The COVID-19 lockdown has brought trade and commerce to a standstill, and as a natural corollary, the governments’ revenues have dipped drastically.

Delhi Chief Minister Arvind Kejriwal recently said that as compared to tax revenue of Rs. 3,500 crore in April 2019, the Delhi government earned only Rs. 300 crore in April 2020. Similarly, all other governments have, on one hand, suffered heavily on account of loss of revenues in the past two months, and on the other hand, shelled out huge monies for aiding the vulnerable classes.

To recoup the loss to the government coffers, an increase in taxes in one or the other form is a no-brainer. Although this would hamper the resumption of commercial activities, governments might opt for tax hikes. Various state governments have already declared increase in taxes on Petrol and Diesel.

The Delhi government decided to reopen certain sectors including liquor shops with effect from May 4. That same evening, the Delhi government issued a Notification introducing a ‘Special Corona Fee’ to be charged at the rate of 70% on the MRP of all categories of liquor sold through retail licenses.

The Notification is issued purportedly under Section 81(1) of the Delhi Excise Act, 2009 with a view to amend Rule 154 of Delhi Excise Rules, 2010. To consider the validity of the Notification, the provisions of the Act and the Rules need to be looked into.

The Act was framed to consolidate the Excise Laws relating to sale and purchase of liquor within NCT of Delhi. Section 81(1) thereof empowers the government to make Rules to carry out the purposes of the Act with a rider that the Rules so framed shall not be inconsistent with the provisions of the Act.

Sections 81(2)(a) to 81(2)(o) enunciate various aspects such as prescribing powers and duties of excise officers, time and manner of presentation of appeals, etc. to be included in the Rules to be framed. Pursuant to the said powers, the Rules were framed by the NCT government. Rule 154 whereof prescribes the rates of license fee, registration fee and other fees leviable in respect of excisable articles for various categories of licenses. Rule 154(4) provides for rates of fees for various permits with respect to sale and storage of liquor.

It is relevant to note that the Act does not include any provision regarding imposition of any additional fee for any purpose whatsoever. Also, there is no provision regarding delegation of such power to the state government.

By way of the May 4 Notification, the Delhi government has introduced a fresh fee under Rule 154(4)(17), presumably in the nature of a cess, for recovering the cost incurred in the fight against the Coronavirus.

The basic difference between a ‘fee’ and ‘cess’ is that the former requires quid pro quo by a governmental agency, while the latter is levied for a specified purpose. In the present case, the levy of the 'Corona Fee' does not require any quid pro quo. Moreover, the levy is for a specific purpose and is therefore in the nature of a cess, although somehow titled otherwise.

The issue that crops up is that when the parent statute is completely silent and does not prescribe levy of any such fee, is it permissible for the government to introduce such fee by amending the Rules? Would it not render the Rules to be either exceeding its scope as determined under Section 81 or be in stark contrast with the provisions of the Act?

Legality of a taxing provision is also a Constitutional requirement inasmuch as Article 265 provides that no tax shall be levied or collected except by authority of law. Thus, unless the ‘Special Corona Fee’ has the authority of law, its imposition becomes illegal.

The Supreme Court in the case of Bimal Chandra Banerjee v. State of MP has held that no tax can be imposed by any bye-law or rule or regulation unless the statute under which the subordinate legislation is made specially authorises the imposition. It was further held that the basis of the statutory power conferred by the statute cannot be transgressed by the rule-making authority. A rule-making authority has no plenary power. It has to act within the limits of the power granted to it.

The Supreme Court has followed the said decision in the case of State of Punjab v. Devans Modern Breweries Ltd. and has held that having regard to Article 265 of the Consitution, a tax must be imposed by a statute and imposition of the same by a bye-law or Rules is impermissible.

Considering the said decisions, it becomes clear that the state government exercising power to frame Rules under Section 81 cannot introduce a new levy in the form of 'Special Corona Fee' as the same would not only amount to exceeding the scope of delegated legislative powers conferred under Section 81, but would also be ultra vires the Act.

The Supreme Court has time and again held that subordinate legislation or delegated legislation is a tool for smoother functioning of the Act and to enable the Executive to implement the Act in its proper perspective.

The decisions rendered in the cases of Western-India Theatres Ltd. v. Municipal Corporation of the City of Poona; Banarsi Das v. State of MP, and DS Garewal v. The State of Punjab, among a host of others, support the proposition that the executive authority can be authorised to frame Rules and work under the Rules, but the said Rules should not transgress any of the constitutional provisions and should not travel beyond the scheme of the enactment as that is the source from which they draw their power.

Apparently, the provisions of the Act are completely silent on imposition of any additional fee on the MRP of liquor. Section 81 also does not empower the state government to frame any rules for imposition of any such fee.

Further, even if it is assumed that the Act empowers the State government to impose such fee, would it make the Delhi Government’s move legal?

In this context, the Supreme Court has consistently held that core legislative functions cannot be delegated to the subordinate authority. In the case of Parasuraman v. State of Tamil Nadu, the Supreme Court further held that it is permissible to leave to the delegated authority the task of implementing the object of the Act after the Legislature lays down adequate guidelines for the exercise of power.

The position of law that emerges is that the amendment to Rule 154 to provide for introduction of ‘Special Corona Fee’ in the Rules by the state government in the absence of any corresponding provision or delegated power in the Act, is illegal and amounts to exceeding the scope of delegated legislation.

Moreover, imposition of tax in the nature of fee or cess is an important legislative function, which is required to be exercised by the Legislature and cannot be delegated. Therefore, even if such delegation is made, it is illegal.

The imposition of any additional tax in any form is permissible only by bringing an amendment to the Delhi Excise Act, to ensure its compliance with the Constitutional requirement of tax having authority of law; otherwise, the levy becomes illegal. Moreover, since the levy is termed as a ‘Fee’, the government would have to demonstrate quid pro quo by the authorities, if at all, and to justify its quantum.

Furthermore, the fee must be reasonable and cannot be excessive so as to render it arbitrary and hence, violative of Article 14. The Supreme Court in the case of The Automobile Transport (Rajasthan) Ltd. v State of Rajasthan has held that the element of quid pro quo between the levy and the services rendered needs to be reasonable but not of mathematical exactitude. Therefore, the issue of reasonableness of the Special Corona Fee may also have to be addressed.

The author is an advocate practicing at Gujarat High Court and an Associate Partner at Nanavati Associates, Ahmedabad.