Government of Andhra Pradesh & Anr. v. Hindustan Machine Tools Ltd.

Judgment

The Judgment of the Court was delivered by CIIANDRACHUD, J. This is a tax dispute concerning the power of the second appel,lant, Kuthbullapur Gram Panchayat, to levy housetax and Permission Fee on the respondent. The Hindustan Machine Tools Ltd., which is a Government of India Undertaking. The first appellant is th<; Government of And~ra Pradesh. e, ·- The Kuthbullapur Gram Panchayat was established in 1959, Jn 1964 the Andhra Pradesh State Legislature passed the Andhra Pradesh SUPREMll COUll.T IUlPORTS (1975] SUPP· s.c.k. Gram Panchayats Act, 2 of 1964, which with the exception of Chapter VII of the Act, came into force on January 18, 1964. The Act applies to the Kuthbullapnr Graru Panchayat within whose geographical limits the respondent has established a factory for the manufactnre of special apparatus machines, presses etc. The construction of the factory began in 1964 and was completed in December, 1965. The factory was constructed without the permission of the Gram Panchayat.

Considering the skeleton staff which mans the Panchayat and its skeleton activities, the respondent's plea that it did not obtain the Panchayat's permission because it was not aware of its existence is not implausible. But such awareness has no relevance on the respondent's liability to pay taxes and fees. In any event, on coming to know of the construction of the factory and the other buildings the Panchayat asked the respondent to obtain the requisite permission. The respondent asked for ex-postfacto permission in January, 1967. In its meeting of May 8, 1967 the Panchayat passed a resolution for collecting Permission Fee from the respondent at 1/2% on the capital value of the factory buildings and at 1 % on the capital value of other buildings. By a letter dated August 20, 1968 the Panchayat called upon the respondent to pay house-tax for the years 1966-67, 1967-68 and 1968-69 amounting to Rs. 1,83,750 at the rate of Rs. 61,250 per annum.

On March 3, 1969 the Panchayat demanded from the respondent a sum of Rs. 1,65,000 by way of Permission Fee, Rs. 80,0()() beillg for factory buildings and Rs. 85,000 in respect of the· other buildings. On November 25, 1969 the respondent filed a writ petition ia the High Court of Andhra Pradesh challenging the levy of house tax and the Permission Fee. By its judgment dated August 6, 1971 the High Court allowed the writ petition. It held that the buildings constructed by the respondent did not fall within the definition of a 'house' as contained in the Act and therefore no house-tax could be li!tied on the buildings. Regarding the Permission Fee the High Court repelled the appellant's contention that the fee was in the nature of tax and held that since no services were rendered by the Pancl111yat to the respondent the levy of Permission Fee was illegal. The High Court has granted to the appellants a Certificate of Fitness under Article 133(1)

(a) of the Constitution to appeal to this Court. Section 69 (l )(a) of the Act provides that a Gram Panchayat shall levy in the village a house-tax. By section 2( 15), as ,it stood when the High Court delivered its judgment, 'house' meant a building or hut fit for human occupation, whether as a residence or otherwise, "having a separate principal entrance from the common way,!' and included "any shop, workshop or warehouse or any building used for garaging or parking buses or as a bus-stand". The High Court heW that buildings other than factory premises were not a 'house' within the meaning of the Act because their separate principal entrance8 were situated on the roads belonging to the respondent and not on the common way as required by section 2(15). As regards the factory buildings, the High Court held that the Legislatnre had included shops, A. P. GOVT. v. H. M. T. (ehwuirachud, J.) wor~op& and warehouses but not factories within the definition of a 'house' and therefore factory buildings were also not a 'house' within the meaning of the Act.

The demand of house-tax was accordingly held illegal. By the Andhra Pradesh Gram Panchayats (Amendment) Act, 16 of 1974. the State Legislature has amended the definition of 'house' with retrospective effect so as to eliminate the impediments on which the High Court rested its judgment. If the amendment is lawful and valid, it will be unnecessary to consider whether the High Court was right in reading the way it did the definition of 'house' as contained in the unamended section 2(15). Sedion 2 of the Amending Act provides : "2.

For clause ( 15) of section 2 of the Andhra Pradesh Gram Panchayats Act, 1964 (hereinafter referred to as the principal Act), the following clause shall be and shall be deemed always to have been substituted, namely :- "(15) 'house' means a building or hut fit for human occupation, whether as a residence or otherwise, and includes any shop, factory, workshop or warehou~e or any building used for garaging or parking buses or as a busstand, cattle shed (other than a cattle shed in an agricultural land), poultry shed or dairy shed" ; Section 4(a) of the Amending Act provides·: "4.

