(1) THESE two appeals by the Mysore Kirloskar Ltd. , Branch Factory, Sattur and Bagalkot Udyog Ltd. , Bagalkot involve the same question of law and hence they are heard together and a common judgment is being passed.
(2) THE brief facts germane in the case of Mysore Kirloskar Ltd. , are as follows:-It is averred that the applicant factory is engaged in the manufacture of machine tools. The E. S. I. schemes were introduced for the first time in the factory on 15-1-1972. But before the introduction of the scheme, the Corporation was collecting employer's special contribution under the act from the factory. The factory paid this for a period from 13-6-1968 to 15-1-1972. The factory has produced a statement detailing it along with the petition before the Court at Annexure 'a'. The payments made amounted to Rs. 7970-93p. The factory made a petition under S. 75 of the E. S. I. Act before the Hon'ble E. S. I. Court, Hubli at Bangalore for refunding the same. The request was opposed before the e. S. I. Court, on the ground that there was no provision of law to refund the amounts so recovered.
(3) IN the other case, viz. , M. F. A. 11 of 1977, the Bagalkot Udyog Ltd has also contended that though the E. S. I. Act was made applicable to the factory on 25-11-1973, the factory, on compulsion, paid the special contribution amounting to Rs. 46,530 as per Annexure 'a' annexed to the petition. They also made an application to the E. S. I. Court, Hubli at Bangalore, in E. S. I. Application No. 4 of 1976 for refund;. The same was resisted ES not tenable and maintainable by the Employees State insurance Corporation, Bangalore.
(4) IN both these cases it was submitted on behalf of the applicants that what was recovered under S. 73a of the Act was in the nature of a fee and since the services quid pro quo were not rendered by the E. S. I. Corporation, as Chapters IV and V were never made applicable during the period, the Corporation was liable to refund the said amounts recovered. It was however, contended on behalf of the E. S. I. Corporation in the two cases that what was recovered was not in the nature of fee but was in the nature of tax. Hence they were not refundable. It may be pointed out in this context that the E. S. I. Corporation did not specifically use the term tax, in its objections though it was contended that it was not refundable. But the aspect was clearly developed and elaborated during hearing and the arguments as pointed out by the E. S. I. Court. The e. S. I. Corporation took the stand that what was recovered was tax and not fee and hence not refundable.
(5) AFTER considering the arguments canvassed before it the E. S. I. Court in the two cases has come to the conclusion that what was recovered was not in the nature of fee and hence it was not refundable. It may also be mentioned in this context that the E. S. I corporation contended that the petitions were barred by time under Sec. 77 (1) (A) of the E. S. I. Act. The Court, however, held that except for one item of the year 1973, rest of the claim was barred by limitation. In that view, the two petitions were dismissed by the e. S. I. Court by its orders dated 30-9-1976 and 29-9-1976. Aggrieved by the said orders, the two petitioners have come up in appeals before this court at M. F. A. Nos. 10 and 11 of 1977.
(6) SRI Gururaj, the learned Counsel appearing for the appellants vehemently contended that the E. S. I. Court was not justified in coming to the conclusion that what was recovered was not in the nature of fee. He also submitted that the Court was not correct in its view that S. 77 (1) (a)of the E. S. I. Act applied to the. facts of the case. According to him there was no provision made in the Act, providing for limitation and hence, the E. S. I. Court was not justified in holding that the major portion of the claim was barred by lime.
(7) AS against that, the learned counsel appearing for the E. S. I. Corporation in the two appeals argued supporting the reasoning and the orders passed by the E. S. I. Court.
(8) THE points, therefore, that arise for our consideration in these two appeals are: (1) Whether the E. S. I. Court was justified in holding that what was recovered was not in the nature of fee? (2) Whether the claim in the two cases is barred by time?
