Introduction of Special Corona Fee on Liquor: Legally Sustainable or Not?

The Government of National Capital of Delhi, amidst the lockdown 3.0, decided to reopen alcohol shops. However, along with the resumption of sale, a new fee was introduced, called 'Special Corona Fees', whereby the Delhi Government was able to charge 70% over and above the MRP of alcohol sold in Delhi. Even though on the face of it, the imposition of such "fees" may be perceived as a correct move, however, like every other act of the legislature, this also has to be seen through the prism of judicial scrutiny to verify its legal correctness or sustainability. 

The imposition of the "Special Corona Fees" was implemented vide a notification 04.05.2020 under the Delhi Excise Act, 2009, Section 81 (1), whereby Rule 154(4) of the Delhi Excise Rules, 2010 was amended. Serial No. 17 under the head of "Other Fee" was added which permitted the Delhi Government to charge a Special Corona Fee that is "70% of the maximum retail price on all categories of liquor sold through retail licensees for consumption "off" the premises."

Definition of Fees

Since the present entire Article deals with whether the Fees imposed is legally sustainable or not; therefore, it is also relevant to know what is 'Fees'?

The term 'Fees' or 'Other Fees' are nowhere mentioned in the Delhi Excise Act or Rules, and therefore, we would have to look elsewhere to get a clear picture.

Black's Law Dictionary defines Fees as "A charge fixed by law for services of public officers or the use of a privilege under control of the government or recompense for an official or professional service or a charge."

Ideally, a government agency charges Fees for a particular service provided to individuals. Thereby it highlights the quid pro quo component in the concept of fees. A fee is either regulatory or compensatory in nature. When the fee in question is not the 'arithmetical equivalent' of the service rendered, it is primarily compensatory in nature. Similarly, the fee charged to control or regulate particular behavior is called a regulatory fee. A compensation paid for acts, services, or labor is usually performed in the line of official duties or a profession. The essential factor is the quid pro quo element while imposing a fee even if indirect, and on finding no such co-relationship, the Courts have set aside such fees.

In Hingir-Rampur Coal Co. Ltd. and Ors. v. The State of Orissa and Ors. 1961 2 SCR 537 held that the presence of an element of quid pro quo in a levy qua fee. The Hon'ble Courts have repeatedly held that Fee can not be equated with tax even though there is no generic difference between the two. Both Fee and tax were compulsory exactions by public authority. While no particular consideration is circumscribed for the imposition of the tax, levy of the fee must have a reasonable correlation with services provided and the category from which exaction of such fee is intended. Also, 'reasonable correlation' must have 'principle of equivalence' as an element of benefit to persons burdened with such fees constituting general correlation between such persons and services to be rendered, which remained a sine qua non. Even after watering down, in later judicial pronouncements, the dominance of the concept of equivalent quid pro quo as an essential feature of fee, the idea of reasonable and general correlation continued to blow the whistle with 'principle of equivalence' resurfaced. Thus, dehors such association, fee lapsed into tax in disguise, could not survive judicial scrutiny and must be set aside. The concept of equivalent quid pro quo being an essential ingredient of a fee came to be gradually metamorphosed into an idea of reasonable correlation to cater to the demand of an ever-changing socioeconomic scenario while maintaining a discernible distinction between tax and fee. 

That Courts around India, especially the Apex Court of India, has repeatedly held that whenever a fee is charged without the authority of a Parent Act and a relationship with the service rendered, it is illegal and not sustainable in the eyes of the law. Some Judicial precedents w.r.t fees are as follows:

In SKOL Breweries Ltd Vs. State of Orissa and Ors. W.P. (C) No. 2365 of 2003: The Board formed under the Bihar and Orissa Excise Act, 1915 levied a franchise fee, it was ruled that the Board being a delegated authority does not have the competence to create a new form of fee or permit which is not provided under the Act and is, therefore, ultra vires. The fee was declared invalid on the ground that when there is no correlation between the fees charged and the service rendered, the imposition is a tax and not a fee. 

Sherowali Himghar and Services (P) Ltd. Vs. State of Tripura and Ors 2006 (Suppl.) GLT 125: There was an escalation of 15 times in the consent fee to establish or operate industry under the Water Act by notification and amendment to Rule 29 of Water Pollution Rules 1989 Table-1.It was held that such provision had no correlation with services to be rendered and State rules framed under the Act, had no express provision for exaction of 'consent fee' hence, consent fee to establish or operate could not be hiked and was a fee lapsed into tax in disguise thus unsustainable in law.

