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1962 (4) TMI 91 - SC - Indian LawsInterpretation of Art. 301 and other connected articles relating to trade commerce and intercourse within the territory of India - taxing of commercial vehicles employed in inter-State or intrastate transport - Validity of taxation laws - expression subject to the provisions of this Constitution - nature of the tax imposed - tax burden trade or impair the free flow of trade and commerce as contemplated Art 301 - doctrine of compensatory taxes - business of plying stage carriages - Validity of Rajasthan Motor Vehicles Taxation Act of 1951 and the Rules. HELD THAT - A regulation of trade and commerce may achieve some public purpose which affects trade and commerce incidentally but without impairing the freedom. Sometimes however the regulation it self may amount to a restriction and if such a stage is reached then under our Constitution there striation must be reasonably in the public interest and the President s prior sanction must be obtained if the law imposing such restriction is made by the State Legislature. If however it does not reach the stage of restriction of trade and remains only a regulation incidentally touching trade and commerce the regulation is outside the operation of Arts. 301 and 304. Freedom in Art. 301 does not mean anarchy. Similarly a demand for a tax from traders in common with others is not a restriction of their right to carry on trade and commerce. A system of licensing of motor vehicles is a regulation but does not impair the freedom of trade and commerce unless the licensing is made to depend upon arbitrary discretion of the licensing authority. Similarly a fee for administrative purposes may also be viewed as a part as regulation. Such licensing and fees fall outside Art. 301 because they cannot be viewed as restrictions and therefore do not need to be processed under Art. 304. Tax can be justified as regulatory or compensatory. For this purpose some facts must be stated. The appellants are three. They owned buses which were registered in the former State of Ajmer. They plied on diverse routes. There was one route. Nasirabad to Deoli which lay mainly in Ajmer State but it crossed narrow strips of the territory of Rajasthan. Another route Ajmer to Kishengarh was substantially in the Ajmer State one-third of which was only in Rajasthan. Kishengarh was at the material time a part of Rajasthan. The appellants were required to charge fares prescribed by the Ajmer authorities and could not change them to cover extra expenditure in the shape of taxes which they had to bear in Rajasthan. Formerly there was an agreement between the Ajmer State and. Kishengarh State by which either State did not charge any tax or fees on vehicle registered in the respective States. Later Kishengarh became a part of Rajasthan and the tax was demanded from these appellants for the period April 1 1951 to March 31 1954. The demand was made by virtue of s. 4 the charging section under pain of the application of s. 1 1 which provides of penalties. The taxes which are imposed by Schs. II III and IV(1) operate on trade and commerce directly. It is not denied that the carriage of passengers and goods amounts to trade. It was in fact so help in the Transport cases in Australia and also by the Privy Council. Under the Act this trade can only be carried on if the tax is paid. The Act therefore involves a prohibition against a trade which prohibition is released on payment of tax. The Schedules affect motor vehicles for carriage of passengers and goods on hire in Rajasthan and also similar vehicles coming from outside. In so far as vehicles coming from outside are concerned their entry into the State is barred unless the tax is paid. The tax is thus not incidental to trade but is directly on it and is on its movement. This is not tax which the trader has to bear in common with others and the tax is for revenue purposes. This is a case in which if the tax is not paid the trade is destroyed. The charging provisions do not take into account what distance a particular vehicle travels within the State. A vehicle traveling a hundred miles and another traveling only one mile have to pay an identical sum as tax. How then can it be said that it involves a fair recompense for the wear and tear of roads? To say that such tax is compensatory and is a recompense for the wear and tear of the roads is to misdescribe it. Section 20 which we quoted earlier may be compensatory for use of a bridge and may even be described as regulatory within the decision of Fullagar J. in McCarter v. Brodie ( 1950 80 C.L.R.432) but not the taxing provisions which even in Australia would not be regarded either as compensatory or regulatory. It is impossible therefore to turn to the Australian precedents for help. Further the duty of maintaining roads is a duty of the State and it performs it not from any special fund which is created from the receipt of these taxes but from its general funds. The wear and tear of the roads is not caused by the transport vehicles only but other vehicles not employed in the trade of transport. The tax which is levied is not based on any theory of