M/S. TATA MOTORS LIMITED versus STATE OF JHARKHAND AND OTHERS

[2018] 14 S.C.R. 1241

M/S. TATA MOTORS LIMITED

STATE OF JHARKHAND AND OTHERS

(Civil Appeal Nos. 5299-5304 of 2003)

DECEMBER 14, 2018

[A. K. SIKRI AND M. R. SHAH, JJ.]

Bihar Motor Vehicles Taxation Act, 1994: s. 6 – Tax payableby manufacturer or dealer – Manufacturer/dealer of the motorvehicles – Liability to pay tax u/s. 6, during the period the chassisare in their possession-before they are delivered to the dealers and/or the purchasers of the said vehicles – Held: Manufacturer/dealer-appellants are liable to pay tax u/s. 6 – Liability to pay tax u/s. 6 islinked with the incidence of manufacturer or the dealer possessingthe vehicle which is suitable for use on road during the course ofhis business – Sections 5 and 6 operate in altogether differentcontexts – Under s. 5 tax is payable at the time of registration of thevehicle, which is payable by the registered owner – In contrast, s. 6is the stage before that as it is on the event of the vehicle beingpossessed by the manufacturer or dealer – Entry 57 of List II, VIISchedule empowers the State Legislature to impose tax on vehiclemerely on possession – Furthermore, for the delayed payment,penalty was rightly imposed – Constitution of India – Entry 57, ListII VII Schedule.

Dismissing the appeals, the Court

HELD: 1.1 The High Court rejected the submission thatthe Bihar Act was enacted by the State Legislature underEntry 57 of List II (State List) of the VIIth Schedule to theConstitution , which entry does not empower the State Legislatureto impose tax on vehicle merely on possession, with the reasonthat under this entry, taxes on vehicles which are suitable for useon roads can be imposed and it was undisputed case of the partiesthat the vehicles manufactured by the appellants are suitable foruse on roads. Therefore, section 6 of the Bihar Motor VehiclesTaxation Act, 1994 which stipulates the manufacturer or dealerof motor vehicle, in respect of the motor vehicle in hispossession in the course of business as such manufacturer ordealer shall pay tax, is within the legislative competence of

AEntry 57. The reasoning given by the High Court is the correctanalysis of Entry 57 of List II of VIIth Schedule to the Constitution.[Paras 19, 20][1251-A-E]

1.2 The High Court rightly concluded that amendment inMotor Vehicles Act (Central Act) 1988 would have no relevanceBto the provisions contained in the Bihar Act. Whether thedefinition of dealer includes manufacturer or not would beimmaterial inasmuch as under Section 6 of the Bihar Act, theLegislature has made provision to tax both the dealer as well asthe manufacturer. [Para 21][1251-D-F]

1.3 The submission that the tax was in respect of motorCvehicles in possession of the manufacturer in the course of hisbusiness as manufacturer, or in possession of the dealer in thecourse of his business as dealer under the authorization of tradecertificate granted under the Central Motor Vehicle Rules, 1989,

is accepted. The manufacturer comes in the possession of theDmotor vehicle after the vehicle is manufactured and is suitablefor use on roads. The dealer in the course of his business ofgetting the Motor Vehicle from the manufacturer and selling it toa customer comes in the possession of the Motor Vehicle on thebasis of trade certificate granted under the Central MotorVehicle Rules, 1989. Neither earlier nor now there is anyEobligations in manufacturer to obtain trade certificate underthe 1989 Rules for carrying on the business of manufacturer.[Para 22][1252-B-E]1.4 challenge to the constitutionality of Section 6 laid bythe appellants in the earlier round of litigation, in regard to theFsame Assessment Years, was repelled and constitutional validityof Section 6 was upheld in Telco case. Once Section 6 is held tobe valid, it is only the interpretation thereof which was to be goneinto by the High Court in this round, in order to find out whetherthe assessment orders passed in respect of these appeals wereGvalid or not. On interpreting this provision, liability to pay taxunder Section 6 is linked with the incidence of manufacturer orthe dealer possessing the vehicle which is suitable for use onroad during the the course of his business. [Para 23][1252-E-G]

Tata Engineering and Locomotive Company Ltd. v. Stateof Jharkhand (TELCO case) AIR 1999 Patna 62 –Happroved.

