P. CHATHU AND CO. v. STATE OF KERALA — 1965 DIGILAW 414 (KER)

Judgment :- 1. The only question for determination in these writ applications is the validity of S.11 of the Madras Commercial Crops Markets Act, (hereinafter referred to as the Act) 1933 as amended by the Madras Commercial Crops Markets (Amendment and Validation) Act, 1964 (Act V of 1964). The amended Section is in these terms:- "Section 11. Levy of Fees by Market. Committees. (1) The Market Committee shall levy fees on the notified commercial crops mentioned in column (1) of the table below bought and sold in the notified area at the rates specified against them in column (2) of that table. Explanation:-For the purpose of this section, all notified commercial crops leaving a notified area shall, unless the contrary is proved, be presumed to be bought and sold within such area. (2) The fess referred to in sub-section (1) shall be paid by the purchaser of the commercial crops concerned; Provided that where the purchaser of a commercial crop cannot be identified, the fee shall be paid by the seller. (3) Out of the fees levied under sub-section (1) on the commercial crop or crops bought and sold in any part of the notified area which constitutes a village as defined in the law for the time being in force for the constitution of Panchayats, such proportion as may be prescribed shall be paid by the Market Committee to the Panchayat concerned." 2. The point raised is that though the Section purports to levy 'fees', in substance and reality there is a levy of tax. This tax has also been imposed on the purchase and sale of certain commodities and such a tax cannot be imposed. It may be mentioned here that the levy has not been sought to be supported as a tax at all. The contention on behalf of the State is that the impost is really fees and there can be no objection to such an impost. 3. S.11 of the Act had been the subject matter of challenge more than once before this. Before the Section was amended by the Madras Commercial Crops Markets (Amendment) Act, 1955 it read as follows: 11. (1) The Market Committee shall, subject to such rules as may be made in this behalf, levy fees on the notified commercial crop or crops bought and sold in the notified area at such rates as it may determine. Before the Section was amended by the Madras Commercial Crops Markets (Amendment) Act, 1955 it read as follows: 11. (1) The Market Committee shall, subject to such rules as may be made in this behalf, levy fees on the notified commercial crop or crops bought and sold in the notified area at such rates as it may determine. Provided that until the market committee has determined the rates of such fees, it shall levy fees at the rates specified in the Schedule to this Act (or in the case of any crop or product notified by the State Government as commercial crops for the purposes of this Act, at the rates specified in this behalf in such notification.) Explanation. For the purposes of this sub-section, all notified commercial crops leaving a notified area shall, unless the contrary is proved, be presumed to be bought and sold within such area. (2) The fees referred to in sub-section (1) shall be paid by the purchaser of the commercial crop concerned: Provided that where the purchaser of a commercial crop cannot be identified the fee shall be paid by the seller. (3) Out of the fees levied under sub-section (1) on the commercial crop or crops bought and sold in any part of the notified area which constitutes a village as defined in S.2 of the Madras Village Panchayats Act, 1950, such proportion as may be prescribed shall be paid by the market committee to the Panchayat concerned." This Section was challenged before the Madras High Court and the decision of the Madras High Court is in P. P. Kutti Keya and others v. The State of Madras and others reported in AIR. 1954 Madras 621. The relevant part of the judgment is in Para.35 which is extracted below: "The next contention advanced by the petitioners is that the Act and the rules impose a tax on inter-State sales and are therefore repugnant to Art.286(2) and as those provisions are inseparably mixed up with those relating to intra-state sales, the whole body of them must be held to be unconstitutional. The relevant provisions are S.11, S.11-A and R.28(1) and (3). S.11 provides that the Market Committee shall levy fees on the notified commercial crops bought and sold in the notified area at such rates as it may determine. The relevant provisions are S.11, S.11-A and R.28(1) and (3). S.11 provides that the Market Committee shall levy fees on the notified commercial crops bought and sold in the notified area at such rates as it may determine. This is followed by an explanation which is as follows: 'For the purpose of this sub-section, all notified commercial crops leaving a notified area shall, unless the contrary is proved, be presumed