2023 (1) TMI 634 - SC - Indian Laws

Scope of legislative powers - levy of tax or penalty - additional special road tax levied on transport vehicle used without a valid permit - whether the imposition of additional special road tax levied on transport vehicle used without a valid permit is not a tax but a penalty and is ultra vires the legislative powers of the State Legislature under Entries 56 and 57 of List II (the State List) of the Seventh Schedule to the Constitution? HELD THAT - Article 246 of the Constitution lays down the subject matters of the laws to be made by the Parliament and by the Legislatures of States. According to it, three lists of the Seventh Schedule would be determining the subjects over which the Parliament may have exclusive power to make laws (List I also referred to as the Union List), subjects over which the State would have exclusive power to make laws (List II also referred to as the State List) and also the subjects where the Parliament as also the Legislature of States would have power to make laws covered by List III (referred to as the Concurrent List). Additional power is given to the Parliament under sub-Article 4 to make laws with respect to any matter for any part of the territory of India not included in a State even though such matter is enumerated in the State List. Scope of Interference in Fiscal Statutes - HELD THAT - It is by now well settled that any tax legislation may not be easily interfered with. The Courts must show judicial restraint to interfere with tax legislation unless it is shown and proved that such taxing statute is manifestly unjust or glaringly unconstitutional. Taxing statutes cannot be placed or tested or viewed on the same principles as laws affecting civil rights such as freedom of speech, religion, etc. The test of taxing statutes would be viewed on more stringent tests and the law makers should be given greater latitude - In the case of Indian Oil Corporation Limited vs. State of Bihar and another, 2017 (11) TMI 747 - SUPREME COURT , provisions of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act 1993, was under challenge. Justice Nariman speaking for the Bench observed in paragraph 25 that when it comes to taxing statute, the law laid down by this Court is clear that it can be said to be breach only when there is perversity or gross disparity resulting in clear and hostile discrimination without any rational justification for the same. Special Road tax is regulatory or compensatory in nature - HELD THAT - In the case of the State of U.P and others vs. Sukhpal Singh Bal, 2005 (9) TMI 633 - SUPREME COURT , Justice Kapadia speaking for the Bench held that section 10(3) of U.P. Motor Vehicles Taxation Act, 1997, which provided for charging of such tax or additional tax along with penalty where transport vehicles were found plying in Uttar Pradesh without payment of tax or additional tax under the said Act to be valid as being regulatory and compensatory. What is to be seen is whether the tax imposed will have identifiable object and a nexus between the subject and the object of the levy. The power has been given to the States to make its own legislations by imposing tax on motor vehicles as also the goods being transported in order to compensate itself for the services, benefits and facilities provided by it - This Court in B.A. Jayaram and Ors. vs. Union of India (UOI) and Ors. 1983 (8) TMI 305 - SUPREME COURT laid down the proposition that to uphold a tax claim to be compensatory tax, there must be existence of a specific identifiable object behind the levy. It further laid down that the levy must have a nexus between the subject and the object of levying. In the said case the challenge was to a notification issued by the State of Karnataka dated 31 May, 1981 withdrawing the exemption granted under Section 63(7) of the 1939 Act. The said exemption was granted to promote tourist traffic on an inter-state basis. This Court, after considering the object behind the compensatory and regulatory levy, held that such tax fell outside Article 301 of the Constitution of India and withdrawal of the exemption granted would neither be discriminatory nor arbitrary and, accordingly, upheld the withdrawal. The Legislatures of the State have not only the power to make laws on the taxation to be imposed on motor vehicles as also the passengers and goods being transported by motor vehicles but also the power to lay down principles on which taxes on vehicles are to be levied. In the absence of any principles having been laid down by the Parliament, no fault could be found in the law enacted by Legislature of the State of Himachal Pradesh. The offending provision is regulatory in nature and therefore within the competence of the Legislature of State of Himachal Pradesh. There is nothing on record to indict the offending provision as being manifestly unjust or glaringly unconstitutional. Imposition of such additional special road tax, is directory or mandatory? - HELD THAT - Imposition of such additional special road tax was only to keep a check or a discipline on the transport vehicle operators to use their vehicles in accordance with the statutory provisions. This could work as a deterrent for the transport operators to not commit any breach and to follow the mandate of the law. Such additional special road tax could be termed as regulatory in nature so as to regulate other statutory provisions being implemented and strictly followed - it cannot be said that levy of such an additional special road tax would be said to be manifestly unjust or glaringly unconstitutional. It was, in effect, to ensure payment of the chargeable taxes and use of the vehicles as per the terms of the permit. Repugnancy, if any, with Central enactment - HELD THAT - Under Section 192A a punishment of imprisonment along with fine is provided whereas under the offending section, an additional special road tax is being charged for such a violation of using vehicle without permit or in contravention of the terms of the permit. The offending section was incorporated with a view to augment more revenue in order to construct and maintain the roads of the state which uses a large chunk of its finances being a state having a completely hilly terrain. The additional special road tax chargeable under Section 3A(3) would be in addition to any sentence or fine imposed under Section 192A. Punishment for offence is with an object to create deterrence and curtailing such offences as it creates a fear in the mind of offender likely to commit the offence. The same is the object of the additional special road tax to make it work as a deterrent from the transport operators in plying vehicles without permit and in contravention of the terms of the permit. As such there is no repugnancy or any conflict caused by the offending provision with the central enactment. The validity of Section 3A(3), has been wrongly held to be ultra vires by the High Court. The tax imposed under Section 3A(3) is regulatory in character and is not a penalty. Lumpsum taxation - HELD THAT - Levy of lumpsum tax has been upheld by a three Judge Bench of this Court in the case of THE STATE OF TAMIL NADU VERSUS M. KRISHNAPPAN ANOTHER ETC. 2005 (3) TMI 751 - SUPREME COURT . There are no reason to take a different view. It may also be noted that the learned Amicus Curiae has also not advanced any arguments on this point. It would not be a futile exercise to send the matters back to the regular Bench as it is held that said Section 3A(3) of the 1972 Act being within the legislative competence of the State Legislature, and lumpsum tax could be levied. Nothing further remains to be examined by the regular Bench in these appeals - appeals allowed.

