Delhi Cloth & General Mills Co.
Ltd. Vs. Chief Commissioner, Delhi & Ors  INSC 233 (11 September
11/09/1969 GROVER, A.N.
CITATION: 1971 AIR 344 1970 SCR (2) 348 1970
SCC (2) 172
R 1971 SC1182 (10) R 1971 SC1325 (11) R 1975
SC 846 (16,18,23) R 1980 SC1008 (17)
The Factories Act, 1948 (63 of 1948) Delhi
Factories Rules 1950 made under s. 112 of Act--Validity of R. 7 read with R. 5
and Schedule thereto---Fee for annual renewal of licence to run
factory--Whether fee or tax--Maintenance of Inspectors whether provides quid
pro quo for fee
The appellant company had a number of
industrial establishments in Delhi. These establishments were factories within
the meaning of s. 2Ira) of the Factories Act, 1948. The factories could be run
only after registration and under a licence granted under the Act and the Rules
on payment of a prescribed fee. The licensee was renewable every year under R.
7 on payment of the same. fee as for grant of the licence. The company filed a
writ petition under Arts. 226 and 227 of the Constitution challenging the validity
of the Rules under which the fee for renewal of the licence for each of its
factories in Delhi was being levied and collected i.e. R. 7 read with R. 5 and
its Schedule. The petition being dismissed by the High Court, an appeal was
filed in this Court with certificate.
The contention on behalf of the appellant was
that there was no quid pro quo for the fee paid for renewal of the licence and
that the maintenance of a team of Inspectors under the Act did not amount to
such quid pro quo. Reliance. was placed on the Liberty Cinema case.
HELD: In each case when the question arises
whether the levy is 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 tire work done by them wilt have to be examined for the purpose of
determining the rendering of the services which would make the levy of a fee.
In the Liberty Cinema case it was found that no service of any kind was being
and could be rendered and for that reason the levy was held to. be a tax and
not a fee. The present case however fell within the other class of cases in
which contributions for the purpose of maintaining an authority and the staff
for supervising and controlling public institutions were held to be fee and not
tax. [354 B--C] A large number of provisions of the Act, particularly in the
chapters dealing with safety, involve a good deal of technical knowledge and in
the course of discharge of their duties and obligations the Inspectors are
expected to give proper advice and guidance so that there may be due compliance
with the provisions of the Act. On certain occasions the factory owners are
bound to receive a good deal of benefit by being saved from the consequences of
the working of dangerous machines or employment of such processes as involve
danger to human life by being warned at the proper time as to the defective
nature of the machinery or of the taking of precautions which are enjoined
under the Act. Similarly if a building or a machinery or plant is in such a
condition that it is dangerous to human life or safety the Inspector by serving
a timely notice on the manager saves the factory owner from all the
consequences of proper repairs not being done in time to the building. or
349 The High Court found that 60% of the
amount of licence fees which were being realized was actually spent on services
rendered to the. factory owners. The finding being one of fact must be
considered final. [355 H--356, D] ..
It could therefore hardly be contended that
the levy of the licence fee was wholly unrelated to the expenditure incurred
out of the total realization. The appeal must accordingly fail. [356 D--El
Corporation of Calcutta & Anr. v. Liberty Cinema,  2 S.C.R.
H.H. Sudhundra Thirtha Swamiar v.
Commissioner for Hindu Religious & Charitable Endowments, Mysore, 
Supp. 2 S.C.R. 302, Mahant Sri Jagannath Ramanuj Das & Anr. v. State of
Orissa & Anr  S.C.R. 1046 and Ratilal Panachand Gandhi v. State of Bombay
& Ors,  S.C.R. 1055, applied.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1424 of 1966.
Appeal from the order dated February 11, 1965
of the Punjab High Court, Circuit Bench at Delhi in Civil Writ No.
3-D of 1963.
H.R. Gokhale, D.R. Thadani and A.N. Goyal,
Jagdish Swarup, Solicitor-General, L.M.
Singhvi and R.N. Sachthey, for the respondents.
The Judgment of the Court was delivered by
Grover, J. This is an appeal from a judgment of the Punjab High Court (Circuit
Bench, Delhi) involving the question of the validity of Rule 7 read with Rule 5
and its Schedule of the Delhi Factories Rules 1950 made under s. 112 of the Factories
Act 1948, hereinafter called the Act.
The impugned Rules relate to the grant of a
licence for a factory and renewal thereof, the fees. being prescribed by the
Schedule to. Rule 5.
The Delhi Cloth and General Mills Co. Ltd.
operates within the Delhi area a number of industrial establishments which are
factories within the meaning of s. 2(m) of the Act. The company has to pay a
total sum of Rs. 12,775.00 as annual licence. fee for all its factories in
Delhi, the fees being calculated according to the Horse Power and the maximum
in number of workers to be employed on any day during the year as given in the
Schedule. The maximum fee that is payable is Rs. 2,000/- for a factory. The
factories can be run only after registration and under a licence granted under
the Act and the Rules on payment of the prescribed fee. The licence is renewed
every year under R.
