JJ.] B

Andhra Pradesh Rural Development Act, 1956-1mposition of cess-
Constitutional validity of-Held-Cess was for rendering to rural public
facilities of roads, bridges, storage etc.-lt was in substance a fee even if no C
specific service was rendered to any particular individual from whom it was
realized-However, there had to be a broad correlation between total amount
offees generated by the cess and total value of service rendered-Act found
to be valid in absence of specific plea that such correlation was absent-
However, liberty reserved to file fresh petition with that plea-Entry 66 of list
II of Seventh Schedule to Constitution of India, 1950.
D
Words and phrases--Tax, cess and fee-Difference between-Discussed.

Appellants are registered firms and individual traders engaged in
the business of rice milling. They challenged constitutional validity of cess
under the Andhra Pradesh Rural Development Act, 1956, which levied
cess in addition to the purchase or sales tax being paid by them. High E
Court rejected this challenge. Hence the present appeal.

- Appellant contended that (i) the cess did not fall under any of the
entries in List II or List Ill of the Seventh Schedule to the Constitution
(ii) there was no quid pro quo in the levy of the cess, and hence it cannot
be said to be a fee.
F

Respondent-State contended that the cess in question is in fact a fee,
and hence it comes under entry 66 of List II of the Seventh Schedule to
the Constitution.
G
.. _ Dismissing the appeals, the Court

'HELD: 1.1. Ordinarily, a cess means a tax which raises revenue,
which is applied to a specific purpose. Hence ordinarily a cess is also a
tax, but is a special kind of a tax. Generally tax raises revenue which can
279 H
280 SUPREME COURT REPORTS [2006] SL:PP. 4 S.C.R.

A be used generally for any purpose by the State. However, cess is a tax
which generates revenue which is utilized for a specific purpose. For
instance, health cess raises revenue which is utilized for health purposes
like building hospitals, giving to the poor etc. Similarly, education cess
raises revenue which is used for building schools or other educational
B purposes. 1284-F-H, 285-AI

India Cement Ltd. and Ors. v. State of Tamil Nadu and Ors.. 119901 1
sec 12, followed.
Guruswamy and Co. v. State of Mysore, AIR (1967) SC 1512, referred
C to.

1.2. In such matters nomenclature is not very important and the
nature of the levy has to be seen. Hence, what is called a cess may be in
reality a fee depending on its nature. 1285-A-BI

1.3. The basic difference between a tax and a fee is that a tax is a
D compulsory exaction of money by the State or a public authority for public
purposes, and is not a payment for some specific services rendered. On
the other hand, a fee is generally defined to be a charge for a special service
rendered by some governmental agency. 1285-B-CI

E Kewal Krishan Puri v. State of Punjab, AIR (1980) SC 1008, Sreenivasa
General Traders v. State of Andhra Pradesh, AIR (1983) SC 1246, City
Corporation of Calicut v. Thachambalath Sadasivam, AIR (1985) SC 756,

-
Amar Nath Om Prakash v. State of Punjab, AIR (1985) SC 218, State of
Himachal Pradesh v. Shivalik Agro Poly Products, AIR (2004) SC 4393, Sona
Chandi Oaf Committee v. State of Maharashtra, AIR (2005) SC 635 and State
F of West Bengal v. Kesoram Industries Ltd and Ors., 12004] to SCC 201, relied
on.

Kishan Lal Lakshmi Chand and Ors. v. State of Haryana and Ors.,
119931 Suppl. 4 SCC 461, referred to.

G Jindal Stainless Ltd and Ors. v. State of Haryana and Ors.. JT (2006)
4 SC 61 I, held inapplicable.

Shiv Dayal Singh Ors. v. State of Haryana and Ors., AIR (1989)
Punjab, 87 approved.

