Chandi Oal Committee & Ors Vs. State of Maharashtra  Insc 763 (16 December 2004)
ASHOK BHAN & A.K.Mathur BHAN, J.
This appeal by grant of leave is directed against the judgment and order of
the High Court of Bombay, Bench at Nagpur, in Writ Petition No. 314 of 1993.
The High Court in the impugned judgment has upheld the validity of provisions
of Section 9-A of the Bombay Money Lenders Act, 1946 (hereinafter referred to
as 'the Act') as amended by Maharashtra Act No. 7 of 1992 which, according to
the appellants, who are licensed money lenders, is ultra vires the provisions
of the Constitution of India insofar as it seeks to levy inspection fee for the
renewal of money lender's licence. Appellants therefore seek striking down of
Section 9-A of the Act and consequent thereto the quashing of the demand notice
for payment of inspection fee.
Under Section 3 of the Act, the State Government has the power to appoint
Registrar General, Registrars and Assistant Registrars for the purpose of
exercising powers and performing duties under the Act. Under Section 6 every
money lender has to submit an application in the prescribed form to the
Assistant Registrar of the area, within the limits of which he carries on or
intends to carry on his business, for the grant of licence to carry on business
of money lending every year on or before such date as may be prescribed by the
The money lender is required to deposit licence fee [which has been fixed at
Rs. 200/-] as per the provisions of sub-section (4) of Section 6 of the Act.
The application so made is required to be processed under Section 8 of the Act.
Section 9 prescribes the term of licence to be up to 31st July from the date on
which the licence is granted. The licence is made valid until the application
for renewal of licence, if made to the Registrar within the prescribed time, is
Section 9-A, in respect of levy of inspection fee, was introduced by Bombay
Act No. 50 of 1959 which came into force w.e.f. 26.9.1959.
The first amendment to Section 9-A was made by the Maharashtra Act No. 76 of
1975 which came into force from 26.7.1976. Section 9-A was amended for the
second time by Maharashtra Act No. 7 of 1992 which came into force w.e.f.
28.4.1992. The amended provisions of Section 9-A, with which we are concerned
in this appeal, are as under :- "9-A. Levy of inspection fee :- (1) An
inspection fee shall, in addition to the licence fee leviable under Section 6,
be levied from a money lender applying for a renewal of a licence at the rate
of one per cent of the maximum capital utilised by him during the period of the
licence sought to be renewed or rupees five thousand, whichever is lesser.
(2) In default of payment of an inspection fee leviable under sub-section
(1), it shall be recoverable from the defaulter in the same manner as an
arrears of land revenue.
Explanation - For the purposes of this section, "maximum capital"
means the highest total amount of the capital sum which may remain invested in
the money lending business on any day during the period of a licence."
Rule 11 of the Bombay Money Lenders Rules, 1959 (hereinafter referred to as
'the Rules') deals with the levy of inspection fees and the same reads as under
:- "11. Levy of inspection fee :- (1) On receipt of an application for the
renewal of a licence, the Assistant Registrar to whom the application has been
made, shall call upon the applicant to produce his accounts for inspection. He
shall then assess the inspection fee payable under Section 9-A in respect of
inspection of books of accounts and call upon the applicant to pay the
inspection fee in the manner prescribed in Rule 10. The inspection fee shall be
paid within ten days of the receipt of the order in this behalf by the
applicant or within such further period not exceeding thirty days in the
aggregate of the receipt of the order as the Registrar may grant in that
(2) The Registrar may suo motu or on an application made in that behalf
revise the order of assessment made under sub-rule (1) if he thinks fit."
Inspection fee is payable at the time of renewal of licence and the charge of
inspection fee is @ 1% of the maximum capital utilized by the money lender
during the period of licence sought to be renewed or Rs. 5,000/- whichever is
less. The term 'maximum capital' has been explained in explanation to Section
9-A to mean highest amount of capital sum which may remain invested in the
money lending business on any day during the period of the licence. Therefore,
according to the appellants, amount of inspection fee differs from money lender
to money lender and depends upon the utilization of the maximum capital on any
day during the period of licence.
