Case: Government of Andhra Pradesh and Another Vs. Hindustan Machine Tools Limited

2. The Kuthbullapur Gram Panchayat was established in 1959. In 1964 the Andhra Pradesh State Legislature passed the Andhra Pradesh Gram Panchyat Act, 2 of 1964, which with the exception of Chapter VII of the Act, came into force on 18th January, 1964. The Act applies to the Kuthbullapur Gram Panchayat within whose geographical limits the respondent has established a factory began in 1964 and was completed in December, 1965. The factory was constructed without the permission of the Gram Panchyat. Considering the Skleton Staff which mans the Panchayat and its skeleton activities, the respondents plea that it did not obtain the Panchayats permission because it was not aware of its existence is not implausible. But such awareness has no relevance on the respondents liability to pay taxes and fees. In any even, 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-port-facto permission in January, 1967.3. In its meeting of 8th May, 1967, the Panchayat passed a resolution for collecting Permission Fee from the respondent at 1/2 per cent on the capital value of the factory buildings and at 1 per cent on the capital value of other buildings. By a letter dt. 20th August, 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 rat of Rs. 61, 250 per annum. On 3rd March, 1969 the Panchayat demanded from the respondent a sum of Rs. 1, 65, 000 by way of Permission Fee, Rs. 80, 000 being for factory buildings and Rs. 85, 000 in respect of the other buildings.4. On 25th November, 1969 the respondent filed a writ petition in the High Court of Andhra Pradesh challenging the levy of house-tax and the Permission Fee, By its judgment dt. 6th August, 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 levied on the building. Regarding the Permission Fee, the High Court repelled the appellants contention that the fee was in the nature of tax and held that since no services were rendered by the Panchayat to the respondent the levy of Permission Fee was illegal. The High Court has granted to the appellants Certificate of Fitness under Art. 133(1)(a) of the Constitution to appal to this Court.

Court's reasoning:
It is clear and is undisputed that the buildings constructed by the respondent the colony buildings as well as the factory buildings answer fully the description of a house and are squarely within the new definition contained in s. 2(15).8. We see no substance in the respondents contention that by redefining the term house with retrospective effect, and by validating the levies imposed under the unamended Act as if, notwithstanding 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 well 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 Legislatures to enact laws is plenary.The State legislature, it is significant, has not overruled or set aside the judgment of the High Court. It has amended the definition of house by the substitution of a new s. 2(15) for the old section and it has provided that the new definition shall have retrospective effect, notwithstanding anything contained in any judgment decree or order of any Court or other authority. In other words, it has removed the basis of the decision rendered by the High Court so that the decision could not have been given in the altered circumstances. If the old s. 2(15) were to define house in the manner that the amended s. 2(15) does, there is no doubt that the decision of the High Court would have been otherwise. In fact, it was not disputed before us that the buildings constructed by the respondent meet fully the requirements of s. 2(15) as amended by the Act of 1974.In the instant case, the Amending Act of 1974 cures the old definition contained in s. 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 laws 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 beneeds to be clarified that by r. 6 of the "Rules relating to levy of House-Tax" machinery and furniture are to be excluded from consideration for the purpose of assessment to income-tax. Thus, the tax is on buildings only and does not transgress the scope of Entryis true that the various Entries in the Legislative List must receive a broad and liberal construction and Entry 36 in List III may therefore cover every aspect of subject matter of "Factories". But the State Legislature has not authorised the levy of house-tax on factories in the compendious sense. The new definition of house includes a factory but the house-tax is levied only on the buildings occupied by the factory and not on the machinery and furniture. The State Legislature has the legislative competence to do so under Entry 49 in Listis no substance in this contention because the power to tax a building can be exercised without reference to the use to which the building is put and it is 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 a legislative Entry can lawfully from the subject matter of legislation.16. We cannot entertain the respondents 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 investigation into the fact whether the Gram Panchayat had or had not prepared a budget. Nor can we entertain the respondents submission that s. 4(b) and (c) of the Act of 1974 are invalid. Under cl. (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 cl. (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 or the refund of any tax. This Court does not answer academic questions.17. The position in regard to the so-called Permission Fee is entirely different. 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 fee. Sec. 69(1) and s. 69(3)(i), (ii), (iii) empower the Gram Panchayats to levy taxes while s. 69(3)(v) and (vi) provide for the levy of fees. Secs. 102, 109(2), 111, 121(3), 122 and s. 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.18. In fact, there is no provision in the Act under which it is necessary to obtain the permission of the Gram Panchayat for constructing a building. Sec. 131(2) of the Act which authorises the levy of fees for every licence or permission is therefore not attracted. Sec. 125(1) requires that the permission of the Gram Panchayat must be obtained for constructing or establishing a factory, workshop or workplace in which it is proposed to employ steam power water power or other mechanical power electrical power or in which it is proposed to install any machinery or manufacturing plant driven by steam water or other power as aforesaid. This provision may possibly support a levy of Permission Fee on the factory buildings, but there is no provision in the Act at all requiring the permission of the Gram Panchayat for the construction of other building.19. 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 co-relationship 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 co-relationship. In the counter-affidavit which the appellants filed in the High Court in reply to the respondents 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 respondents lead have been persistently refusing to pay taxes which has 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 vs. Sri Lakshmendra Thirtha Swamiar of Sri Shirur Mutt 1954 SCR 1005  ) is that "it is absolutely necessary that the levy of fees should on the face of the legislative provision, be co-related to the expenses incurred by Government in rendering the services". In the total absence of any data showing such a co-relationship, the levy of Permission Fee has to fail.20. One cannot take into account the sum-total of the activities of a public body like a Gram Panchayat to seek justification for the fees imposed by it. The expenses incurred by a Gram Panchayat or a Municipality in discharging its obligatory functions are usually met by the imposition of a variety of taxes. For justifying the imposition of fees the public authority has to show what services are rendered or intended to be rendered individually to the particular person on whom the fee is imposed. The Gram Panchayat here has not even prepared an estimate of what the intended services would costl for the appellantswanted to derive sustenance to the imposition of Permission Fee from the provision contained in s. 217(2)(xvi)but that clause only empowers, the Government 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 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 of suchare unable to accept that these services are rendered individually to the respondents. The laying of roads and drainage or the supply of street-lights are a statutory 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 co-relate 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 argument that the permission of Gram Panchayat is necessary for the construction of factoryis 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 attempt to be levied is that it becomes payable at the time when the 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.