H 2.1. The cess in question is in substance a fee as it is being levied for ·-
VIJAYALASHMI RJCE MILL'· THE COM MERICAL TAX OFFICERS. PALA KOL 281
rendering to the rural public the service of rural development for the A
purpose stated in para 9 of the Act Clearly roads, bridges and storage
facilities have to be built in rural areas for progress, and naturally this
will require generating funds. Thus even if no service is rendered to any
particular individual from whom the fee has been realized, the cess in
question is nevertheless a fee. Services are being rendered to the people B
in the rural as mentioned in Section 9 of the Act. (288-F-GI

2.2. No doubt, there has to be a broad correlation between the total
i
amount of fees generated by the impugned cess 11nd the total value of the
services rendered, but there is no specific averment in the writ petition
that there is no broad correlation. It is true that if, say, Rs 100 crores C
revenue is generated every year by this cess, it is not necessary that this
entire amount of Rs. 100 crores must be spent for the purpose mentioned
in Section 9, and it will suffice if a substantial part of this Rs 100 crores
is spent for such purposes. At the same time it is clarified that if, say, Rs
100 crores is generated by the cess in question and only Rs 1 crore or Rs
50 lacs is spent for the purpose mentioned in Section 9, obviously there D
would not be in such a case broad correlation between the fees being
realized and the service rendered. (288-H; 289-A-B)

2.3. While the validity of the Act is upheld, it is open to the petitioners
in the special circumstances of the case, to file a fresh petition, wherein
he can make a specific averment that there is no broad correlation between E
the total amount of cess being realized every year under the Act and the
total value of the services being rendered every year in accordance with
Section 9. If the appellants (or any other concerned person) files such a
fresh petition, the State of Andhra Pradesh will have to give facts and
figures in their counter affidavit showing that there is a broad correlation p
between the total amount of cess being realized and the total value of the
services rendered. If it is found that there is no such broad correlation
then obviously a suitable mandamus can be issued by the High Court, as
is required by the circumstances of the case. (289-C-E)

3. The concept of fee has undergone a sea change, and hence the writ G
petition is liable to fail on the mere ground that the writ petition was
drafted under total misconception about legal position. (286-G-H)

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 5120-5I32
of 1999.
H
282 SUPREME COURT REPORTS [2006] SUPP. 4 S.C.R.

A From the Common Judgment and Order dated 25.9.1998 of the High
Court of Andhra Pradesh at Hyderabad in W.P. Nos. 19213, 19299, 19384,
19385. 19387, 19388, 19389, 19523, 19526, 19707, 19915 and 22448 of
1998.

WITH
B
C.A. Nos. 5133/1999, 5134-5137/1999. 5138-514011999. 5141/1999,
5142-5143/1999, 5144-5146/1999, 5147/1999 and 5148/1999.

M.N. Rao, Y. Raja Gopala Rao, A. Ramesh, Y. Ramesh, R.N. Keshwani,
Ram Lal Roy and B. Sunita Rao for the Appellants.
c
Rakesh Dwivedi, Manoj Saxena, Rajnish Kr. Singh, Sameena Ahmed,
Rahul Shukla and T.Y. George for Mohanprasad Meharia for the Respondents.

The Judgment of the Court was delivered by

0 MARKANDEY KATJU, J. Civil Appeal Nos.5120-5132 of 1999 !iave
been filed against the Judgment and Order dated 25.9.1998 of the High Court
of Andhra Pradesh passed in Writ Petition Nos. I9213, 19299, : 9384, 19385,
19387, 19388, 19389, 19523, 19526, 19707, 19709, 19915 and 22448 of
1998. by which the Constitutional validity of the Andhra Pradesh Rural
E Development Act, 1996 has been upheld.

Heard Shri M.N. Rao, learned Senior counsel for the appellants, and
Shri Rakesh Dwivedi, learned Senior counsel for the respondents.

