DELHI CLOTH & GENERAL MILLS CO. LTD. versus CHIEF COMMISSIONER, DELHI & ORS.

DELHI CLOTH & GENERAL MILLS CO. LTD.

CHIEF COMMISSIONER, DELHI & ORS.

September 11, 1969

[J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.]

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 cheret.>-Fee for annual renewal of licence to run factory-Whether fee or tax~-Maintenance of Inspectors whether provid.es quid pro quo for fee.

The appellant company had number of industrial establishments in Delhi. These establishments were factories within the meaning of s. 2(m) of the Factories Act, 1948. The factories could be run only after re.gistration and under licence granted under the Act and the Rules on prj'ment of prescribed fee. The licence was renewable every year under R. 7 on payment of the sam"!'. fee as for grant of the licence. The company filed 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 witlr R. 5 and its Schedule. The petition being dismissed by the High Court, an appeal was filed in this Cqurt with certificate. The contentioit on behalf of the appellant was that there was nC\ quid pro quo fot·i'the fee paid for renewal' of the licence and that the maintenance ofO::.ii. team of Inspectors under the Act did not amount to such quid pro:n_uo. Reliance was placed on the Liberty Cine111a case. ·

HELD : In each c~se when the question arises whether the levy is in the nature of fee, the entire scheme of the statutory provisions, the duties and obligations imposed on the inspecting staff Rnd the nature of the work done by them will have to be examined for the purpose of determining the rehdering of the services which would make the levy of fee. · In the Liblrily 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 tax and not fee. The present case however fell within the other class of cases in which contributions for the purpose of main-taining an authority and the staff for supervising ano controlling public institutions were held to he fee and not tax. [354 B-C]

large number of provisions of the Act, particularly in the chapters dealing with safety, involve ·good deal of technical knowledge and in the course of discharge of their duties and obligations the Inspectors arc expected to give proper a<lvice and · 2uidance so that there may be due compliance 'Vith the provisions of the Act. On certain occasions the factoory owners are bound to receive 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. Simi-larly if building or machinery or plant is in such condition that it is dangerous to human life or safety the Inspector by serving 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 machinery.

The Hig;1 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 findin~ being one of fact must be considered final. [355 H-356 DJ

It could therefore hardly be contended that the levy of the licence fee was wholly unrelated to the expenditure incurred out of Lhe total realizaiion. The appeal must accordin~ly fail. [356 D-E]

Corporotion of Calcutta & Anr. v. Lihert,v Cinema, [1965] 2 S.C.R. 477, distinguished. ·

H. H. Sudhundra Thirtht.· Swarniar v. Comniissioner for Hindu Relf. giou.< & Charitable Endowments, My30re0 [1963) Supp. 2 S.C.R. 302, Mahant Sri Jagannath Ramanu; Das & Anr, v. State of Orlssa & Anr. [1954] S.C.R. 1046 and Ratila/ Panachand Gandhi v. State of Bombay & Ors., [1954] S.C.R. 1055, applied.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1414 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 19~3.

H. R. Gokhale, D. R. Thadani and A. N. Goyal, for the· appellant.

Jagdish Swarup, Solicitor-General, L. M. Singhvi and R. N. Sachthey, for the respcmdents.

The Judgment of the Court was delivered by

Grover, J. This is an appeal from 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 licence for factory and renewal thereof, the fees p being prescribed by the Schedule to Rule 5.

The Delhi Cloth and General Mills Co. Ltd. operates within the Delhi area number of industrial establishments which are· factories within the meaning of s. 2(m) of the Act. The com-pany has to pay total sum of Rs. 12,775.00 as annual licence· fee for all its factories in Delhi, the fees being calculated accord-ing to the Horse Power and the maximum iITumber 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 I J for factory. The factories can be run only after registration and under a· licence granted under the Act aind the Rules on payment of the prescribed fee. The licence is renewed every year under R. 7 on payment of lhe same fee which is paid at the time of the grant-ing of the licence. Every licence granted or renewed remains in force up to December 31, of the year for which it is granted or

renewed. In January i963 th_e ~omRany filed petition under ~rts. 226 ~~ 227 of the Conslitut10n m the High Court challeng-mg the vahd1_ty of the Rules under which the licence fee for rene-wa~ of the ltceince for each of its factories in Delhi; was being Jev'.ed a~~ collected_ 1.e: R. 7 read with R. 5 and its, Schedule. This pet1hon was d1sm1ssed by division bench on February 11, 1965. The company then filed the present appeal by ceitificate.

The principal point which has been canvassed on behalf of the appellant company is that the paymeint 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 ther~of cann?t 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 fee from tax is absent and lacking. The Act, it is pointed out, contaiµs specific provisions for rendering of beinefit. and service to the workmen by the owners of the factories. The Inspectors who are ·appointeo .under the Act to ensure that its provisions are complied with by the factory owners constitute policing agency and it is not pos-sible to say that the power and duties of the l;."1Spectors when exercised arid 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 th~ foe levied for the annual renewal of •he licence for th~ 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 be~ng utilised on running the department.