(9) THE learned Counsel for the appellants in the two cases invited our attention to a decision of the Orissa high Court in the case of Hindustan aeronautics Ltd. v. Regional Director, sic, (1974) 2 LLJ 115 wherein relying on a decision of the High Court of Andhra Pradesh made in the case of Foods, Fats and Fertilisers v. Regional Director, ESIC, ILR 1972 AP 1103. the High Court of Orissa has held that what is recovered under S. 73-A of the E. S. I. Act partakes the nature of fee and as such the same was refundable if the services were not reordered quid pro quo by the E. S. I. Corporation. On going through the judgments, however, we find that in both these cases, there was no serious argument addressed on behalf of the corporation that what was recovered under S. 73a of the E. S. I. Act under chapter V was not in the nature of fee. The 2 rulings proceeded on the footing that what was recovered was in the nature of fee and having assumed so, the High Courts considered whether in the absence of services rendered quid pro quo they could be refunded. Since the decisions have been rendered on concession being made by the Revenue that what was recovered was in the nature of fee, those decisions would not be of any assistance in deciding the point at issue in the present appeals. The reason is not far to seek. The point at issue in the present appeals is whether what is recovered under S. 73a of the E. S. I. Act is in the nature of fee or it is akin to tax. If what is recovered is in the nature of fee, then it is obvious that the same can be recovered only for services rendered and the question of refund arises. But if it is held that what is recovered under S. 73-A is in the nature of tax it is obvious that the question of refund does not arise. We would, therefore, proceed to consider whether the impost under S 73a of the E. S. I. Act is in the nature of fee or tax. It is necessary for that reason, to appreciate the intention of the Legislature in incorporating chapter V including S. 73a and other sections. The legislature introducing chapter V (a) by Amendment Act No. 53 of 1951 has recorded the statement of objects and reasons thus:
"the Employees State Insurance act, 1948, was passed by the Daminion Legislature in April 1948. It provides fur certain benefits to industrial employees in case of sickness, maternity and employment injury. The Act permits the implementation of the scheme by stages. It was intended that the scheme should be implemented in the first instance in Delhi and Kanpur, but regional implementation of such schemes is always attended with certain practical difficulties. The principal difficulties are the rise in the cost of production and the diminution of the competitive capacity of industries located in those regions. The main objections of the employers centered round the former difficulty and those of the Uttar Pradesh Government emphasised the latter. The Central Government have considered those objections and are anxious to avoid competitive handicap to any region. This may be best achieved by an equitable distribution of the employer's contribution, even where the implementation is effected only in certain areas, among the employers in the whole country-employers in regions where the scheme is implemented paying, slightly higher contributions. This will minimise the contribution leviable from the employers and spread the incidence of the cost of the scheme equitably. This Bill is primarily intended to achieve this object. "
Thus it becomes clear that the primary object of the amendment is to minimise the contribution leviable from the employers and spread the incidence of the cost of the scheme equitably, whether the benefits of the e. S. I. Act are prevailing in that area or not. This object mentioned in the statement of objects and reasons, finds expression in Sec. 73a (1) which reads: "73-A (1): For so long as the provisions of this Chapter are in force, every principal employer shall, notwithstanding anything contained in this Act, pay to the Corporation a special contribution (herein after referred to as the employer's special contribution) at the rate specified under sub-section (3 ). ", thus sub-section (1) of S. 73-A makes it clear that the provision is made applicable notwithstanding anything contained in the Act, meaning thereby, that the levy is not. dependent on the rendering of any service contemplated in Chapters IV and V of the Act by introducing different schemes contemplated.