Most of the petitioners-appellants are registered firms, whik some of
F them are individual traders engaged in the business of rice milling. It is
alleged that they are regularly submitting returns to the Commercial Tax
Authorities reflecting their turnovers of purchase of paddy as well as sale of
rice every year and accordingly they pay purchase and sales tax. They i:re
challenging the levy of cess under the Andhra Pradesh Rural Development
Act, 1996 (hereinafter referred as "the Act") which levies cess in addition to
G the purchase or sales tax being paid by them. It is alleged that the aforesaid
cess under the Act does not fall under any of the entries in List-II or List Ill
qf the Seventh Schedule to the Constitution. Hence it is alkged that the
aforesaid levy of cess is invalid.

Entry 54 of List II of the Seventh Schedule no doubt empowers the
H State Legislatures to levy tax on purchase or sale of goods, but since the
VIJA YALASHMI RICE MILL'· THE COMMERICAL TAX OFFICERS,PALAKOL [M.\RKANDEY KATJU, I.] 283
goods in question have been declared as declared goods under the Central A
Sales Tax Act, it is submitted by the appellant that the maximum sale or
purchase tax can be 4% and the appellants have already paid more than that
as sale/purchase tax. Hence it is contended that the levy of cess under the Act
is invalid.

On the other hand, Shri Rakesh Dwivedi, learned Senior counsel for the B
State of Andhra Pradesh, has submitted that the cess in question is in fact a
fee, and hence it comes under Entry 66 of List-II of the Seventh Schedule to
the Constitution.

Shri Rao, learned Senior counsel for the appellants contended that there C
was no quid pro quo in the levy of the cess, and hence it cannot be said to
be a fee. He has invited our attention to the allegation in para 5 of the
affidavit in support of the writ petition, where it has been alleged "The cess
is collected from a dealer and nothing is done specially to benefit the dealer.
The cess partakes the r:haracter of a tax".
D
A copy of the Andhra Pradesh Rural Development Act, 1996 has been
annexed as annexure P-1. Jn the Statement of Objects and Reasons of the
Act, it is stated :

"It is observed that the development in the rural areas in the State has
not been accelerated due to paucity of funds. The Government are of E
the view that there is an imperative need to provide financial assistance
for the development of rural areas in the State by creating infrastructure
facilities, so that the economic activities in the rural areas will increase
and thereby contribute for the growth of the economy. With a view
to generating funds for the purpose of development of the rural areas,
it is considered desirable to levy a cess @ 5% on the advalorem basis F
on the quantity of the purchase of goods specified in the Schedule
appended to the Bill".

Section 3 of the Act empowers the State Government by notific:ition to
establish the Andhra Pradesh Rural Development Board.
G
Section 7(1) states: "There shall be levied and collected by the
Government a cess @ 5% on the advolerem on the quantum of purchase of
goods".

Section 8 establishes a fund to be called "The Andhra Pradesh Rural
H
284 SUPREME COURT REPORTS (2006] SUPP. 4 S.C.R.

A Development Fund" which vests in the Board. The purpose of this fund has
been mentioned in Section 9 which states:

·•9. Purpose for which the Fund may be applied : The Fund shall be
applied for the purposes herein specified :

B (i) to provide and accelerate comprehensive rural development
including the construction of rural roads and bridges;

(ii) to augment storage facilities for storing agricultural produce; and

(iii) for maintaining and strengthening of Public Distribution System".

C The question in the present case is whether the impost in question is a
fee or a tax. If it is a tax, then it will have to be held to be unconstitutional
because it does not come in any of the Entries in List II of the Seventh
Schedule to the Constitution. However, if it is a fee, then it comes under
Entry 66 of List 11.