recompense which has been evolved in Australia. There the distance traveled the load carried are taken into account and a charge is payable by each operator according to the distance actually travelled by him in consonance with the weight carried. A further circumstance which goes into the determination of the amount payable is the kind of tyres and the number of wheels which the vehicle has. To say that the impugned tax is compensatory without any attempt to apportion the charge according to the actual wear and tear is to borrow a theory for justification which does not apply to the facts here. The only other question is whether the Act is in its true character regulatory. There is no provision in the Act which can be regarded as regulatory of motor vehicles or their use. The Act plainly levies a tax upon the possession or use of motor vehicles. A tax does not regulate trade ordinarily; it imposes a charge on trade. The question thus remains does the tax burden trade or impair the free flow of trade and commerce as contemplated Art 301? It is clear that the tax is on trade. It is also clear that it is on the movement of trade. It is further clear that it creates a barrier between one State and another which trade cannot cross except on a heavy payment. The tax is not truly a fair recompense for wear and tear of roads even if a justification on the doctrine of compensatory taxes is applied. It is nothing except a restriction which Art. 301 forbids. The Bill which became the Act was not submitted to the President for his Previous sanction nor was it assented to subsequently after it passed the Legislature. We are therefore of opinion that s. 4(1) as read with Schs. IT III and Part 1 of Sch. IV offends Art. 301 of the Constitution and as resort to the procedure prescribed by Art. 301(b) was not taken it is ultra vires the Constitution. We wish to make it clear that we pronounce no opinion about the constitutional validity of s. 4(1) as read with Sch. 1 or the second Part of Sch. TV. The first raises a question as to the meaning of the expression intercourse in Part XIII and as that matter is not relevant for the appeal before us and thus no arguments were heard on that point we refrain from expressing any opinion on it. The second involves many other questions which are far remote from the controversy with which we are now concerned and therefore need not be considered here. We would therefore allow the appeals and quash the demand made upon the appellants. By COURT In accordance with the opinion of the majority Appeal dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core issues considered in the judgment were:
2. ISSUE-WISE DETAILED ANALYSIS Relevant legal framework and precedents: The judgment extensively discussed the constitutional framework regarding the freedom of trade, commerce, and intercourse under Part XIII of the Constitution, particularly Articles 301 to 307. It referenced the historical context of similar provisions in other federal constitutions, such as the Australian and American Constitutions, and previous Indian cases like Atiabari Tea Co. Ltd. v. State of Assam. Court's interpretation and reasoning: The Court interpreted Article 301 as ensuring freedom from restrictions on trade, commerce, and intercourse within India, subject to other provisions in Part XIII. It emphasized that the freedom was not absolute and could be regulated by Parliament and State Legislatures under Articles 302 and 304, provided such regulations were reasonable and in the public interest. Key evidence and findings: The Court found that the Rajasthan Motor Vehicles Taxation Act imposed a tax on motor vehicles used for trade and commerce, which was argued to be a direct impediment to the free movement of trade. The tax was not considered compensatory or regulatory, as it did not correlate with the wear and tear of roads or provide specific services to the trade. Application of law to facts: The Court applied the principles from Atiabari Tea Co. Ltd. v. State of Assam to determine that the tax imposed by the Act was a direct restriction on trade and commerce. It was not justified as a compensatory tax or a regulatory measure facilitating trade, thus violating Article 301. Treatment of competing arguments: The Court considered arguments that taxation laws were outside the purview of Part XIII and that the Act was a regulatory measure. However, it rejected these arguments, holding that the tax directly impeded trade and commerce and was not merely regulatory or compensatory. Conclusions: The Court concluded that the Rajasthan Motor Vehicles Taxation Act, 1951, imposed a tax that constituted a direct restriction on the freedom of trade, commerce, and intercourse, violating Article 301. The Act was not saved by Article 304(b) as it lacked the President's prior sanction. 3. SIGNIFICANT HOLDINGS Verbatim quotes of crucial legal reasoning: "The taxes imposed are compensatory taxes which instead of hindering trade, commerce and intercourse facilitate them by providing roads and maintaining the roads in a good state of repairs." Core principles established:
Final determinations on each issue:
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