Difference between tax and fee
- 2. Why is it important to distinguish between a tax and a fee? Because, the Legislature may sometimes impose a tax in the guise of levying fee. This is called colorable exercise of legislative power. There are certain restrictions on the power of the Legislature to levy tax, and these restrictions do not apply on its power of levying fee.
- 3. The traditional view is that there must be quid pro quo for a fee which is absent for a tax. Fee is always levied in consideration of specific services to the payer. This view has undergone a transformation in the recent years. The requirement with regard to the element of ‘quid pro quo’ in case of a fee has been considerably liberalized.
- 4. Kishan Lal Lakshmi Chand v. State of Haryana (1993 SC)
- 5. 1. In order to constitute fee, there must be a some fair correlation between the fee charged and the cost of services rendered to the fee payers as a class. Such a relationship need not be strict and mathematically exact. Even a general or casual relationship is enough. Merely because others are also getting benefited will not detract the character of the fee.
- 6. 2. Fee for licenses and fee for services rendered are contemplated as different kinds of fee. Fee for services renderedis a compensatory fee. But fee for licenses is a regulatory fee where the element of quidpro quo is not necessary. Such regulatory fee is imposedwhen activities for which a license is given are requiredto be regulatedor controlled. Such fee would be validly classifiable as a fee andnot a tax, althoughthe element of quidpro quo is absent. Although an element of quidpro quo is not requiredin respect of such fee, but the amount of such fees must not be excessive.
- 7. 3.Thus, in certain kinds of fee, the purpose of conferring a special benefit or privilege is secondary to the primary purpose of regulation of public interest; but such fee should not be excessive, otherwise, it will be classified as a tax because excessiveness indicates that the element of revenue for the purposes of State predominates, which is the primary purpose of a tax.
- 9. 1. When a fee is charged for services rendered, an element of quid pro quo is necessary and there has to be a co-relationship of a general character between the cost of rendering such service and the fee charged. A good or substantial portion, if not whole, of the fee must be used for the benefit of the payers as a class. From the rest of the portion, it is permissible that the general public are benefited. 2. But in case of regulatory fee, no quid pro quo is necessary but the fee should not be excessive.