D Ordinarily. a cess means a tax which raises revenue, which is applied
to a specific purpose. Thus in Uuruswamy and Co. v. State of Mysore, AIR
( 196 7) SC 1512 Hidayatullah, J. in his dissenting judgment observed :

"The word 'cess' is used in Ireland and is still in use in India although
the word rate has replaced it in England. It means a tax and is generally
E used when the levy is for some special administrative expense which
the name (health cess, education cess, road cess, etc.) indicates. When
levied as an increment to an existing tax, the name matters not for the
validity of the cess must be judged of in the same way as the validity
of the tax to which it is an increment."
F
The aforesaid observations has been referred to by the Constitution Bench
decision of this Court in India Cement Ltd. & Ors. v. State of Tamil Nadu
& Ors., [1990] 1 SCC 12 vide para 19.

Hence ordinarily a cess is also a tax, but is a special kind of a tax.
G Generally tax raises revenue which can be used generally for any purpose by
the State. for instance, the Income Tax or Excise Tax or Sales Tax are taxes
which generate revenue which can be utilized by the Union or State
Governments for any purpose, e.g. for payment of salary to the members of
-
the armed forces or civil servants, police, etc. or for devdopment programmes,

H
etc. However, ccss is a tax which generates revenue which is utilized for a
specific purpose. For instance, health cess raises revenue which is utilized for -
_,_
VIJA YALASHMI RICE MILL v. THE COMMERICAL TAX OFFICERS. PALA KOL [MARKANDEY KATJU, J.) 285
health purposes e.g. building hospitals, giving medicines to the poor etc. A
Similarly, education cess raises revenue which is used for building schools
or other educational purposes.

However, in such matters nomenclature is not very important and we
have to see the nature of the levy. Hence, what is called a cess may be in
reality a fee depending on its nature. B
It is well settled that the basic difference between a tax and a fee is that
a tax is a compulsory exaction of money by the State or a public authority
for public purposes, and is not a payment for some specific services rendered.
On the other hand, a fee is generally defined to be a charge for a special C
service rendered by some governmental agency. In other words there has to
be quid pro quo in a fee vide Kewal Krishan Puri v. State of Punjab, AIR
(1980) SC 1008.

The earlier view of the Supreme Court was that to sustain the validity
of a fee some specific service must be rendered to the particular individual . D
from whom the fee is sought to be realized. However, subsequently in
Sreenivasa General Traders v. State of Andhra Pradesh, AIR ( 1983) SC
1246, Supreme Court observed:

"The traditional view that there must be actual quid pro quo for a fee
has undergone a sea change in the subsequent decisions. The E
distinctions between a tax and a fee lies preliminary in the fact that
a tax is levied as part of a common burden, vide a fee is for payment
of a specific benefit or privilege although the specific advantage is
secondary to the primary motive of regulation in public interest. If
the element of revenue for general purpose of the State predominates,
the levy becomes a tax. In regard to fees there is, and must always F
be, correlation between the fee collected and the service intended to
be rendered .......... There is no generic difference between a tax and
a fee. Both are compulsory exaction of money by public authorities."

Similarly in City Corporation of Calicut v. Thachamba/ath Sadasivan, G
AIR (1985) SC 756, which has placed reliance on an earlier decision of the
Supreme Court in Amar Nath Om Prakash v. State of Punjab, AIR (1985) SC
218, it was held that:

"It is thus well settled in numerous recent decisions of this Court that
the traditional concept in a fee of quid pro quo is undergoing a H
286 SUPREME COURT REPORTS (20061 SUPP. 4 S.C.R.

A transfonnation and that though the fee must have relation to the
services rendered, or the advantages conferred, such relation need not
be direct, and a mere casual relation may be enough. It is not necessary
to establish that those who pay the fee must receive direct benefit of
the services rendered for which the fee is being paid. If one who is
liable to pay receives general benefit from the authority levying the
B fee the element of service required for collecting fee is satisfied. It is
not necessary that the person liable to pay must receive some special
benefit or advantage for payment of the fee."