to be bought and sold within such area." S. 11-A provides for the levy of subscription for collecting and disseminating marketing information. R.28(1) prescribes the scale of fees to be levied under S.11(1); and R.28(3) the licence fees chargeable under S.5. The question is whether these charges are valid. On our finding that there is need for regulation of the marketing of commercial crops 'and the system of licensing is a part of a scheme to carry it out, there can be no valid objection to the levy of a licence fee, and though it was suggested that it was heavy, there are no materials on which the suggestion could be supported. R.28(3) must accordingly be held to be valid. Nor can there be any objection to the levy under S.11 A. It is a fee charged for obtaining and disseminating information on marketing and it is only those that subscribe therefor that are liable to pay it. It is therefore clearly valid. It is the legality of the levy under S.11 and R.28(1) that has been the main target of attack. The argument on behalf of the petitioners is that this levy, though called a fee, is in reality a tax, and as that is imposed on inter-State trade, it is obnoxious to Art.286(2). The question is whether it is a fee or a tax and to ascertain its true character, we must examine the relevant provisions relating thereto. S. 11(1) enacts that the Market Committee shall levy a fee on the sales of commercial crops within the notified area; and S.12 provides that the amounts collected by the Market Committee shall be constituted into a market fund. S.13 provides that the fund should be utilised for acquiring a site for the market, constructing a building, maintaining the market and meeting the expenses of election to the Market Committee and all the salaries, gratuities, pensions etc. of the officers and servants employed by the Market Committee and so forth. S.13 provides that the fund should be utilised for acquiring a site for the market, constructing a building, maintaining the market and meeting the expenses of election to the Market Committee and all the salaries, gratuities, pensions etc. of the officers and servants employed by the Market Committee and so forth. It is argued for the petitioners that the true object of the levy was to raise funds from the merchants for construction of a market and that it is in substance a tax. This contention is, in our opinion, well founded. A fee is what is charged for services rendered by the person who charges it. When the State, for example, introduces licensing, it is entitled to charge for the expenses incurred in maintaining an establishment for licensing and that it is properly termed a fee The fee prescribed in R.28 (3) falls under this category and is perfectly legitimate. But the levy under S.11 is for no services rendered. It is really a tax levied for raising funds for constructing the market. In-'Attorney General for British Columbia v. Esquimau and Nanaimo Ry. Co.', 1950 AC. 87 the judicial Committee had to consider whether the charge made under the Forest Act on the owners of timber land was a tax or a service charge imposed for protecting forests from fire and the like. In holding that it was a tax, the Judicial Committee observed: "It is suggested, however, that there are two circumstances which are sufficient to turn the levy into what is called a 'service charge'. They are, first, that the levy is on a defined class of interested individuals and, secondly, that the fund raised does not fall into the general mass of the proceeds of taxation but is applicable for a special and limited purpose. Neither of these considerations appears to their Lordships to have the weight which it is desired to attach to them ...The fact that in the circumstances the persons particularly interested are singled out and charged with a special contribution appears to their Lordships to be a natural arrangement. Nor is the fact that the levy is applicable for a special purpose of any real significance. Nor is the fact that the levy is applicable for a special purpose of any real significance. Imposts of that character are common methods of taxation-taxation for the road fund in this country was a well-known example." We must accordingly hold that the amounts to be collected under S.11 are taxes notwithstanding that they are not brought into the consolidated fund of the State under Art.266 (1) but constituted into a separate fund and that the levy is only on a section of the public." 