Bolani Ores Ltd. v. State of Orissa (1974) 2 SCC 777 ;Travancore Tea Estates Co. Ltd. & Ors. v. State of Kerala& Ors. (1980) 3 SCC 619 ; M/s Central Coal FieldsLtd. v. State of Orissa & Ors. 1992 Supp. (3) SCC 133– referred to.

1.5 It was submitted that Section 6 uses the expression ‘inlieu of the rates specified in Schedule I’; that the tax which is tobe paid is either as per Schedule I i.e. in accordance with Section5 of the Bihar Act or at the annual rates specified in Schedule III;and that the words ‘in lieu of’ cannot be read as ‘in addition to’,cannot be accepted. Sections 5 and 6 operate in altogetherdifferent contexts. Under Section 5, tax is payable at the time ofregistration of the vehicle, which is payable by the registeredowner. In contrast, Section 6 is the stage before that as it is onthe event of the vehicle being possessed by the manufacturer ordealer. Therefore, the appellants are liable to pay tax underSection 6 of the Bihar Act. May be, Section 6 is not happilyworded. But the intent is to convey that tax will not be payable asper Schedule I which is payable under Section 5 but in placethereof it would be payable as per Schedule III. [Para 24][1253-A-D]

2.1 Section 23, in no uncertain terms, lays down that anyperson who does not pay the tax during the prescribed periodshall pay penalty at the rate prescribed by the State Governmenttogether with arrears of tax. Therefore, for non-payment of thetax within the prescribed period, penalty becomes payable at therates specified in Rule 4. The vires of Section 6 were challengedin the High Court in earlier proceedings and this challenge wasrepelled. Further, since Rule 4 uses the expression ‘may’, onthat basis it was also argued that this rule gives discretion to theAssessing Officer. That argument was also repelled in Telco case.This position in law has attained finality. [Para 29][1255-E-G]

2.2 While upholding the validity of Section 23 of the Act inTelco, insofar as penalty is concerned, the Court had set asidethe same on the ground that before imposing the penalty, no showcause notice was issued. Permission was given to the taxauthorities to take fresh decision after giving the show causenotice. Show cause notices were issued and after hearing theappellants, the penalty was imposed. In view thereof, the High

ACourt rightly repelled the challenge against imposition of penalty.[Para 31][1256-B-D]

Hindustan Steel Ltd. v. State of Orissa (1969) 2 SCC627 – held inapplicable.

State of U.P. & Ors. v. Sukhpal Singh Bal (2005) 7 SCCB615 – referred to.

Case Law Reference

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 5299-D5304 of 2003.

From the Judgment and Order dated 29.11.2002 of the High Courtof Jharkhand at Ranchi in C.W.J.C. No. 1239 of 2000 alongwith C.W.J.C.Nos. 1240, 1430, 1432, 1439 and 1454 of 2000.

With

Civil Appeal Nos 6591 of 2003, 8-12 of 2004.

Arvind P. Datar, Ashok Kumar Panda, Sunil Kumar, Sr. Advs.,Ajay Aggarwal, Ms. Mallika Joshi, Rajat Gava, Rajan Narain, MaheshAgarwal, Rishi Agrawala, Ms. Parul Shukla, E. C. Agrawala, RajeshFKumar, Devashish Bharuka, Shankar Lal Agarwal, Ravi Bharuka,Ms. Sarvshree Singh, Justine George, Akshay Amritanshu, R. C. Kohli,Vijay Prakash, Sanjai Kumar Pathak, Ms. Rashmi Malhotra, G. S.Makker, Mrs. Anil Katiyar, Ratan Kumar Choudhuri, Abhinav Mukerji,Mrs. Bihu Sharma, Ms. Pratishtha Vij, Siddharth Garg, Advs. for theappearing parties.G

The Judgment of the Court was delivered by

A. K. SIKRI, J.

1. common question of law which arises in all these appealspertains to levy of tax by the respondent No.1 State under Section 6 ofthe Bihar Motor Vehicles Taxation Act, 1994 (hereinafter referred to as

the ‘Bihar Act’) on the chassis of the motor vehicles manufactured bythe appellants during the period these chasis are in their “possession”,i.e., before they are delivered to the dealers and/or the purchasers of thesaid vehicles.

