2003 (4) TMI 580 - SC - Indian Laws

Supreme Court Upholds 1991 Act, Deems Compensatory Tax Constitutional

The Supreme Court allowed the appeals, quashing the High Court's judgment that declared the 1991 Act ultra vires. The Court held that the 1976 Act was ... Compensatory taxation - regulatory taxation - restriction on freedom of trade and commerce under Article 301 - proviso to Article 304(b) - presidential assent requirement - legislative power to validate prior invalid law by removing the basis of judicial invalidation - intermingling of revenues from compensatory/regulatory taxes with general revenuesCompensatory taxation - regulatory taxation - restriction on freedom of trade and commerce under Article 301 - proviso to Article 304(b) - presidential assent requirement - intermingling of revenues from compensatory/regulatory taxes with general revenues - Validity of the Himachal Pradesh Taxation (On Certain Goods Carried by Road) Act, 1991 insofar as the levy is compensatory/regulatory and therefore outside the prohibition of Article 301 and not requiring prior presidential assent under the proviso to Article 304(b). - HELD THAT: - The Court held that the High Court erred in concluding that the levy could not be compensatory merely because it recovered only part of the State's expenditure on roads and bridges. For a levy to be compensatory it is not necessary that the entire cost incurred be recovered; intermingling of revenue and variation in expenditure do not negate compensatory character. The authorities of this Court establish that compensatory or regulatory measures imposing charges for the use of trading facilities (roads, bridges and the like) do not fall within the restrictions contemplated by Article 301 and hence need not satisfy the proviso to Article 304(b). The decision considered precedents which distinguish between measures that in substance facilitate trade (and so are not restrictions) and measures that in reality burden or hinder trade. Applying these principles to the facts - including the State's averments and affidavits about heavy expenditure on construction and maintenance of roads and bridges in a hilly State largely unconnected by rail - the Court concluded that the 1991 Act is compensatory in character and therefore not hit by Articles 301/304(b).The 1991 Act is compensatory/regulatory in character, does not constitute a restriction on freedom of trade and commerce under Article 301, and does not require prior presidential assent under the proviso to Article 304(b).Legislative power to validate prior invalid law by removing the basis of judicial invalidation - Whether the State Legislature could enact the 1991 Act to remove the basis of the High Court's earlier invalidation of the 1976 Act and thereby validate the levy. - HELD THAT: - The Court held that a Legislature may, within constitutional limits, remove the factual or legal basis on which a judicial decision declared a law invalid and thereby validate the legislation. It is competent for the Legislature to re-enact or reframe a law so as to remedy defects found by a court; doing so does not amount to an impermissible overruling of a judicial decision when the Legislature removes the cause of invalidity. Applying that principle, the Court found that the 1991 Act did not impermissibly seek to overrule the High Court but legitimately clarified and established the compensatory character of the levy. Consequently, the earlier judicial invalidation did not preclude the State from enacting the 1991 Act.The State Legislature was competent to enact the 1991 Act to remove the basis of the High Court's invalidation of the 1976 Act; the enactment is within legislative competence and does not amount to an impermissible overruling of the court's decision.Final Conclusion: Appeals allowed; the High Court's orders declaring the Himachal Pradesh Taxation (On Certain Goods Carried by Road) Act, 1991 ultra vires are quashed and set aside. The 1976 Act does not survive by reason of repeal and re-enactment, and no further declaration is required; no order as to costs. Issues Involved:1. Constitutionality of the H.P. Taxation (On Certain Goods carried by Road) Act, 1976.2. Constitutionality of the H.P. Taxation (On Certain Goods carried by Road) Act, 1991.3. Whether the tax imposed was compensatory or regulatory in nature.4. Validity of the State Legislature's power to enact the 1991 Act to overrule the High Court's decision.Summary:Constitutionality of the H.P. Taxation (On Certain Goods carried by Road) Act, 1976:The High Court of Himachal Pradesh declared the 1976 Act unconstitutional and invalid, stating that the levy was a direct restriction on the carriage of goods by road and waterways, violating Article 301 of the Constitution. The court noted the absence of the President's assent as required u/s Article 304(b) and Article 255.Constitutionality of the H.P. Taxation (On Certain Goods carried by Road) Act, 1991:The 1991 Act was also declared ultra vires by the High Court, which held that the Act attracted Article 301 and required compliance with Article 304(b). The court observed that the Act was not compensatory or regulatory in nature and that the State Legislature could not overrule the previous decision pending appeal before the Supreme Court.Compensatory or Regulatory Nature of the Tax:The Supreme Court found that the tax was compensatory in nature, intended to cover part of the expenses incurred by the State for the construction, maintenance, and repair of roads and bridges. The Court referred to various precedents, including M/s Sainik Motors, Jodhpur & Others v. The State of Rajasthan and The Automobile Transport (Rajasthan) Ltd. v. The State of Rajasthan, which established that compensatory taxes do not hinder trade and commerce and do not fall under the restrictions of Article 301.Validity of the State Legislature's Power:The Supreme Court held that the State Legislature had the power to enact the 1991 Act to remove the basis of the High Court's decision. The Court cited precedents such as The Municipal Corporation of the City of Ahmedabad v. The New Shrock Spg. And Wvg. Co. Ltd. and Re. Cauvery Water Disputes Tribunal, which affirmed the Legislature's power to pass laws retrospectively and prospectively to validate legislation previously declared null and void.Conclusion:The Supreme Court allowed the appeals, quashing the High Court's judgment and order that declared the 1991 Act ultra vires. The Court held that the 1976 Act did not survive due to its repeal by the 1991 Act, which was found to be compensatory in nature and within the legislative competence of the State. No further declaration was required, and there was no order as to costs. The intervention application was also rejected.