Summary

Issues Involved:
1. Constitutional validity of Section 4-B(3) of the Rajasthan Motor Vehicles Taxation Act, 1951.
2. Constitutional validity of Rule 4-CC of the Rajasthan Motor Vehicles Taxation Rules, 1951.
3. Validity of Section 3-A(3) of the Himachal Pradesh Motor Vehicles Taxation (Amendment) Act, 1999.
4. Validity of notifications issued under the Himachal Pradesh Motor Vehicles Taxation (Amendment) Act, 1999.

Issue-wise Analysis:

1. Constitutional Validity of Section 4-B(3) of the Rajasthan Motor Vehicles Taxation Act, 1951:
The issue was whether the imposition of additional special road tax levied on transport vehicles used without a valid permit is not a tax but a penalty and is ultra vires the legislative powers of the State Legislature under Entries 56 and 57 of List II (the State List) of the Seventh Schedule to the Constitution. The High Court had held that Section 4-B(3) was ultra vires as it imposed a penalty rather than a regulatory or compensatory tax. The Supreme Court referred to the earlier case of State of Rajasthan Vs. Khalsa Travels, where a similar provision was repealed, and thus the question was left open.

2. Constitutional Validity of Rule 4-CC of the Rajasthan Motor Vehicles Taxation Rules, 1951:
The High Court had declared Rule 4-CC ultra vires, considering it a penalty for an alleged offence of plying the vehicle without a valid permit or in contravention of the conditions of the permit. The Supreme Court's analysis focused on whether such imposition was a penalty or a regulatory/compensatory tax, ultimately leading to a referral to a larger bench for an authoritative pronouncement.

3. Validity of Section 3-A(3) of the Himachal Pradesh Motor Vehicles Taxation (Amendment) Act, 1999:
The High Court had upheld the validity of Sections 3-A(1), (2), and (4) but struck down Section 3-A(3) as it imposed a penalty and was beyond the legislative competence of the State Legislature. The Supreme Court analyzed whether the additional special road tax under Section 3-A(3) was regulatory or compensatory in nature. The Court concluded that the tax was regulatory, aimed at ensuring compliance with statutory provisions, and thus within the legislative competence of the State Legislature. The Court held that the tax was not manifestly unjust or glaringly unconstitutional and did not conflict with the central legislation.

4. Validity of Notifications Issued Under the Himachal Pradesh Motor Vehicles Taxation (Amendment) Act, 1999:
The High Court had quashed the notifications dated 06.01.2000 and 01.04.2000, holding that lump sum taxes could not be levied on a general assessment and had to be levied as per actual default. The Supreme Court referred to the case of State of Tamil Nadu vs. M. Krishnappan, where lump sum taxation was upheld, and found no reason to take a different view. The Court concluded that the notifications were valid and within the legislative competence of the State Legislature.

Analysis:

Scope of Interference in Fiscal Statutes:
The Supreme Court emphasized judicial restraint in interfering with tax legislation unless it is shown to be manifestly unjust or glaringly unconstitutional. Taxing statutes should be viewed with greater latitude compared to laws affecting civil rights.

Special Road Tax as Regulatory or Compensatory:
The Court analyzed the object and reasons for the Himachal Pradesh Motor Vehicles Taxation (Amendment) Act, 1999, which aimed at augmenting funds for the construction, maintenance, and repair of roads. The Court held that the additional special road tax was regulatory, aimed at ensuring compliance with statutory provisions, and thus valid.

Repugnancy with Central Enactment:
The Court found no repugnancy between the State enactment and the central legislation. The additional special road tax under Section 3-A(3) was held to be in addition to the penalties under Section 192A of the Motor Vehicles Act, 1988, and aimed at augmenting revenue for road maintenance.

Conclusion:
The Supreme Court allowed the appeals, set aside the impugned judgment of the High Court, and upheld the validity of Section 3-A(3) of the Himachal Pradesh Motor Vehicles Taxation (Amendment) Act, 1999, and the related notifications. The Court held that the tax was regulatory and compensatory in nature and within the legislative competence of the State Legislature.