(10) IT is true that in sub-sec. (2) of that section it is mentioned as follows: -" (2) The employer's special contribution shall, in the case of a factory or establishment situate in any area in which the provisions of both Chapters IV and V are in force, be in lieu of the employer's contribution payable under Chapter iv. " that does not mean that the levy under S. 73-A (1) is in lieu of the employer?s contribution contemplated in Chapter IV. What is contemplated under sub-section (2) is that, the special contribution should not be a double imposition on the employers in areas where Chapters IV and V are in ;'orce and nothing more. Therefore, reading sub-sections (1) and (2) of S. 73-A together in the light of the statement of objects and reasons, it becomes manifest that the levy under S. 73-A is not dependent on the rendering of any service contemplated under chapters IV and V of the Act. It is in fact made leviable notwithstanding anything contained in the Act. Obviously therefore, there is no substance in the submission that the levy is recovered quid pro quo for services rendered and therefore it partakes the nature of fee and not tax.
(11) THE law on the question as to what is a fee and what is not a fee is well settled by the decisions of the supreme Court of India in the case of commissioner, HRE Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, AIR J 954 SC. 282. . His Lordship B. K. Mukherjea, J. speaking for the Court on this aspect observed thus at paras 46 and 47 of the judgment.
"(46 ). If as we hold, a fee is regarded as a sort of return or consideration for services rendered, it is absolutely necessary that the levy of fees should, on the face of the legislative provision, be correlated to the expenses incurred by government in rendering the services. As indicated in Art. 110 of the constitution, ordinarily there are two clases of cases where Government imposes 'fees' upon persons. In the first class of cases, Government simply grants a permission or privilege to a person to do something, which otherwise that person would not be competent to do and extracts fees either heavy or moderate from that person in return for the privilege that is conferred. A most common illustration of this type of eases is furnished by the licence fees for motor vehicles. Here the costs incurred by the Government in maintaining an office or bureau for the granting of licences may be very small and the amount of imposition that is levied is based really not upon the costs incurred by the Government but upon the benefit that the individual receives. In such cases, according to all the writers on public finance, the tax element is predominant, vide Seligman's Essays on Taxation, page 409, and if the money paid by licence holders goes for the up keep of roads and other matters of general public utility, the licence fee cannot but be regarded as a tax. "
"47. In the other class of cases the government does some positive work for the benefit of persons and the money is taken as the return for the work done or services rendered. If the money thus paid is set apart and appropriated specifically for the performance of such work and is not merged in the public revenues for the benefit of the general public, it could be counted as fee and not a tax. There is really no generic difference between the tax and fees and as said by Seligman, the taxing power of a state may manifest itself in three different forms known respectively as special assessments, fees and taxes. The view taken by the Supreme Court in this case has been re-affirmed in subsequent cases including in the case of state of Maharashtra v. Salvation Army, W. I. , AIR 1975 SC. 846
(12) WE have pointed out above that the order imposed under S. 73-A is levied specifically by making it clear that it has to be levied notwithstanding anything contained in the Act. The object obviously of the legislature in introducing these words is to make it clear that the levy is imposed whether the benefits under the Act have been extended or not. The statement of objects and reasons makes it clear as quoted above, that the object is to distribute the incidence on all the employers so as to minimise the contribution leviable from the employers wherein the benefits are extended. Thus, we have no doubt in our minds in coming to the conclusion that what is contemplated under S. 73-A is not fee as explained in the aforesaid decisions of the supreme Court but it partakes the nature of tax.