4. Perhaps as a result of the decision, the Section was amended by the Madras Commercial Crops Markets (Amendment) Act, 1955 and after that amendment the Section was in these terms: "(1) Notwithstanding anything contained in the Madras General Sales-tax Act, 1939 (Madras Act IZ of 1939), the Market Committee shall, subject to such rules as may be made in this behalf, levy a cess by way of sales-tax on any commercial crop bought and sold in the notified area at such rates as the State Government may, by notification, determine. Explanation For the purposes of this sub-section, all commercial crops leaving a notified area shall, unless the contrary is proved, be presumed to be bought and sold within such area. (2) The cess referred to in sub-section (1) shall be paid by the purchaser of the commercial crops concerned: Provided that where the purchaser of a commercial crop cannot be identified, the cess shall be paid by the seller. (3) Out of the cess levied under sub-section (1) on the commercial crop or crops boughs and sold in any part of the notified area which constitutes a village as defined is S.2 of the. Madras Village Panchayats Act, 1950, such proportion as may be prescribed shall be paid by the market committee to the Panchayat concerned. (4) The cess levid under sub-section (1) shall be subject to the provisions of Art.286 of the Constitution; The Section so amended was challenged before this Court and this Court for the reasons stated in its judgment in M. T. Kumaran & Co. v. Secretary, Malabar Market Committee reported in 1964 K.LT. 369 held that the levy under the Section is a tax coming under Entry 54 of the State List (List II) of the Seventh Schedule to the Constitution and that it is a part of the sales tax law of the State. v. Secretary, Malabar Market Committee reported in 1964 K.LT. 369 held that the levy under the Section is a tax coming under Entry 54 of the State List (List II) of the Seventh Schedule to the Constitution and that it is a part of the sales tax law of the State. It also held that as the permitted maximum of two per cent of the sale or purchase price was being collected under the general sales-tax law of the State, it was not possible to levy anything further by way of sales-tax under the above Section. 5. This in its turn, it appears, necessitated further amendment and that has been effected by Act V of 1964 and the amended Section, I have already extracted. 6. The first argument advanced by counsel on behalf of the petitioners is that what has been done by the amendment Act V of 1964 is to re-introduce the provision that was in the Section before the Madras Commercial Crops Markets (Amendment) Act 1955 introduced a cess by way of sales-tax. So it is urged that for the reasons mentioned in the judgment of the Madras High Court reported in AIR. 1954 Mad. 621, which I have already extracted, the impost is in the nature of a tax and this is bad. It is true that the Madras High Court held that the impost under the Section as it stood before the Amendment Act 1955 was a tax. However, the Supreme Court had occasion to consider a similar provision contained in S.11 of the Bombay Agricultural Produce Markets Act, 1939. The contention urged before the Supreme Court that the levy was in the nature of sales-tax was negatived by the Supreme Court in Mohammad Hussain Gulam Mohammad and another v. The State of Bombay and another reported in AIR. 1962 SC. 97 and this is what Their Lordships said: "The next attack is on S.11 of the Act and the rules framed in that connection. S.11 gives power to the market committee subject to the provisions of the rules and subject to such maxima as may be prescribed to levy fees on the agricultural produce bought and sold by licensees in the market area. It is said that the fee provided by S.11 is in the nature of sales tax. S.11 gives power to the market committee subject to the provisions of the rules and subject to such maxima as may be prescribed to levy fees on the agricultural produce bought and sold by licensees in the market area. It is said that the fee provided by S.11 is in the nature of sales tax. Now there is no doubt that the market committee which is authorised to levy this fee renders service? to the licensees, particularly when the market is established. Under the circumstances it cannot be held that the fee charged for services rendered by the market committee in connection with the enforcement of the various provisions of the Act and the provisions for various facilities in the various markets established by it, is in the nature of sales tax. It is true that the fee is calculated on the amount of produce bought and sold but that in our opinion is only a method of realising fees for the facilities provided by the committee. The attack on S.11 must therefore fail." 7. The material Sections of the two statutes, the Bombay Agricultural Produce Markets Act, 1939, and the Madras Commercial Crops Markets Act, 1933 are very similarly worded. The relevant Sections of the latter Act are S.11,12 and 13. These correspond to S.11,13 and 14 of the Bombay Agricultural Produce Markets Act, 1939. These Sections are typed side by side and are appended to this judgment and from a perusal of these Sections it will be seen, that what has already been stated, namely, that the material provisions in the statutes are very similar, is clear. I therefore feel that I am bound to follow the Supreme Court decision reported in AIR. 1962 S. C. 97 and hold that the impost under S.11 of the Act as amended by Act V of 1964 is a fee. 8. On behalf of the petitioners, it was urged that a fee can be imposed only on persons to whom services are rendered. Reliance has been placed on the decision of the Supreme Court in the Corporation of Calcutta and another v. Liberty Cinema reported in AIR. 1965 S. C. 1107. 