The Supreme Court in The Municipal Council, Madurai v. R. Narayanan, and Ors. (1975) 2 SCC 497. held that the authority, to justify the levy qua fee, must render some special services to the category from whom the amount is exacted and the total sum so collected must have a reasonable correlation to the cost of such services. Where these dual basic features are absent, one cannot legally claim from the licensee under the label 'fee.' 

In Sports & Leisure Apparel Ltd. Vs. MCD 2014(146)DRJ246, it was held that Delhi Municipal Corporation Act, 1957, does not provide for any levy, impost or penalty in respect of an unauthorized advertisement and the levy has no element of quid pro quo with any service rendered cannot be considered as a fee. Further, a charge for granting any permission to carry any activity, which has no nexus with the costs, effort, or infrastructure required to regulate the said activity, cannot be considered a regulatory fee. 

Thus, from the above decisions focusing on the shift in the conception of a fee, the position that has crystalized is that a levy qua fee cannot be dehors reasonable relationship between the levy and the services rendered through equivalent quid pro quo is no longer sine qua non. Such correlation may be indirect, but the totality of the fee and the totality of the expenses of the services must have a general co-relationship without which the levy will lose characteristic of a fee. 

Sans such reasonable correlation ship or nexus, a fee would become a tax in disguise. There cannot be any open-ended provision empowering any authority to impose the fee, which has the potential of being resorted to for arbitrary exercise of powers, an anathema to the rule of law. 

In the present case, there is absolute silence on what kind of benefits would be provided or what the Government is planning to do with the fee collected.

Now, after having some insight into the concept of fees and its judicial applicability, let us examine whether the notification dated 04.05.2020 introducing a new fee is sustainable in the eyes of the law or not and for the same. Firstly, we should look at the Act and the Rules from which the fee is originating.

The Delhi Excise Act 2009 and Delhi Excise Rules 2010: 

The Delhi Excise Act 2009, had come into effect from 28.07.2010 after receiving the assent of the Hon'ble President of India on 01.07.2010. The main object of the Act is to:

"consolidate, amend and update the Excise Laws relating to manufacturing, import, export, transport, possession, purchase, sale, etc., of liquor and other intoxicants, in the National Capital Territory of Delhi and for matters connected therewith or incidental thereto. "

Section 26 of the Act deals with the nature and components of excise revenue as

"Excise revenue shall be levied and recovered under the following heads, namely;-(a) duty;(b) license fee;(c) label registration fee;(d) import or export fee;"

Sec 81 grants the Government powers to make rules wherein:

"(1) The Government may by notification makes rules not inconsistent with the provisions of this Act to carry out the purposes of this Act."

The Government of the National Capital Territory of Delhi, thereafter, introduced the Delhi Excise Rules, 2010, on 04.10.2010 in exercise of pwers under section 81 if the The Delhi Exercise Act . That Rule 154 the rates and sub categories of the fee is defined

"[154. Rates of fee. - The following shall be the rates of the license fee, label registration fee and other fees leviable in respect of excisable articles for various categories of licenses -

(4) Other fees (Permit/Pass/Import/Export) -."

It is under this Rule, Sub Section 4, the New Fees has been added at Sr. No. 17.

A perusal of both the Act and the Rules would show that neither defines "fees" or "other Fees" and the only thing we can gather from parenthesis of Rule 154 (4) of the Delhi Excise Rules, 2010 is that it can only include - Permit/Pass/Import/Export. Since parenthesis is used to limit, qualify or restrict the meaning of the sentence, it has a connection with, and it may be designated by the use of commas, or by a dash, or by curved lines or brackets. The use of paranthesys to restrict a meaning of the terms was held in (United States v. Schilling (53 Fed 81; 3 CCA 440])).'

Thus, there is a very restricted meaning of even the term "Other Fees," and if a parenthesis is present, then something more cannot be added to it . Even Sec 26 of the 2009 Act, which deals with the component of the Excise Duty nowhere mentions about "other fees." There is also no other qualification given in the Act on the term "other fees," and therefore, anything such as the "special Corona Fee" cannot be added .Hence, the term fees has a very restricted meaning, and the Delhi Government has overstepped its legislative powers by including the Special Corona Fee as "other fees" category under Rule 154 (4) of the Rules, 2010.