2. The Bihar Act envisages three kinds of taxes, namely:

(a) on registered vehicles under Section 5 of the Act;

(b) on vehicles held under trade certificates as per Section 6 ofthe Act; and

(c) in respect of vehicles registered, where the registration istemporary, marginal tax under Section 7(4) of the Act.

3. As would be noticed, tax under Section 5 of the Bihar Act ispaid by the ultimate buyers who, on purchase of vehicles and becomingowners thereof, get these vehicles registered in their names. After themanufacture of the vehicle and before it is sold to the ultimate buyer touse the said vehicle, temporary registration is required by themanufacturer under Section 7 of the Bihar Act. Since this registration istemporary for limited duration, fractional tax is paid by the manufactureror dealer under Section 7(4) of the Bihar Act. Section 6, on which thefulcrum of dispute revolves, deals with those vehicles which are inpossession of manufacturer or dealer in the course of his business andare held under trade certificates. Sections 5, 6 and 7 are reproducedbelow in order to have an idea of the payment of these three motorvehicle taxes:

“5. Levy of tax – (1) Subject to other provisions of this Act, onand from the date of commencement of this Act, every owner ofa registered motor vehicle shall pay tax on such vehicle at therate specified in Schedule I.

(2) Subject to other provisions of this Act, on and from the dateof commencement of this Act, every owner of registered motorvehicle shall pay Additional Motor Vehicles Tax on such vehicleat the rate specified in Schedule II.

(3) The State Government may, by notification from time to time,increase the rate of tax specified in the Schedules:

Provided that no such increase shall, during any year, exceed fiftypercent of the rate of taxes prescribed in the Schedules.

6. Tax payable by manufacturer or dealer – tax at theannual rate specified in Schedule III in lieu of the rates specified

in Schedule I shall be paid by manufacturer or dealer in motorvehicles in respect of the motor vehicles in his possession in thecourse of his business as such manufacturer or dealer under theauthorisation of trade certificate granted under the Central MotorVehicles Rules, 1989.

B7. Payment of tax –

xxxx

(4) In the case of motor vehicles temporarily registered underSection 43 of the Motor Vehicles Act, 1988, the tax for vehiclesother than personalised vehicles shall be levied at the rate of 1/12th of the tax payable for the year for such vehicles. In case ofextension of the period of temporary registration under the provisoto sub-section (2) of Section 43 tax at the rate of 1/12th payablefor the year shall be payable on every extension of temporaryregistration for period of 30 days or part thereof;

DProvided that for temporary registration of personalised vehiclesthe rates of tax will be Rs.50/- for motor cycle (including moped,scooter and cycle with attachment for propelling the same bymechanical power) and Rs.100/- for motor car.”

4. As is clear from the reading of these Sections, Section 5 is thecharging section as per which every owner of registered motor vehicleEis under an obligation to pay tax on such vehicle, rates whereof arespecified in Schedule I. Insofar as Section 6 is concerned, liability iscast on the manufacturer of motor vehicles or dealer in motor vehiclesto pay tax in respect of motor vehicles in his possession in the course ofhis business as manufacturer or dealer, under the authorisation ofFtrade certificate granted under the Central Motor Vehicle Rules, 1989(hereinafter referred to as ‘MV Rules’). Here tax is at annual ratespecified in Schedule III, which is ‘in lieu’ of the rates specified inSchedule I. It clearly implies, therefore, that manufacturer or dealerpays the tax in respect of vehicles in his possession for which he hasbeen granted trade certificate which authorises him to possess the saidGvehicle before it is sold to the ultimate consumer. Obviously, the ratespecified in Schedule III is much lesser than the tax which is payable bythe registered owner under Section 5 of the Bihar Act.

