TaxTMI 
TaxTMI 
2023 (1) TMI 634
X X X X Extracts X X X X
X X X X Extracts X X X X
.... order dated 27.02.1998 passed in Civil Appeal No. 10457 of 1995 and connected matters reported in State of Rajasthan Vs. Khalsa Travels, (1998) 9 SCC 676 is reproduced below: "1. These appeals filed by the State of Rajasthan raise questions relating to the constitutional validity of Section 4-B(3) of the Rajasthan Motor Vehicles Taxation Act, 1951 (hereinafter referred to as "the Act") and Rule 4-CC of the Rajasthan Motor Vehicles Taxation Rules, 1951 (hereinafter referred to as "the Rules") which make provision of levy of special road tax on a transport vehicle which is used without a valid permit or in any manner not authorized by the permit. By the impugned judgments the High Court has held that Section 4-B(3) is ultra vires the rule-making powers conferred on the State Government under the Act. 2. According to the High Court the imposition, though described as a tax, is, in substance, a fine for an alleged offence of plying the vehicle without a valid permit or in contravention of the conditions of permit and such a penalty cannot be treated as a part of regulatory or compensatory tax. On that view, The High Court has declared that Section 4-B(3) of the Act is ultra vires ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Schedule-III under Section 3-A introduced vide the Himachal Pradesh Motor Vehicles Taxation (Amendment) Act, 1999 In short "HPMVT(A) Act 1999" to be held ultra vires the Constitution of India and further the notifications dated 18.12.1999, 23.12.1999, 31.12.1999, 06.01.2000, 12.02.2000 and 01.04.2000 be quashed and set aside. The relief as claimed in one of the petitions bearing C.W.P. No.32 of 2000 (Goel Bus Service Vs. State of Himachal Pradesh and others) is reproduced below: "(i) That the impugned Annexure-PA, PB, PC, PD, PE, dated 18th December, 1999, 23rd December, 1999, 6th January, 2000, 12.2.2000 and 31st December, 1999 may kindly be quashed and set aside; (ii) That Section 3-A, 3-C, 4-A, 5-A along with Schedule-III under Section 3-A may be struck down being ultra vires the Constitution of India. (iii) Any other relied as may be deemed just and proper keeping in view the facts and circumstances of the case may also be granted in favour of the petitioner." 5. The above provisions, validity of which was sought to be declared as ultra vires, were introduced vide HPMVT(A) Act 1999 as also vide HPMVT(A) Act 2001. Consequent to insertion of the said provisions, State of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tors. SUMMARY OF SUBMISSIONS : 8. Submissions advanced on behalf of appellants are summarized as under: * The constitutional Courts must restrain from interfering in the matters of economic/tax legislation until and unless the offending provision is manifestly unjust or glaringly unconstitutional. * Laws relating to economic activities should be viewed with greater latitude and more play should be given to the Government in comparison to other laws relating to civil rights. * Reliance was placed upon the following judgments in support of the above submissions: "(i) R.K. Garg etc. vs. Union of India & Others reported in (1981) 4 SCC 675 (Para 7, 8, 16 & 2018). (ii) Bhavesh D. Parish & Others vs. Union of India & Another reported in (2000) 5 SCC 471 Para 26)). (iii) Indian Oil Corporation vs. State of Bihar reported in (2018) 1 SCC 242 (Para 25-28)." * Lump sum tax could be levied as it would be compensatory in nature. * The wisdom of the State legislature should be read in the broadest possible terms and merely because the levy is payable in lump sum or on one time basis would not make it invalid or unconstitutional. Such levy could be for administrative reasons a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cial road tax under Sections 3-A(1)(2)(4), but at the same time erred in holding the provisions under Section 3-A(3) to be ultra vires being unconstitutional. * The appeals be allowed, the judgment of the High Court impugned be set aside and the writ petitions be dismissed. 9. On the other hand, Shri Siddharth Bhatnagar, learned Amicus Curiae made the following submissions: * The offences and penalties in respect of using vehicles without permit is covered under Chapter XIII of the Motor Vehicles Act, 1988 and in particular Section 192-A thereof. * The Motor Vehicles Act, 1988 the 1988 Act being a Central Act is relatable to Entry 35 of List III of the Seventh Schedule to the Constitution. * The penalty for use of vehicle without permit is already provided in Section 192-A of the 1988 Act. The 1988 Act provides a complete mechanism in respect of laws relating to motor vehicles including its violations, consequences and penalties thereon. The said provision specifically deals with the act of a transport vehicle being used without a permit. * The Himachal Pradesh Motor Vehicle Taxation Act relates to Entry 57 of the List II of the Seventh Schedule of the Constitution. It i....