Notwithstanding anything in any judgment, or order of any court or other authority,- decree ( a) anything done or any action taken, including any tax levied and collected, in the exercise of any power conferred by or under the principal Act shall be deemed, to be and to have always been, done or taken or leived and collected in the exercise of the powers conferred by tor under the principal Act as amended by section 2 of this Act, as if the principal Act as amended by this Act were in force on the date on which such thing was done or action was taken, or tax was levied and collected; and all arrears of tax and other amounts due under the printipal Act as amended by this Act at the commencement of this Act, may be recovered as if they had accrued under the principal Act as amended by this Act";

The new definition of 'house' which is to be read retrospectively in to the Act meets effectively both the objections by reason of which the High Court held that the buildings constructed by the respondent were not a 'house'. By the Amendment the old clause "having a separate principal entrance from the. common ~ay" is ,dropped and the ~efiniti?n of 'house' is re-framed to mclnde a factory. It 1s clear and 1s undisputed that the. buildings constructed by the respondent-the colony buildings as well as the factory buildings~answer fully the description 1 S.UPREME COURT REPORTS [1975] SUPP· S.C.R. of a house and are squarely within the new definition contained · in section 2(15).

We see no substance in the respondent's contention that by redefining the term 'house' with retrospective effect and by validating the levies imposed under the unamended Act as if, notwithstan,ding anything contained in any judgment decree or order of any court, .that Act as amended was in force on the date when the tax was levied, the Legislature has encroached upon a judicial function. The power of the Legislature to pass a law postulates the power to pass it prospectively as weII as retrospectively, the one no less than the other. Within the scope of its legislative competence and subject to other constitutional limitations, the power of the Legislature to enact laws is plenary. In United Provinces v. Atiqa Begum ( 1 )

Gwyer, C.J. while repelling the argument that Indian Legislatures had no power to alter the existing laws retrospectively, observed that within the limits ot their powers the Indian Legislatures were as supreme and sovereign as the British Parliament itself an~ that those powers were not subject to the "strange and unusual prohibition against retrospective legislation". The power to validate a I law retrospectively is, subject. to the limitations aforesaid, an ancillary power to legislate on the particular subject. The State legislature, it is sJgnificant, has not overruled or set aside the judgment of the High four!. It has amended the definition of 'house' by the substitution o a new section 2(15) for the old section and it has provided that. the new definition shall have retrospective effect, notwithstanding apything contained in any judgment, decree or order of any court or other authority.

In other words, it has removed the basis of the del'ision rendered by the High Court so that the decision could not have Ileen given in the altered circumstances. If the old section 2(15) were to define "house' in the manner that the amen~ed section 2(15) does, fhere is .doubt that t.he decision .of th~ High Court would have been otherwise. Jn fact, 1t was not d!S- puted before us that the buildipgs constructed by the respondent meet fully the requirements of s~ction 2(15) as amended by the Act of 1974. In Tirath Ram Rajindra Natb v. State of U. P. ( 2), the Legislature amended the law retrospectively and thereby removed the basis of the decision rendered by the f!igh Court of Allahabad. It was held by this Court that this was with.in the permissible limits and validation of the old Act by amending it retrospectively did not constitute an encroachment on the functions of the judiciary. The decisions on which th~ respondent relies are clearly distinguishable.

In the Municipal Cdrporation of the City of Allilhabad v. The New Shrock Spg. & Wvg. Co. Ltd. ( 3) the impugned provision commanded the Corporation tol refuse to refund the amount illegally (') (194-0) F. C.R. !JO. (') A.LR. 1973 S.C. '4-05. (') Al.R 1970 S.C. 1292.· A. P. GOVT. v. H. M. T. (Chandrachud, J.) collect~d by it despite the orders of the Supreme Court and the High Court As the basis of these decisions remained unchanged even after the amendment, it was held by this Court that the legislature had made a dircet inroad into the Judicial powers. In Janp11da Sabha Chindwara etc., v. The Central Provinces Syndicate Ltd.,('} the Madhya Priidesh Legislature passed a Validation Act in order to rectify the defect pointed out by this Court in the imposition of a c~ss.. But ~e Act did not set out the nature of )he amendm€fut nor did 1t provide that the notifications issued without the sanction of the State Government would be deemed to have been issued validly.