5. Section 7(4), on the other hand, applies to those cases wherethe motor vehicles are temporarily registered under Section 43 of the

Motor Vehicles Act, 1988 (hereinafter referred to as the ‘MV Act’). Incontrast with Section 6, here the person, unlike the manufacturer ordealer having trade certificate, gets the vehicle registered on temporarybasis. The tax levied here is 1/12th of the tax payable for the year forsuch vehicles.

6. The three situations, thus, become obvious. manufacturerafter manufacturing motor vehicle would be in possession of the saidvehicle till it is delivered to dealer. Likewise, dealer would remain inpossession of such vehicle till it is sold to the consumer. Ordinarily, amotor vehicle cannot be driven unless it is registered. That requirementis provided under Section 39 of the MV Act. It is in consonance withthis provision that under Section 5 of the Bihar Act, tax is levied by therespondent State on the owner of the registered vehicle, at the time ofregistration. Since this tax is to be paid by the ultimate owner whopurchases the vehicle, to avoid double taxation and payment of same taxby the manufacturer or dealer, Rule 33 of the MV Rules exempts suchmanufacturer or dealer from the necessity of registration subject to thecondition that they obtain trade certificates from the registering authority.It is because of the reason that in the course of their business asmanufacturer or dealer the vehicle would come on the road and wouldbe driven. For this reason, dealer or manufacturer of motor vehicleis permitted to obtain trade certificate so that he is exempted fromregistering the vehicle in his name. The Bihar Act, even in such case,contemplates levy of tax. This tax is payable under Section 6 at theannual rate specified in Schedule III, as noted above. In case dealeror manufacturer is not having trade certificate, in order to drive themotor vehicle during the period it remains with him, he is supposed to getthe vehicle registered for temporary period. This temporary registrationis to be done as per the provisions contained in Section 43 of the MVAct. It may be clarified that such temporary registration can be obtainedby any person who is the owner of motor vehicle and is not confined toa dealer or manufacturer. An owner who gets the vehicle temporarilyregistered in his name is supposed to pay tax under the Bihar Act thoughat much lesser rate than the rate specified in Schedule I, inasmuch asit is only at the rate of 1/12th of the tax payable for the year for suchvehicles. It is because of the reason that temporary registration is for aperiod of one month.

7. All the appellants in these appeals fall in the category ofmanufacturers or dealers of the motor vehicles. They have paid taxes

DEFG

Aunder Section 7(4) of the Bihar Act. Likewise, in respect of those vehiclesretained and used by the appellants for their own purposes and not sold,these appellants have discharged their tax liability under Section 5 of theBihar Act as well.

8. In the aforesaid backdrop, the issue is as to whether suchBmanufacturers or dealers, like the appellants herein, are liable to pay taxunder Section 6 as well. To reiterate, after the manufacture of thevehicle when it remains with the manufacturer (or when it remains withthe dealer after delivery thereof to the dealer by the manufacturer) andbefore it is sold to the ultimate consumer, the vehicle is brought on theroad and is driven. It maybe for the purpose of testing the technicalCsuitability of such vehicle or when it goes for delivery from themanufacturer’s factory to the dealer’s showroom. Likewise, dealermay also drive this vehicle for limited purpose, say it is driven by thecustomer etc. Since, vehicle cannot be brought on road and be drivenwithout any valid registration, contemplates two situations to meet suchDcontingencies. It provides for temporary registration under Section 43of the MV Act. Another option is given to those manufacturers or dealerswho obtain trade certificates from the registering authority and in such acase as per Rule 33 of the Motor Vehicle Rules, manufacturers or dealersare exempted from the necessity of registration. The appellants in theseappeals are either manufacturers or dealers. They have paid taxes underESection 7(4) of the Bihar Act. In respect of such vehicles, taxes alsostand paid under Section 5 of the Bihar Act. Question of additional taxliability under Section 6 of the Act arises in this backdrop.

