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Differentiating tax from fees through Supreme Court Judgments and Constitutional Provisions


The concept of tax and fee have both similarities and differences in abundance. The same continues to be of incredible interest for economists, courts, scholars and litigants. Tax for a layman is a simple imposition of financial charge on a taxpayer by the state. Normatively, theoretically and legislatively there are three essential tasks that taxation has been entrusted with. These are (1) revenue augmentation, (2) redistribution of wealth in the society and (3) regulatory function. These three functions put together ensure expected economic behaviour in the society. Fee as per a layman is the remuneration paid for specific rights and services. It was assigned narrower scope of conferring some special benefit on payer or regulating purposes. The piece tries to critically engage with the Supreme Court’s jurisprudence on the difference between a tax and a fee and tries to probe whether the law in place about the concepts is in consonance with the constitutional intent or not.

Legal Principles governing concepts of tax and fee

The neat division between the concepts of fees and tax is functionally premised on the legal principle of quid pro quo. A tax is a non-quid pro quo payment by the people to the government. It is a non-quid pro quo transfer of private income to public coffers. It becomes so because the government even after levying the tax is not obliged to spend it in a certain way or provide a specific service in return of the tax. Therefore, tax is devoid of quid pro quo, wherein any benefit accrued to individuals is incidental and not primary. (Pathak 2010) Fees, however, are charged for a special service provided to individuals ideally by a government agency. This 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, fee charged to control or regulate certain behavior is called regulatory fee. (Aggarwal n.d.)

The next sections attempt to highlight the contribution of various cases in evolving contemporarily relevant and acceptable definitions of tax and fees and create a reasonably clear distinction between the two.

The Supreme Court: Shirur Mutt Judgement

Section 76. (1) of the Charitable Endowments Act states that,” In respect of the services rendered by the Government and their officers, every religious institution shall, from the income derived by it, pay to the Government annually such contribution not exceeding five per centum of its income as may be prescribed.” Apart from this there are provisions for payment of auditing of the books of the charitable trust and the payment of employment of commissioners, deputy commissioners etc. for the act by the government, however executive employees of the trust have been kept out of the remuneration fold of the government.

Supreme court’s engagement with this contested section is a matter of great interest for inquiries being made into tax and fees jurisprudence. The claim and provision has been contested on primarily two grounds. The first one being, whether the ‘charge’ imposed is a tax or not and if at all it is a tax, then the state legislature lacks the authority to impose this tax. The second ground on which this is contested is that if the charge collected is indeed a tax and then it is being used for the purposes of maintenance and propagation of a religion then it comes under direct conflict with Article 27 of the Indian Constitution which says that,” Freedom as to payment of taxes for promotion of any particular religion No person shall be compelled to pay any taxes, the proceeds of which are specifically appropriated in payment of expenses for the promotion or maintenance of any particular religion or religious denomination.” This provision is then a mischief of Article 27 of the Indian Constitution.

Constitutional Grounding

The first ground was largely not disputed. The charge was deemed as tax. The legislation discussed was covered by entries 10 and 28 of List III in the schedule VII of the constitution. Had the contribution payable under section 76 been a fee, it would have come under entry 47 of the concurrent list which deals with matters related to fee as discussed on the list. The particular tax discussed here does not have specific entry in any three lists and therefore only falls under entry 97 of list I or article 248(1) of the constitution which only allows for union legislature to legislate on the matter. (The commissioner, hindu religious endowments, madras vs sri lakshmindra thirtha swamiar of sri shirur mutt 1954) Additionally, the lists as discussed here and reflect a clear demarcation between revenue appropriation authorities of the state and the center, which is further an example of the federal structure of the country and concept of ‘dual polity’.

Primarily now, point being that the charge discussed was certainly not fee. The court gives various arguments to support its judgement made in favor of the Commissioner, Hindu Religious Endowments. The court says that the charge levied was a legitimate tax and this view is governed by the definition of tax as given by’ Chief Justice of High Court of Australia in Matthews vs Chicory Marketing board(I). As per the judgment a tax is,” Compulsory exaction of money by public authority for public purposes enforceable by law and is not payment for services rendered.” Through this definition, the Supreme Court successfully articulated few fundamental characteristics of tax, some of them directly and some of them implicitly through ancillary arguments. These include a binding compulsion enforced by law, charged without taxpayer’s consent and imposition for public purpose explicitly articulated or not. Considering the definition of tax, the court also throws light on the definition of fees. It explicitly lays down that fees is a charge collected almost proportionate to expenditure incurred by the government in provision of a certain service. The nature of fees is said to be voluntary and people can choose to opt out of it. It is the same for everyone availing the said service and does not change as tax does for example in the case of income tax.

Even though the Shirur Mutt case judgement is a landmark judgment about tax and fees jurisprudence in India, it fails to engage on certain levels to offer a clear marker or test between the two fundamental concepts of revenue generation in the realm of public finance.  The component of coercion as the court discusses, is a principal indicator of a tax. This coercion is complemented by a person’s unwillingness to pay. However, coercion is also present in the concept of fees. You are bound to pay for the service you receive. It is also complemented by a general feeling of not wanting to part with one’s monetary possessions. Another reason why a charge is considered as tax and not fees given by the court was, a tax is applicable to all and fees is selectively applicable. However, the understanding of this in grounded terms brings you to conclude that every kind of tax is not applicable on everyone. House tax for example, will only be applicable to those in possession of houses and not to those who have no registered land in their names. The concept of voluntary charge, you can wish to opt out of it, thus making it a fee, is also applicable to house tax. One can choose to not possess land or a house and therefore get free from paying house tax, thus essentially giving the payment a character of a fee.

The only defense that could be fathomed from the judgement for the distinction laid down is that the principals must be read in accordance to each other and the absence of even one element could change the nature of the concept. However, a reliable principal test that the judgment does discuss, not in great depth though is the idea of burden of charge. The idea of tax within entails within itself a common burden or incidence and fees is for specific burden, within which no issue or public service is earmarked.


One observes from the judgement discussed that the judiciary walks a tightrope distinguishing between the concepts of tax and fees. Possible reasons behind this kind of a difficulty could be the retrospective analysis that the courts must take up about the differentiation. The determination of the nature of the levy is taken up after the imposition of it which makes the job of the courts trickier, in terms of backwards deciphering. The quid pro quo test, in this regard is a fair way of distinguishing one from the other. The distinguishing feature of common burden of tax and specific burden of a fee as evolved through the means of this judgement contributed a lot of the jurisprudence at large.

(Divya is pursuing Master’s Programme in Public Policy at the National Law School of India University. She can be reached at

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Aggarwal, Bharat. n.d. “Difference between tax and fees and guidelines for fiscal legislation.” Journal of the Indian law institute .

pathak, neha. 2010. “SLIPPERY SLOPES OF COMPENSATORY TAX AND FEE.” Journal of the Indian Law Institute 56 .

The commissioner, hindu religious endowments, madras vs sri lakshmindra thirtha swamiar of sri shirur mutt. 1954.