Kolhapur Engineering ... vs The State Of Maharashtra, Through ...
2004 Latest Caselaw 335 Bom

JUDGMENT

F.I. Rebello, J.

1. All these petitions are being disposed of by a common order as reliefs sought in these petitions are the same. In all these petitions, the petitioner's are associations of small scale and Medium scale Industries and are challenging the Maharashtra Factories (4th amendment) Rules 1998. A few facts may now be set out:

2. The Respondent pursuant to the power conferred on them under Section 112 of the Factories Act, 1948 and in exercise of their power; under Section 6 have made rules which are known as Maharashtra Factories Rules, 1963. In the instant case, we are concerned with Rule 5. Before its amendment, Rule read as under:

"Application for registration and grant of licence: (i) The occupier or manager of every factory coming within this scope of this Act after its commencement shall submit to the Chief Inspector an application in triplicate in Form 2 for the registration of the factory accompanied by an application in Form 3 for the grant of licence therefore for a period not exceeding ten years.

3. Rule 5(2) came to be amended by the Maharashtra Factories (4th Amendment) Rules, 1998. The amended rule reads as under:

"Every such application shall be accompanied by a treasury receipt or a cheque or by an Indian Postal Order or an invoice for book adjustment, as the came may be, for payment of the fees prescribed for the purpose as specified by the Schedule below as applicable, with effect from the 1st January, 1998. (Rule 5(2))

This amendment was notified by the State Government on 20.10.1998. Before that the State Government had notified the draft rules on 25.7.1997. In terms of the draft rules, objections or suggestions were invited from any person in respect of the said draft. It is the case of the Government that they had circulated the said draft notification to nearly 20 Associations out of whom they have received objections/suggestions from about 4 Associations. Some of the Associations after sending suggestions had made a request for further hearing pursuant to which Respondent No. 2 had called the Associations for further discussions. Another detailed reply was given to the Government on 23.9.1998 by the said Associations. It was after considering all the said objections and discussions that the notification came to be issued.

4. At the hearing of this petition, on behalf of the petitioners their learned counsel has formulated the challenges which may be summarised as under:

(1) Rule as amended was not laid on the table of the house as required by Section 115 of the Factories Act, 1948 and hence, there being non-compliance with statutory requirements, the rule is illegal, null and void.

(2) Increase in licence fees by 300% is ex-facie illegal arbitrary and unconstitutional.

(3) Rules could not have been made with retrospective effect in as much as though the rules were notified on 20.10.1998 they are made applicable from 1.1.1998.

5. It is the case of the Petitioners that the Factories Act, a Central Legislation, provides by its various provisions for safety of workers employed therein. To ensure that and to see that the provisions of the Act are implemented, officers are appointed by the State Government. Chapter III makes provision for health and Chapter IV makes provision for safety of workers, Chapter IV of the Act makes provision of the sight appraisal committees and their functions. Then Chapter V makes provisions of welfare facilities to be provided to the workers, Chapter VI provides for working hours of adults. Chapter VII of the Act prohibits the employment of the layperson. Then Chapter VIII of the Act provides for Annual leave with wages to be paid during the leave period. Chapter X of the Act provides for penalties and procedure for non-compliance of the Act and Rules framed therein. Reference is then made to Section 112 and 115 of the Act by which procedure for making rules is set out and the requirement of the rules being tabled in the Legislature. There are Central Rules made under the Act. The State has made rules in the year 1963 and which are amended from time to time. These shall be known as the State rules. In terms of Rules 3 of the State rule,s persons/organisation have to obtain previous permission for the site on which the factory is to be situated for construction and extension of the factory. Various procedures therein are also set out. It is then pointed out that rule 5 of the State rules cases a mandatory obligation upon the occupier or manager of every factory to apply in triplicate form No. 2 for registration of the factory, for grant of licence. Along with the application, the occupier or manager has to pay fees prescribed as per the Schedule A of the said Rules. The State Rules have been amended from time to time. Initially it was amended in the year 1981 and the fees prescribed was collected at the same rate between the year 1981 to 1985. Again the State rules were amended and the fees increased in 1990 and by the present impugned Notification, the said rule is once again amended, substantially increasing the licence fees of occupier/managers i.e. industrial unit. It is also pointed out that the quantum of fees payable by the factories is based upon the quantity of Horse Power installed and the manpower employed. Rule 8 provides for renewal of licence. It is the case of the Petitioners that draft rules were published on 25.7.1997 which discloses intention of the Respondents to increase licence fees payable by the factories. The licence fees were proposed to be increased by nearly 300% of the fees payable between the year 1992 to 1997. Respondent No. 1 has also categorised for the purpose of imposition, slabs for licence fees payable. It is averred that the exorbitant enhancement proposed by Legislation was opposed by the Small Scale and Medium Scale industries. It was also pointed out that in view of the present recession in the industrial sector, small scale industries and medium scale industries, will not be able to bear the expenses of the enhanced licence fees. It is contended that the increase is arbitrary and illegal and on account of that representations were made. Copy of the representation dated 7.12.1998 is annexed to the petition. It is also printed out that the representatives of the Petitioner Association wanted the certified copies of the documents and to collect the information, on the basis of which the authorities had increased the fees. Though in the Petition it was averred that the documents were not given at the hearing of the petition on behalf of the petitioner, their learned counsel now points out that in fact the material was made available to the association. That grievance therefore, no longer survives. It is also contended that there is distinction between the tax and the fees. Though this point was pleaded it has not been argued and rightly so in view of the judgment of the Apex Court to which we shall advert to later on, which has held that the amount charged is fee and not a tax after considering similar rules in the state of Andhra Pradesh. In support of the contentions, learned counsel has placed reliance on judgments which will be adverted to in the course of the Judgment to the extent necessary.

