DIFFERENCE BETWEEN TAX AND FEES

1. DIFFERENCE BETWEEN TAX
AND FEES
By
Bishal gupta
Roll no 22
LLM 1yr course

2. Quid pro quo
• It is a Latin phrase
• It simply means something for something
• In common law it means something or service that has been traded in
return for something for value.
• It is a theory of return or counter payment.
• Example:-when we go to buy something we pay a predetermined
money for the product or services we buy. So here we have given
something and taken something.

3. What is tax?
• Tax is a financial charge levied by the government on an individual or on a
corporation to raise revenue for the expenditure done for public work.
• It is a compulsory extraction of money.
• The CJ of the high court of Australia has given the definition of tax:- “a tax is a
compulsory extraction of money by public authority for public purposes
enforceable by law and is not payment for services rendered.
• This same definition was reiterated in one Indian case State of Rajasthan vs.
Sajjan Lal, AIR 1975

4. In the case of Sri Jagnath Ramanuj Das and another v. State of Orissa, (AIR 1964 SC
p.400)
• The Supreme Court clearly held :
• "A tax is undoubtedly in the nature of a compulsory extraction of money by a public authority for
public purposes,
• The payment of which is enforced by law.
• But the essential thing in a tax is that the imposition is made for public purposes of the State
without reference to any special benefit to be conferred upon the payers of the tax.
• The taxes collected are all merged in the general revenue of the State and is to be applied in the
general public purposes.
• Thus, tax is a common burden and the only return which the tax -payer gets is the participation in
the common benefits of the State.

5. Constitutional provisions related to tax
• Article 265: says no tax shall be levied or collected except by the
authority of law.
• Article 110 and 199: gives the definition of money bill & any bill
related to taxation exclusively, will be a money bill.
• In schedule VII both the list has the provision of enacting laws related
to tax, in list I from entry 82 to entry 92B enumerates subject matters
for which parliament is competent to make laws. In list II from entry
46 to entry 62 enumerates subject matters on which state is
competent to make laws.
• The residuary power to enact law on subject matter not enumerated
in list II and III is with the center as per entry 97 of list I.

6. Features of tax
• It is imposed under a statute
• It is imposed for public purpose
• It is not for any special benefit.
• It is for the purpose of general revenue
• There is no element of quid pro quo
• It is common burden
• imposition depends on the capacity of the taxpayer.

7. Shri shirur mutt case
• In this case the difference between tax and fee was examined
• Madras Hindu Religious and Charitable Endowments Act, 1951 was the act passed by the state
legislature
• Section 76(1) which stated Religious institutions to pay an annual contribution to the
Government for the services rendered
• This provision was challenged in the court
• It was contested that the imposition was a tax and it was beyond the legislative power of the
state and the another contention was that such imposition was violative of article 27.
The court held that the imposition has all the characteristics of tax and indeed it is a tax and
supported the first contention of the respondents and upheld the decision of the high court and
dismissed the appeal and for the second contention it said it is not violative of article 27 as the
imposition is not used for promotion or maintenance of particular religion.

8. What is fees?
• A fee is a payment levied by the State in respect of services performed by it for the benefit of the individual.
• It is paid for special benefit and the payment is proportional to the services rendered.
• The money raised by a fee is not a part of general revenue of the state and it is appropriated specifically for
the services for which it has been imposed.
• If there is no clear relation between fees collected and services rendered than it cannot be called as fees.
• There is always an element of quid pro quo in fees which means when a fee is imposed the payer gets
something in return that is specific services is rendered by the state.
• A fees is voluntary in nature and not compulsory burden like tax and a person can choose to opt out of it.
• The amount of fee is based upon the expenses incurred by the State in rendering the services
• The amount of fees imposed and the services rendered need not have to be arithmetically proportional.
• Fee is not levied on the capacity of the payer unlike tax.

9. Kishan Lal v. State of Haryana ( 1993)
• The amount of fee is based upon the expenses incurred by the State
in rendering the services, though in the case of particular fee the
amount may not be arithmetically commensurate with the expenses.
State of Rajasthan v. Sajjan Lal, (AIR 1975)
• There should be necessary correlation between the fee collected and
the service intended to be rendered
• Delhi Municipality v. Yasin, (AIR 1983) The Hon'ble Apex Court has held that what is to
be seen for a fee is whether there is a fair correspondence between the fee charged and the cost of services
rendered .to the fee payers as a class
• a broad co- relationship is all that is necessary. Such relationship need not be strict and even a casual
relation may be enough. Neither the incidence of fee nor the service rendered need be uniform.
• Merely because other are also getting benefited will not detract the character of the fee

10. Regulatory fees
Fee charged for license is a regulatory fee
Vam Organic Chemicals Ltd. v. State of Uttar Pradesh,1997
• The supreme court observed that it is not necessary in each and every case of fees will
have quid pro quo, it will depend from case to case. And that in the case of regulatory fee
such relation shall be irrelevant.
• Now to make the distinction between fees and tax one very important element is the
element of quid pro quo but SC in the above case gave an exception to the rule and said
there are two kind of fees, regulatory and compensatory. License fee can be a regulatory
fee and there is no need to establish quid pro quo in it, the idea of such kind of levy is for
public interest and not always for individual interest.
• It is not always that single payer of fees is benefited and it is immaterial if larger public is
benefitted.
• Fee charged may not be in excessive.

11. Secunderabad Hyderabad Hotel Owners’ Ass. v. Hyderabad Municipal Corp AIR
1999
• The municipal corporation levied a license fee on hotels
• The owners of the hotel went to court stating there is no quid pro quo between the levy and services
rendered
• The court said the license fee can be either compensatory or regulatory
• And gave the decision that the levy is a fees though there is no specific services rendered to individual but
the services provided is at large and the fee paid is not in excessive

12. Court fees
• State of Madras v. Zenith Lamps AIR 1973 SC 724 In this case SC ruled that the
court fees could not be levied for increasing the general revenue of the state.
• It should only be for the administration of justice
• There should be broad co relationship between fees and cost of administration of
justice
• P.M. Ashwathanarayaana Setty v. State of Maharashtra AIR 1989 SC 100 in this
case SC considered the constitutional validity of the court fees , it question
whether a court fees could be regarded as tax or fees. The court considered the
zenith case and said what it said in it and also said court fees is not violative of art
14 and it directed the sate to rationalise the court fees it took.

13. Constitutional provisions
• Entry 66 of state list says Fees in respect of any of the matters in this
List, but not including fees taken in any court.
• Entry 96 of the union list says Fees in respect of any of the matters in
this List, but not including fees taken in any court.
• Entry 47 of the concurrent list says Fees in respect of any of the
matters in this List, but not including fees taken in any court.
• Fees taken in the Supreme Court is a Central subject under entry 77,
List I.
• Fees taken in all other courts is a State matter under entry 3, List II.

14. Difference between fees and tax
• A tax can be only imposed related to tax entries in the list but a fee
can be imposed for all the entries.
• A fee can be levied for taxing entries also.
• A bill that mentions regulation and imposition of taxes is only a
money bill. art.110(2)& 199(2)
• Tax does not attract quid pro quo, fees does

15. References
• Mp jain
• Manupatra
• article: DIFFERENCE BETWEEN TAX & FEE AND GUIDELINES FOR DRAFTING OF FISCAL LEGISLATION Bharat Ji
Agrawal Senior Advocate Allahabad High Court .