Tax versus Fee: Are they Mutually Exclusive? Not always!

Abstract

As early as in 1954, in a leading decision, which continues to be locus classicus on the subject, a seven-Judge Bench of the Supreme Court in Shirur Mutt case categorically delineated the distinction between “tax” and “fee”. Since then, the state of play of Indian jurisprudence has maintained, almost consistently, a clear distinction between tax and fee. The former represents a compulsory exaction without any commensurate benefit to the payer whereas the latter is a payment ordinarily in lieu of certain benefits being received by the payer. On such premise both economic fundamentals and legal validity/application of tax and fee are adjudged in law. It is as a consequence of the relative differences between them that rights and obligations arise for both the State and the subjects. To exemplify this aspect, it is now settled that because taxes are an embodiment of sovereignty, the citizen subjected to a tax cannot expect any benefit from the State against the tax being levied. To contra-distinguish, imposition of a fee can generally be interjected in the absence of quid pro quo. The exact delineation of two concepts, however, is difficult to postulate. This is because even though at a conceptual level tax and fee appear to be mutually exclusive, certain intersectional avenues exist wherein the distinction between tax and fee obviates and they coalesce into one; in pragmatic terms this wipes out the theoretical dividing line. This article attempts to decipher certain areas of convergence wherein the innate distinction between tax and fee is ignored and their mutual exclusivity pales into insignificance.

Keywords: Tax, Fee, Tax versus Fee

JEL Classification: H25, K34