8. On behalf of the petitioners, it was urged that a fee can be imposed only on persons to whom services are rendered. Reliance has been placed on the decision of the Supreme Court in the Corporation of Calcutta and another v. Liberty Cinema reported in AIR. 1965 S. C. 1107. After reviewing earlier decisions of the Supreme Court, Their Lordships came to the following conclusion: "We have referred to these cases only for showing that to make a levy a fee the services rendered in respect of it must benefit, or confer advantage on, the person who pays the levy." Their Lordships further observed: 'These decisions of this Court clearly establish that in order to make a levy a fee for services rendered the levy must confer special benefit on the persons on whom it is imposed". 9. It is urged that the provision in S.11 (2) of the Act that "the fees referred to in sub-section (1) shall be paid by the purchaser of the commercial crop concerned" clearly shows that there is no conferment of any advantage or any benefit to the persons on whom the levy is made. The argument is that all purchasers have been made liable under the Section and these include even casual purchasers who buy small quantities and/or their requirements for domestic purposes. Such persons, it is said, unlike the dealers-trading in these commodities do not really derive any benefit or get any advantage by the setting up of a market committee or the creation of the 'fund' or the functioning of the markets established in implementation of the scheme under the Act or even by the regulating of the buying and selling of commercial crops. It is emphasised that the notified area to which the Act applies is the whole of the Malabar area of the State and this being so every person dealing in the notified commercial crops would become liable for the fee. The majority of them do not get any benefits. This provision in S.11 (2) of the Act is materially different from S. H of the Bombay Agricultural Produce Markets Act, 1939 where the fee is imposed on licensees. Licensees are those who are obliged to take licenses under that Act. There is no such limited levy on a class of people under the Act. So it is said that the impost is really not a fee. Licensees are those who are obliged to take licenses under that Act. There is no such limited levy on a class of people under the Act. So it is said that the impost is really not a fee. 10. It appears to me that the above argument completely omits to take into consideration S.5 of the Act which reads as follows: "5. (1) No person shall, within a notified area, set up, establish or use, or continue or allow to be continued, any place for the purchase or sale of a notified commercial crop, except under and in accordance with the conditions of a licence granted to him by the Collector: Provided that after the establishment in such area of a market for the purchase and sale of a notified commercial crop, no licence for the purchase or sale of such commercial crop shall be granted or renewed in respect of any place situated within such distance of the market as may from time to time be fixed by the State Government: Provided further that the market committee may exempt from the provisions of this sub-section any person who carries on the business of purchasing or selling any commercial crop in quantities not exceeding those prescribed by rules made under this Act: Provided also that a person selling a commercial crop which has been grown by him or a co-operative society registered or deemed to be registered under the Madras Co-operative Societies Act, 1932, selling a commercial crop which has been grown by any of its members shall be exempt from the provisions of this sub-section but the State Government may withdraw such exemption in respect of any such person or co-operative society or all of them. (2) Nothing contained in sub-section (1) shall apply to a person purchasing for his private use a commercial crop in quantities not exceeding those prescribed by rules made under this Act. (3) No person shall within a notified area, set up, establish or use, continue or allow to be continued, any place for the storage, weighment, pressing or processing of any notified commercial crop except under and in accordance with the conditions of a licence granted to him by. the Collector: Provided that nothing contained in this