It was held by this Court that this was tantamount to saying that the judgment of a coµrt rendered in the exercise of its legitimate jurisdiction was to be deemed to be ineffective. The position in, State of Tamil Nadu v, M. Rayappa Gounder ( 2 ) was similar. In that case the re-assessment made under an Act which did not provide ror reassessments were attempted to be validated without changing the law retrospectively. This was· considered to be an encroachments on the judicial functions . .In the instant case the Amending Act of 197 4, cures the old definition contained in section 2(15) of the vice from which it suffered. The amendment has been given retrospective effect and as stated earlier the legislature has the power to make the law passed by it retro-active.

As the Amending Act does not ask the instrumentalities of the State to disobey or disregard the decision given by the High Court but removes the basis of its decision, the challenge made by the respondent to the Amending Act must fail. The levy of the house-tax must therefore be upheld. Under Article 246(3) read with Entry 49 in List II, Seventh Schedule of the Constitution, the State legislatures have exclusive power t9 make laws with respect to ''Taxes on lands and buildings" Section 69~1)(a) of the Act authorises Gram Panchayats to levy house .. tax m the villages under their respective jurisdiction. The F Gram Panch.ayat of Kuthbullapur has accordingly levied house-tax on the bmldmgs constructed by the respondent including the factory buildings. It needs to be clarified that by Rule 6 of the "Rules relatmg to levy of House-Tax", machinery and furniture are to be excluded .from consideration for the purpose of assessment to house-tax.

Thus, the tax is on buildings only and does not transgress the scope of Entry 49. This clarification became necessary in view of the respondent's C?ntention that the State legislature has no power under Entrv List II, to levy tax on the lands and buildings owned or occupied by ~ factory., Entry 36 in List III relates to "Factories" and Entry 47 m. that List re~ates t? "Fees in respect of any of the matters in this List, but not mcludmg fees taken in any court". It is urged on beh~lf of the !espondent that these specific Entries in regard to the partrc~lar sub1~t matter exhaust the power to impose levies on factones .and smce the power is limited to the imposition of fees on · (') A.I.it 1971 s.c. 57. (') A.I.R. 1971 S.C. 231. SUPIUi'.MB _COURT REPORTS [1975] SUPP• S.C.ll. factories, the legislature has no competence to impose a tax on the lands or buildings of a factory.

It is true that the various Entrie8 in ·the legislature Lists must receive a broad and liberal construe:. tion ~nd Entry 36 in List III may therefore cover every aspect of the subject matter of "Factories". · But the State legislature has not authorised the levy of house-tax on factories in ·the COIJlpendious sense. The new definition of 'house' includes a 'factory' but the housetax is levied only on the buildings occupied by the factory and not on the machinery and furniture. The State legislature bas the legislative competence to do so under Entry 49 in List II. It was urged by Mr. Naunit Lal on behalf of one ·of the· interveners that 'Factory' is a compendious expression and sijlce a factory consists of the building, the machinery and the furniture, the legislature cannot split up the personality of the factory and tax one part of it only.'

There is no substance in this contention because the power to tax a building can be exercised without reference to the use to which the building as put and it irrelevant that the building is occupied by a factory which cannot conduct its activities without the machinery and furniture. What falls legitimately within the scope of legislative Entry can lawfully. form the subject matter of legislation'. ·We cannot entertain the respondent's argument that without a proper budget, the Gram Panchayat cannot impose a tax. Such an argument was not made in the ·High Court and it involves an in- \'estigation into the fact whether the Gram Panchayat had or had not prepared a budget. Nor can we entertain the respondents submission that section 4(b) and (c) of the Act of 1974 .are invalid. Under clause (b), no suit or other proceeding is maintainable or can be continued in any court or before any authority for the refund of any tax.

Under clause (c), no court shall enforce any decree or order directing the refund of any such tax. No suit has been filed by the respondent for the refund of tax and no decree or order has been passed by any court or any authority for the refund of any tax. This Court does· not answer academic questions. T The position in regard to the so called 'Permission Fee' is entirely dilierent. In the first place, the Act of 1964 itself makes a distinction between the power to impose a tax and the power to impose a r: fee. · Section 69(1) and section 69(3)(i), (ii), (iii) empower the Gram Panchayats to levy taxes while section 69(3) (v) and (vi) provide for the levv of fees. Sections 92, 109(2), 111, 121(5), 122 and section 131 of the Act also provide for the imposition of specific fees. There is no provision in the Act empowering the Gram Panchayats to -levy fees on the permission to construct a building, which is what the second appellant has purported to do in the instant case.

