THE STATE OF HIMACHAL PRADESH AND OTHERS versus GOEL BUS SERVICE KULLU ETC. ETC.

[2023] 5 S.C.R. 879

THE STATE OF HIMACHAL PRADESH AND OTHERSv.

GOEL BUS SERVICE KULLU ETC. ETC.

(Civil Appeal No(S). 5534-5594 of 2011)

JANUARY 13, 2023

[SANJAY KISHAN KAUL, ABHAY S. OKA ANDVIKRAM NATH, JJ.]

Motor Vehicles – Himachal Pradesh Motor Vehicles TaxationAct 1972 – s.3A(3) [introduced vide Amending Act of 1999] – Validityof – Special road tax provided under sub-section (3) of s.3A – Ifmanifestly unjust / glaringly unconstitutional – Regulatory orcompensatory in nature – Repugnancy, if any, with Centralenactment – Levy of lumpsum tax – Validity – Whether imposition ofadditional special road tax levied on transport vehicle used withouta valid permit is not tax but penalty and is ultra vires the legislativepowers of the State Legislature under Entries 56 and 57 of List II(the State List) of the Seventh Schedule to the Constitution – Held:Tax imposed u/s.3A(3) is regulatory in character and is not penalty– Imposition of such additional special road tax was only to keep acheck or discipline on the transport vehicle operators to use theirvehicles in accordance with the statutory provisions – Also, s.3A(3)of the 1972 Act is within the legislative competence of the StateLegislature, and lumpsum tax could be levied – The State Legislatureshad the power to levy taxes not only under Entries 56 and 57 of ListII but also to lay down the principles under Entry 35 of List III –Therefore, no repugnancy of any kind could be alleged or pleadedor proved in the absence of there being any central law laying downprinciples of levy of tax – Further, nothing on record to indict theoffending provision as being manifestly unjust or glaringlyunconstitutional – Constitution of India – Arts. 246 and 254; SeventhSchedule, List II, Entries 56 and 57 and List III, Entry 35.

Motor Vehicles – Himachal Pradesh Motor Vehicles TaxationAct 1972 – s.3A(3) [introduced vide Amending Act of 1999] – Validityof – Special road tax provided under sub-section (3) of s.3A – Held:The additional special road tax chargeable u/s.3A(3) would be inaddition to any sentence or fine imposed u/s.192A of the MotorVehicles Act, 1988 – The provisions under s.192A are in no way

Aviolated or conflicted by imposing an additional special tax forviolation of use of vehicles without permit – Motor Vehicles Act,1988 – s.192A.

Tax / Taxation – Fiscal statutes – Scope of interference –Held: The Courts must show judicial restraint to interfere with taxBlegislation unless it is shown and proved that such taxing statute ismanifestly unjust or glaringly unconstitutional – Taxing statutescannot be placed or tested or viewed on the same principles aslaws affecting civil rights such as freedom of speech, religion, etc.– The test of taxing statutes would be viewed on more stringent testsand the law makers should be given greater latitude – Testing theCprovisions of the offending section with regard to the settledprinciples of interpretation of taxing statutes, it is to be ascertainedon the following three aspects: (1) Whether it is manifestly unjustor glaringly unconstitutional; (2)Whether it is regulatory orcompensatory in nature; and (3) Whether there is any repugnancyDwith the provisions in the Central enactment.The State of Himachal Pradesh, exercising the powersdrawn from Entries 56 and 57 of List II of the Seventh Scheduleenacted the Himachal Pradesh Motor Vehicles Taxation Act 1972.Section 3 of the 1972 Act provided for levy and collection of taxesEon all motor vehicles which were to be used or kept for use inthe State of Himachal Pradesh. By the Amending Act of 1999,Section 3A was introduced which carries heading: Levy ofSpecial Road Tax. This special road tax was in addition to the taxlevied under Section 3. The special road tax was also levied andcharged on all transport vehicles used or kept for use in HimachalFPradesh specified in column 2 of Schedule 3 and the rate of taxwas to be not exceeding the rates specified in column 3 of Schedule3 of the Act. The High Court declared sub-section (3) of Section3A as ultra vires opining that the tax imposed by Section 3A(3)was in the nature of penalty and for which the State LegislatureGhad no power to make laws. According to the High Court it waspenalty because further special road tax was leviable where atransport vehicle was plied without any valid permit or in anymanner not authorized by the permit to be plied. The High Courtopined that imposition of such an additional special road tax for adefault or wrong committed with respect to transport vehicleHwould amount to penalty and not tax.

THE STATE OF HIMACHAL PRADESH v. GOEL BUS SERVICEKULLU ETC. ETC.

Allowing the appeals, the Court

HELD : 1.

A: SCOPE OF INTERFERENCE IN FISCAL STATUTES:

1. It is by now well settled that any tax legislation may notbe easily interfered with. The Courts must show judicial restraintto interfere with tax legislation unless it is shown and provedthat such taxing statute is manifestly unjust or glaringlyunconstitutional. Taxing statutes cannot be placed or tested orviewed on the same principles as laws affecting civil rights suchas freedom of speech, religion, etc. The test of taxing statuteswould be viewed on more stringent tests and the law makersshould be given greater latitude. [Para 25][904-H; 905-A]

SPECIAL ROAD TAX COMPENSATORY IN NATURE

IS REGULATORY OR

2.1. The appellant State being hilly State, the roads andbridges are its lifeline. The State has to allocate sizeable part ofits budget for the construction, development, repair, upkeep andmaintenance of roads and bridges. It was with this object in thebackground that the offending provisions were brought in by wayof amendments in 1999 and 2001 which are described as specialroad tax. This Court in number of cases dealing with similarprovisions has upheld the same. It has withheld that tax chargedfor non-fulfilment of any obligation would also be compensatoryand regulatory in nature. Distinction was carved out between apenalty imposed for breach of statutory duty and penalty imposedbeing subject matter of complaint that would requireadjudication. The view expressed consistently is that it would becompensatory or regulatory where it is imposed for breach of astatutory duty. [Para 31][906-F-H; 907-A]

2.2. From the very object and reasons of the Amending Act1999, it is apparent that the special road tax was introduced as acompensatory measure. What is to be seen is whether the taximposed will have identifiable object and nexus between thesubject and the object of the levy. The power has been given tothe States to make its own legislations by imposing tax on motorvehicles as also the goods being transported in order to

DEF

Acompensate itself for the services, benefits and facilities providedby it. [Paras 34, 35][908-E, H; 909-A]

2.3. The argument by the amicus is that the offendingprovision contained in Section 3A(3) being repugnant to thecentral legislation, will have to give way and cannot be sustained.BHis submission is that the power to impose penalty is given inSection 192A of the Motor Vehicles Act, 1988. According to him,Entry 57 of List II being subject to the provisions of Entry 35 ofList III under which the 1988 Act has been enacted, Section 192Aprovides for penalty being imposed on vehicles being usedwithout permit or in contravention of the provisions of sub-Csection (1) of Section 66 (providing for necessity for permits).According to him once the central Act contains penal provisionfor such violation of imprisonment as also fine, the State couldnot have imposed tax for the same violation. This submissioncan be sustained only if any repugnancy or any conflict can beDestablished between the State law and the Central law. Theprovisions under Section 192A are in no way violated or conflictedby imposing an additional special tax for violation of use of vehicleswithout permit. It can be said to be in addition to the penaltyprovided in Section 192A of the 1988 Act. This Court, in thecase of Sukhpal Singh Bal has already upheld that such impositionEof tax for violation of statutory provisions, is to be treated as aregulatory measure and only to work as deterrent of the vehicleowners’ violating the law. Such tax would be regulatory in natureand would only check violations of the statutory provisions. Inthe case of Sharma Transport Rep. by D.P. Sharma, similar issue

Fwas considered and this Court was of the view that under Entry35 of List III the permission is to lay down the principles onwhich the tax may be levied whereas the State had right to levysuch tax. [Para 38][911-H; 912-A-F]

3.1. Section 3 of the Himachal Pradesh Motor VehiclesGTaxation Act 1972 provided for levy of taxes on all motor vehicleskept or used in the State of Himachal Pradesh as per theschedules appended to the said Act. Insertion of Section 3Aprovided for levy of special road tax. The special road tax asprovided under sub-sections (1), (2) and (4) of Section 3A havebeen upheld by the High Court. It is only the levy of special roadH

THE STATE OF HIMACHAL PRADESH v. GOEL BUS SERVICEKULLU ETC. ETC.

tax under sub-section (3) which has been struck down. Testingthe provisions of the offending section with regard to the settledprinciples of interpretation of taxing statutes, it is to be ascertainedon the following three aspects: (1) Whether it is manifestly unjustor glaringly unconstitutional; (2) Whether it is regulatory orcompensatory in nature; and (3) Whether there is any repugnancywith the provisions in the Central enactment. [Para 41[914-A-C]