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., Parliament, and, subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the "Concurrent List"). (3) Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the "State List"). (4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a State notwithstanding that such matter is a matter enumerated in the State List." 12. Article 254 of the Constitution of India provides for the effect in case of inconsistency between laws made by the Parliament and the laws made by the Legislature of States. The same is reproduced hereunder: "(1) If any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Parliament which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4. It was replaced by the second enactment which came in 1939 as Motor Vehicles Act, 1939. After the coming of the Constitution in 1950, a new Motor Vehicles Act was enacted by the Parliament in 1988, the Motor Vehicles Act, 1988. The Parliament enacted the 1988 Act drawing its source from Entry 35 of the List III (the Concurrent List). The subject covered by the above entry is mechanically propelled vehicles including the principles on which taxes on such vehicles are to be levied. The Parliament as also the Legislature of States were thus competent to make laws regarding the mechanically propelled vehicles including the principles on which taxes could be levied on such vehicles. Thus, the Concurrent List, insofar as taxes concerned, is limited to the principles on which taxes are to be levied. But the power to frame laws relating to imposition of tax exclusively vests with the State Legislatures under Entries 56 and 57 of List II. Entry 56 covers the subject of laying down law on imposition of taxes on goods and passengers being carried by road or on inland waterways. Whereas Entry 57 covers laws related to taxation on vehicles, whether mechanically propelled or not however such ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....offences the imprisonment could extend to one year but would not be less than six months or with fine of Rs.10,000/- or with both. 18. Sub-section (2) thereof provides for an exception where a motor vehicle may be used in an emergency for carrying persons suffering from sickness or injury or for supply of food or materials or medical supplies to relieve distress. Other offences and penalties prescribed under Chapter XIII are not relevant for the present controversy, as such the same are not being referred to. Section 192A reads as follows: "(1) Whoever drives a motor vehicle or causes or allows a motor vehicle to be used in contravention of the provisions of sub-section (1) of section 66 or in contravention of any condition of a permit relating to the route on which or the area in which or the purpose for which the vehicle may be used, shall be punishable for the first offence with a fine which may extend to five thousand rupees but shall not be less than two thousand rupees and for any subsequent offence with imprisonment which may extend to one year but shall not be less than three months or with fine which may extend to ten thousand rupees but shall not be less than five thou....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... were to be used or kept for use in the State of Himachal Pradesh. Section 3 reads as follows: "SECTION-3** LEVY OF TAX. *(1) Subject to the other provisions of this Act, on and from the commencement of the Himachal Pradesh Motor Vehicles Taxation (Amendment) Act, 2004, there shall be levied, charged and paid to the State Government, a tax on all motor vehicles specified in column (2) of Schedule-I, used or kept for use in Himachal Pradesh, at the rate as may be specified by the State Government, by notification, but not exceeding the rates specified in column (3) of Schedule-I.. **(2) On and from the commencement of the Himachal Pradesh Motor Vehicles Taxation (Amendment) Act,2004, there shall be levied, charged and paid to the State Government, a tax on motor cycles/scooters or personal vehicles, used or kept for use in Himachal Pradesh, for a period of fifteen years from the date of issue of certificate of registration under sub- section (3) of section 41 of the Motor Vehicles Act, 1988, (59 of 1988) at the rates as may be specified by the State Government, by notification, on the basis of the price of such motor cycle/scooter or personal vehicle, subject to the maximum of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation (Amendment) Act, 1999, there shall be levied, charged and paid to the State Government, a special road tax on all transport vehicles specified in column (2) of Schedule-III, used or kept for use, in Himachal Pradesh, and, at such rates as may be specified by the State Government, by notification, but not exceeding the rates specified in column (3) of Schedule-III of this Act. 2 [(2) The rates of special road tax, as may be specified under subsection (1), in respect of stage carriages shall be applicable to and charged on the entire distance covered as per time table fixed by the Regional Transport Authority and shall be payable monthly by such date as may be notified by the State Government from time to time.] (3) Where a transport vehicle is plied without a valid permit or in any manner not authorised by the permit to