Money lenders are required to maintain books of accounts under Section 18 of
the Act read with Rule 16 and 17 of the Rules. Section 18 deals with the duty
of the money lender to keep accounts and maintain cash books and the ledger in
such form and in the manner as may be prescribed as also to furnish copies to
debtors as well as Assistant Registrars. The section also provides that money
lender upon repayment of loan in full shall make entries indicating payment or
cancellation and discharge every mortgage, restore every pledge, return every
note and cancel or reassign every assignment given by the debtor as security
for loan. Rules 16 and 17 read as under :- "Rule 16 ? Forms of cash book,
ledger and of statement and receipt under Section 18 The cash book and ledger
to be maintained by a money lender under sub-section (1) of Section 18 shall be
either in Form Nos. 4 and 7 respectively or in Form Nos. 5 and 6 respectively.
The statement under clause (a) of sub-section (2) of Section 18 shall be in
Form No. 8. The receipts under sub-sections (3) and (4) of Section 18 shall be
in Form Nos. 9 and 10 respectively.
Rule 17 ? Capital Account Every money lender shall open a capital account
in Form No. 11 for the purpose of Section 9-A." All these accounts are
required to be verified before the grant of renewal of the licence.
The State Legislature is competent to make laws for such State or any part
thereof with respect to any of the matters enumerated in List II of Seventh
Schedule of the Constitution of India. Under Entry 30 of List II the State
Legislature can make laws on the subjects of money lending, money lenders and
relief of agricultural indebtedness. The same reads:- "30. Money lending
and money lenders; relief of agricultural indebtedness." Entry 66 which
"66. Fees in respect of any of the matters in this List, but not
including fees taken in any court." authorises the State Legislature to
levy fees in respect of any of the matters enumerated in List II excluding the
fees taken in any court.
Appellants' case is that under Article 265 of the Constitution there is a
prohibition for imposition or levy or collection of tax by the State, except by
authority of law, and that fee can be imposed only in respect of the subjects
specified in List II of the Seventh Schedule to the Constitution. Under the
List II, State Legislature is not competent to levy any tax in respect of
subject matters of money lending or money lenders. Thus, according to them, the
State Legislature is competent to make laws laying down fees only in respect of
items enumerated in Entry 30 of List II and not the tax. Though the provisions of
Section 9- A are styled as inspection fee, it is in fact the collection of tax
by the State without any authority of law. According to the appellants, there
is a difference between tax and fee and fees are levied essentially for the
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 it. Quid pro quo
is an essential element in a fee and since there is no quid pro quo, the levy
is in the nature of tax which the State Government is not competent to impose.
Another submission made on behalf of the appellants is that the work of
inspection is required to be done by the respondent authority to see that the
terms of licence granted earlier are observed and the accounts required are
properly maintained as per the provisions of the Rule. Therefore, there is no
question of co-relation of the amount of levy with the inspection fee or
licence fee to cost of any service. The inspection of books of accounts of
money lenders can by no stretch of imagination be considered service rendered
to the money lenders either for the grant of licence or for renewal of the
same. Levy of licence fee or inspection fee is, in fact, a tax which the State
Government is not empowered to impose. It is also alleged by the appellants
that maximum levy of Rs. 5,000/- is arbitrary and violative of fundamental
rights granted under Article 14 of the Constitution inasmuch as it has no
reference whatsoever to any service and no inspection fee is liable to be imposed
or recovered from money lenders when already Section 6 provides for levy of
licence fee. Appellants cannot be made to licence fee as well as inspection fee
as inspection of books is for renewal of the licence. Licence fee would cover
the charges for inspection as well. Since the levy is credited in the General
Public Funds Account and not appropriated towards any specific service
rendered, goes to show that the levy is in fact in the nature of a tax. The
levy is arbitrary and disproportionate to the so- called services rendered.
Another point raised by them is that inspection fee could not be charged for
the period 1.8.1991 to 31.7.1992 as the amendment came into force w.e.f.