9. Before we answer this question, it would be necessary to takenote of those amendments in the Central Government, i.e., MV ActFfrom time to time which have bearing on these cases.

10. Section 2(8) of the MV Act (the Central Act) provides thedefinition of ‘dealer’. As per this provision, as originally stood, amanufacturer was also included in the definition of ‘dealer’. However,this provision was amended vide Act 54 of 1994 whereby the LegislatureGomitted ‘manufacturer’ from the ambit of the expression ‘dealer’. Themanufacturer, therefore, no more remained the dealer. The amendeddefinition of ‘dealer’ which came into effect with effect from November14, 1994, is as under:

“2. Definitions.—In this Act, unless the context otherwiserequires,—H

(8) “dealer” includes person who is engaged—

(a) [* * *]

(b) in building bodies for attachment to chassis; or

(c) in the repair of motor vehicles; or

(d) in the business of hypothecation, leasing or hire-purchase ofmotor vehicle;”

11. Thus, under the Central Act, prior to its amendment inNovember, 1994, motor vehicles would require registration in all events,save and except those which were in possession of “dealers”. In thelatter event, the vehicles could be temporarily kept under tradecertificate, which, under the rules, provides extremely limited mobility.In November, 1994, manufacturers were taken out of this exception byamendment in the definition of dealers.

12. The Bihar Motor Vehicle Rules, 1992 (Bihar Rules) asapplicable in the State of Bihar and in some other States were amendedas empowering the manufacturers themselves to act as authorities, whocould grant temporarily registration. Thus, under the revised schemepost November, 1994, it is only dealer (other than manufacturer)who could keep vehicle for limited period of time under tradecertificate. Manufacturers, therefore, would have to temporarily registerthe vehicle under Section 43 of the Central Act. Upon its purchase, thecustomer would then register the vehicle finally under Section 39 of theCentral Act.13. The State of Bihar enacted Bihar Motor Vehicles TaxationAct in April 1994 at time when the manufacturers also could continuein possession of Tariff heading vehicles under trade certificate.

14. After the amendment of 1984, the facility of trade certificateto manufacturer stands withdrawn. The manufacturer undoubtedlycan possess vehicle, which is in his factory as long as it is not used inany place contrary to Section 39 of the Bihar Act. The only manner inwhich manufacturer can use vehicle is the manner indicated underSection 39 without obtaining registration.

15. Prior to the above-said amendment of the Central Act, aDivision Bench of the Patna High Court took the view that vehicles,which were in use, would either require registration certificate,permanent or temporary, or would require trade certificate.

Amanufacturer who is required to obtain trade certificate but did not doso, would not escape the net of tax by being the beneficiary of his ownwrong.

16. To complete the narrative, it would also be pertinent to mentionthat after the amendment in November, 1994, as noted above, when theBAssessing Authority sought to levy tax under Section 6 of the Bihar Act,this action was challenged by the appellants by filing writ petitions in theHigh Court of Patna. In those writ petitions, vires of Section 6 of theBihar Act were also challenged. The challenge was repelled by the HighCourt vide its judgment dated July 03, 1998, with the leading case knownas Tata Engineering and Locomotive Company Ltd. vs. State ofCJharkhand[1 ](TELCO case). This judgment has attained finality asSpecial Leave Petition thereagainst was dismissed by this Court. Afterthe aforesaid judgment, the District Transport Office, Jamshedpur againconfirmed the demand of tax under Section 6 of the Act vide his orderdated July 05, 1999 in the case of the appellant/TELCO. This order wasDconfirmed by the Appellate Authority at Ranchi on December 18, 1999as well as by Revisional Authority by his order dated April 20, 2000.Writ petitions were filed challenging this order in the High Court whichhave been dismissed vide impugned judgment dated September 24, 2002.In appeal Nos. 5299-5304 of 2003 validity of the judgment is questioned.Civil Appeal Nos. 5299-5304 of 2003 arise out of this judgment.E

17. Civil Appeal Nos. 8-12 of 2004 are filed by dealer who haspaid the tax under Section 6 of the Act as well, however, for delayedpayment, penalty and interest are imposed which were challenged bythe said appellants in the High Court and the High Court has dismissedthe case of the appellants vide its judgment dated July 22, 2003 followingFits judgment in TELCO case.