Subsequently, also the same view has been reiterated that there has
C been a sea change in the concept of a fee and now it is no longer regarded
necessary that (i) some specific service must be rendered to the particular
individual or individuals from whom the fee is being realized, and what has
to be seen is whether there is a broad and general correlat10nship between the
totality of the fee on the one hand, and the totality of the expenses of the
services on the other, vide State of Himachal Pradesh v. Mis. Shivalik Agro
D Poly Products, AIR (2004) SC 4393; (ii) there need not be an exact or
mathematical correlation between the amount realized as a fee and the value
of the services rendered. A broad correlation between the two is sufficient to
sustain the levy.

In the present case, there is no avennent by the petitioner in the writ
E petition that there is no broad correlation between the amount realized as a
cess and the amounts spent for the purposes mentioned in Section 9 of the
Act, namely, to provide and accelerate rural development including the
construction of rural road and bridges and storage facilities for storing growth
and for maintaining and strengthening of the Public Distribution System. All
F that has been alleged by the petitioner in para 5 of the affidavit to the writ
petition is that no specific benefit is given to the dealer from whom the cess
is collected.

-
Thus the factual averment in the writ petition is limited to the plea that
there is no specific service rendered to a particular dealer from whom the fee
G is realized. There is no factual avennent that there is no broad correlation
between the total amount of cess realized and the total value of the service
being rendered to the people living in the rural areas.

As already stated above, the concept offee has undergone a sea change,
and hence the writ petition is liable to fail on the mere ground that the writ
H petition was drafted under a total misconception about the legal position. As
VIJAYALASHMI RICE MILL'· THECOMMERICAL TAX OFFICERS, PALAKOL [MARKANDEY KATJU, J.] 287

already stated above, the concept of fee has undergone a sea change, while A
the writ petition has been drafted in the light of the old concept of fee and
not the new concept which was subsequently developed by the Supreme
Court.

In Sona Chandi Oat Committee v. State of Maharashtra, AIR (2005)
SC 635, this Court observed as under: B
"The traditional concept of quid pro quo in a fee has undergone
considerable transformation. So far as the regulatory fee is concerned,
the service to be rendered is not a condition precedent and the same
does not lose the character of a fee provided the fee so charged is not
excessive. It was not necessary that service to be rendered by the c
collecting authority should be confined to the contributories alone.
The levy does not cease to be a fee merely because there is an element
of compulsion or coerciveness present in it, nor is it a postulate of a
fee that it must have a direct relation to the actual service rendered
by the authority to each individual who obtains the benefit of the D
service. Quid pro quo in the strict sense was not always a sine qua
non for a fee. All that is necessary is that there should be a reasonable
relationship between the levy of fee and the services rendered and it
is not necessary to establish that those who pay the fee must receive
direct or special benefit or advantage of the services rendered for
which the fee was being paid. It was held that if one who is liable to E
pay, receives general benefit from the authority levying the fee, the
element of service required for collecting the fee is satisfied."

In State of West Bengal v. Kesoram Industries Ltd. and Ors., [2004] IO
SCC 201 a Constitution Bench of the Supreme Court (vide para 140) observed:
F
" ........... The imposition of cess envisaged through the SADA Act and
the Rules was a step towards developing the special area. It is a
matter of common knowledge, and does not need any evidence to
demonstrate, that mining activity carried on the land within the special
area involves extraction, removal, loading-unloading and transportation G
of the minerals accompanied by its natural consequences entailed on
the environment and the infrastructure such as roads, water and power
supply etc. within the special area. The impugned cess can, therefore,
be justified as a fee for rendering such services as would improve the
infrastructure and general development of the area, the benefits
whereof would be availed even by the stone-crushers. Entry 66 in H
288 SUPREME COURT REPORTS (2006] SUPP. 4 S.C.R.

A List ll is available to provide protective constitutional coverage to the
impugned levy as fee."