6. Though in Writ Petition No. 226 of 1999 we do not find any reply, we find in the other petitions reply has been filed on behalf of the Respondent by Mr. V.U. Madne, Director, Industrial Safety and Health, Maharashtra State. That reply will be considered as a common reply. Dealing with various contentions on behalf of the Petitioners, it is pointed out that the appropriate procedure for making rules has been followed. Before making amendment, proposal for rise in the fees was placed before the Subordinate Legislative Committee. As per Section 115 of the Factories Act, 1948, draft rules were published in the Official Gazette on 25.7.1997 and objections were called form the Industrial Units and other concerned authorities. The draft rules were published on 25.7.1997. After receiving the objections, final notification was notified which was published on 20.10.1998, after the expiry of 45 days given to all the parties before finalising the final Notification. The final notification was sent to the Maharashtra Legislature for laying on the table of the Legislature. However, the same was returned by the Secretariat of the State Legislature for complying with certain administrative directions and as such could not be laid before the Legislature in time. Necessary action was being taken as per Section 115(2) of the Factories Act to place the final notification before the State Legislature in the next session. In the matter of fixing fees, it is pointed out that draft notification was published. Objections were invited. The various associations sought hearing were heard and after that only the final notification was finalised. In these circumstances, it is contended that the petitioners cannot have any grudge regarding rise in the fees. It is further pointed out that what is collected is not a tax. This expenditure from the licence fee collected is made only to establish social justice, industrial safety and health of all workers working in the factories. It is then printed out that Respondent No. 2 has opened several offices for the upliftment and safety of the workers and the entire funds raised is spent for the benefit of the workers. It is further pointed out that it is proposed to establish industrial health and hygiene laboratories at Pune and Nagpur for medical examinations of workers working in dangerous operations in the factories. It is then set out that taking into consideration the safety, health and welfare of the workers it is essential to increase the fees and therefore, it cannot be said that the fees have been arbitrarily increased. Dealing with the issue of retrospectivity it is pointed out that the rules were finalised on 20.10.1998. The draft rules were published in the Gazette on 25.7.1997 and therefore, if the final notification is issued prior to December, 1997 then in that case, the amendment would have come into effect from 1.1.1997. As the final notification was issued on 20.10.1998, the effect was given to the said Notification from 1.1.1998 and therefore, the effect given to the said notification is correct and proper. In these circumstances, it is pointed out that there is no substance in the petition which ought to be dismissed.

7. The first Petition was Writ Petition No. 226 of 1998. The Division Bench of this Court on 19.1.1999 had issued direction that Respondent shall not take any action against the members of the Petitioner Association to enforce the demands for increased licence fees retrospectively from a date prior to 28th October, 1998, on which date the increase was notified. Rule thereafter came to be issued on 3.2.1999 and ad interim order made on 19.1.1999 was continued as interim order during the pendency of the writ petition. Similar orders were also passed in other writ petitions.

8. With the above, we may now deal with the various contentions as raised on behalf of the petitioner. The first being non-tabling of the rules in the Legislature.