18. It is in this conspectus, this Court is to first determine thequestion of liability of tax under Section 6 of the Bihar Act and in theevent this tax is upheld, question of penalty and interest would have tobe determined.G

19. We may point out that before the High Court, the appellantshad challenged the vires of Section 6 on the ground that the StateLegislature lacks competence to make provision of this nature. It waspointed out that Section 6 levies the tax on manufacturer or dealer ofmotor vehicles merely on ‘possession’ thereof by such manufacturerH1AIR 1999 Patna 62

or dealer. It was argued that the Bihar Act was enacted by the StateLegislature under Entry 57 of List II (State List) of the VIIth Scheduleto the Constitution of India, which entry does not empower the StateLegislature to impose tax on vehicle merely on possession. This entryreads as under:

“Taxes on vehicles, whether mechanically propelled or not, suitablefor use on roads, including tram cars subject to the provisions ofentry 35 of List III.”

20. The High Court, however, rejected this contention with thereason that under this entry, taxes on vehicles which are suitable for useon roads can be imposed and it was undisputed case of the parties thatthe vehicles manufactured by the appellants are suitable for use on roads.Therefore, the provision which stipulates the manufacturer or dealerof motor vehicle, in respect of the motor vehicle in his possession inthe course of business as such manufacturer or dealer shall pay tax, iswithin the legislative competence of Entry 57. This contention has beenraised before us as well. However, we do not agree with the appellantsas the reasoning given by the High Court is the correct analysis of Entry57 of List II of VIIth Schedule to the Constitution.

21. Insofar as argument predicated on the amendment in the MotorVehicles Act (the Central Act), 1988 is concerned, we again find thatthe High Court has rightly concluded that this amendment would haveno relevance to the provisions contained in the Bihar Act. Whether thedefinition of dealer includes manufacturer or not would be immaterialinasmuch as under Section 6 of the Bihar Act, the Legislature has madeprovision to tax both the dealer as well as the manufacturer. We agreewith the following observations of the High Court in this behalf:

“7. ...It goes without saying also that 1994 Act has been enactedunder and in terms of Entry 57 (supra) by the State Legislature;whereas 1988 Act has been enacted by the Union Parliamentunder and in terms of Entry 35 of the Concurrent List. Also,whereas the Preamble to 1988 Acts states that the Act has beenenacted to consolidate and amend the law relating to MotorVehicles, the Preamble to 1994 Act states that this Act has beenmade with view to regulate the imposition and levy of tax onMotor Vehicles in the State of Bihar (as it was at the relevanttime). Both the Act, therefore, deal with two different fields of

Alegislation and the areas of their operation are also different, havingbeen enacted by two different classes of Legislatures, one in termsof the power exercisable and vested under clause (2) and theother in terms of the power vested and exercisable under clause(3) of Article 246 of the Constitution. Therefore, at the risk ofrepetition, we have no hesitation in saying that any change orBalteration in one Act cannot be said to have any effect upon theother.”

