This article is written by Kaustubh Phalke. The article explores all the peculiarities of the landmark judgement of City Corporation of Calicut v. Thachambalath Sadalinan and Ors. (1985). As we dive into the article, we go through a brief introduction of the topic, case details, background of the case and its facts, the issues discussed in the case, arguments of the parties, judgement of the case, ratio decidendi, case laws referred in the judgement, and ending with conclusion. Let’s plot a route through the intricacies of this judgement together and understand the transformation of the quid pro quo.
This article has been published by Shashwat Kaushik.
Introduction
The instant case was on this Latin phrase, which talks about the validity of the fee levied by the corporation, i.e., the appellant, on the respondents. The term “quid pro quo,” which originated in the 14th century, is defined by Black’s Law Dictionary as an exchange of one thing for another of more, less, or equal value. In layman’s language, it can be understood as “something for something or barter”. According to Prof. Jed Lewinsohn’s note in the Yale Law Journal, the quid pro quo implies that both parties mutually agree to fulfil their obligations to receive the corresponding performance from the other party.
The case of City Corporation of Calicut vs. Thachambalath Sadalinan and Ors. (1985) provides a detailed overview of the principle of quid pro quo, wherein the court discussed whether the fees imposed by the corporation were justified. The court in the present case examined whether the fees charged were proportional to the services provided by the corporation. Let us understand the case in detail.
Details of the case
- Case name: City Corporation of Calicut vs. Thachambalath Sadalinan and Ors. (1985)
- Citation: (1985) 2 SCC 112
- Case no: Civil appeals nos. 13 and 14 of 1971
- Date of judgement: 26/02/01985
- Forum: The Supreme Court of India
- Coram: Justice A.N. Sen and Justice D.A. Desai
- Disposition of the case: appeal allowed
Background of the case
The case in hand overruled the case of City Corporation of Calicut vs. Thachambalath Sadalinan (1968). The case concerned was an appeal preferred by the City Corporation of Calicut against the judgement of Gopalan Nambiar, J., in Original Petition Nos. 2962 and 3037 of 1965. The petitioners in this case challenged the validity of the licence fee levied by the City Corporation of Calicut against the petitioners for soaking coconut husks on their property. The petitioners argued that the fee levied by the corporation cannot be justified by Section 299 read with Section 397 and Schedule IV of the Calicut City Municipal Act (Act 30 of 1961), which was later renamed the Kerala Municipal Corporation Act (1994). They contended that the corporation did not have the power to levy a fee as a tax, and the levy was unjustifiable as a licence fee.
The learned single judge gave a judgement on 08/02/1967 stating that, as a fee, the levy by the corporation was unjustifiable since no service was rendered by the corporation in return for the levied fee. Moreover, levying it as a tax was beyond the powers of the corporation. It was held that the levy of fees by the corporation was illegal.
An appeal was made in front of the High Court of Kerala, which heard the case on the question of whether the fees levied by the corporation were sustainable under any provisions of the statute or not. The learned High Court, in its judgement, stated that:
- The levy did not correlate with the issuance of the licence.
- It cannot be termed as a service fee, as no service was given in return to the payer.
- The levy could not be termed as a tax since the mandatory provisions of the statute were not followed concerning the imposition of the tax.
The appeal was dismissed without costs, and the judgement of the lower court was upheld.
Facts of City Corporation of Calicut vs. Thachambalath Sadalinan & Ors. (1985)
The case was an appeal challenging the validity of the fee levied by the appellant, the City Corporation of Calicut, regarding the use of land for soaking coconut husks. The corporation had levied a licence fee for various items set out in Schedule IV of the Calicut City Municipal Act (Act 30 of 1961), which was later renamed the Kerala Municipal Corporation Act (1994) (hereinafter referred to as the ‘Corporation Act’) for use of their premises and land for soaking coconut husks. The respondents in the instant case were carrying on their trade without any licence. The commissioner of the corporation sent the notices to all the traders to show cause within three days of the receipt of the notice as to why they should not be prosecuted for using premises without a valid notice as required by the law. The respondent had challenged the validity and legality of the notices through two writ petitions on separate grounds. They argued that if the levy was considered a fee, no extra benefits were given by the corporation in return for the fee, and there was no quid pro quo. They also contended that the Act did not authorise the corporation to levy such a fee, and if the levy was a tax, then the corporation did not hold the power to levy a tax.
The corporation justified its levy by contending it was a licence fee, and alternatively, it had also contended that the corporation had the power to levy taxes of the nature levied by it. After the appeal was dismissed by the High Court, the corporation moved to the Supreme Court on special leave.
Issues raised
Whether the levy of the licence fee as a fee is justified?