Manifestly unjust or glaringly unconstitutional:

3.2. The Legislatures of the State have not only the powerto make laws on the taxation to be imposed on motor vehicles asalso the passengers and goods being transported by motorvehicles but also the power to lay down principles on which taxeson vehicles are to be levied. In the absence of any principleshaving been laid down by the Parliament, no fault could be foundin the law enacted by Legislature of the State of Himachal Pradesh.The offending provision is regulatory in nature and thereforewithin the competence of the Legislature of State of HimachalPradesh. There is nothing on record to indict the offendingprovision as being manifestly unjust or glaringly unconstitutional.[Para 42][914-D-F]

Regulatory or Compensatory:

3.3. The objects and reasons for bringing in the 1999Amendment was clearly compensatory in nature. The object wasto augment funds and finance for construction, maintenance,repair and upkeep of the roads in the State of Himachal Pradeshwhich has totally hilly terrain. The offending section onlyprovided that if any vehicle used without valid permit or in anymanner not authorised by the permit, further special road taxwould be levied, charged and paid to the state government inaddition to the tax payable under sub-section (1) at such rates asmay be specified by the state government by notification.However, the restriction was that the same would not exceedthe rates specified in column 3 of Schedule 3 of the Act. [Para43][914-G-H; 915-A]

3.4. Imposition of such additional special road tax was onlyto keep check or discipline on the transport vehicle operatorsto use their vehicles in accordance with the statutory provisions.This could work as deterrent for the transport operators to not

EFGH

Acommit any breach and to follow the mandate of the law. Suchadditional special road tax could be termed as regulatory in natureso as to regulate other statutory provisions being implementedand strictly followed. This Court in the case of Sukhpal Singh Balrelating to challenge to Section 10(3) of the U.P. Motor VehiclesTaxation Act, 1997 where similar provision was incorporatedBand even though termed as penalty, was held to be regulatoryand compensatory in nature. The High Court had struck downthe said provision but this Court held that such penalty imposedunder Section 10(3) to protect public revenue and as deterrentfor tax evasion. In view of the above, it cannot be said that levy ofCsuch an additional special road tax would be said to be manifestlyunjust or glaringly unconstitutional. It was, in effect, to ensurepayment of the chargeable taxes and use of the vehicles as perthe terms of the permit. [Paras 44, 45][915-B-D]

Repugnancy, if any, with Central enactment:D

3.5. Entry 35 of List III conferred the power on theParliament as also the State Legislatures to make laws relatingto mechanically propelled vehicles of all kinds and also to laydown the principles on which taxes on such vehicles are to belevied. The central enactment i.e. the law made by the ParliamentEhas not laid down any principles for levy of taxes. The StateLegislatures had the power to levy taxes not only under Entries56 and 57 of List II but also to lay down the principles underEntry 35 of List III. Therefore, no repugnancy of any kind couldbe alleged or pleaded or proved in the absence of there beingany central law laying down principles of levy of tax. In view ofFthe above, no repugnancy or conflict of the State enactment withthe central enactment could be sustained. [Para 46][915-E-G]

3.6. The argument with respect to the 1988 Act containingSection 192A wherein violation of Section 66(1) would constitutea criminal offence punishable with sentence and also fine, as suchGthe offending section being repugnant to the said provision, cannotbe sustained. Under Section 192A punishment of imprisonmentalong with fine is provided whereas under the offending section,an additional special road tax is being charged for such violationof using vehicle without permit or in contravention of the termsHof the permit. The offending section was incorporated with viewto augment more revenue in order to construct and maintain theroads of the state which uses large chunk of its finances beinga state having completely hilly terrain. The additional specialroad tax chargeable under Section 3A(3) would be in addition toany sentence or fine imposed under Section 192A. Punishmentfor offence is with an object to create deterrence and curtailingsuch offences as it creates fear in the mind of offender likely tocommit the offence. The same is the object of the additionalspecial road tax to make it work as deterrent from the transportoperators in plying vehicles without permit and in contraventionof the terms of the permit. As such there is no repugnancy orany conflict caused by the offending provision with the centralenactment. [Para 47[915-H; 916-A-D]

3.7. The validity of Section 3A(3) has been wrongly held tobe ultra vires by the High Court. The tax imposed under Section3A(3) is regulatory in character and is not penalty. [Para 48][916-E]

Lumpsum taxation:

3.8. The High Court had also quashed the notificationsissued by the State for levy of the taxes under Section 3A(3)holding that lumpsum taxes could not be levied on generalassessment and it had to be levied as per actual default. Levy oflumpsum tax has been upheld by three Judge Bench of thisCourt in the case of M. Krishnappan. There is no reason to takea different view. [Para 49][916-F]

3.9. Section 3A(3) of the 1972 Act is within the legislativecompetence of the State Legislature, and lumpsum tax could belevied. [Para 50][916-H]

R.K. Garg etc. v. Union of India and others (1981) 4SCC 675 : [1982] 1 SCR 947; Bhavesh D. Parish andothers v. Union of India and another (2000) 5 SCC471 : [2000] 1 Suppl. SCR 291; Indian Oil CorporationLimited v. State of Bihar and another (2018) 1 SCC242 : [2017] 13 SCR 477; State of Uttar Pradesh andOrs. v. Sukhpal Singh Bal (2005) 7 SCC 615 : [2005] 2Suppl. SCR 1135; B.A. Jayaram and Ors. v. Union ofIndia (UOI) and Ors. (1984) 1 SCC 168 : [1983] 3SCR 624; Bolani Ores Ltd. v. State of Orissa (1974) 2

ABC

SCC 777 : [1975] 2 SCR 138; Sharma Transport Rep.by D.P. Sharma v. Government of Andhra Pradesh andOrs. (2002) 2 SCC 188 : [2001] 5 Suppl. SCR 390 andState of Tamil Nadu v. M. Krishnappan and Anr. (2005)4 SCC 53 : [2005] 2 SCR 1112 – relied on.

State of Rajasthan v. Khalsa Travels (1998) 9 SCC 676;Commr. Of Agricultural Income Tax v. Netley ‘B’ Estate(2015) 11 SCC 462 : [2015] 3 SCR 630; Ashok LeylandLtd. v. State of T.N. (2004) 3 SCC 1 : [2004] 1 SCR306; Ranjit Singh v. Taxation Officer, Rampur and etc2002 SCC Online All 75; State of Himachal Pradeshand Ors. v. Yash Pal Garg (Dead) by LRs and Ors. (2003)9 SCC 92 : [2003] 3 SCR 1056; State of Maharashtraand Ors. v. Madhukar Balkrishna Badiya and Ors.(1988) 4 SCC 290: [1988] 2 Suppl. SCR 482; RajeevSuri v. Delhi Development Authority and Ors. 2021 SCCOnline SC 7; Janhit Manch and Anr. v. The State ofMaharashtra and Ors. (2019) 2 SCC 505: [2018] 14SCR 860; State of West Bengal v. Kesoram IndustriesLtd. & Others (2004) 10 SCC 201 : [2004] 1 SCR 564;M.P. AIR Permit Owners Association and Another v. Stateof Madhya Pradesh (2004) 1 SCC 320 : [2003] 6 Suppl.SCR 331 and Hardev Motor Transport v. State of M.P.and Others (2006) 8 SCC 613 : [2006] 7 Suppl. SCR766 – referred to.

Aas Mohammad v. State of Rajasthan 2020 2 RLW 1567(Raj) – referred to.

Morey vs. Doud 354 US 457 – referred to.

THE STATE OF HIMACHAL PRADESH v. GOEL BUS SERVICEKULLU ETC. ETC.

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.5534-5594 of 2011.

From the Judgment and Order dated 06.07.2007 of the High Courtof Himachal Pradesh at Shimla in C.W.P. Nos.32, 135, 196, 197, 198,199, 200, 201, 202, 203, 204, 205, 206, 207, 208, 209, 215, 216, 217, 218,219, 235, 240, 241, 242, 243, 244, 245, 246, 247, 249, 25, 250, 253, 254,255, 256, 268, 269, 270, 272, 273, 274, 275, 290, 291, 292, 318, 33, 34, 35,355, 56, 57, 619, 789, 91, 92, 93, 954 of 2000 and C.W.P. No.93 of 2001.

Buddy A. Ranganadhan, Amicus Curiae

Abhinav Mukerji, Mrs. Bihu Sharma, Ms. Pratishtha Vij, AkshayC. Shrivastava, Advs. for the Appellants.

Siddharth Bhatnagar, Sr. Adv., Ms. Pracheta Kar, Aditya Sidhra,Nadeem Afroz, Advs. for the Respondents.

The Judgment of the Court was delivered by

VIKRAM NATH, J.

