State charge struck down in ongoing ‘tax’ or ‘fee’ debate

By Kumar Visalaksh and Dhruv Bhattacharya, Economic Laws Practice

While both “taxes” and “fees” are compulsory contributions towards government revenue, a tax is a part of a common exaction while a fee is towards specific services rendered. However, the dispute whether a charge is a tax or a fee for the purposes of its maintainability has been one of the most debated and judicially scrutinized issues in India.

The genesis of most of these debates lies in the country’s federal structure, which empowers both the centre and state to impose levies that at times intercede and/or overlap, coupled by the revenue-centric approach to mop up funds by subjecting to levy a wide range of activity. This approach has often led to a hasty imposition of a charge oblivious to the norms of such charge being a tax or a fee – thereby creating huge disputes.

Kumar Visalaksh
Kumar Visalaksh

The debate surrounding the nature of a charge as a tax or a fee is an old one and the judicially declared tests have evolved over time. While earlier the element of quid pro quo between the person who pays the fee and the public authority which imposes it was sine qua non for a charge/payment to be in the nature of fee, this traditional view has undergone a sea change, and the test of quid pro quo has been diluted in recent years. For a charge to be called a fee, it is no longer necessary that the services rendered be directly in proportion with the amount of fee collected. It is equally not necessary that benefit of the services rendered should remain confined to the person from whom the fee has been collected.

You must be a subscribersubscribersubscribersubscriber to read this content, please subscribesubscribesubscribesubscribe today.

For group subscribers, please click here to access.
Interested in group subscription? Please contact us.



Kumar Visalaksh is an associate partner and Dhruv Bhattacharya is an associate at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.


109 A Wing, Dalamal Towers
Free Press Journal Road
Nariman Point, Mumbai – 400 021, India
Tel: +91 22 6636 7000
Fax: +91 22 6636 7172
Mumbai | New Delhi | Ahmedabad | Pune | Bengaluru | Chennai