7 on payment of the same fee which is paid at
the time of the granting of the licence. Every licence granted or renewed
remains in force up to December 31, of the year for which it is granted or 350
renewed. In January 1963 the company filed a petition under Arts. 226 and 227
o,f the Constitution in the High Court challenging the validity of the Rules
under which the licence fee for renewal of the licence for each of its
factories in Delhi was being levied and collected i.e.R. 7 read with R. 5 and
its, Schedule. This petition was dismissed by a division bench on February 11,
1965. The company then filed the present appeal by certificate.
The principal point which has been canvassed
on behalf of the appellant company is that the payment made' for renewal of the
licence was and is only to endorse the licence as valid ,for the next year and
the amount charged for the renewal thereof cannot and does not entail services
which can reasonably be regarded to be commensurate with the amount so charged.
In other words the element of quid-pro- quo which distinguishes a fee from a
tax is absent and lacking. The Act, it is pointed out; contains specific
provisions for rendering of benefit and service to the workmen by the owners of
the factories. The Inspectors who are .appointed under the Act to ensure that
its provisions are complied with by the factory owners constitute a policing
agency and it is not possible to say that the power and duties of the Inspectors
when exercised and carried out amount to services rendered for the benefit of
the factory owners or the workmen.
Falshaw C.J., who delivered the judgment of
the division bench was of the view that the work carried out by the Inspectors
under the Act of seeing that all its beneficient provisions for the health and
welfare of the workers employed in the factories were fully implemented must
definitely be regarded as services rendered in return for the fee levied for
the annual renewal of the licence for the factory. It was further observed on
an examination of 'the affidavit which had been placed before the court that at
least 60.% of the amount realised as licence fee was being utilised on running
Mr. H.R. Gokhale for the appellant company
has contended that the High Court failed to apply the principles which are
settled by certain decisions of this Court for determining whether a fee for a
licence or a renewal thereof in circumstances similar to the present case is in
substance and effect a tax. He has relied largely on Corporation of Calcutta
& Another v. Liberty Cinema(1).
In that case the licence fee had been raised
from Rs. 400/- to Rs. 6,000/- per year. It was observed in the majority
judgment that the provision under which the licence had to be taken out for a
cinema did not refer to the rendering of any service by the Corporation of
Calcutta. It was also.
not obligatory on the Corporation to make any
bye-law under which (1)  2S.C.R.477.
351 services were to be rendered. If the
bye-laws were not made there would be no service to render. It was further
pointed out that inspection by the authorities concerned could not be regarded
as a service to the licence as it was meant only to make sure that the licensee
carried out the conditions on which the licence had been granted to him.
Some of the earlier decisions were considered
as also the pronouncement in H.H. Sudhundra Thirtha Swamiar v. Commissioner for
Hindu Religious & Charitable Endowments, Mysore(1) and with regard to the
latter case it was said that a service resulting in the control of the Math
adipathi conferred special benefit on the institution which alone paid the
As far back as 1954 it was laid down in
Mahant Sri Jagannath Ramanui Das & Anr. v. The State of Orissa &
Another(2)that the contributions levied for the. expenses of the Commissioner
and his staff who were to. exercise effective control over the trustees of the
Maths and the temples was to. be regarded as a fee and not a tax. Two reasons
were given for this: (1) The payment was demanded only for the purpose of
meeting the expenses of the Commissioner and his staff which is the machinery..
set up for due administration of the affairs of the religious institution. (2)
The collections made were not merged in the general public revenue. Similarly
in Ratilal Panachand Gandhi v. The State of Bombay & Others(3) the
contribution imposed under the Bombay Public Trusts Act was held to: be fee and
not tax. it was stated that in the first place these contributions were to be
credited to the Public Trusts Administration Fund which was a special fund land
were not to be merged in the general revenue. Secondly, it was not necessary
that services should be rendered only at the request of particular people and
it was enough that payments were demanded for rendering services which the
State considered beneficial in the public interest and which the people had to
accept whether they were willing or not. The following observations in H.H.
Sudhundra Thirtha Swamiar case(1) may be referred to with advantage:
"A levy in the nature of a fee does not
cease to be of that character 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
direct relation to the actual services rendered by the authority to individual
who obtains the benefit of service. If with a view to provide a specific
service, levy is imposed by law and expenses for maintaining the service are
met out of the amounts collected there being a reasonable relation between the
levy and the expenses incurred for render- (1)  Supp. 2 S.C.R. 302. (2)
 S.C.R. 1046. (3)  S.C.R. 1055.
352 ing the service, the levy would be in the
nature of a fee and not in the nature of a tax." According to Mr. H.R.
Gokhale the present case is of the type which would fall squarely within the
decision in Liberty Cinema case(1). It is difficult to agree. 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 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. In
our judgment the present case falls within the other class of cases to which reference
has been made in which contributions for the purpose of maintaining an
authority and the staff for supervising and controlling public institutions
like Maths etc. were held to be fee and not tax.
We may now look at the provisions of the Act.