28.4.1992 by which time more than half of the licence period had already expired.
There was no justification whatsoever to recover the inspection fee
retrospectively w.e.f. 1.8.1991. The notices which have been received by the
appellants for recovery of inspection fee for the years 1992-1993 were also put
The respondent-State in its response has pointed out that the Act was
enacted to regulate and control money lending business so as to eradicate the
mal practices in the money lending business and to protect the interest of
debtors. Thus, according to the respondent, the purpose of the Act is not
limited to providing services to the money lenders but it is also regulatory in
nature for the protection of the interests of the debtors as well. The work
under the Act is to regulate and control the money lending business and to
protect the debtors from mal practices in the business by detecting illegal
money lending etc. Since the fee was regulatory in nature, quid pro quo for the
service rendered to the person on whom the fee was imposed was not required to
be proved. Relying upon some judgments of this Court, it was averred that in
case the fee was regulatory in nature there need be no direct advantage or
service rendered to the person on whom the fee is imposed, a mere casual
relation or indirect service may be sufficient.
The special benefit or advantage to the payers of fees may even be secondary
as compared with the primary object of public interest.
That primary object of the Act is to regulate the money lending business in
public interest to protect and improve the economic conditions of bulk of rural
population and poorer sections of population of towns and cities and to protect
them from exploitation.
It is further submitted that though the upper limit of Rs. 500/- has been
increased to Rs. 5,000/- by the impugned amendment, the rate of 1% of maximum
capital utilised by the money lender has been kept the same. It is stated that
there are about 5600 money lenders in the State of Maharashtra out of which
about 2200 money lenders are from Bombay and Greater Bombay. Even in Bombay in
case of more than 50% money lenders the maximum capital as defined in the Act
is below Rs. 50,000/-. The same in case of 20% is between Rs. 1 lac to Rs.
3 lac and for 10% above Rs. 3.00 lac. In the remaining parts of Maharshtra
about 70 to 75 per cent money lenders are having maximum capital below Rs.
50,000/-. Since the fees are to be collected at the rate of 1 per cent subject
to the maximum of Rs. 5,000/- in majority of the cases there will be no
difference in the inspection fee payable by them. In the case of money lenders
who have invested capital of Rs. 50,000/- there will be no increase in the
inspection fee payable by them. It is, therefore, submitted that the contention
raised by the appellants that the increase was arbitrary or excessive are
devoid of any substance.
The staff and the officers of the Department have to visit the places of
money lending business, inspect accounts and other matters relating to
business. According to them, the inspection fee is charged not for rendering
services only but also for regulating and controlling money lending business.
The increase in the levy is justified on the ground of heavy increase in the
Pay and Allowance of the Government Servants after 1991 who are employed for
regulating and controlling the activities under the Act. The respondent has
also pointed out that the strength of the staff looking after the money lending
business has been considerably and significantly increased in the recent past
and receipts from the inspection fee and licence fee are very meagre in the
range of Rs. 25 to 30 lakhs every year which are not sufficient to meet the
expenses incurred for the staff looking after the money lending business.
The High Court came to the conclusion that there was no merit in the contentions
raised by the appellants. It was held that there was nexus between the fee
charged and the service rendered. The fee charged was regulatory in nature to
further the objects of the Act so as to control and supervise the functioning
of the money lenders in order to protect the debtors. Such an exercise was a
must for fulfilling the purpose of the Act for which infrastructure was
required. Taking note of the heavy increase in the Pay and Allowances of
Establishment and the receipt from inspection and licence fee, it was observed
that the same were meagre and not even sufficient to meet the expenses incurred
for the staff looking after the money lending business.
The basic question which we are called upon to decide is whether the fee of
the nature impugned before us is, as a matter of fact, a tax in the guise of
fee and whether it is so excessive or unreasonable as to loose the character of
Shri G.L. Sanghi, learned Senior Counsel, placing heavy reliance on the
Constitution Bench judgment of this Court in Corporation of Calcutta & Anr.
v. Liberty Cinema [(1965) 2 SCR 477] in support of his submission contended
that quid pro quo is a must in the case of fee and in the absence of the same,
the levy would be deemed to be a tax.