1. The above set of appeals were referred to larger Bench ofthree Judges in terms of the order dated 05.03.2020 which reads asfollows:

A“Considering the fact that the issue raised in these appealswas referred to larger Bench of three Judges in terms oforder dated 27.02.1998 in Civil Appeal No. 10457/1995and other connected cases [reported in (1998) 9 SCC 676]but which appeals later on repealed by Rajasthan Act, 1951,which is on similar lines with the provision involved in the presentBappeals.

Hence, we deem it appropriate to refer these appeals to alarger Bench of three Judges for an authoritativepronouncement on the questions involved.

Registry is directed to place the matters before Hon’ble theChief Justice of India for constituting the appropriate Benchfor hearing these appeal(s).”

2. The above referred order dated 27.02.1998 passed in CivilAppeal No. 10457 of 1995 and connected matters reported in State

of Rajasthan Vs. Khalsa Travels, (1998) 9 SCC 676 is reproduced

Dbelow:

“1. These appeals filed by the State of Rajasthan raise questionsrelating to the constitutional validity of Section 4-B(3) of theRajasthan Motor Vehicles Taxation Act, 1951 (hereinafterEreferred to as “the Act”) and Rule 4-CC of the Rajasthan MotorVehicles Taxation Rules, 1951 (hereinafter referred to as “theRules”) which make provision of levy of special road tax on atransport vehicle which is used without valid permit or in anymanner not authorized by the permit. By the impugnedjudgments the High Court has held that Section 4-B(3) is ultraFvires the rule- making powers conferred on the StateGovernment under the Act.

2. According to the High Court the imposition, though describedas tax, is, in substance, fine for an alleged offence of plyingthe vehicle without valid permit or in contravention of theconditions of permit and such penalty cannot be treated as apart of regulatory or compensatory tax. On that view, The HighCourt has declared that Section 4-B(3) of the Act is ultra viresthe powers conferred on the State Legislature under Entry 56of List II of the Seventh Schedule to the Constitution of India.The question that falls for consideration in these appeals

is whether the imposition under Section 4-B(3) is not atax but penalty and is ultra vires the legislative powersof the State Legislature under Entry 56 and Entry 57 ofList II.

3. Having regard to the importance of the question, we considerit appropriate that these matters are considered by Bench ofthree Judges. The matter may, therefore, be placed before theHon’ble Chief Justice for necessary directions.”

careful perusal of the above orders confines the questionfor consideration to be whether the imposition of additional specialroad tax levied on transport vehicle used without valid permit is nota tax but penalty and is ultra vires the legislative powers of theState Legislature under Entries 56 and 57 of List II (the State List)of the Seventh Schedule to the Constitution.

3. Civil Appeal No.10457 of 1995 was dismissed vide orderdated 15.04.1998 for the reason that similar provisions enacted inthe State of Rajasthan were repealed by the Rajasthan Finance Act,1977 and, as such, the question raised was held to be no longer liveissue. The said appeals along with connected appeals wereaccordingly dismissed, however, the question was left open. The saidorder dated 15.04.1998 is reproduced hereunder: -

“These appeals involve the question regarding the validity ofSection 4 (B) (3) of the Rajasthan Motor Vehicles Act, 1951and Rule 4 CC of the Rajasthan Motor Vehicles Taxation Rules.While the matters were pending in this Court the Statelegislature has enacted Rajasthan Finance Act, 1977 wherebySection 4 (B) (3) has been repealed and since Rule 4 CC wasmade to give effect to the provisions contained in Section 4(B) (3) the said rule also has ceased to apply. In view of theaforesaid amendment that has been made by the RajasthanFinance Act, 1977 the question raised by the appellant in theseappeals is no longer live issue and, therefore, it is notnecessary to go into the same. The appeals are accordinglydismissed and the question is left open. No order as to costs.”

FACTS:

4. The respondent and several other similarly situate publictransport operators challenged the validity of Section 3-A, Section 3-

AC, Section 4-A, Section 5-A along with Schedule-III under Section3-A introduced vide the Himachal Pradesh Motor Vehicles Taxation(Amendment) Act, 1999[1]to be held ultra vires the Constitution ofIndia 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 andset aside. The relief as claimed in one of the petitions bearing C.W.P.BNo.32 of 2000 (Goel Bus Service Vs. State of Himachal Pradeshand others) is reproduced below:

“(i) That the impugned Annexure-PA, PB, PC, PD, PE, dated18[th]December, 1999, 23[rd]December, 1999, 6[th]January, 2000,12.2.2000 and 31[st]December, 1999 may kindly be quashedCand set aside;

(ii) That Section 3-A, 3-C, 4-A, 5-A along with Schedule-IIIunder Section 3-A may be struck down being ultra vires theConstitution of India.

D(iii) Any other relied as may be deemed just and proper keepingin view the facts and circumstances of the case may also begranted in favour of the petitioner.”

5. The above provisions, validity of which was sought to bedeclared as ultra vires, were introduced vide HPMVT(A) Act 1999Eas also vide HPMVT(A) Act 2001. Consequent to insertion of thesaid provisions, State of Himachal Pradesh issued several notificationsreferred to above, which were also assailed in large number of writpetitions. The High Court, vide impugned judgment dated 06.07.2007,upheld the validity of all the Sections except Section 3A (3) underchallenge as not offending either Part III or any other provision ofFthe Constitution of India. With respect to Section 3-A (3) it was heldthat in substance it imposes penalty and as such could not be treatedas regulatory or compensatory tax and was, therefore, beyond thelegislative competence of the State Legislature. It, further quashedthe two notifications dated 06.01.2000 and 01.04.2000 being not inconsonance with the scheme of the Constitution. It also struck downGthe decision dated 01.01.2000 based upon negotiations held on31.12.1999 relating to special Toll Tax, as they were held to be againststatutory provisions of the Act. The operative portion of the impugnedjudgment reads as follows:

H1 In short “HPMVT(A) Act 1999”

“On account of the above reasoning and the findings, we areof the view that Sections 3-A (1), (2), (4) and Section 3-C donot offend either the fundamental rights or any other provisionof the Constitution of India, therefore, these are held not ultravires of the Constitution. Since Section 3-A (3) in substanceimposes fine as held above, therefore, such nature ofpenalty can neither be treated as regulatory nor compensatorytax and is out of the legislature competence of the State andthe subordinate legislation, that is the notifications dated6.01.2000 and 1.04.2000 are based upon lump sum charges ofthe levy thus are not in consonance with the scheme of theConstitution, therefore, these are held to be ultra vires. Further,the decision dated 1.1.2000 based upon negotiations held on31.12.1999 relating to SRT is against the statutory provisionsof the Act as stated above. Therefore, it is struck down beingcontrary to law.

All the petitions are disposed of in the aforesaid terms. Noorders as to costs.

All the Misc. applications in the writ petitions are also disposedof.”

6. The State of Himachal Pradesh is in appeal against theaforesaid judgment of the High Court.

7. We have heard Sri Abhinav Mukerji, learned counsel for theappellant-State of Himachal Pradesh and Sri Siddharth Bhatnagar,learned Senior Counsel appointed as Amicus Curiae to assist theCourt on behalf of the respondent-operators.

SUMMARY OF SUBMISSIONS:

8. Submissions advanced on behalf of appellants aresummarized as under:

•The constitutional Courts must restrain from interferingin the matters of economic/tax legislation until and unlessGthe offending provision is manifestly unjust or glaringlyunconstitutional.

•Laws relating to economic activities should be viewedwith greater latitude and more play should be given to

892SUPREME COURT REPORTS

[2023] 5 S.C.R.

the Government in comparison to other laws relating tocivil rights.

•Reliance was placed upon the following judgments insupport of the above submissions:

“(i) R.K. Garg etc. vs. Union of India & OthersBreported 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 Biharreported in (2018) 1 SCC 242 (Para 25-28).”

•Lump sum tax could be levied as it would becompensatory in nature.

•The wisdom of the State legislature should be read inDthe broadest possible terms and merely because the levyis payable in lump sum or on one time basis would notmake it invalid or unconstitutional. Such levy could befor administrative reasons and the manner & mode ofcollection, cannot be the conclusive test to decide thenature of levy.E

•Quashing of the notifications dated 06.01.2000 and01.04.2000 were also bad in law as imposition of lumpsum tax is by now well recognized by the Courts.

•Reliance was placed upon the following judgments, inFsupport of the above submissions:

(i) State of T.N. vs. M. Krishnappan and Anr.(2005) 4 SCC 53 (Para 18-23).

(ii) Commr. Of Agricultural Income Tax vs. Netley‘B’ Estate (2015) 11 SCC 462 (Para 20-22).

(iii) Ashok Leyland Ltd. vs. State of T.N. (2004) 3SCC 1 (Para 65 to 71).

(iv) Aas Mohammad vs. State of Rajasthan (20202 RLW 1567 (Raj) (Para 22 to 26).