be plied, there shall be levied, charged and paid to the State Government further special road tax in addition to the tax payable under sub-section (1), on such vehicles at the rates as may be specified by the State Government, by notification, but not exceeding the rates specified in column (3) of Schedule-III of this Act. (4) Where a transport vehicle i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t competent to levy, under the present entry, an impost which is not in substance a regulatory or compensatory tax for the transport of the vehicle along the road, but a fine , for example using a vehicle without a valid permit or for issuing it in a manner not authorized by the permit, is beyond the competence of the State Legislature, thus ultra vires. (Please See AIR 1992, Rajasthan 181 DB). Further on the perusal of Section 3-A (3), it transpires that the tax specified therein is in substance a fine for the alleged offence of plying a vehicle without a valid permit or in any manner not authorized by the permit to be plied. Such a penalty cannot be treated as a part of regulatory or compensatory tax and is out of the legislature competence of the State. The nature of penalty without providing any mechanism for show cause, adjudication or the appellate authority by not providing any such mechanism, also offends the principle of natural justice. Therefore, it is held ultra vires the powers conferred in the State Legislature under Entry 56 to 57 of List-II. For this, we put our reliance on AIR 1992 Rajasthan 181 (DB)." (Emphasis added) 24. The High Court had also quashed the notif....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the number of times the judges have been overruled by events - self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability." 27. In case of Bhavesh D. Parish and others vs. Union of India and another, (2000) 5 SCC 471, the challenge was to the validity of section 9 of Reserve Bank of India Act as amended by the Amendment Act 1997 on the ground that it was violative of Article 14 and Article 19(1)(g) of the Constitution. This Court dismissed the challenge to the said provision in paragraph 26 of the report. It observed that matters of economic policy should be best left to the wisdom of the legislature. Further, it went on to state that in the context of a changed economic scenario the expertise of the people dealing with the subject should not be lightly interfered with. It was also observed that while dealing with economic legislation, this court would interfere only in those few cases where the view reflected in the legislation is not possible to be taken at all. 28. In the case of Indian Oil Corporation Limited vs. State of Bihar and another, (2018) 1 SCC 242, provisions of the Bihar Tax on Entry of Goods into Local Areas for Consum....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the State. After referring to the judgments in the case of Bhavesh D. Parish and R.K. Garg, this Court went on to hold that section 10(3) was enacted to protect public revenue and as a deterrent for tax evasion. Deterrence was the main theme and object behind the imposition of penalty under Section 10(3) as such would be regulatory in nature. Paragraphs 15 and 16 of the report in the case of Sukhpal Singh Bal (supra) are reproduced below: "15. In the light of the above judgments as applicable to the provisions of the said 1997 Act, we are of the view that the High Court had erred in striking down section 10(3) as ultra vires articles 14 and 19(1)(g) of the Constitution. "Penalty" is a slippery word and it has to be understood in the context in which it is used in a given statute. A penalty may be the subject-matter of a breach of statutory duty or it may be the subject-matter of a complaint. In ordinary parlance, the proceedings may cover penalties for avoidance of civil liabilities which do not constitute offences against the State. This distinction is responsible for any enactment intended to protect public revenue. Thus, all penalties do not flow from an offence as is commonly....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., it is considered necessary to levy road tax on transport vehicles used or kept for use on public roads in Himachal Pradesh." 35. What is to be seen is whether the tax imposed will have identifiable object and a nexus between the subject and the object of the levy. The power has been given to the States to make its own legislations by imposing tax on motor vehicles as also the goods being transported in order to compensate itself for the services, benefits and facilities provided by it. 36. This Court in B.A. Jayaram and Ors. vs. Union of India (UOI) and Ors. (supra) laid down the proposition that to uphold a tax claim to be compensatory tax, there must be existence of a specific identifiable object behind the levy. It further laid down that the levy must have a nexus between the subject and the object of levying. In the said case the challenge was to a notification issued by the State of Karnataka dated 31 May, 1981 withdrawing the exemption granted under Section 63(7) of the 1939 Act. The said exemption