sub-section shall apply to a person in respect of any notified commercial crop grown by him. the Collector: Provided that nothing contained in this sub-section shall apply to a person in respect of any notified commercial crop grown by him. (4) (a) The Collector may in bis discretion grant or refuse to grant a licence under this Section. (b) Subject to such rules as may be made by the State Government, the Collector may, on the report of the market committee and after such enquiry as he deems fit cancel or suspend any licence granted under this Section. (5) Every person to whom a licence is granted under this section shall comply with the provisions of this Act, the rules and by-laws made thereunder and the conditions specified in the licence." A glance at the above section would show that a casual purchaser is not required to take a licence. The provision for taking licences in a statute of this nature is interalia, for keeping check on those who are liable for the impost under the statute. It is the licensees who are obliged to file returns and pay the fee under S.11. If. S.5 is read with S.11 and if the purpose and object as well as the scheme of the statute are kept in mind, it is clear that S.11 (2) though it is widely worded really imposes levy of fees only on such persons who are obliged to take licences or in other words, licensees under the Act. Even if such an interpretation involves the limiting of the scope of S.11 (2) as enacted, I think it would be justified for it may often be necessary to what the Supreme Court called, 'read down' a Section. This is particularly so when the Section given its fullest amplitude and scope cannot stand and may have to be struck down on the ground of legislative incompetence. I am therefore of the view that S.11 (2) must be read with S.5 and understood as applicable only to such purchasers who have to take licenses under the Act or in other words licensees under the Act. I may also add that all the petitioners are licensees. I am therefore of the view that S.11 (2) must be read with S.5 and understood as applicable only to such purchasers who have to take licenses under the Act or in other words licensees under the Act. I may also add that all the petitioners are licensees. It was argued by counsel that S.5 dealt with the setting up of establishment, or use of 'any place' and that the above section cannot be read with or be of any use for understanding the provisions in S.11 of the Act which has made the impost on the buying and selling of notified commercial crops. The two sections, it is urged, provide for entirely different matters. I am unable to accept this contention. No doubt there is ambiguity. But I still feel that considering the object of the Act and its scheme as well as the normal effect of such provisions S.11 must be read with, and toned down by, S.5. 11. One other point was urged by counsel for the petitioners and this is based on S.11 (3) which I may extract again: '11 (3). Out of the fees levied under sub-section (1) on the commercial crop or crops bought and sold in any part of the notified area which constitutes a village as defined in S.2 of the Madras Village Panchayats Act. 1950, such proportion as may be prescribed shall be paid by the market committee to the Panchayat concerned." It is said on the basis of certain decisions that the whole of the fee collected must be utilised for the purpose of rendering services to those from whom it is collected and that the diversion from the market committee fund to the Panchayat shows that the purpose is to collect money for the purpose of general revenue and that the object of the diversion is to augment the revenue of the Panchayat. For such purposes, a fee cannot be imposed and if such is the real position, the impost is actually a tax. 12. This argument fails to note the history of the sub-section and the object for which it was introduced. This sub-section was added to the Act by S.134 of the Madras Village Panchayats Act, 1950. S.78 of the Madras Village Panchayats Act, 1950 runs thus: 78. 12. This argument fails to note the history of the sub-section and the object for which it was introduced. This sub-section was added to the Act by S.134 of the Madras Village Panchayats Act, 1950. S.78 of the Madras Village Panchayats Act, 1950 runs thus: 78. Where a mosque, temple, mutt or any place of religious worship or instruction or any place which is used for holding fairs, or festivals or for other like purposes is situated within the limits of a Village or in the neighbourhood thereof and attracts either throughout the year or on particular occasions a large number of persons, any special arrangements necessary for public health, safety or convenience, whether permanent or temporary, shall be made by the Panchayat; but the Government may after consulting the trustee or other person having control over such