(13) IT is no doubt true that the High courts in India are divided in their opinion as to whether what is levied under S. 73-A of the Act is a fee or not. The High Court of Assam in the case of K. C. Sarma v. Regional Director, ESIC, AIR 1962 Assam 120. observed that what was imposed was a fee. According to Datta, j. the impost was a fee, for that the special contribution goes to a fund known as the Employees' State insurance Fund which is to be utilised for the benefits to be given to the employees under the Act. The cost of these benefits will not be met from the general revenues of the State but will be borne entirely from the aforesaid fund only. It may be mentioned here that the concept of fee is impost for the services to be rendered quid pro quo and in the act each factory is considered for payment as a unit. If we hold the levy under S. 73-A is a fee, it is not enough if that goes to the general fund to be spent all over the country for the welfare of the employees. But it should have a nexus with the amount levied from a particular factory to the services rendered The learned Judge has missed this aspect. The very fact that it goes to the general fund without any tag attached to it and that it need not be spent for the benefit of the employees of the factory from which factory the fund is recovered would make it clear that the impost does not partake the nature of fee. As already stated above, the Orissa High Court as well as the High Court of Andhra Pradesh, have not discussed the said aspect. They have proceeded on the concession made by the Revenue that the levy partakes the nature of fee. As against these rulings, we have a catena of decisions rendered by various High courts, holding that the impost under s. 73-A of the Act is not a fee but is akin to tax. The earliest decision in, this behalf is rendered by the High court of Allahabad in the case of Anand Kumar Bindal v. ESIC, AIR 1957 All. 136. Chief Justice Mootham in that case after examining the law at length has held that the special contribution under chapter V-A of the Act, as compulsory exaction of money by a public authority for public purposes, and not payment for services rendered and is a tax. He further made it clear that the mere fact that after recovery it did not form a part of general revenue of the State did not make it a fee. The learned judge has observed thus: "it does not appear to be an essential ingredient of a tax that the moneys recovered by the levy must form part of the general revenues of the State. It is enough that, affirmatively, the levy be imposed by a statutory body for a public purpose and be enforceable by law and, negatively, that it be not a payment for services rendered. " since all those criteria are satisfied, he held that what was recovered under s. 73-A by way of special contribution was not a fee.
(14) THE next case in chronological order which considers this aspect is the one by the High Court of Calcutta, in the case of Calcutta Electric Supply corporation, Ltd. , v. ESIC, AIR 1961 Cal. 248. wherein, their Lordships of the Calcutta High court pointed out that though no doubt sub-section (2) of S. 73-A stated that the employer's special contribution shall, in the. case of a factory or establishment situate in any area in which the provisions of both chapters IV and V are in force, be in lieu of the Employer's contribution payable under Chapter IV, that merely gave relief to the employer against the double imposition. In other wards, the learned Judges pointed out that the special contribution under Chapter v was not a substitute for the contribution payable under Chapter IV as it appeared from S. 73-A (1) of the act, that the special contribution could be realised from an employer even when Chapter IV was not brought into force in the area. Thus they pointed out that the realisation of special contribution under Chapter v-A was not dependent on the enforcement of provisions in Chapters IV and v and could be realised compulsorily even when no benefits under Chapter v were being conferred to the employees of the employers from whom the special contribution was realised.
(15) THE next case is from the High court of Gujarat in the case of Dharangadhra Chemical Works Ltd. , v. ESIC, 1972 Guj. LR 230. The learned Judges of the high Court considering the previous decisions at length came to the conclusion that the impost under S. 73-A of the E. S. I. Act was not in the nature of fee. Then comes the decision of the high Court of Kerala in the case of Gwalior Rayon Silk Mig. Co. , Ltd. , v. ESIC, 1975 L and 1c 1395 a Division Bench of the Kerala High Court discussing this aspect at a length, has recorded its finding that what is levied under S. 73-A of the Act is not a fee but it is in the nature of tax. Speaking on this aspect at para 10 of the judgment, their Lordships have observed thus:
"the levy of special contribution was resorted for the purpose of spreading the incidence of the cost of the Scheme equitably. This is sought to be achieved by an equitable distribution of the employer's contribution, even when implementation is effected only in certain areas among the employers in the whole country. "
Speaking further at para 12 of the judgment. Their Lordships observed thus:"no question of any quid pro quo arises in the case of the special contribution under Section 73-A. Therefore, there is nothing illegal of wrong in that the employers are liable to contribute under the same without corresponding liability on the part of the employee also to pay their part of the contribution. The special contribution which the employers have to pay under Section 73-A of the act, is an impost in the nature of a tax. "