was granted to promote tourist traffic on an inter-state basis. This Court, after considering the object behind the compensatory and regulatory levy, held that such tax fell ou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it ever so desirable. The State is obliged neither to grant an exemption nor to perpetuate an exemption once granted. There is no question of impairing the freedom under Article 301 by refusing to exempt or by withdrawing an exemption. Not to pat on the back is not to stab in the back. True, straw by straw, the burden of taxation on tourist vehicles increases as each State adds its bit of straw, but, then, each State is concerned with its coffers and has the right to tax vehicles using its roads; and, the contribution which a tourist carriage is required to make to its treasury is no more than what other contract carriages are required to make. We are firmly of the view that there is no impairment of the freedom under Article 301. The special submission on behalf of the 'Karnataka Operators' that the withdrawal by the Karnataka Government of the exemption granted to 'outsiders has resulted in the 'Karnataka Operators' having to pay tax in every State in the country and, therefore, the withdrawal has impaired the freedom under Article 301 is but the same general submission, seen through glasses of a different tint. It does not even have the merit that the withdra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve some nexus with the vehicles using the roads viz. public roads." 38. The argument by Mr.Bhatnagar, learned amicus that the offending provision contained in Section 3A(3) being repugnant to the central legislation, will have to give way and cannot be sustained. His submission is that the power to impose penalty is given in Section 192 A of the 1988 Act. According to him, Entry 57 of List II being subject to the provisions of Entry 35 of List III under which the 1988 Act has been enacted, Section 192A provides for penalty being imposed on vehicles being used without permit or in contravention of the provisions of sub-section (1) of Section 66 (providing for necessity for permits). According to him once the central Act contains a penal provision for such a violation of imprisonment as also fine, the State could not have imposed a tax for the same violation. This submission of Shri Bhatnagar can be sustained only if any repugnancy or any conflict can be established between the State law and the Central law. The provisions under Section 192A are in no way violated or conflicted by imposing an additional special tax for violation of use of vehicles without permit. It can be said to b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s on vehicles, whether mechanically propelled or not vests solely in the State Legislature, though it may be open to Parliament to lay down the principles on which the taxes may be levied on mechanically propelled vehicles in the background of Entry 35 of List III. To put it differently, Parliament may lay down the guidelines for the levy of taxes on such vehicles, but the right to levy such taxes vests solely in the State Legislature. No principles admittedly have been formulated by Parliament. In that sense, the Government of India's communication dated 30-8-1993 does not in any sense violate the power of the State Legislature or its delegate to levy or exempt taxes from time to time." 39. Mr. Mukerji, learned counsel for the appellants, has referred to a number of judgments of this Court relating to levy of tax being compensatory and regulatory in nature. The same are not being discussed in detail to unnecessary burden the judgment. However, a reference has already been made to the said judgments quoted earlier. 40. In the above backdrop of the legal position, the validity of Section 3A(3) of the 1972 Act introduced vide Amending Act of 1999 is being discussed hereunder. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was only to keep a check or a discipline on the transport vehicle operators to use their vehicles in accordance with the statutory provisions. This could work as a deterrent for the transport operators to not commit any breach and to follow the mandate of the law. Such additional special road tax could be termed as regulatory in nature so as to regulate other statutory provisions being implemented and strictly followed. 45. This Court in the case of Sukhpal Singh Bal (supra) relating to challenge to Section 10(3) of the U.P. Motor Vehicles Taxation Act, 1997 where a similar provision was incorporated and even though termed as penalty, was held to be regulatory and compensatory in nature. The High Court had struck down the said provision but this Court held that such penalty imposed under Section 10(3) to protect public revenue and as a deterrent for tax evasion. In view of the above, it cannot be said that levy of such an additional special road tax would be said to be manifestly unjust or glaringly unconstitutional. It was, in effect, to ensure payment of the chargeable taxes and use of the vehicles as per the terms of the permit. Repugnancy, if any, with Central enactment: 46.....