•The tax imposed under Section 3(A)3 of the 1972 Act isAregulatory and compensatory in nature. The appellant-State being hilly State with difficult terrains, in order tomaintain roads and bridges which are the life-line of hillyterrains, sizeable part of the budget is spent on theconstruction, development, repair, upkeep andBmaintenance of roads and bridges.

•Reference was made to the counter affidavit filed bythe State before the High Court and also referred to inthe impugned judgment, enumerating specialcircumstances for imposition and upholding of acompensatory or regulatory tax as valid. In thisconnection, reliance has been placed upon the followingjudgments:

(i) Ranjit Singh vs. Taxation Officer, Rampur andetc (2002 SCC Online All 75 (Para 14,15, 22 and23)

(ii) In State of Himachal Pradesh and Ors. Vs.Yash Pal Garg (Dead) by LRs and Ors. (2003) 9SCC 92 (Para 11-13,20 and 23)

(iii) State of Uttar Pradesh and Ors. vs. SukhpalSingh Bal (2005) 7 SCC 615 (Para 11 to 19).

(iv) B.A. Jayaram and Ors. vs. Union of India(UOI) and Ors. (1984) 1 SCC 168 (Para 9-11).

(v) Bolani Ores Ltd. vs. State of Orissa (1974) 2SCC 777 (Para 15 & 29)

(vi) Sharma Transport Rep. by D.P. Sharma vs.Government of Andhra Pradesh and Ors. (2002)2 SCC 188 (Para, 1,8 and 11)).

(vii) State of Maharashtra and Ors. vs. MadhukarBalkrishna Badiya and Ors. (1988) 4 SCC 290

(Para 6 & 10).

(viii) Rajeev Suri vs. Delhi Development Authorityand Ors. (2021 SCC Online SC 7 (Para 220 to226).

A(ix) Janhit Manch and Anr. vs. The State ofMaharashtra and Ors. (2019) 2 SCC 505 (Para13).

•The High Court, though upheld the power of the Statelegislature to enact provisions for levy of special roadBtax under Sections 3-A(1)(2)(4), but at the same timeerred in holding the provisions under Section 3-A(3) tobe ultra vires being unconstitutional.

•The appeals be allowed, the judgment of the High Courtimpugned be set aside and the writ petitions be dismissed.

C9. On the other hand, Shri Siddharth Bhatnagar, learned AmicusCuriae made the following submissions:

•The offences and penalties in respect of using vehicleswithout permit is covered under Chapter XIII of theMotor Vehicles Act, 1988 and in particular Section 192-DA thereof.

•The Motor Vehicles Act, 1988[2]being Central Act isrelatable to Entry 35 of List III of the Seventh Scheduleto the Constitution.

•The penalty for use of vehicle without permit is alreadyEprovided in Section 192-A of the 1988 Act. The 1988Act provides complete mechanism in respect of lawsrelating to motor vehicles including its violations,consequences and penalties thereon. The said provisionspecifically deals with the act of transport vehicle beingFused without permit.

•The Himachal Pradesh Motor Vehicle Taxation Actrelates to Entry 57 of the List II of the Seventh Scheduleof the Constitution. It is subject to two limitations (i) thatthe vehicle be suitable for use on roads and (ii) any lawGmade under this entry would be subject to any law madeunder Entry 35 of list III.

•Any enactment by the State which encroaches on oroverlaps with the provisions of the 1988 Act would beinvalid to that extent.

H2 the 1988 Act

•Reliance is placed upon the judgment of the SupremeCourt in State of West Bengal Vs. KesoramIndustries Ltd. & Others, (2004) 10 SCC 201.

•The tax sought to be levied under Section 3A (3) is inthe nature of penalty which cannot be done in view ofthe provisions contained in the 1988 Act. Reliance wasBplaced upon the following two decisions of the SupremeCourt:

(i) M.P. AIR Permit Owners Association andAnother Vs. State of Madhya Pradesh, (2004) 1SCC 320,

(ii) Hardev Motor Transport Vs. State of M.P. andOthers, (2006) 8 SCC 613.

•The impugned judgment does not suffer from anyinfirmity in holding that the special tax sought to be leviedunder Section 3A (3) is penalty. The appeals are, thus,liable to be dismissed.

Relevant Constitutional & Legal provisions:

10. Before proceeding to deal with the submissions advanced,a brief reference to statutory and constitutional provisions may benoted.

11. Article 246 of the Constitution lays down the subject mattersof the laws to be made by the Parliament and by the Legislatures ofStates. According to it, three lists of the Seventh Schedule would bedetermining the subjects over which the Parliament may haveexclusive power to make laws (List I also referred to as the UnionList), subjects over which the State would have exclusive power tomake laws (List II also referred to as the State List) and also thesubjects where the Parliament as also the Legislature of States wouldhave power to make laws covered by List III (referred to as theConcurrent List). Additional power is given to the Parliament undersub- Article 4 to make laws with respect to any matter for any partof the territory of India not included in State even though suchmatter is enumerated in the State List. Article 246 is reproducedhereunder:

“(1) Notwithstanding anything in clauses (2) and (3), Parliamenthas exclusive power to make laws with respect to any of thematters enumerated in List I in the Seventh Schedule (in thisConstitution referred to as the “Union List”).

(2) Notwithstanding anything in clause (3), Parliament, and,Bsubject to clause (1), the Legislature of any State also, havepower to make laws with respect to any of the mattersenumerated in List III in the Seventh Schedule (in thisConstitution referred to as the “Concurrent List”).

(3) Subject to clauses (1) and (2), the Legislature of any StateChas exclusive power to make laws for such State or any partthereof with respect to any of the matters enumerated in ListII in the Seventh Schedule (in this Constitution referred to asthe “State List”).

(4) Parliament has power to make laws with respect to anyDmatter for any part of the territory of India not included in aState notwithstanding that such matter is matter enumeratedin the State List.”

12. Article 254 of the Constitution of India provides for theeffect in case of inconsistency between laws made by the ParliamentEand the laws made by the Legislature of States. The same isreproduced hereunder:

“(1) If any provision of law made by the Legislature of aState is repugnant to any provision of law made by Parliamentwhich Parliament is competent to enact, or to any provision ofan existing law with respect to one of the matters enumeratedFin the Concurrent List, then, subject to the provisions of clause( 2 ), the law made by Parliament, whether passed before orafter the law made by the Legislature of such State, or, as thecase may be, the existing law, shall prevail and the law madeby the Legislature of the State shall, to the extent of theGrepugnancy, be void

(2) Where law made by the Legislature of State with respectto one of the matters enumerated in the concurrent List containsany provision repugnant to the provisions of an earlier law madeby Parliament or an existing law with respect to that matter,Hthen, the law so made by the Legislature of such State shall, if

it has been reserved for the consideration of the President andhas received his assent, prevail in that State: Provided thatnothing in this clause shall prevent Parliament from enactingat any time any law with respect to the same matter includinga law adding to, amending, varying or repealing the law somade by the Legislature of the State.”

13. As already noted above, the Seventh Schedule flowing outfrom Article 246 has three lists, which gives power to the Parliamentand the State Legislatures to make laws on the subjects enumeratedtherein. It would be relevant to mention that List I (the Union List)does not cover any subject relating to motor vehicles or taxation relatingto it. List II (the State List) has two entries viz. 56 and 57 whichrefer to subjects relating to taxes on goods and passengers and taxeson vehicles. Both the above entries of List II are reproduced below:

“56. Taxes on goods and passengers carried by road or oninland waterways.

57. Taxes on vehicles, whether mechanically propelled or not,suitable for use on roads, including tramcars subject to theprovisions of entry 35 of List III.”

The above subjects fall within the domain of Legislature of theState to make laws.

14. Under List III (the Concurrent List), Entry 35 spells outthe subject as mechanically propelled vehicles and also the principleson which taxes on such vehicles can be levied. Under this entry boththe Parliament and the Legislatures of State could frame laws. Thesaid Entry 35 of List III is reproduced hereunder:

“35. Mechanically propelled vehicles including the principles

on which taxes on such vehicles are to be levied.”

15. The first enactment relating to motor vehicles in India wasthe Indian Motor Vehicles Act, 1914. It was replaced by the secondenactment which came in 1939 as Motor Vehicles Act, 1939. Afterthe coming of the Constitution in 1950, new Motor Vehicles Actwas enacted by the Parliament in 1988, the Motor Vehicles Act, 1988.The Parliament enacted the 1988 Act drawing its source from Entry35 of the List III (the Concurrent List). The subject covered by theabove entry is mechanically propelled vehicles including the principleson which taxes on such vehicles are to be levied. The Parliament asalso the Legislature of States were thus competent to make laws

Aregarding the mechanically propelled vehicles including the principleson which taxes could be levied on such vehicles. Thus, the ConcurrentList, insofar as taxes concerned, is limited to the principles on whichtaxes are to be levied. But the power to frame laws relating toimposition of tax exclusively vests with the State Legislatures underEntries 56 and 57 of List II. Entry 56 covers the subject of layingBdown law on imposition of taxes on goods and passengers beingcarried by road or on inland waterways. Whereas Entry 57 coverslaws related to taxation on vehicles, whether mechanically propelledor not however such vehicles being suitable for use on roads. Thelaws so framed would remain subject to the provisions of entry 35 ofCList III.