In Shiv Dayal Singh Ors. v. State of Haryana & Ors., AIR (l 989)
Punjab 87. the Punjab and Haryana High Court has upheld the validity of the
Haryana Rural Development Act, which is similar to the Act in question. We
B are in respectful agreement with the view taken by the Punjab and Haryana
High Court in the aforesaid decision. A similar view was also taken by the
Supreme Court in Mis. Kishan Lal Lakhmi Chand & Ors. v. State ofHaryana
& Ors., [I 993] Suppl. 4 SCC 46 I.

Learned counsel for the appellant has relied on the Constitution Bench
C decision of this Court in Jindal Stainless Ltd. & Anr. v. State of Haryana and
Ors., JT (2006) 4 SC 61 I and he relied on para 39 of the said judgment
which refers to "the principle of equivalence". In our opinion the aforesaid
decision cannot be interpreted to mean that the sea change which has taken
place in the concept of fee (as noted above) has vanished, and that by this
D decision the old concept of fee has been restored, and that now it has to be
established that the particular individual from whom the fee is being realized
must be rendered some specific services.

It may be noted that the decision in Jindal Stainless (supra) was given
in connection with Article 30 I of the Constitution, and it was not regarding
E the nature of a fee. Hence, it cannot be regarded as an authority explaining
the nature of a fee. In our opinion the decisions of this Court in Sreenivasa
General Traders v. State of A.P. (supra), City Corporation of Calicut v.
Thachambalath (supra), State of Himachal Pradesh v. Mis Shiva/ik Agro
Poly Products (supra), etc. still hold the field regarding the nature of a fee.

F In our opinion the cess in question is in substance a fee as it is being
levied for rendering to the rural public the service of rural development for
t\Je purposes stated in para 9 of the Act. Clearly roads, bridges and storage
facilities have to be built in rural areas for progress, and naturally this will
require generating funds. Thus even if no specific service is rendered to any
G particular 1individual from whom the fee has been realized, the cess in question
is nevertheless a fee, for the reasons already mentioned above. Services are
being rendered to the people in the rural areas as mentioned in Section 9 of
the Act.

No doubt, as stated above. there has to be a broad correlation between
H the total amount of fees generated by the impugned cess and the total value
VIJAYALASHMI RICE MILL v. THE COMMERICAL TAX OFFICERS, PALA KOL [MARKANDEY KAT JU, J.] 289
of the services rendered, but there is no specific averment in the writ petition A
that there is no such broad correlation. It is true that if, say, Rs. I 00 crores
revenue is generated every year by this cess, it is not necessary that this
entire amount of Rs. I 00 crores must be spent for the purposes mentioned in
Section 9, and it wiil suffice if a substantial part of this Rs. I 00 crores is
spent for such purposes. At the same time we would like to clarify that if, B
say, Rs. I 00 crores is generated by the cess in question and only Rs. I crore
or Rs.50 lacs is spent for the purpose mentioned in Section 9, obviously there
would not be in .such a case a broad correlation between the fees being
realized and the service rendered.

Hence, while we uphold the validity of the Act, we leave it open to the C
petitioners (or any other person concerned) in the special circumstances of
the case, to file a fresh petition, wherein he can make a specific averment that
there is no broad correlation between the total amount of cess being realized
every year under the Act and the total value of the services being rendered
every year in accordance with Section 9. If the appellants (or any other
concerned person) files such a fresh petition, the State of Andhra Pradesh D
will have to give facts and figures in their counter affidavit showing that
there is a broad correlation between the total amount of cess being realized
and the total value of the services rendered. If it is found that there is no such
broad correlation then obviously a suitable mandamus can be issued by the
High Court, as is required by the circumstances of the case. E
With the aforesaid observations these appeals are dismissed. No costs.

Civil Appeal Nos. 513311999, 5134-513711999, 5138-514011999, 51411
1999, 5142-5143!1999, 5144-514611999, 514711999 & 514811999

In view of the decisions in Civil Appeal Nos. 5120-5132 of 1999 these
F
appeals are accordingly dismissed. No costs.

v.s. Appeals dismissed.