Under Section 115 of Act all rules made under the Act must be published in Official Gazette and shall be subject to the condition of previous publication and the date to be specified under Clause (3) of Section 23 of the General Clauses Act, 1897, shall not be less than forty five days from the date on which the draft of the proposed rules was published. According to the affidavit filed on behalf of Respondent No. 2 it is clear that the requirement of Section 115(1) have been complied with. The only challenge was that the rule had not been tabled before the State Legislature. In the affidavit of Respondent No. 2 which was filed, it was pointed out that the State Government in fact had forwarded to the Secretary of the State Legislature the rules as required but on account of some deficiencies it was returned and it was to be resent after complying with the requirements. No further affidavit has been filed on behalf of the State Government to contend that that has been so done. The learned A.G.P. is also not able to inform the court as to whether in fact the rules were tabled. However, considering the fact that the Petitioner have not filed any rejoinder to the affidavit of Respondent No. 2, we proceed on the footing that in fact the State Government has sent the rules for being tabled on the floor of the house and they have ben so tabled. In Atlas Cycle Industries Ltd. v. State of Haryana , the Apex Court held that mere non-compliance with the laying clause did not affect the validity of the order (under the Essential Commodities Act) and make it void. The same view was also taken in the case of the Query Owners Association v. The State of Bihar, which held that the rule was directory and did not affect the validity of the notification. Direction was issued to lay the notification at the earliest. The first contention must therefore, be rejected.

9. We then come to the next contention on behalf of the petitioners that the increase is arbitrary and thus unconstitutional. We may at this stage first advert to the judgments relied upon on behalf of the petitioners by their learned counsel. Reference was made to the case of Krishi Upaj Mandi Samity and Ors. v. Orient Paper & Industries Ltd. . this judgment basically is on the issue as to when a levy can be said to be a tax or fee and the distinction between the two. In our opinion, it is not necessary to advert to this judgment in detail as it cannot now be seriously contended before this court that the levy is not a fee. Reference is then made to the judgment of the Apex Court in the case of A.P. Paper Mills Ltd. v. Government of A.P. and Anr. 2001 1 CLR 297. The issue before the Apex court arose from the Judgment of the Andhra Pradesh High Court. There also challenge was made to the rules framed by the Andhra Pradesh Government known as Andhra Pradesh Factories Rules, 1950. It was introduced by the State Government by G.O. Ms. No. 154, E & F Deptt. dated 26.7.1994. Some of the contentions raised therein with which we are concerned were as under:

"That collection of exorbitant fee to meet the State budget is a colourable exercise of power, so there is legal mala fide in enhancing the licence fee; that the proposed strengthening of the Department and additional activities which are to be approved by the State Government, cannot be a ground for revising the licence fee prior to increasing such expenditure. The proposal of strengthening the Department is with reference to other enactments also."

From the facts of that case, what we find is that the licence fees which was Rs. 10,000/- was enhanced to Rs. 18 lacs. (maximum). It was contended that this increase is arbitrary being grossly high and has no correlation with the services rendered or proposed to be rendered by the Respondents to holders of the licence. It was further submitted that since the licence fee in question is a fee and not a tax, it has to satisfy the principle of quid pro quo for its validity and sustainability. It was submitted that on the facts emerging from the pleadings of the parties, particularly the counter affidavit field by the Respondents, the principle of quid pro quo is not at all satisfied in the case. Therefore, it was submitted that the amended Rules, in which was introduced the revised set of licence fee, should have been struck down as invalid and inoperative and the High Court erred in dismissing the writ petitions.

The Apex Court dealing with the question posed to itself a question whether the enhancement of licence fee under the Act is hit by the principle of quid pro quo. The Apex Court observed that for answering the question it is necessary to find out whether the element of quid pro quo is applicable to the levy in question and if so, whether a reasonable correlation between the quantum of fee and services rendered is established on the materials on record. The Apex Court thereafter noted various chapters and provisions of the Factories Act and the rules including Rule 5 which is similar to the rule as in the present case. After considering the provisions of the Act and the rules, the Apex Court observed as under:

"From the provisions of the Act and the provisions of the Rules relating to grant of licence, it is clear that the licence fee in this case is a regulatory fee and not a fee for any special services rendered. Indeed, there is no mention of any special service to be rendered to the payer of the licence fee in the provisions. The purpose of the licence is to enable the authorities to supervise, regulate and monitor the activities relating to factories with a view to secure proper enforcement of the provisions. From the nature of the provisions, it is clear that for proper enforcement of the statutory provisions persons possessing considerable experience and expertise are required. The question is whether the element of quid pro quo as it is understood in common legal parlance, it applicable to a regulatory fee as in the present case....."