16. Chapter V of the 1988 Act deals with Control of TransportVehicles. Section 66 makes it mandatory for owners of motor vehiclesto use such vehicles as transport vehicle whether actually carryingpassengers or goods only with valid permit granted as providedDtherein. Section 66 reads as follows:

“66. Necessity for permits.—(1) No owner of motor vehicleshall use or permit the use of the vehicle as transport vehiclein any public place whether or not such vehicle is actuallycarrying any passengers or goods save in accordance with theEconditions of permit granted or countersigned by Regionalor State Transport Authority or any prescribed authorityauthorising him the use of the vehicle in that place in the mannerin which the vehicle is being used: Provided that stage carriagepermit shall, subject to any conditions that may be specified inthe permit, authorise the use of the vehicle as contractFcarriage: Provided further that stage carriage permit may,subject to any conditions that may be specified in the permit,authorise the use of the vehicle as goods carriage either whencarrying passengers or not: Provided also that goods carriagepermit shall, subject to any conditions that may be specified inGthe permit, authorise the use of the vehicle for the carriage ofgoods for or in connection with trade or business carried onby him.

(2) The holder of goods carriage permit may use the vehicle,for the drawing of any trailer or semi-trailer not owned by him,subject to such conditions as may be prescribed: 1[ProvidedH

that the holder of permit of any articulated vehicle may usethe prime-mover of that articulated vehicle for any other semi-trailor.]”

17. Chapter XIII of the 1988 Act lays down the provisions forOffences, Penalties and Procedure. Section 192A introduced in 1994provides that any motor vehicle being driven in contravention of theprovisions of sub-section (1) of Section 66 or in contravention of anycondition of permit relating to the road on which or the area in whichor the purpose for which the vehicle may be used would be apunishable offence which will result into imprisonment for termwhich may extend to six months and fine of Rs.10,000/- for the firstoffence and for subsequent offences the imprisonment could extendto one year but would not be less than six months or with fine ofRs.10,000/- or with both.

18. Sub-section (2) thereof provides for an exception where amotor vehicle may be used in an emergency for carrying personssuffering from sickness or injury or for supply of food or materials ormedical supplies to relieve distress. Other offences and penaltiesprescribed under Chapter XIII are not relevant for the presentcontroversy, as such the same are not being referred to. Section192A reads as follows:

“(1) Whoever drives motor vehicle or causes or allows amotor vehicle to be used in contravention of the provisions ofsub-section (1) of section 66 or in contravention of any conditionof permit relating to the route on which or the area in whichor the purpose for which the vehicle may be used, shall bepunishable for the first offence with fine which may extendto five thousand rupees but shall not be less than two thousandrupees and for any subsequent offence with imprisonmentwhich may extend to one year but shall not be less than threemonths or with fine which may extend to ten thousand rupeesbut shall not be less than five thousand rupees or with both:Provided that the court may for reasons to be recorded, imposea lesser punishment.

(2) Nothing in this section shall apply to the use of motorvehicle in an emergency for the conveyance of personssuffering from sickness or injury or for the transport of materialsfor repair or for the transport of food or materials to relieve

900SUPREME COURT REPORTS

Adistress or of medical supplies for like purpose: Providedthat the person using the vehicle reports about the same to theRegional Transport Authority within seven days from the dateof such use.

(3) The court to which an appeal lies from any conviction inBrespect of an offence of the nature specified in sub-section(1), may set aside or vary any order made by the court below,notwithstanding that no appeal lies against the conviction inconnection with which such order was made.]”

19. The State of Himachal Pradesh, exercising the powersdrawn from Entries 56 and 57 of List II of the Seventh ScheduleCenacted the Himachal Pradesh Motor Vehicles Taxation Act 1972[3].In the said Act various amendments were brought from time to time.Vide Amending Act No.15 of 1999, Sections 3A, 3B and 3C wereincorporated. The object and reasons as spelled out for bringing outthe Amending Act of 1999 was mainly to augment finances/funds forDdevelopment, construction and maintenance of roads and bridgesbeing vital part of expanding and developing trading facilities in theState. It also mentioned that Himachal Pradesh being hilly State,substantial amount of its budget was spent on construction,maintenance and development of roads and bridges. Objects andreasons as reflected in the Bill No. 10 of 1999, is reproduced hereEunder:

“Developed roads and bridges constitute arteries of healthyeconomy. Himachal Pradesh being hill State, the importanceof roads, their construction and maintenance can hardly beover emphasized as vital trading facility. Each year, theFgovernment has to incur considerable part of its budget onconstruction, maintenance and development of roads andbridges in the State. Since it is essential to finance theseactivities, it is considered necessary to levy road tax on transportvehicles used or kept for use on public roads in HimachalPradesh.”G

20. In the original Act of 1972[4], Section 3 provided for levyand collection of taxes on all motor vehicles which were to be usedor kept for use in the State of Himachal Pradesh. Section 3 reads asfollows:3 HPMVT Act 1972H4 HPMVT Act 1972

“SECTION-3** LEVY OF TAX.

*(1) Subject to the other provisions of this Act, on and fromthe commencement of the Himachal Pradesh Motor VehiclesTaxation (Amendment) Act, 2004, there shall be levied, chargedand paid to the State Government, tax on all motor vehiclesspecified in column (2) of Schedule-I, used or kept for use inHimachal Pradesh, at the rate as may be specified by the StateGovernment, by notification, but not exceeding the ratesspecified in column (3) of Schedule-I..

**(2) On and from the commencement of the HimachalPradesh Motor Vehicles Taxation (Amendment) Act,2004, thereshall be levied, charged and paid to the State Government, atax on motor cycles/scooters or personal vehicles, used or keptfor use in Himachal Pradesh, for period of fifteen years fromthe 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, bynotification, on the basis of the price of such motor cycle/scooteror personal vehicle, subject to the maximum of ten percent ofthe price thereof.

**(3) Notwithstanding anything contained in sub- sections (1),on and from the commencement of the Himachal PradeshMotor Vehicles Taxation (Amendment) Act, 2004, there shallbe levied, charged and paid to the State Government, tax onmotor cabs or maxi cabs which are allowed to be converted aspersonal motor vehicles, and on second hand personal motor *Substituted vide H.P. Motor Vehicles Taxation (Amendment)Act, 2004. * Substituted vide H.P. Motor Vehicles Taxation(Amendment) Act, 1999. 6 vehicles which are to be registeredin the State of Himachal Pradesh for the first time, used orkept for use in Himachal Pradesh, at the rates as may bespecified by the State Government, by notification, subject tothe maximum of ten percent of the price of such motor vehiclesto be determined by the taxation authority after deducting eightpercent depreciation per annum from the original price of themotor vehicle provided that:- (a) in the case of motor vehicleshaving original price upto two lacs fifty thousand rupees, thefloor price shall not be less than fifty thousand rupees, or (b) in

Athe case of motor vehicles having original price more than twolacs fifty thousand rupees but not exceeding five lacs fiftythousand rupees, the floor price shall not be less than one lacrupees, or (c) in the case of motor vehicles having originalprice more than five lacs fifty thousand rupees but notexceeding ten lacs rupees, the floor price shall not be less thanBtwo lacs rupees, or (d) in the case of motor vehicles havingoriginal price more than ten lacs rupees, the floor price shallnot be less than four lac rupees, or (e) in the case of twowheelers, the floor price shall not be less than five thousandrupees.”C

21. By the Amending Act of 1999, Section 3A was introducedwhich carries heading: Levy of Special Road Tax. This specialroad tax was in addition to the tax levied under Section 3. The specialroad tax was also levied and charged on all transport vehicles usedor kept for use in Himachal Pradesh specified in column 2 of ScheduleD3 and the rate of tax was to be not exceeding the rates specified incolumn 3 of Schedule 3 of the Act. Section 3A is reproducedhereunder:

“3-A. Levy of special road tax.-

(1) In addition to the tax levied under section 3, on and fromEthe commencement of the Himachal Pradesh Motor VehiclesTaxation (Amendment) Act, 1999, there shall be levied, chargedand paid to the State Government, special road tax on alltransport vehicles specified in column (2) of Schedule-III, usedor kept for use, in Himachal Pradesh, and, at such rates asFmay be specified by the State Government, by notification, butnot 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 undersubsection (1), in respect of stage carriages shall be applicableGto and charged on the entire distance covered as per time tablefixed by the Regional Transport Authority and shall be payablemonthly by such date as may be notified by the StateGovernment from time to time.]