Since in the present case there is no quid pro quo and no benefit is being
rendered to the person paying the fee, the levy imposed is in the nature of tax
though described as fee. Facts of the case were, under the Calcutta Municipal
Act, 1951, a person was required to take a licence from the Corporation to run
a cinema house for public amusement.
Under Section 548(2), for every licence under the Act, a licence fee could
be charged at such rate as fixed from time to time by the Corporation. In 1948
the Corporation fixed fees on the basis of the annual valuation of the cinema
halls. The assessee who was the owner and licensee of the cinema theatre had
been paying licence fee @ Rs.
400/- per year. In 1958 the Corporation by a resolution changed the basis of
assessment of the fee. Under the new method the fee was to be assessed at rates
prescribed per show according to the sanctioned seating capacity of the cinema
houses and the assessee had to pay a fee of Rs. 6,000/- per year. The assessee
filed a petition in the High Court for the issuance of a writ for quashing the
resolution. The writ petition was allowed. The Corporation came up in appeal to
this Court, which was accepted. The case of the Corporation was that the levy
was a tax and not a fee. Accepting the plea of the Corporation, it was observed
that in order to make a levy a fee for services rendered, the levy must confer
special benefits to the person on whom it is imposed. The levy under Section
548(2) was not a "fee in return for services" as the Act did not provide
for any services of a special kind being rendered, resulting in benefits to the
person on whom it was imposed. The levy was held to be a tax.
In The Commissioner, Hindu Religious Endowments, Madras v.
Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt [(1954) SCR 1005] this
Court enumerated the different characteristics of tax and fee.
It was held that the tax was levied as a part of common burden while a fee
was a payment for special benefits or privilege to the person paying the same.
Though it was not possible to formulate a definition of fee that could apply to
all cases as there were different kinds of fee, but a fee may generally be
defined as a charge for special service rendered to individuals by some
governmental agency. It was observed that amount of fee levied is supposed to
be based on the expenses incurred by the Government in rendering the service.
Pointing out the distinction between a tax and fee, it was observed that tax
is a compulsory exaction of money by a public authority for public purposes
enforceable by law and is not payment for services rendered.
In Chief Commissioner, Delhi v. Delhi Cloth & General Mills Co. Ltd.
[(1978) 2 SCC 367], it was held by this Court that levy of fee should be in
consideration of certain services which the individuals accept either willingly
or unwillingly and that the collection from such levy should not be set apart
or merged with the general revenue of the State to be spent for general public
purpose but should be appropriated for the specific purpose for which the levy
is being made.
In Om Parkash Agarwal v. Giri Raj Kishori [(1986) 1 SCC 722] it was held
that levy imposed could not be treated as a fee and was tax primarily because
the collection so made was being utilised not for fulfilling the objects of the
Act under which the collection is authorised, but for the general requirement
of the State's functions.
Shri Sanghi also placed reliance on a recent judgment of this Court in
Commissioner of Central Excise, Lucknow, U.P. v. Chhata Sugar Co. Ltd. [(2004)
3 SCC 466] wherein the question was whether administrative charges collected by
the sugar factory for molasses sold from the buyers/allottees on behalf of the
State Government in terms of Section 8(5) of the U.P. Sheera Niyantran
Adhiniyam, 1964 constituted a duty or impost in the nature of a tax and
consequently, not includible in the value as defined in terms of Section
4(4)(d)(ii) of the Central Excise Act, 1944. The Court, after analysing the
provisions of the Act, held that sugar factory was merely a collecting agent of
administrative charges for the State Government. The administrative charges
were not a component of a consideration received by the sugar factory and did
not form part of the revenue of the sugar factory. The administrative charges could
not be appropriated to the revenue account of the sugar factory and, therefore,
there was no element of quid pro quo as far as the administrative charges in
the hands of the sugar factory are concerned. The administrative charges were
thus held to be a tax and not a fee.