(16) THEN we have a later case of the High Court of Patna in the case of Mahalaxmi Fibres Industries Ltd. v. The State of Bihar, AIR 1976 Patna 355. A Division Bench of the High Court considering the aspect whether the impost levied under S. 73a of the E. S. I. Act is a fee or a tax- at length has recorded its finding that it is not a fee and that it is in the nature of tax. Speaking on this aspect at para 14 of the judgment their Lordships have observed thus:
"in deciding whether special contribution under S. 73-A of Chapter v-A of the Act was a fee or not, the most important question which arises for consideration, in my opinion, is whether the Act contemplated that any benefit directly or indirectly should be derived by the employers out of the contribution so paid. S. 73a lays down that special contribution has to be paid by every principal employer 'notwithstanding anything contained in the Act'. So payment of special contribution by principal employers did not depend on the enforcement of the provisions of chapter IV or V in the area where the factory of the principal employer called upon to pay the special contribution was situate. Of course, sub-sec. (2) of S. 73-A provides that employer's special contribution in the, case of a factory or establishment situate in any area in which the provisions of both Chapter IV and V were in force was to be in lieu of the, employers contribution payable under chapter IV, but that, if I may say so with respect, as has rightly been pointed out by the learned Judges of the Calcutta High Court, was merely to give relief to the employer against double imposition. It was not and could not be a substitute for the contribution payable under Chapter IV, for, the special contribution under s. 73-A of the Act was to be realised from every principal employer "irrespective of the fact whether provisions of Chapters IV and V were in force or not in the area where the factory or establishment of the employer was situate, whereas contribution, under chapter IV was to be realised from the employers of such areas only where that Chapter was made applicable. The employees of such employers also became immediately entitled to benefits under Chapter V of the Act. The Act fixes no time limit for making provisions of Chapters IV and V of the Act applicable to the entire country. Their application to any particular area or to any establishment or class of establishments, industrial, commercial, agricultural or otherwise may be indefinitely deferred. It cannot, therefore, be said that the framers of the Act contemplated that every principal employer had to pay special contribution under S. 73-A of the Act as consideration for some benefit which may, on some unknown future date, be given to his employees. Rather, according to me, while enacting Chapter VA, the transitory provisions, by way of ame
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ndment of the Act, the Parliament clearly intended that the special contribution was to be paid by principal employers compulsorily irrespective of the fact whether their employees (would) be getting some benefit in return or not. . . . In that view of the matter, the special contribution payable under section 73-A of the Act cannot be held to by a fee. It is not very material to decide whether it is a tax or a special assessment. . . " Similar is the view of the High court of Madras rendered in the decision in the case of Sakthi Pipes Ltd. , v. Regional Director, ESIC, 1978 1 Landi. R. 410. . The high Court of Madras in its decision on review of the earlier case law has held that the impost under Section 73-A of the Act by way of special contribution is in the nature of tax and not fee. In the last para of the judgment this is what is observed by the high Court: "we only wish to add that it is not possible to discern any reasonable, direct nexus between the impost and benefits which may result to the appellant and others from whom special contribution have been collected under Section 73-A by reason of their not' having to comply with the provisions of the workmen's Compensation Act and their not having to provide medical facilities to their employees. This benefit cannot be said to be a benefit arising from services rendered, nor can the benefits be related to the impost in such a manner as to form part of the same transaction or transactions. In other words, the direct link between the levy and the indirect benefits resulting from the provisions of the Act, is not established so as to conclude that the impost is compensated by quid pro quo of the services rendered. We, therefore, respectfully follow the decision of this Court already referred to, and dismiss this appear." Thus, the view that we are taking finds support from the judgments of various High Courts as discussed above. (17) IN the result, therefore, we have no hesitation to agree with the finding of E. S. I. Court that the impost under s. 73-A is not a fee and as such there, is no cause of action for any refund as claimed. (18) IN the view, we have taken, it is not necessary to go into the other aspect whether the claim is barred by limitation. (19) IN the result, therefore, these two appeals fail and are dismissed. On the peculiar facts of these cases, we make no order as to costs.