Arguments of the parties
Appellant
The counsel for the appellant, Mr. Nambiar, contended that the fee levied by the corporation was justifiable, and the learned High Court erred in dismissing the petition on the ground that the respondents in the instant case did not receive any special benefits in return for the fee levied. They relied on the traditional view of the law that there must be some special benefits or services in return for the fee levied. As per him, this view has changed with time, and it can be evidently seen through the recent judgments of this court that the demarcating line between tax and fee has become almost invisible. Even if the learned court took a traditional approach to law, the corporation has placed sufficient pieces of evidence on record to show that the respondents have been receiving benefits in return for the levied fee. Therefore, the first point of contention must prevail in view of the recent decisions of this court.
Laws discussed
Calicut City Municipal Act, 1961 (subsequently renamed as Kerala Municipal Corporation, Act 1964)
Schedule IV of the Calicut City Municipal Act, 1961, subsequently renamed as Kerala Municipal Corporation, Act 1964 (‘Corporation Act’ for short).
Section 299 of the Corporation Act states that without obtaining a licence from the commissioner, no place shall be used for the purpose mentioned in Schedule IV.
Section 387 of the Corporation Act states the conditions of the licence. It shall specify the period, restrictions, limitations, and conditions subject to which the same is granted. It shall be signed by the commissioner. A prescribed licence fee, as fixed by the council, shall be paid in advance for obtaining the licence.
Constitution of India
Article 265, states that only the authority of law has the power to levy and collect taxes. The purpose of this provision is to avoid arbitrary taxation and to ensure that taxes are only imposed in accordance with the law. It serves as a safeguard from the taxing powers of the government and protects the rights and interests of citizens. The principles of equality and non-discrimination are fundamental to the Constitution, and these principles should extend to the realm of taxation as well.
Judgement in City Corporation of Calicut vs. Thachambalath Sadalinan & Ors. (1985)
The court observed that it was evident from several of its decisions that the principle of quid pro quo was undergoing a transformation. It was noted that the relationship between the levied fee and the returns may not be direct, i.e., a causal relationship may be enough. It was not necessary for those who paid a fee to receive a direct benefit in return. If the person receives general benefit from the authority levying a fee, then the condition of receiving service in return would be deemed to be satisfied. No special benefit needs to be given to the payer of the fee. By applying the ratio decidendi of various decisions of the court, it was clear that the fee levied by the corporation was justified, as it was rendering numerous services in its area of operation. Specifically, the corporation had carried out cleanliness operations throughout the city to get rid of the odour and contaminated environment caused by soaking the coconut husks. This was a general service, and the respondents in the instant case were beneficiaries of these services; hence, the fee levied by the corporation was justified.
Given this context, the court deemed it unnecessary to consider alternative submissions regarding the levied tax as legal. Consequently, both the appeals were allowed, and the decisions of the learned single judge as well as the decisions of the division bench in writ appeals were set aside, and the writ petition filed by the petitioners was dismissed with no order as to costs.
Ratio decidendi
“If a person is rendering general service within its areas of operation, then levying a fee element of service for collecting fee is satisfied.”
As the judgment of the instant case discusses, the corporation had carried out cleanliness operations throughout the city to get rid of the odour and contaminated environment caused by soaking the coconut husks. This was a general service, and the respondents in the instant case were beneficiaries of these services hence, the fee levied by the corporation was justified.
Cases referred
Municipal Corporation of Delhi and Ors. vs. Mohd Yasin and Ors. (1983)
Facts
The facts of the case are that, by a notification dated 31.01.68, the Delhi municipal corporation intended to enhance the fee for the slaughter in its slaughterhouse from 25 paise to Rs. 2 per animal and, in the case of sheep, goats, and pigs, from Rs. 1 to Rs. 8 per animal. The High Court quashed the notification by stating that the corporation was trying to levy tax under the guise of enhancing the fee. The butchers of the city opposed this enhancement in the fee, contending it was disproportionate to the cost of service and supervision. They also contended that the levied amount was a tax and not a fee. The High Court accepted these contentions and sent the matter as an appeal to the Supreme Court under Article 133(1)(c) of the Constitution of India. The matter was then adjudicated by the Apex Court.
Issue
This was an appeal against holding the fee as a tax. The question is whether the levied amount is a fee or tax?
Judgement
As per the Supreme Court’s instant judgement, there is no major difference between the tax and the fee. The tax is a compulsory payment as a part of the common burden, and there is no promise of any service or benefit in return to the taxpayers. Whereas, the fee is a payment made in return for any service. The point of compulsion cannot be considered as a difference between the two. Also, the money collected does not accumulate in a separate fund but goes into a consolidated fund, but even this does not make a levy a tax.