A three Judge Bench of this Court in B.S.E. Brokers' Forum, Bombay and
Others v. Securities and Exchange Board of India and Others [(2001) 3 SCC 482],
after considering a large number of authorities, has held that much ice has
melted in Himalayas after the rendering of the earlier judgments as there was a
sea change in the judicial thinking as to the difference between a tax and a
fee since then. Placing reliance on the following judgments of this Court in
the Committee, (1989) Supp. 1 SCC 168; Commissioner & Secretary to
Government Commercial Taxes & Religious Endowments State of U.P., (1997) 2
SCC 715; Research Foundation for Science, Hyderabad Municipal Corporation,
Hyderabad, (1999) 2 SCC 274, it was held that 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 loose the character of a fee provided the fee
so charged is not excessive. It was not necessary that service to be rendered
by the 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 service. The quid pro quo in
the strict sence 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. It was observed that it was 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 pay, receives general benefit from the authority levying
the fee, the element of service required for collecting fee is satisfied.
We need not refer to the law laid down by this Court in each of the
judgments which have been cited as the same have been analysed and discussed at
length by this Court in B.S.E. Brokers' Forum, Bombay and Others case (supra).
The Bombay Money-Lenders Act, 1946 was enacted during pre- independence
period by the elected Government to control and regulate money lending. Money
lenders were fleecing the poor peasants, tenants, agricultural labourers and
salaried workers who were unable to repay loans. The agricultural debtors were
loosing their lands, crops or other securities to the money lenders. To arrest
this exploitation, the Money-Lenders Act was enacted to improve the economic
conditions of the bulk of the rural population and the poorer sections of the
population in towns and cities. Under the Act it was made mandatory first to
take a licence to do the business of money lending on payment of a licence fee
of Rs. 200/-. Inspection fee is levied for renewal of licence and for that
purpose it is necessary that the records maintained by the money lenders should
be thoroughly examined in order to satisfy whether all the registers are
maintained properly in accordance with the rules and it is only after the
satisfying that no irregularities are committed, the money lender becomes
entitled to get the renewal of his licence. 'Inspection fee' has been defined
in Section 2(5-A) of the Bombay Money-Lenders Act, 1946 to mean the fee
leviable under Section 9A in respect of inspection of books of account of a
money-lender. Section 2(7) defines the 'licence' to mean licence granted under
this Act and according to Section 2(8) 'licence fee' means fee payable in
respect of a licence. Renewal of licence is not automatic and can be refused on
the grounds specified in Section 8. In order to ensure that the money lenders
comply with the provisions of the Act and the Rules on which renewal of the
licence can be refused under clauses (b) and (c) of Section 8, inspection of
the records maintained by the money lenders is absolutely necessary and must.
Rule 11 provides that on receipt of any application for renewal of a licence,
the Assistant Registrar, to whom the application has been made, shall call upon
the applicant to produce his accounts for inspection. He shall then assess the
inspection fee payable under Section 9A in respect of inspection of books of
accounts and call upon the applicant to pay the inspection fee in the manner
prescribed in Rule 10. Under Section 18, every money lender is required to keep
and maintain a cash book and a ledger in such form and in such manner as may be
prescribed. Under sub-section (2) every money lender has to deliver or cause to
be delivered to the debtor within 30 days from the date on which a loan is
made, a statement in any recognised language saying in clear and distinct terms
the amount and date of loan and its maturity, the nature of the security, if
any, for the loan, the name and address of the debtor and of the money lender
and the rate of interest charged. Clause (b) of this sub-section provides that
upon repayment of loan in full, the money lender is required to mark indelibly
every paper signed by the debtor with words indicating payment or cancellation
and discharge every mortgage, restore every pledge, return every note and
cancel or reassign every assignment given by the debtor as security for the
loan. Sub-section (3) provides that no money lender shall receive any payment
from a debtor on account of any loan without giving him a plain and complete
receipt for the payment. Money lender under sub-section (4) is debarred from
accepting from a debtor any article as a pawn, pledge or security for a loan
without giving him a plain signed receipt for the same with its description,
estimated value, the amount of loan advanced against it and such other
particulars as may be prescribed.