The Apex Court then considered various judgments including in the case of the Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, 1954 SCR 1005; in the case of Sreenivasa Geenral Traders and Ors. etc. v. State of Andhra Pradesh and Ors. etc. ; in the case of Delhi Cloth & General Mills Co. Ltd. v. Chief Commissioner, Delhi and Ors. 1970 (2) SCR 348; as also in the case of Vam Organic Chemicals Ltd. and Anr v. State of U.P. and Ors. . After considering all these judgments and the nature of fees, the Apex Court held that the impugned licence fee is regulatory in character and once it is regulatory in character stricto senso the element of quid pro quo does not apply. The question, the Apex Court noted to be considered was, if there is a reasonable correlation between the levy of the licence fee and the purpose for which the provisions of the Act and the Rules have been enacted/framed. The High Court has answered the question in the affirmative. The Apex Court noted various provisions of the Act and the Rules and also the pleadings of the parties. The Apex Court found that the High Court has given cogent and valid reasons for the findings recorded by it and the said findings do not suffer from any serious illegality. The Apex Court therefore, noted that the licence fee has correlation with the purpose for which the Statute and the Rules have been enacted.

The other question that the Court considered was whether the enhanced licence fee under challenge is grossly high and excessive and therefore, arbitrary. In response to the query from the court the learned Counsel for the Andhra Pradesh Government had filed a copy of the communication stating that some decision has been taken regarding revision of the licence fee, particularly the maximum licence fee/renewal fee to be levied on factories using power of 20,000 H.P. and engaging 20,000 workers and above, which was to be limited to Rs. 2.5 lacs per annum as against the present limit of Rs. 18,00,000/- per annum. The court noted that the submission given by the Andhra Pradesh Government by adopting slab rates. No notification had been issued and no time was fixed within which such notification shall be issued. The statement made by the Government, the Court noted does not make it clear whether it will be prospective or retrospective with effect from the date of the impugned enhancement. The Court struck down the notification but made the judgment prospective. From the discussion what emerges is that the Apex Court had found the scale downed fees as reasonable.

Considering the above, the fees charged in the instant case will have to be considered. From Exh. E to the petition, we find that before the increase of fees from the minimum of Rs. 250/- has been increased to Rs. 700/- and the maximum from Rs. 14,000/- to Rs. 42,000/-. The fees were last fixed in the year 1990. Considering the year 1990 and the revisional year 1998 and considering what has the Apex Court noted in the case of Andhra Pradesh (Supra), we can not say that the increase is exorbitant or arbitrary. The Respondents have filed affidavit showing that how the fees recovered are being spent. We therefore, do not find merit in the challenge by the petitioner on the ground that the fees are exorbitant. The fees are regulatory as has been held by the Apex Court in A.P. Paper Mills Ltd. (supra) and it is not necessary for the Respondents to show stricto senso the element of quid pro. Once that be the case, that contention also will have to be rejected.

We may also refer to the judgment relied upon by the Respondents in the case of Acme Metal Industries Pvt. Ltd. v. The State of Maharashtra 1991 (11) CLR 53. The issue before the learned Single Judge was in the matter of fees recoverable under Section 6(1)(d) of the Factories Act, 1948 and alternatively the increase in the quantum proposed to be levied vis a vis the notification hearing No. FAC-2085/9848/LAB-4 dated 21.3.1986. The learned Judge held that the fees which is collected under section 6(1)(d) is fee. The learned Judge further held that the factories employ labour which can be exploited and carry on trades which are hazardous in nature and affect the convenience and comfort, if not, the safety of the people in the vicinity of the places where they are located. The State in the interests of society has to enact laws to exercise an effective supervision lest the running of factories result in exploitation of labour or results in a danger or nuisance to the residents of the neighbourhood. There are some other observations which need not be adverted to.