22. We also agree with the respondents that the tax was in respectof motor vehicles in possession of the manufacturer in the course of hisbusiness as manufacturer, or in possession of the dealer in the courseCof his business as dealer under the authorization of trade certificategranted under the Central Motor Vehicle Rules, 1989. The manufacturercomes in the possession of the motor vehicle after the vehicle ismanufactured and is suitable for use on roads. The dealer in the courseof his business of getting the Motor Vehicle from the manufacturer andDselling it to customer comes in the possession of the Motor Vehicle onthe basis of trade certificate granted under the Central Motor VehicleRules, 1989. Neither earlier nor now there is any obligations in amanufacturer to obtain trade certificate under the 1989 Rules forcarrying on the business of manufacturer.23. It is pertinent to mention that challenge to the constitutionalityEof Section 6 laid by the appellants in the earlier round of litigation, inregard to the same Assessment Years, was repelled and constitutionalvalidity of Section 6 was upheld in Telco case. The High Court had incoming to such conclusion, referred to the judgment of this Court inBolani Ores Ltd. v. State of Orissa[2], Travancore Tea Estates Co.FLtd. & Ors. v. State of Kerala & Ors.[3] and M/s Central Coal FieldsLtd. v. State of Orissa & Ors.[4]. Once Section 6 is held to be valid, it isonly the interpretation thereof which was to be gone into by the HighCourt in this round, in order to find out whether the assessment orderspassed in respect of these appeals were valid or not. On interpretingthis provision, as observed earlier as well, liability to pay tax under SectionG6 is linked with the incidence of manufacturer or the dealer possessingthe vehicle which is suitable for use on road during the course of hisbusiness.

2(1974) 2 SCC 777

3(1980) 3 SCC 619H41992 Supp. (3) SCC 133

24. half-hearted argument was also made by the appellants tothe effect that Section 6 uses the expression ‘in lieu of the rates specifiedin Schedule I’ and it was argued that the tax which is to be paid is eitheras per Schedule I i.e. in accordance with Section 5 of the Bihar Act or atthe annual rates specified in Schedule III. It was emphasised that thewords ‘in lieu of’ cannot be read as ‘in addition to’. However, there isno merit in this argument as well. Sections 5 and 6 operate in altogetherdifferent contexts. Under Section 5, tax is payable at the time ofregistration of the vehicle, which is payable by the registered owner. Incontrast, Section 6 is the stage before that as it is on the event of thevehicle being possessed by the manufacturer or dealer. We, therefore,are of the opinion that the appellants are liable to pay tax under Section6 of the Bihar Act. May be, Section 6 is not happily worded. But theintent is to convey that tax will not be payable as per Schedule I which ispayable under Section 5 but in place thereof it would be payable as perSchedule III.

25. Insofar as imposition of penalty is concerned, it is as per theprovisions of Section 23 of the Act which mentions that for non-paymentof tax under the Act, penalty can be imposed. The appellants havereferred to the judgment of this Court in Hindustan Steel Ltd. v. Stateof Orissa[5] which describes the nature of penalty as under:

“8. Under the Act penalty may be imposed for failure to registeras dealer — Section 9(1) read with Section 25(1)(a) of the Act.But the liability to pay penalty does not arise merely upon proof ofdefault in registering as dealer. An order imposing penalty forfailure to carry out statutory obligation is the result of quasi-criminal proceeding, and penalty will not ordinarily be imposedunless the party obliged either acted deliberately in defiance oflaw or was guilty of conduct contumacious or dishonest, or actedin conscious disregard of its obligation. Penalty will not also beimposed merely because it is lawful to do so. Whether penaltyshould be imposed for failure to perform statutory obligation is amatter of discretion of the authority to be exercised judicially andon consideration of all the relevant circumstances. Even if aminimum penalty is prescribed, the authority competent to imposethe penalty will be justified in refusing to impose penalty, whenthere is technical or venial breach of the provisions of the Act or

where the breach flows from bona fide belief that the offenderis not liable to act in the manner prescribed by the statute. Thosein charge of the affairs of the Company in failing to register theCompany as dealer acted in the honest and genuine belief thatthe Company was not dealer. Granting that they erred, no casefor imposing penalty was made out.”

26. It was argued that action of the appellants was bona fideinasmuch as when the notices were received for the first time for paymentof tax under Section 6 of the Act, the same were challenged albeit thevalidity of Section 6 was upheld by the High Court. Thereafter, tax waspaid by the appellants though challenged again in the present round ofClitigation. On that basis, it was argued that action of the appellants wasbona fide.