(3) Where transport vehicle is plied without valid permit orin any manner not authorised by the permit to be plied, there

shall be levied, charged and paid to the State Government furtherspecial road tax in addition to the tax payable under sub-section(1), on such vehicles at the rates as may be specified by theState Government, by notification, but not exceeding the ratesspecified in column (3) of Schedule-III of this Act.

(4) Where transport vehicle is registered in State otherthan the State of Himachal Pradesh, enters and is used on anypublic road, or kept for use, in the State of Himachal Pradesh,the special road tax shall become chargeable, on such entry inthe prescribed manner.

Explanation.- For the purpose of special road tax levied underthis Act, transport vehicles shall include non-transport vehicleswhen used as transport vehicles by the owner. “

22. Challenge before the High Court was also to the validity ofa few other provisions. However, the High Court upheld the validityof all other provisions and it only declared sub-section (3) of Section3A as ultra vires. What is, thus, required to be decided in thisreference is whether the High Court was right in declaring Section3A(3) as ultra vires.

23. The High Court was of the opinion that the tax imposed bySection 3A(3) was in the nature of penalty and for which the StateLegislature had no power to make laws. According to the High Courtit was penalty because further special road tax was leviable wherea transport vehicle was plied without any valid permit or in any mannernot authorized by the permit to be plied. The High Court opined thatimposition of such an additional special road tax for default or awrong committed with respect to transport vehicle would amountto penalty and not tax. The finding recorded by the High Courtis reproduced hereunder:

“Further, the powers of State Legislature under the entryaforesaid being subject to Entry 35 of List III, if there is anexisting law made by the Parliament laying down the principleson which taxes on mechanically propelled vehicles should belevied, then any State Legislation enacted under this entry mustconform to these principles as laid down in the existing laws orthe earlier law made by the Parliament. If the provisions ofthe State Laws are repugnant to those principles, the Law made

Aby the State Legislature must fail to the extent of repugnancy,unless reserved for the consideration of and assented to by thePresident. The tax under this entry is leviable by the StateLegislature or all vehicles suitable for use on roads, which arekept in the State, but such tax must have some nexus with thevehicles using the public roads of the State because it isBcompensatory in nature, even though registered under the MotorVehicles Act. Contra the State Legislature is not competent tolevy, under the present entry, an impost which is not in substancea regulatory or compensatory tax for the transport of the vehiclealong the road, but fine , for example using vehicle withoutCa valid permit or for issuing it in manner not authorized bythe 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 thetax specified therein is in substance fine for the allegedoffence of plying vehicle without valid permit or in anyDmanner not authorized by the permit to be plied. Such penaltycannot be treated as part of regulatory or compensatory taxand is out of the legislature competence of the State. Thenature of penalty without providing any mechanism forshow cause, adjudication or the appellate authority byEnot providing any such mechanism, also offends theprinciple of natural justice. Therefore, it is held ultravires the powers conferred in the State Legislature underEntry 56 to 57 of List-II. For this, we put our reliance onAIR 1992 Rajasthan 181 (DB).” (Emphasis added)

F24. The High Court had also quashed the notifications dated06.01.2000, 01.04.2000 as also the decision dated 01.01.2000 beingcontrary to statutory provisions. Quashing of the notifications wouldbe dealt with at later stage after first dealing with the issue relatingto declaration of Section 3A(3) as ultra vires.

ANALYSIS:G

A: Scope of Interference in Fiscal Statutes:

25. It is by now well settled that any tax legislation may not beeasily interfered with. The Courts must show judicial restraint tointerfere with tax legislation unless it is shown and proved that suchtaxing statute is manifestly unjust or glaringly unconstitutional. TaxingH

statutes cannot be placed or tested or viewed on the same principlesas laws affecting civil rights such as freedom of speech, religion,etc. The test of taxing statutes would be viewed on more stringenttests and the law makers should be given greater latitude. It wouldbe useful to refer to couple of judgments on the above proposition.

26. In the case of R.K. Garg etc. vs. Union of India andothers, (1981) 4 SCC 675, the Constitution Bench was judging theconstitutionality of economic legislation wherein challenge was tothe validity of the provisions of Special Bearer Bonds (Immunitiesand Exemption Act, 1981) on the grounds of discrimination andviolation of Article 14. P.N. Bhagwati J., speaking for himself, ChiefJustice Chandrachud, A.C. Gupta, S. Murtaza Fazal Ali andA.N. Sen, J.J., observed in paragraph 7 regarding the presumptionin favour of constitutionality of the statute and that the burden is onthe person who attacks it, to establish that there has been cleartransgression of the constitutional principles. In paragraph 8, it waslaid down that laws relating to economic activities should be viewedwith greater latitude than laws touching civil rights such as freedomof speech, religion, etc. The views of Justice Frankfurter in thecase of Morey vs. Doud, 354 US 457 was relied upon. The sameis reproduced hereunder:“In the utilities, tax and economic regulation cases, there aregood reasons for judicial self-restraint if not judicial deferenceto legislative judgment. The legislature after all has theaffirmative responsibility. The courts have only the power todestroy, not to reconstruct. When these are added to thecomplexity of economic regulation, the uncertainty, the liabilityto error, the bewildering conflict of the experts, and the numberof times the judges have been overruled by events - self-limitation can be seen to be the path to judicial wisdom andinstitutional prestige and stability.”

27. In case of Bhavesh D. Parish and others vs. Union ofIndia and another, (2000) 5 SCC 471, the challenge was to thevalidity of section 9 of Reserve Bank of India Act as amended by theAmendment Act 1997 on the ground that it was violative of Article14 and Article 19(1)(g) of the Constitution. This Court dismissed thechallenge to the said provision in paragraph 26 of the report. Itobserved that matters of economic policy should be best left to the

Awisdom of the legislature. Further, it went on to state that in thecontext of changed economic scenario the expertise of the peopledealing with the subject should not be lightly interfered with. It wasalso observed that while dealing with economic legislation, this courtwould interfere only in those few cases where the view reflected inthe legislation is not possible to be taken at all.B

28. In the case of Indian Oil Corporation Limited vs. Stateof Bihar and another, (2018) 1 SCC 242, provisions of the BiharTax on Entry of Goods into Local Areas for Consumption, Use orSale therein Act 1993, was under challenge. Justice Narimanspeaking for the Bench observed in paragraph 25 that when it comesCto taxing statute, the law laid down by this Court is clear that it canbe said to be breach only when there is perversity or gross disparityresulting in clear and hostile discrimination without any rationaljustification for the same.

SPECIAL ROAD TAX IS REGULATORY ORDCOMPENSATORY IN NATURE

29. The arguments raised before the High Court by therespondent Transport operators (original writ petitioners before theHigh Court) was that the fine imposed by Section 3(A)(3) was in thenature of penalty and the State Legislature had no power to imposeEa penalty. The High Court had accepted the said contention andaccordingly struck down the said provision.

30. The object and reasons for offending enactment is alreadyreproduced in the earlier part of this judgment. At the cost of repetition,it is stated that the appellant State being hilly State, the roads andFbridges are its lifeline. The State has to allocate sizeable part of itsbudget for the construction, development, repair, upkeep andmaintenance of roads and bridges. It was with this object in thebackground that the offending provisions were brought in by way ofamendments in 1999 and 2001 which are described as special roadtax.G

31. This Court in number of cases dealing with similarprovisions has upheld the same. It has withheld that tax charged fornon-fulfilment of any obligation would also be compensatory andregulatory in nature. Distinction was carved out between penaltyimposed for breach of statutory duty and penalty imposed being aHsubject matter of complaint that would require adjudication. The

view expressed consistently is that it would be compensatory orregulatory where it is imposed for breach of statutory duty.

32. In the case of the State of U.P and others vs. SukhpalSingh Bal, (2005) 7 SCC 615, Justice Kapadia speaking for theBench held that section 10(3) of U.P. Motor Vehicles Taxation Act,1997, which provided for charging of such tax or additional tax alongwith penalty where transport vehicles were found plying in UttarPradesh without payment of tax or additional tax under the said Actto be valid as being regulatory and compensatory.