10. That leaves us with the last contention that the notification was published on 20.10.1998 but is made effective from 1.1.1998 and as such made with retrospective effect and therefore, liable to be struck down. In the instant case, we may note that the rules have to be framed pursuant to Section 6 of the Factories Act. Under Section 6 State Government can make rules including for issuance of licence or renewal of fees. Perusal of the rules shows that the licence has to be renewed annually. In other words in terms of the rules, it is annual licence fee for the year. It is in that context that we will have to consider the effect of the notification issued on 20.10.1998. In support of the contention that there can be no retrospectivity on behalf of the petitioner, their learned counsel has relied on the judgment in Polychem Ltd. and Anr. v. State of Maharashtra and Ors. . Perusal of the said judgment would indicate that it was in the matter of Bombay Prohibition Act, 1949. In that case by virtue of the provisions of the Act and the rules the factory had to pay supervisory charges for the staff. The factory has paid the amount as demanded from time to time. The factory was informed by the Inspector of Prohibition and Excise by letter dated 19.7.1979 that the wages and dearness allowance of government servants were increased retrospectively and on account of that, the supervision charges payable by the company comes to Rs. 1,54,379.79 for the period 1970 to 1979. However, no steps were taken by the respondents to collect the differential amount from the company. After that a further demand notice dated 21.3.1989 was issued calling upon the company to pay the differential amount of supervision charges amounting to Rs. 99,702.10 immediately within 15 days from the date of receipt of the said demand notice, failing which legal action to recover the amount as arrears of land revenue would be taken. That was challenged before this Court. The challenge was negatived and the demand made for paying supervisory charges retrospectively was upheld against which an SLP was preferred before the Apex Court. Another Division Bench of this Court in J.E. Bilimoria & Sons v. State of Maharashtra however, struck down such demand. That judgment was not brought to the notice of the subsequent Division Bench. That was noted by the Apex Court. The Apex Court also further noted as to when the cost of the staff should be paid and bearing in mind the nature of excise duty held that it is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, ultimate incidence will always be on the customer. By attempting to pass on the incident of upward revision of pay scales to the licensees several years after the removal of the articles from the bonded warehouse, the respondents would make it impossible for the petitioner to pass on the cost of storing the articles in the bonded warehouse to the ultimate consumer, and this clearly the respondents cannot be permitted to do because such a situation had never been anticipated by the petitioners, and by the unilateral action of the Respondents, no additional liability can be imposed on the petitioners. The Apex Court reversed the judgment of this court and struck down the demand. However, what is to be noted is that the matter proceeded on the footing that the cost of the staff form part of the excise duty which a manufacturer could recover from the consumer. As the goods had already left the factory, the Manufacturer would not be in a position to recover from the consumer and in these circumstances, such retrospective levy could not be made.

In the instant case what we find is that the draft rules were earlier notified in 1997. The draft rules were thereafter published in the gazette on 20.10.1998 and made effective from 1.1.1998. By the amendment the rates are revised with retrospective effect from 1.1.1998. These are statutory rules. It is not as if the rules cannot be made with retrospective. The rule itself shows that it is retrospective in matter of rates. For the proposition that rules can be made with retrospective effect, reliance can be placed in the judgment of the Apex Court in the case of P. Mahendra and Ors. v. State of Karnataka and Ors. . That matter pertains to recruitment rules. The issue was whether the rule can be said to be retrospective. Answering the question, the Apex Court observed that every statute or statutory rule is prospective unless it is expressly or by necessary implication made to have retrospective effect. Unless there are words in the statute or in the Rules showing the intention to affect existing rights the rule must be held to be prospective. If a rule is expressed in language which is fairly capable of either interpretation it ought to be construed as prospective only. In the absence of any express provision or necessary intendment the rule cannot be given retrospective effect except in matter of procedure. Gainful reference can also be made in the case of H.C. Suman and Anr. v. Rehabilitation Ministry Employees' Cooperative Housing Building Society Ltd., New Delhi and Ors. . It was urged before the Apex Court that delegated legislation could not be given retrospective effect unless it is specifically provided for. In that case what supposed to be amended was bye-law. The Court observed that the power exercised was within the ambit of and permissible. Consequently, considering the facts and the purpose of the amending bye-laws the notification is neither unreasonable nor can any mala fide be attributed in issuing the same. It is thus clear that it is not as if a rule cannot be read with retrospective effect. In the instant case, the annual fees were increased for the grant of license. The fees payable are for a year. The language of the present rule is clear. It is with retrospective effect namely from 1.1.1998 considering that the fees is an annual fee. The question however, is whether that rule can be made applicable to licences which have already been issued. Rules provided both for fresh licence as also for renewal of licences. Section 6 of the Act require that the licence must be obtained. Therefore, if the licence has already been obtained before the rule was notified, we do not find as to how to whose to whom the licences were already issued, the amended rule could be made applicable as the rule requires payment of licence fees before the issuance of licence. In cases where licences were already issued before the rule was notified, there will be no case for any demand. It is only in those cases where licence was not issued and was pending, that the demand can be made. At any rate, from 1.1.1999 licence fee would be applicable to all cases, both in the case of fresh applications and renewals.

11. In the light of the above, the following order:

Rule made partly absolute to the extent that if those who had to apply for the licence had applied and were granted the licence before 20.10.1998, then such persons are not bound to pay licence fee as increased from 1.1.1998 for the year 1998. There shall be no order as to costs.

P.A. to issue authenticated copy of this order.