In fact, there is no provision in the Act under which it is necessary to cbtain the permission of the Gram Panchayat for constructing a building. Section 131(2) of the Act which authorises the levy of fees for every licence or permission is therefore notattracted. Section '125(1) ·requires that the permission of the- Gram Panchayat must A. P. GOVT. v. H. M. T. (Chandrachud, /.) be obtained for constructing or establishing a factory, workshop or work-place in which it is proposed to employ steam po.wer, ~ati:r power .or other mechanical power or electrical power or m which 1t is proposed to instal any machinery or manufacturing plant driven by steam water or other power as aforesaid. The provision may possibly s~pport a le~ of .

Permission Fee on the tactory build\nll;S• but there is no provmon m the Act at all requmng the per011ss10n of. the Gram Panchayat for the construction of other buildi_ngs. _<?ounsel for the appellants wanted to derive sustenance to the 1mpos1t1on of Premission Fee from the provision contained in section 217(2) (xvi) but that clause only empowers the Goverrunent to make rules "as to the regulation or restriction of building and the use of sites for building". In the absence of any provision in the parent Statute requiring the c permission of the Gram Panchayat for the construction of non-factory buildings, the rule-making power of the Government cannot be exercised so as to impose the requirement of a permission in respect cf sucb buildings. But there is a broader ground on which the levy of Permission Fee must be struck down.

Fees are a sort of return or consideration for services rendered which makes it necessary that there should be an element of quid pro quo in the imposition of a fee. There has to be a correlationship between the fee levied by an authority and the services rendered by it to the. person who is required to pay the fee('). There is, in this case, not a word showing such a correlationship. In the counter-affidavit which the appellants fil~d in the High Court in reply to the respondent's writ petition, nothing at all was stated as to the expenses incurred or likely to be incurred by the Gram Panchayat in rendering any actual or intended service to the respondent. There may be something in the grievance of the Gram Panchayat that the mighty respondent and others following the respondent's lead have been persistently refusing to pay taxes which h'.'8 made it impossible for the Gram Panchayat to render any services.

But the -true legal position as stated by Mukherjea, J. in the Commissioner, Hindu Religious Endowments Madras v. Shri Lakshmindar Thirtha Swamiar of Sri Shirur Mut1(2) is that 'it is absolutely > nrcessary that the levy of fees should on the face of the legislative prov1S1on, be correlated to the expenses incurred by Government in rendering the services". In the total absence of any data showing such a corrclationship, the levy of Permission Fee has to fail. One cannot take into account the sum total of the activities of a public body like a Gram Panehayat to seek justification for the fees imposed by it. The expenses incurred by a Gram Panchayat or a MuniciJ?ality_ .i~ dischargin,g its obligatory functions are usually met by the 1mpos1t1~n of a variety of taxes. For justifying the imposition of fees the public authonty has to show what services are rendered or intended to be rendered individually to the particular person on whom the fee i~ imposed.

The Gram Panchayat here has not even prepared an estimate of what the intended services would cost it. I') [1954] S.C.R. 1005: A.I.R. 1957 S.C. 846 . (') 119541 S.C.R. 1005, 1042. Learned counsel for the appellants contended that the Gram r Panchayat lays roads for providing access to new . buildings, that it provides for drainage and lights and that it scrutinises the plans submitted for intended constructions . and, if necessary, it advises the applicants in order that the proposed construction may conform to the regulations. We are unable to accept that these services . are rendered individually to the respondent. The laying · of roads and drainage or the supply of street-lights are a statu1ory function of public authorities and it is difficult to hold, in the absence of any material, that any of such services as have been mentioned to us have ·in fact . been rendered to the respondent.

The very circumstance that the Permission Fee is levied at a certain percentage of the capital· value of the buildings shows that the Gram Panchayat itself never intended to correlate the fee with the services rendered or intended to be rendered by it. There is therefore no warrant for the { levy of Permission Fee, not even on factory buildings, assuming for the sake; of argurnent that the i)ermission of Gram Panchayat is necesse.1y for the construction of factory buildings. · It was alternatively contended on behalf of the ·appellants that the Permission Fee though called a fee is really in the nature of a tax on buildings and may be upheld as such. It is impossible to accept this contention. That the Permission Fee is not a tax ·on buildings is clear from the fact that the fee may be required to be paid even if a building does not eventually come into existence.

The scheme under which. the Permission Fee is attempted to be levied is that it becomes payable at the time when thte permission, to . construct a building is applied for. The levy does not depend upon whether a building has. been ·in fact constructed with the result that whether a building is constructed or not, the fee has to be paid. In other words, the Permission Fee is in the nature of a levy on a proposed activity and is not a tax on buildings. Thus, the levy of house-tax is lawful but the levy of Perruission Fee has to be struck down as being illegal. Accordingly the appeal is allowed partly but since the success is divided,· there will be no , order as to costs. ~P. H. P. Appeal partly allowed.