33. The High Court had struck down the said provision. ThisCourt allowed the appeal of the State. After referring to the judgmentsin the case of Bhavesh D. Parish and R.K. Garg, this Court wenton to hold that section 10(3) was enacted to protect public revenueand as deterrent for tax evasion. Deterrence was the main themeand object behind the imposition of penalty under Section 10(3) assuch would be regulatory in nature. Paragraphs 15 and 16 of thereport in the case of Sukhpal Singh Bal (supra) are reproducedbelow:

“15. In the light of the above judgments as applicable to theprovisions of the said 1997 Act, we are of the view that theHigh Court had erred in striking down section 10(3) as ultravires articles 14 and 19(1)(g) of the Constitution. “Penalty” isa slippery word and it has to be understood in the context inwhich it is used in given statute. penalty may be the subject-matter of breach of statutory duty or it may be the subject-matter of complaint. In ordinary parlance, the proceedingsmay cover penalties for avoidance of civil liabilities which donot constitute offences against the State. This distinction isresponsible for any enactment intended to protect publicrevenue. Thus, all penalties do not flow from an offence as iscommonly understood but all offences lead to penalty.Whereas the former is penalty which flows from disregardof statutory provisions, the latter is entailed where there is mensrea and is made the subject-matter of adjudication. In our view,penalty under section 10(3) of the Act is compensatory. It islevied for breach of statutory duty for non-payment of taxunder the Act. Section 10(3) is enacted to protect publicrevenue. It is enacted as deterrent for tax evasion. If the

Astatutory dues of the State are paid, there is no question ofimposition of heavy penalty. Everything which is incidental tothe main purpose of power is contained within the poweritself. The power to impose penalty is for the purpose ofvindicating the main power which is conferred by the statutein question. Deterrence is the main theme of object behindBthat imposition of penalty under section 10(3).

16. In the case of State of Tamil Nadu v. M Krishnappan &Another reported in (2005) 4 SCC 53, this Court has held thatentry 57 of list II of the seventh schedule to the Constitutionprovides field to the State legislature to impose tax in respectCof every aspect of vehicle. The State has to find funds formaking new roads and for maintenance of existing roads. TheMotor Vehicles Act is regulatory and compensatory in naturein the sense that it is imposed to meet the increasing costs ofmaintenance and upkeep and to that extent it is not plenary. InDthe said judgment, it has been held that imposition of higherburden of tax on vehicles based on intelligible reasoning anddifferentia will not make the impugned levy discriminatory,arbitrary or unreasonable so as to violate article 14 of theConstitution. “

34. From the very object and reasons of the Amending ActE1999, it is apparent that the special road tax was introduced as acompensatory measure. The object and reasons as spelled out in theoriginal bill at the cost of repetition is reproduced below:

“Developed roads and bridges constitute arteries of healthyeconomy. Himachal Pradesh being hill State, the importanceFof roads, their construction and maintenance can hardly beover emphasised as vital trading facility. Each year, thegovernment has to incur considerable part of its budget onconstruction, maintenance and development of roads andbridges in the State. Since it is essential to finance theseactivities, it is considered necessary to levy road tax on transportGvehicles used or kept for use on public roads in HimachalPradesh.”

35. What is to be seen is whether the tax imposed will haveidentifiable object and nexus between the subject and the object ofthe levy. The power has been given to the States to make its ownH

legislations by imposing tax on motor vehicles as also the goods beingtransported in order to compensate itself for the services, benefitsand 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 atax claim to be compensatory tax, there must be existence of specificidentifiable object behind the levy. It further laid down that the levymust have nexus between the subject and the object of levying. Inthe said case the challenge was to notification issued by the Stateof Karnataka dated 31 May, 1981 withdrawing the exemption grantedunder Section 63(7) of the 1939 Act. The said exemption was grantedto promote tourist traffic on an inter-state basis. This Court, afterconsidering the object behind the compensatory and regulatory levy,held that such tax fell outside Article 301 of the Constitution of Indiaand withdrawal of the exemption granted would neither bediscriminatory nor arbitrary and, accordingly, upheld the withdrawal.In this context, it would be useful to reproduce paragraphs 9 and 10:

“9. By virtue of the power given to them by Entries 56 and 57of List Il each one of the States has the right to make its ownlegislation to compensate it for the services, benefit and facilitiesprovided by it for motor vehicles operating within the territoryof the State. Taxes resulting from such legislative activity areby their very nativity and nature, cast (sic caste) and character,regulatory and compensatory and, are therefore, not within thevista of Article 301. unless, as we said, the tax is mere pretextdesigned to injure the freedom of inter-State trade, commerceand intercourse. The nexus between the levy and the serviceis so patent in the case of such taxes that we need say nomore about it. The Karnataka Motor Vehicles Taxation Actand the Motor Vehicles Taxation Acts of other States arewithout doubt regulatory and compensatory legislations outsidethe range of Article 301 of the Constitution.

10. It is true that the object of enacting Section 63(7) by theParliament was to promote all-India and inter- State touristtraffic.

But taxes on vehicles... suitable for use on roads is Statelegislative subject and it is for the State Legislature to impose

Aa levy and to exempt from the levy. True again, Entry 57 of theState List is subject to Entry 35 of the Concurrent List and, asexplained by us at the outset, it is therefore open to theParliament to lay down the principles on which taxes may belevied on mechanically propelled vehicles. But the Parliamentwhile enacting Section 63(7) of the Motor Vehicles ActBrefrained from indicating any such principles, either expresslyor by necessary implication. The State’s power to tax and toexempt was left uninhibited. It may be that State legislation,plenary or subordinate, which exempts “non-home- State touristvehicles” from tax would be advancing the object of SectionC63(7) of the Motor Vehicles Act and accelerating inter-Statetrade, commerce and intercourse. But merely by Parliamentlegislating Section 63(7), the State Legislatures are not obligedto fall in line and to so arrange their tax laws as to advance theobject of Section 63(7), be it ever so desirable. The State isobliged neither to grant an exemption nor to perpetuate anDexemption once granted. There is no question of impairing thefreedom under Article 301 by refusing to exempt or bywithdrawing an exemption. Not to pat on the back is not tostab in the back. True, straw by straw, the burden of taxationon tourist vehicles increases as each State adds its bit of straw,Ebut, then, each State is concerned with its coffers and has theright to tax vehicles using its roads; and, the contribution whicha tourist carriage is required to make to its treasury is no morethan what other contract carriages are required to make. Weare firmly of the view that there is no impairment of the freedomunder Article 301. The special submission on behalf of theF‘Karnataka Operators’ that the withdrawal by the KarnatakaGovernment of the exemption granted to ‘outsiders has resultedin the ‘Karnataka Operators’ having to pay tax in every Statein the country and, therefore, the withdrawal has impaired thefreedom under Article 301 is but the same general submission,Gseen through glasses of different tint. It does not even havethe merit that the withdrawal of the Karnataka exemptionaffects them directly. The submission is rejected.”

37. Similarly, in the case of Bolani Ores Ltd. vs. State ofOrissa (supra), question arose with regard to the taxes imposedHunder Entry 57 of List II being in the nature of regulatory and

compensatory measures. The appellants in the said case werecompanies engaged in mining operations and were seeking adeclaration that rockers, dumpers and tractors were not taxable underthe Bihar and Orissa Motor Vehicles Taxation Act 1930 as they werenot motor vehicles defined under the Act. The contention of theappellants was that the tractors, dumpers and rockers were not usingany roads but were only plied within the premises of the mining areawhich was privately owned by the companies, and would not be liableto any tax so long as they are within the premises. However, if theyuse the roads, then the tax component will be applicable. In para 29of the report, this Court again explained the nature of the StateLegislation relating to taxation on motor vehicles as being regulatorymeasure and compensatory in nature to raise revenue. Relevantextract is reproduced hereunder:“The Taxation Act is regulatory measure imposingcompensatory taxes for the purpose of raising revenue to meetthe expenditure for making roads, maintaining them and forfacilitating the movement and regulation of traffic. The validityof the taxing power under Entry 57 List I of the SeventhSchedule read with Article 301 of the Constitution dependsupon the regulatory and compensatory nature of the taxes. Itis not the purpose of the Taxation Act to levy taxes on vehicleswhich do not use the roads or in any way form part of flow oftraffic on the roads which is required to be regulated. Theregulations under the Motor Vehicles Act for registration andprohibition of certain categories of vehicles being driven bypersons who have no driving licence, even though those vehiclesare not plying on the roads, are designed to ensure the safetyof passengers and goods etc. etc. and for that purpose it isenacted to keep control and check on the vehicles. Legislativepower under Entry 35 of List III (Concurrent List) does notbar such provision. But Entry 57 of List Il is subject to thelimitations referred to above, namely, that the power of taxationthereunder cannot exceed the compensatory nature which musthave some nexus with the vehicles using the roads viz. publicroads.”