Chapter II provides for the inspecting staff. Section 9 gives the powers of the
Inspectors. They can enter any factory and inter alia make examination of the
premises, plant and machinery. Under s. 10 qualified medical practitioners can
be appointed to. be certifying surgeons for the purpose of the Act. The
certifying surgeon has to. carry out such duties as may be prescribed in
connection with the examination and ,certification of young persons under the
Act. the examination of persons. engaged in factories in dangerous occupation
or process as also the exercising of medical supervision. Chapter III deals
Section Il contains detailed provisions about
Sections 12 to 14 relate to disposal of waste
and effluents, ventilation and temperature, and dust and fume. Sections 17 to
20 concern lighting, drinking water, latrines and urinals, and spittoons.
Chapter IV contains the provisions relating to safety. Section 21 deals with
fencing of machinery. Section 22 with work on or near machinery in motion and
section 23 with employment of young persons on dangerous machines. The other
sections which may be noticed in this Chapter are s. 27 containing the
prohibition of employment of women and children near cotton-openers; s. 35 in
the matter of protection of eyes, s. 36 dealing with precautions against
dangerous fumes, s. 37 relating to explosive or inflammable dust, gas etc., and
s. 38 relating to precautions in case of fire. Under s. 39 if it appears to the
Inspector that any building or part of a building or any part of the ways,
machinery or plant in a factory is in such a condition that it may be dangerous
to human life and safety he may serve on the manager of the factory an order in
writing  2 S.C.R. 477.
353 requiring him to. furnish the particulars
for determining whether the building, machinery, plant etc., can be used with
safety or to carry out such tests as may be specified and convey the result
thereof to the Inspector. Under s. 40 if it appears to the Inspector that any
building or part of a building is in such a condition that it is dangerous to
human life or safety he can serve an order on the manager of the factory
specifying the measures which should be adopted and requiring him to carry out
the same before a specified date. Shnilarly if it 'appears to him that the use
of any building or machinery or plant involves imminent danger to human life or
safety he can serve an order prohibiting its use until it has been properly
repaired or altered. Chapter V deals with welfare and provisions are made
therein ,for such amenities as washing facilities for storing and drying
clothing, for sitting, first aid appliances, canteens and crèches and every
factory is required under s. 49 wherein 500 or more workers are ordinarily
employed to have such number of welfare officers as may be prescribed. The
Rules also contain various provisions where the Inspector has to be consulted
and his approval obtained for doing certain things. For instance R. 65(3) says
that the manager of a factory shall submit for the approval of the Chief
Inspector plans of the building to be constructed or adapted for use as a
canteen. It is unnecessary to refer to several other provisions contained in
the Act and the Rules which show that the Chief Inspector and his staff play a
very important role in the working of the factory.
In the return which was filed in the High
Court to the writ petition it was stated in paragraph 8 that the fees were
being charged for the running of the whole establishment including the Factory
Inspectorate which in its turn "provides free inspection and expert
technical advice etc., to factory owners in matters connected with safety,
health welfare and the allied matters in respect of compliance with the
provisions of the Factories Act". It has further been stated that in our
country matters relating to health, safety, welfare and employment have to be
looked after and the desired results have been sought to be achieved by the
legislature by providing statutory inspection service.
According to Mr. Gokhale the Inspectors only
carry out the duties laid on them under the Act and all that they have to do is
to ensure that the statutory provisions and the rules are carried out properly
and launch prosecutions against factory owners under the provisions of Chapter
X of_ the Act in case of any breach or default on the part of the factory
owners. We do not consider that the functions and duties of the Inspectorate
are confined only to the limited task which has been suggested on behalf of the
appellant company. A large number of provisions to which reference has been
made, particularly in the Chapter dealing with 354 safety, involve a good deal
of technical knowledge and in the course of discharge of their duties and
obligations the Inspectors are expected to give proper advice and guidance so
that there may be due compliance with the provisions of the Act. It can well be
said that on certain occasions factory owners are bound to receive a good deal
of benefit by being saved from the consequences of the working of dangerous
machines or employment of such processes as involve danger to human life by
being warned at the proper time as to the defective nature of the machinery or
of the taking of precautions which are enjoined under the Act.
Similarly if a building or a machinery or a
plant is in such a condition that it is dangerous to human life or safety the
Inspector by serving a timely notice on the manager saves the factory owner
from all the consequences of proper repairs not being done in time to the
building or the machinery. Indeed it seems to us that the nature of the work of
the Inspector is such that he is to render as much. if not more, service than a
Commissioner would, in the matter of supervision, regulation and control over
the way in which the management of the trustees of religious and charitable
endowment was conducted. The High Court further found, which finding being of
fact, must be considered as final that 60'% of the amount of licence fees which
were being realized was actually spent on services rendered to the factory
owners. It can, therefore, hardly be contended that the levy of the licence fee
was wholly unrelated to the expenditure incurred out of the total realisation.
Before the High Court the appellant company never made out any case that the
collections on .account of the licence fee were merged in the general public
revenue and were not appropriated in the manner laid down for the appropriation
of expenses for the department concerned.
There can be no manner of doubt that the
amount which the appellant company has to pay as licence fee is not in the
nature of a tax but is a fee which could be properly levied.
The appeal fails and it is dismissed with
G.C. Appeal dismissed.