place require him to make such recurring or non-recurring contribution to the funds of the Panchayat as they may determine." Markets established under the Act may not fall under this Section. And so no fee can be charged by the Panchayat under this Section on the market Committee. But it is quite conceivable that the Panchayat may have to make the necessary special arrangements for public health, safety or convenience in regard to markets established under the Act. This, the Panchayat cannot be expected to do without provision being made for funds. The provision in S.11 (3) of the Act is, as I read it, to meet this requirement. There cannot be anything wrong in such matters as public health, safety and convenience being left to a body like a Panchayat and in provision being made to divert funds to that body to meet the expenses required for the services in relation to health, safety and convenience. Instead of the Market Committee attending to these essential needs in relation to markets established under the Act a body constituted under a special Act which is by the very nature of the Act and the scheme of it, empowered to the extent provided by the Act to administer the Panchayat area and look to the health, safety and convenience of those in that area is enabled to attend to such matters by providing funds for expenses for such matters. Though the Section does not say that the diversion is for such purposes it appears to me to be evident, that the object of the diversion is that. It is not possible on a mere reading of the section to come to the conclusion that the object of S.11 of the Act is to augment the general revenue. 13. The Kerala Panchayat Act contains a provision similar to S.78 of the Madras Village Panchayats Act, 1950. That is in S.83. 14. Even so counsel on behalf of the petitioners invited my attention to R.24 of the Madras Commercial Crops Markets Rules, 1948 and urged that the entire responsibility for maintaining the markets and for affording the necessary amenities and facilities in the market has been imposed on the market committee by R.24 which is in these terms: "24. Control and maintenance of the market. (1) The Market Committee shall have absolute control of the market, and subject to these rules and to the order of the Government and to such control as by these rules or by any other law is vested in the Collector or in a municipal council or local board shall manage it in the best interests of the trade. It shall be open to any Market Committee to place each market in charge of a Superintendent appointed by it and possessing the qualifications prescribed by it. (2) The market shall be open for trading at such hours as the Market Committee may from time to time fix. (3) The carts shall stand in such place and for such times as may be permitted and ingress and egress may be permitted at such times as the Market Committee may consider proper. (4) The Market Committee shall be responsible for the maintenance of the market in good and sanitary condition and for the upkeep of the roads, wells, water-troughs and buildings appertaining to the market." and therefore there is no need at all for diversion of further funds pursuant to S.11(3) of the Act. 15. R.24 was framed in 1948, before the provision in S.11(3) of the Act was introduced into the statute by the Madras Village Panchayats Act, 1950. No rules have been framed pursuant to S.11(3) of the Act prescribing the proportion of the fees that should be paid by the Market Committee to the Panchayat concerned. 15. R.24 was framed in 1948, before the provision in S.11(3) of the Act was introduced into the statute by the Madras Village Panchayats Act, 1950. No rules have been framed pursuant to S.11(3) of the Act prescribing the proportion of the fees that should be paid by the Market Committee to the Panchayat concerned. This being so, I do not think that any argument can be advanced on the basis of R.24 of the Madras Commercial Crops R.1948. If Rules are framed pursuant to S.11(3) and if those Rules are found to be defective in that a disproportionate portion of the fees are made payable to the Panchayat or there has been diversion of fees for purposes other than for providing amenities in the market, those Rules may be liable to be set aside. One should expect that the provision if any made by the Rules would be in consonance with the object of the Act. Suffice it to say at present that from the mere existence of sub-section 3 of S.11 it is not possible to come to the conclusion that the fund is being diverted for purpose other than for rendering services to those from whom it is collected. 16. The rule laid down by the Supreme Court in AIR. 1962 SC. 97 must therefore apply and I see no distinguishing feature which would take the case out of it. 17. In the light of the above, I dismiss these writ applications. There will be no order as to costs.