Mr. H. R. Gokhale for the appellant company has contended that the High Court failed to apply the principles which are settled by certain decisior.;i of this Court for d.etermining whether fee for licence or renewal thereof in circumstances similar to the present case is in substance and effect tax. He has relied largely on Corporation, of Calcutta & Another v. Libert,,· Cinema('). In that case the licence fee had been raised from Rs. 400/. to Rs. 6,000/. per year. It was obServed in the majo-rity judgment that the provision under which the licence had to be taken out for cinema did not refer to the rendering of any service by the Corporati0in of Calcutta. It was also not obliga· tory on the Corporation to make any bye-law under which

(I) [1955] 2S,C.R.477.

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 regardd as service to the licence as it was meant only to make sure that the licencee carried out the conditions on which the licence had been granted to him. Some of the earlier decisions were consid-B ered as also the pronouncement in H. H. Sudhundra Thirtha Swamiar v. Commissioner for Hindu Religious & Charitabie Endowments, Mysore(') and with regard to the latter case it was said that service resulting in the control of the Math adipathi conferred special benefit on the institution which alone paid the levy.

As far back as 1954 it was laid down in Mahant Sri Jaga1111oth Ramanui Das & Anr. v. The State of Orissa & Another(') 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 toonples was to be regarded as· fee and not tax. Two reaso,ns 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 special fund and were not to be merged in the general reve.nlue. Secondly, it was not necessary that services should be rendered only at the request of particular people and it was enough that payments we,e demanded for rendering services which the State comsidered beneficial in the public interest ·and which the people had to accept wh~ther they were willing or not. The following observations in H. H. Sud/11m-dra Thirtha Swamiar case(') may be referred to wit!. advantage :"A levy in the nature of foe does not cease to be of that character merely because there is ·an element of compulsiOjll or coerciveness present in it, nor is it postulate of fee that it must have direct relation to the actual sei:vices rendered by the authority to individual wro obtams the benefit of service. If with view to provide a. speci~c s~ryice, levy is imposed by Jaw and expenses for mamtammg the service are met out of the amounts collected there being reasonable relation between the levy and the expe;nBes incurred for render-(!) (1963] Supp, 2 S.C.R. 302. (2) [1954] S.C.R. 1046. (3) [1954] S.C.R. 1055.

ing the service, the levy would be in the nature of .fee and not in the nature of tax."

According to Mr. H. R. Gokhale the present case is of the type which would fall squarely withip the decision in Liberty Cinema case (1). It is difficult to agree. In each case where the questi<m . arises whether the levy is in the nature of 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 detennining the reodering of the services which would r::ake the J~vy 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 tax and not fee. Iini 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 main-taining an authority and the staff for supervising and cootrolling 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 sur&eon has to carry out such duties as may be prescribed in conneeuon 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 with health. Section 11 contains detailed provisions about cleanliness. SectiOJllS 12 to 14 relate to disposal of was!e 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 ihe provisions relating to safety. Section 21 deals with fenci,n:g of machinery Section 22 with work on or near machinery in motion and section 23 with employment of young persons on dangerous machi,nes. 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 Di building or any part of the· ways, machinery or plant ~ti factory is in such condition that it may be dangerous to human life and safety he may serve on the manager of the factory an order in writing 11) [1965] 2 S,C.R. 477.

requiring him to furnish the particulars for determin\ng whether the building, machin.~ry, plant etc., can be used w.ith safety or to carry. out such tests as may be specified and convey the result there-uf to the Inspector. Under s. 40 if it appears to the Inspector that any building or part o~ building is in such cqndition 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 specified date. Similarly if it appears to him that the use of any building or machinery or plaint 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 applia;nces, canteens and creches and every factory is required \lnder 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 ~nspector has to be consulted and his approval obtained for doing certain things. For instance R. 65 ( 3) says that the manager of factory shall submit for the approval o( the Chief Inspector plans o.f the building to be constructed or adapted for use as ca;nteen. 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 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 be~ng 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 connect~d with safety, health welfare and the allied matters in res-pect of compliance with the provisions of the Factories Act". It has further been stated that in our country matters relating to health, safety, · 1elfare 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 an that they have to do is to ensure that the statutory provisions and the rules are carried out properly and launch prosecutions aga~nst factory owners under the provisions of Chapter X o.f 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 oi the Inspectorate are confined only H. to the limited ta.sk which has been suggested on behalf of the 11ppellant company. large number of provisions to which refer-ence has been made, particularly in the Chapter dealing, with

safety, i;nvolve 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 good deal of benefit by being saved from the consequeinces of ihe 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 dclective nature of the machinery or of the taking of prec~utions which are t;njoined under the Act. Similarly if building or machinery or plant is in such condition that it is dangerous to human life or safety the Inspector by serving iimely notice on the manager saves the factory owner from all the conseqµences 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 Commissioner would, in the matter of supervision, regulation and control over the way in which the nrn;nagement of the trustees of religious and charitable endow-ment was conducted. The High Court further found, which find-D ing 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, there-fore, hardly be cqntended that the levy of the licence fee was wholly unrelated to the expenditure incurred out pf .the total realisation. Before the High Court the appellant company never made out any case that the collections on account of the iicence fee werfl merged in the general public revenue and were in:ot appropriated in the manner laid down for the appropriation of expenses for the department concerned.

Similarly if

There can be no manner of doubt that the amou.nt which the appellant company has to pay as licence fee is not in the nature o.f tax but is fee which could be properly levied.

The appeal fails and it is dismissed with costs.

Appeal dismissed.