Under Section 19, every money lender is required to deliver or cause to be
delivered in every year to each of his debtors a legible statement of such
debtor's accounts signed by the money lender or his agent of any amount that
may be outstanding against such debtor. Rule 16 provides for the forms of cash
book, ledger and of statement and receipt under Section 18. Rule 17 provides
for opening of a capital account in Form 11 for the purposes of Section 9A. The
inspection of records, thus by itself, provides for service rendered by the
State to the money lenders which is done in connection with their request to
renew the licences. It is necessary to find out before granting renewal of the
licence that the applicant has complied with the provisions of the Act and the
Rules and that he has not made any wilful default in complying with or
knowingly acted in contravention of any requirements of the Act.
This is the direct service rendered to the money lenders as the renewal of
licence depends upon the inspection of their accounts which is required to be
carried out under the Act.
This apart the fee charged is regulatory in nature to control and supervise
the functioning of the money lending business to protect the debtors the vast
majority of which are poor peasants, tenants, agricultural labourers and
salaried workers who are unable to repay their loans. The object of the Act is
to control the money lending business and protect the debtors from the
malpractices in the business by detecting illegal money lending. This exercise
is a must to carry out the object of the Act for which lot of infrastructure is
required. The duty of the staff and the officers of the Department is to visit
the places of money lending business, inspect the accounts and other matters
relating to the business, to find out illegal money lending, carry out raids in
suspicious cases and do regular inspection as provided in the Act. The Act
serves a larger public interest.
Respondent State in its counter affidavit has stated that the strength of
the staff looking after money lending work has been considerably and
significantly increased in the recent past. The total receipts from inspection
fees and licence fees under the Act are very meagre in the range of 25 to 30
lakhs every year. Receipts from inspection fees and licence fees under the Act
form a very small part of the total receipts of the Co-operative Department
which are to the tune of Rs. 21 crores. The licence fees and inspection fee
under the Act are not even sufficient to meet out the expenses incurred on the
staff looking after the money lending business. Since the Act is a social
legislation with the intention to protect the debtors from the malpractices in
the business the State is performing its duties even though the revenue under
the Act is not even sufficient to meet the expenditure on the staff performing
duties under the Act. In view of these submissions it cannot be held that the
fees are either arbitrary or excessive.
Contention raised by Shri G.L. Sanghi, senior counsel for the appellants
that the fees have to be uniform has no merit in view of the judgment of this
Court in Secunderabad Hyderabad Hotel Owners' Army, Western India Territory,
1975 (1) SCC 509. It has been held in these judgments that fees are ordinarily
uniform but absence of uniformity is not the sole criterion on which it can be
said that the levy is in the nature of tax.
Mr. Sanghi has also urged that the impugned fee has been imposed on the
basis of the annual turnover of the money lenders. It is contended that
assuming that the respondent had the authority in law to levy the fee under
challenge, the same could not be levied on the basis of the annual turnover of
the money lenders because such levy would amount to a tax on turnover. We do
not find any force in this submission as well. This Court in B.S.E. Brokers'
Forum, Bombay and Others v. Securities and Exchange Board of India and Others,
(supra) held that annual turnover of a broker was not the subject- matter of
the levy but was only a measure of the levy. In this case as well the annual
turnover is not the subject matter of fee but only a measure of levy.
Relying upon the judgment of this Court in Sreenivasa General that merely
because the fees were taken to the Consolidated Fund of the State and not
separately appropriated towards the expenditure for rendering the service by
itself was not decisive to determine as to whether it was a fee or a tax. It
was also held that fees are ordinarily uniform but absence of uniformity by
itself was not a criterion on which alone it could be said that the levy was in
the nature of tax.
For the reasons stated above, we do not find any merit in this appeal and
the same is dismissed with no order as to costs.