Rules cannot be Ultra Vires the Act.

The introduction of such a Fees would also come into direct conflict with the settled position of law that the mere conferment of rule-making power by an Act does not mean that the subordinate legislation will go beyond/exceed the scope of the enabling Act. (Addl. District Magistrate (Rev.) Delhi Admn. v. Siri Ram, (2000) 5 SCC 451). Any such action would render it, Ultra Vires, qua the parent Act.

The Hon'ble Supreme Court in State of Tamil Nadu & Anr. vs. P. Krishnamurthy & Ors. (2006) SCC 517 has held that any subordinate legislation or part thereof, which does not conform to the object, scheme, and provisions of the parent Act under which it is made, is invalid. In this case, the Court elucidated the grounds on which subordinate legislation can be challenged. 

Further, In Mahalakshmi Sugar Mills Company Limited v. Union of India, (2009) 16 SCC 569 the Supreme Court again observed that the validity of subordinate legislation might be questioned on the grounds:-  (a) it is ultra vires the Constitution; (b) it is ultra vires the parent Act; (c) it is contrary to the statutory provisions other than those contained in the parent Act; (d) law-making power has been exercised in bad faith;(e) it is not reasonable; and (f) it goes against legislative policy, and does not fulfill the object and purpose of the enabling Act." 

Thus, the imposition of fees by amending the Rules, without there being any power to do so under the disguse of other fee which is restricted by the Parantesis , is contrary and repugnant to the provisions of the principal enactment.

A notification would have to be passed by the Legislative Assembly:

One thing of relevance is that the notification dated 04.05.2020 has been issued under Sec 81(1) of the 2009 Act and has been issued by the Lt. Governor of Delhi and not the Legislative Assembly since the Delhi Legislative Assembly is not in session. Any Rule made under the said Section must pass the mandatory requirement under Sub Section (4) of Sec 81 of the Delhi Excise Act 2009 which states that: 

"Every rule made under this Act shall be laid, as soon as may be after it is made, before the Legislative Assembly while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid the Legislative Assembly agrees in making any modification in the rule or the Legislative Assembly agrees that the rule should not be made, the rules shall have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done or omitted to be done under that rule."

Thus, the notification dated 04.05.2020 has been implemented without it passing the necessary rigours of being placed before the Legislative Assembly and after passing therein, going before the Lt. Governor for an assent, which is a mandatory requirement. The issuance of such notification also cannot be included within the emergency powers of a Lt. Governor as it has nothing to do with the security of Delhi or likewise. Therefore, it is quite challenging to comprehend as to how this notification, which does not have the necessary backing of the Legislature be sustainable in law.  Moreso when the Act prescribes a specificrestriction that all rules made under the exerciseof power under Section 81 be passed by the Legislative Assembly.

CONCLUSION

An analysis of all the legal facets brings us to the conclusion that the Special Corona Fees levied by the Delhi Government, vide notification dated 04.05.2020, may or may not muster in the Courts of law. Openly, and without a trace of obfuscation, imposing such 'Special Corona Fees' is violative of the aims and objects of the Delhi Excise Act, 2009, and the Court should be able to strike down this provision in the shortest possible time.

Undoubtedly, the State Legislature may have the power to amend the Rules in terms of Sec 81(1), but the extent of such power must be gauged from the spirit and scope of the Delhi Excise Act, and not the whimsical inclinations and policy preferences of the legislators. Judicial review would involve crucial duty of protecting individual rights vis-a vis the lawfulness of the action taken by the Public body. The legislative intention should pass the most imperative prerequisite of non-arbitrariness and reasonableness for a harmonious constitutional order where every organ of the State diligently carries out its responsibilities for the greater social good and any transgression must be strongly dealt with.

Thus on careful analyses of all the grounds would show that the Delhi Government has introduced a fee under the disguise of tax which has no nexus of the quotient of quid pro quo, without following the procedure prescribed under the Delhi Exercise Act by adding a fee under the category of special fee which is also restricted meaning under the rules.

(The Author of this article is Mr. Vaibhav Kalra, Managing Partner and Founder of Kalra & Co.)