27. In order to test this argument, we shall have to consider theprovision under which penalty can be imposed. The provision in the Actis Section 23 and Rule 4 of the Taxation Rules provides for the rates ofDpenalty. Section 23 reads as under:

“Liability to pay penalty for non-payment of tax in time. - If thetax payable in respect of vehicle other than personalised vehiclehas not been paid during prescribed period, the person liable topay such tax shall pay together with the arrears of tax, penaltyat the rates prescribed by the State Government.”

28. Rule 4, likewise, is to the following effect:

“4. Due date of payment and penalty for non-payment of taxes intime.— (1) For vehicles other than personalised vehicles the duedate of payment of tax shall be the date of expiry of the period forwhich the tax has been last paid. In cases where no such tax hadpreviously been paid, the date of acquisition of the vehicle or thedate when such tax is imposed by law shall be due date for taxpayment. For payment of differential taxes under the provision ofSection 8, the due date shall be within seven days from the dateof alteration in the vehicle or the change in its use.

(2) Where the tax for any period in respect of vehicle has notbeen paid as required under the provisions of sub-rule (1) andcontinues to remain unpaid thereafter, the taxing officer mayimpose penalty in respect of such vehicles at the rate specified inthe table below:—

TABLEPeriod Amount of penalty (i) If paid within fifteen Nil. This will be treated as days from the due date grace period.of payment. (ii) If paid after fifteen Penalty to be charged at the days but within 30 days rate of 25 per cent, of the tax.of the due date of payment.(iii) If paid after 30 days Penalty to be charged at the but within 60 days of the rate of 50 per cent, of the taxes due date of payment. due.(iv) If paid after 60 days Penalty to be charged equal to but within 90 days of the taxes due.due date of tax payment. (v) If paid beyond 90 Penalty to be charged will be days after the due date.twice the taxes due.

(3) Where the composite fee in respect of vehicles plying underNational Permit Scheme has not been paid within the due date asrequired under the provisions of the said Scheme, the Taxing Officershall impose penalty at the rate provided in the said Scheme, in

respect of such vehicle.”

29. Section 23, in no uncertain terms, lays down that any personwho does not pay the tax during the prescribed period shall pay penaltyat the rate prescribed by the State Government together with arrears oftax. Therefore, for non-payment of the tax within the prescribed period,penalty becomes payable at the rates specified in Rule 4. The vires ofSection 6 were challenged in the High Court in earlier proceedings andthis challenge was repelled. Further, since Rule 4 uses the expression‘may’, on that basis it was also argued that this rule gives discretion tothe Assessing Officer. That argument was also repelled in Telco case.This position in law has attained finality. At this stage, it would be usefulto refer to the judgment in State of U.P. & Ors. v. Sukhpal Singh Bal[6]wherein this Court held:

“15. ...A penalty may be the subject-matter of breach of statutoryduty or it may be the subject-matter of complaint. In ordinary

6(2005) 7 SCC 615

Aparlance, the proceedings may cover penalties for avoidance ofcivil liabilities which do not constitute offences against the State.This distinction is responsible for any enactment intended to protectpublic revenue...”

30. It is clear that under the Bihar Act, as per Section 23, penaltiesBlevied for breach of statutory duty for non-payment of tax.

31. In view of the aforesaid specific legal provisions, judgment inthe case of Hindustan Steel Ltd. referred to by the appellants will notbe applicable in the instant case. It is also to be borne in mind that whileupholding the validity of Section 23 of the Act in Telco, insofar as penalty

is concerned, the Court had set aside the same on the ground that beforeCimposing the penalty, no show cause notice was issued. Permission wasgiven to the tax authorities to take fresh decision after giving the showcause notice. It is an admitted case that show cause notices were issuedand after hearing the appellants, the penalty was imposed. Taking intoconsideration all these aspects, the High Court in the impugned judgmentDdated July 22, 2003 in the case of M/s. R.K. Automotives & Ors. (CivilAppeal Nos. 8-12 of 2004) has repelled the challenge against impositionof penalty. We agree with the aforesaid conclusion.

32. As result, all these appeals are dismissed.

ENidhi Jain

Appeals dismissed.