There can be an indirect relationship between the fee and the returns; a mere and casual relationship will be sufficient. Further, neither the incidence of the fee nor the service rendered need to be uniform. Quid pro quo cannot be the only element of the fee, and it is not necessarily absent in tax. Hence, the appeal was allowed.
Sreenivasa General Traders and Ors. vs. State of Andhra Pradesh and Ors. (1983)
Facts
The petitions filed in the case challenge the constitutional validity of the hike in the market fee from 50 paise to rupee one on every one hundred rupees of the aggregate amount for which the notified agricultural produce, livestock, or products of livestock are purchased or sold in their respective notified market areas. These fees were levied by the market committees in the state of Andhra Pradesh under Section 12(1) of the Andhra Pradesh (Agricultural Produce and Livestock) Markets Act, 1966.
The ground of the challenge was that there is no relation between the hike in the market fee and the services given in return, i.e., the quid pro quo.
Issues
- The petition challenged the validity of the hike in the market fee levied by the market committees.
A few other subsidiary questions were also raised along with these questions:
- The constitutional validity of Section 7(6) of the Act was also challenged as violative of Article 19(1)(g) of the Constitution of India.
- Whether the market committees hold the power to levy a market fee on transactions outside their markets but within their respective notified market areas.
Judgement
The constitutional validity of Sections 7(6) and 12(1) of the Act was upheld. It was justified as a reasonable restriction in the interest of the public. It was held that the hike in the market price was intended to eliminate the middlemen for the protection of producers, livestock, and the products of livestock. The market fee levied correlates with the purposes mentioned in Section 15 of the Act. The market committees provide market services and facilities to the users of the market, which fulfil the principle of quid pro quo. The fee levied was used to cover the cost of the services rendered.
Section 74(1) of the Act exempts certain commodities from market fees. The provision does not restrict the levy of the market fee on the sale of rice if the purchase or sale of the paddy has already suffered such a levy. All the writ petitions and connected appeals were dismissed with costs.
Amar Nath Om Prakash and Ors. vs. State of Punjab and Ors. (1984)
Facts
The facts of the case are that the appellants are traders and are engaged in the purchase and sale of agricultural produce. They have been litigating and impeding the levy and collection of market fees by the market committee constituted under the Punjab Agricultural Produce Markets Act. Their hard work proved to be fruitful when the Supreme Court, in the case of Kewal Krishna Puri vs. the State of Punjab (1979), declared the hike in fee illegal.
There has been the enactment of marketing laws all over the world to protect producers from middlemen and profiteers and secure them a fair price for their produce.
The enactment of such legislation in India is very crucial, as the producers here are dependent and unstable. In 1919, as per the reports of the Indian Cotton Committee, such marketing systems provided great protection to the producers, and special legislation should be undertaken in every cotton-yielding area to establish such markets.
Similar legislation has been enacted in Madras and other states in India. In Madras, various commissions and committees have been appointed to investigate the problem and suggest measures to provide a fair deal to the growers of the crop and find a market for selling their produce at proper rates.
Issue
Whether the provisions of the Punjab Agricultural Produce Markets Act, 1961, including the enhancement of the market fee, create unreasonable restrictions on the citizen’s right to do business?
Judgement
The argument that there is no liability to pay a market fee on purchases or sales taking place outside the market is fallacious. The state government of Andhra Pradesh has framed the Andhra Pradesh (Agricultural Produce and Livestock) Markets Act, 1966, which empowers the market committees to levy and collect fees. Similar acts in Punjab and Haryana are enacted along the same lines. The board is vested with the powers of superintendence and control over the committees.
It was held by the Supreme Court that the Act and the enhancement of the fee are justified and do not create any unreasonable restriction on the citizen’s right to do business. The Act aims to provide facilities and protect the interests of the growers of commercial crops. The appeal was dismissed with costs.
Conclusion
The case of City Corporation. of Calicut vs. Thachambalath Sadalinan and Ors. (1985) is a landmark judgement on the validity of the fee levied by the authorities and the benefits rendered by them in return for the fee paid by the payers. It gives a clear understanding of the Latin phrase quid pro quo and its transformation with time. The Supreme Court in this case clearly stated that the condition of benefits to be rendered by the authority levying fees is deemed to be satisfied by the general benefit obtained. Special benefits are not necessary to fulfil the condition.
Frequently Asked Questions (FAQs)
What is the difference between a tax and a fine?
A tax is a common burden; if the element of revenue for the general purpose of the state predominates, the levy becomes a tax. A fee is for the payment of a specific benefit or privilege. Although the special advantage is secondary to the primary purposes of regulation in the public interest, the levied amount becomes a fee.
Who has the power to levy and collect taxes in India?
As per Article 265 of the Constitution of India, only the authority of law has the power to impose a tax, and none other than that has the power to impose a tax.
