Validity of processing fee under rule 40-A of Punjab VAT Rules, 2005

Punjab Government levied an annual processing fee of Rs. 800 last year by way of Rule 40-A of Punjab VAT Rules, 2005 on all the taxable persons. Rule 40-A of Punjab VAT Rules, 2005 runs as under:

"Every Taxable person shall pay annual processing fee of rupees eight hundred in the month of October every year and proof of the payment thereof shall be attached alongwith quarterly return."
Thus this processing fee has been imposed on all the Taxable persons i.e on the persons having VAT registration. Persons having TOT registration are exempted from this levy. It is notable here that this processing fee has been levied after the introduction of facility of efiling of returns. 
'Taxation' is defined in clause (28) of Article 366 of the Constitution of India to mean : "taxation" includes the imposition of any tax or impost, whether general or local or special, and "tax" shall be construed accordingly;" The Constitution of India postulates either a tax or a fee. However, the use of expression 'tax' or 'fee' in a statute is not decisive; as on a proper construction thereof and having regard to its scope and purport, 'fee' may also be held to be a tax. The definition of 'tax' in terms of Clause (28) of Article 366 of the Constitution is wide-CCE vs Chhata Sugar Co. Ltd. (2004) 3 SCC 466.

 A fee is ussualy a charge for a service provided to the payer by the receipient of such fee. Processing fee is ussualy levied on a person who obtains a loan, a credit card, or hires someone to perform some type of service.Processing fees is ussualy used to pay for paperwork services or other kinds of miscellaneous charges. 

Although rule 40-A doesnot specify the service in lieu of which this processing fee has been levied. But one may persume from the name of the fee that such fee has been levied in lieu of the service of processing of returns, documents, efiling of retuns, etc. 

The question here is now, whether providing better tax administration is a service to the taxpayer? Isnt it the duty of the exchequer to facilitate the tax administration so as to encourage payment of taxes by the general public.Recently Central Government has also announced for setting up tax administration reformation commission. Income Tax Department also provide the better facilities of efiling and processing of tax returns but no fee is charged. 

Improving tax administration helps in improving tax collection and it is beyond understanding that how improving it is a service to the taxpayer. Charging a processing fee seems a levy imposed as administration charges.  At this juncture certain relevant judgements are quoted herebelow:

Imposition of some administrative charges to collect levy cannot be stated to be just a fee. Rather it is a tax. So, there has to be legal authority for imposition of administrative charges.-CCE v Chhata Sugar Co. Ltd. (2004) 3 SCC 466.

Tax by itself doesnot confer any special benefit on the person taxed. There is no quid pro que element between a taxpayer and the taxing authority; on the other hand, fee is a charge for any service rendered by the receiving authority to the payer. Fee may be imposed by rules or bye laws-Commr., Hindu Religious Endowments v Sri Lakshmindra ZThirtha Swamiar of sri Shirur Mutt AIR 1954 SC 282.

It has been held in Bimal Chand Banerjee v State of M.P. (1970) 2 SCC 467; Ahmedabad Urban Development Authority v Sharadkumar Jayantikumar Paswalla (1992) 3 SCC 285; K.T. Moopil Nair v State of Kerala AIR 1961 SC 552.that a tax under article 265 of the Constitution can be imposed only by way of legislation. It is not permissible to impose some tax by way of bye-laws or rules.

From the above discussion and the judgements quoted, the open question now is whether such processing fee levied u/r 40-A is in lieu of any service provided to the taxpayers and if the answer is no then such processing fee is not a fee but a new tax on the taxable persons, in which case such fee could have been levied only by way of legislation and not just by providing in the rules.



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