38. The argument by Mr.Bhatnagar, learned amicus that theoffending provision contained in Section 3A(3) being repugnant to

Athe central legislation, will have to give way and cannot be sustained.His submission is that the power to impose penalty is given in Section192 of the 1988 Act. According to him, Entry 57 of List II beingsubject to the provisions of Entry 35 of List III under which the 1988Act has been enacted, Section 192A provides for penalty beingimposed on vehicles being used without permit or in contravention ofBthe provisions of sub-section (1) of Section 66 (providing for necessityfor permits). According to him once the central Act contains penalprovision for such violation of imprisonment as also fine, the Statecould not have imposed tax for the same violation. This submissionof Shri Bhatnagar can be sustained only if any repugnancy or anyCconflict can be established between the State law and the Centrallaw. The provisions under Section 192A are in no way violated orconflicted by imposing an additional special tax for violation of use ofvehicles without permit. It can be said to be in addition to the penaltyprovided in Section 192A of the 1988 Act. This Court, in the case ofSukhpal SinghBal(supra) has already upheld that such impositionDof tax for violation of statutory provisions, is to be treated as aregulatory measure and only to work as deterrent of the vehicleowners’ violating the law. Such tax would be regulatory in natureand would only check violations of the statutory provisions. In thecase of Sharma Transport Rep. by D.P. Sharma vs. GovernmentEof Andhra Pradesh and Ors. (supra), similar issue was consideredand this Court was of the view that under Entry 35 of List III thepermission is to lay down the principles on which the tax may belevied whereas the State had right to levy such tax. Paras 8 and 11of the said report dealing with the aforesaid aspect are reproducedhereunder:F

“8. This is not case where the theory of occupied field canbe made applicable. The Taxation Act essentially deals withfares charged from passengers and freight collected from them.On the contrary, the Act deals with levy on vehicles. They areconceptually different. Whatever has been stated above in theGbackground of Article 73 is equally applicable to Articles 256and 257 of the Constitution. Article 256 provides that theexecutive power of every State shall be so exercised as toensure compliance with the laws made by Parliament and anyexisting laws which apply in that State and the executive powerHof the Union shall extend to the giving of such directions to

State as may appear to the Government of India to benecessary for that purpose.

This article has application only when any law has been madeby Parliament and the executive power of the State is madesubservient to it by requiring it to ensure compliance with suchlaws.

Where it appears to the Government of India that it is sonecessary to do, directions can be issued. Article 257 providesthat the executive power of every State shall be so exercisedas not to impede or prejudice the exercise of the executivepower of the Union. Where the Government of India feels itso necessary to do so, it can issue direction. At the cost ofrepetition it may be noted that there is no law specifying theprinciples of taxation on the subject-matter of controversy soas to bring in application of either Article 256 or Article 257 ofthe Constitution.

11. Power to levy taxes on vehicles, whether mechanicallypropelled or not vests solely in the State Legislature, though itmay be open to Parliament to lay down the principles on whichthe taxes may be levied on mechanically propelled vehicles inthe background of Entry 35 of List III. To put it differently,Parliament may lay down the guidelines for the levy of taxeson such vehicles, but the right to levy such taxes vests solely inthe State Legislature. No principles admittedly have beenformulated by Parliament. In that sense, the Government ofIndia’s communication dated 30-8-1993 does not in any senseviolate the power of the State Legislature or its delegate tolevy or exempt taxes from time to time.”

39. Mr. Mukerji, learned counsel for the appellants, has referredto number of judgments of this Court relating to levy of tax beingcompensatory and regulatory in nature. The same are not beingdiscussed in detail to unnecessary burden the judgment. However, areference has already been made to the said judgments quoted earlier.

40. In the above backdrop of the legal position, the validity ofSection 3A(3) of the 1972 Act introduced vide Amending Act of 1999is being discussed hereunder.

DEF

A41. Section 3 of the 1972 Act provided for levy of taxes on allmotor vehicles kept or used in the State of Himachal Pradesh as perthe schedules appended to the said Act. Insertion of Section 3Aprovided for levy of special road tax. The special road tax as providedunder sub-sections (1), (2) and (4) of Section 3A have been upheldby the High Court. It is only the levy of special road tax under sub-Bsection (3) which has been struck down. Testing the provisions ofthe offending section with regard to the settled principles ofinterpretation of taxing statutes, it is to be ascertained on the followingthree aspects:

(1) Whether it is manifestly unjust or glaringly unconstitutional;C

(2) Whether it is regulatory or compensatory in nature; and

(3) Whether there is any repugnancy with the provisions in theCentral enactment.

DManifestly unjust or glaringly unconstitutional:

42. The Legislatures of the State have not only the power tomake laws on the taxation to be imposed on motor vehicles as alsothe passengers and goods being transported by motor vehicles butalso the power to lay down principles on which taxes on vehicles areEto be levied. In the absence of any principles having been laid downby the Parliament, no fault could be found in the law enacted byLegislature of the State of Himachal Pradesh.

The offending provision is regulatory in nature and thereforewithin the competence of the Legislature of State of HimachalFPradesh. There is nothing on record to indict the offending provisionas being manifestly unjust or glaringly unconstitutional.

Regulatory or Compensatory:

43. The objects and reasons for bringing in the 1999Amendment was clearly compensatory in nature. The object was toGaugment funds and finance for construction, maintenance, repair andupkeep of the roads in the State of Himachal Pradesh which has atotally hilly terrain. The offending section only provided that if anyvehicle used without valid permit or in any manner not authorisedby the permit, further special road tax would be levied, charged andpaid to the state government in addition to the tax payable under sub-H

section (1) at such rates as may be specified by the state governmentby notification. However, the restriction was that the same wouldnot exceed the rates specified in column 3 of Schedule 3 of the Act.

44. Imposition of such additional special road tax was only tokeep check or discipline on the transport vehicle operators to usetheir vehicles in accordance with the statutory provisions. This couldwork as deterrent for the transport operators to not commit anybreach and to follow the mandate of the law. Such additional specialroad tax could be termed as regulatory in nature so as to regulateother 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 VehiclesTaxation Act, 1997 where similar provision was incorporated andeven though termed as penalty, was held to be regulatory andcompensatory in nature. The High Court had struck down the saidprovision but this Court held that such penalty imposed under Section10(3) to protect public revenue and as deterrent for tax evasion. Inview of the above, it cannot be said that levy of such an additionalspecial road tax would be said to be manifestly unjust or glaringlyunconstitutional. It was, in effect, to ensure payment of the chargeabletaxes and use of the vehicles as per the terms of the permit.

Repugnancy, if any, with Central enactment:

46. Entry 35 of List II conferred the power on the Parliamentas also the State Legislatures to make laws relating to mechanicallypropelled vehicles of all kinds and also to lay down the principles onwhich taxes on such vehicles are to be levied. The central enactmenti.e. the law made by the Parliament has not laid down any principlesfor levy of taxes. The State Legislatures had the power to levy taxesnot only under Entries 56 and 57 of List II but also to lay down theprinciples under Entry 35 of List III. Therefore, no repugnancy ofany kind could be alleged or pleaded or proved in the absence ofthere being any central law laying down principles of levy of tax. Inview of the above, no repugnancy or conflict of the State enactmentwith the central enactment could be sustained.

47. The next argument of the learned amicus with respect tothe 1988 Act containing Section 192A wherein violation of Section66(1) would constitute criminal offence punishable with sentence

Aand also fine, as such the offending section being repugnant to thesaid provision, cannot be sustained. Under Section 192A punishmentof imprisonment along with fine is provided whereas under theoffending section, an additional special road tax is being charged forsuch violation of using vehicle without permit or in contravention ofthe terms of the permit. The offending section was incorporated withBa view to augment more revenue in order to construct and maintainthe roads of the state which uses large chunk of its finances beinga state having completely hilly terrain. The additional special roadtax chargeable under Section 3A(3) would be in addition to anysentence or fine imposed under Section 192A. Punishment for offenceCis with an object to create deterrence and curtailing such offencesas it creates fear in the mind of offender likely to commit theoffence. The same is the object of the additional special road tax tomake it work as deterrent from the transport operators in plyingvehicles without permit and in contravention of the terms of the permit.

As such there is no repugnancy or any conflict caused by the offendingDprovision with the central enactment.

48. For all the reasons recorded above, the validity of Section3A(3), in our opinion, has been wrongly held to be ultra vires by theHigh Court. The tax imposed under Section 3A(3) is regulatory incharacter and is not penalty.E

Lumpsum taxation:

49. The High Court had also quashed the notifications issuedby the State for levy of the taxes under Section 3A(3) holding thatlumpsum taxes could not be levied on general assessment and it hadFto be levied as per actual default. Levy of lumpsum tax has beenupheld by three Judge Bench of this Court in the case of State ofTamil Nadu vs. M. Krishnappan and Anr. reported in (2005) 4SCC 53. We find no reason to take different view. It may also benoted that the learned Amicus Curiae has also not advanced anyarguments on this point.G

50. In view of the above, it would not be futile exercise tosend the matters back to the regular Bench as we have held that saidSection 3A(3) of the 1972 Act being within the legislative competenceof the State Legislature, and lumpsum tax could be levied. Nothingfurther remains to be examined by the regular Bench in these appeals.

51. We, accordingly, allow the appeals, set aside the impugnedjudgment and order of the High Court and further dismiss the writpetitions.

52. There shall be no order as to costs.

53. Pending application(s), if any, are disposed of.

Bibhuti Bhushan Bose(Assisted by : Parth Goswami, LCRA)

Appeals allowed.