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TMI Blog1974 (11) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... rse guaranteed by Article 301 of the Constitution and that, as the notification is not law passed after obtaining the previous sanction of the President of India, the tax is invalid. We take up for consideration Writ Petition No. 253 of 1973 and the judgment therein will dispose of the Civil Appeals and the Writ Petitions. The petitioner is the owner of an omnibus which has a capacity to accommodate 54 passengers. He obtained a permit on 16-5-1968 to operate it as a contract carriage and was paying tax at the rate of ₹ 30/- per seat per quarter under the Madras Motor Vehicles Taxation Act 3 of 1931 (hereinafter called the 'Act'). This Act was passed with a view to abolish levy of tolls in the Presidency of Madras and the, levy of taxes on motor vehicles by local bodies. The rate of tax which originally stood at ₹ 10/- per seat per quarter was increased to ₹ 30/- per seat per quarter when the systems of issuing permits for omnibuses by the regional transport authorities came into vogue. The Government of Tamil Nadu by G.O.M.S. 923-Home dated 19-4- 1969 increased the rate of tax with respect to omnibuses from 'Rs. 30/- to ₹ 50/- per seat per qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the President be obtained for it. The tax was imposed by the Government in the exercise of its power under s. 4 of the Madras Motor Vehicles Taxation Act, 1931. That section provides : 4(1) The State Government may, by notification in the official gazette, from time to time direct that a tax shall be levied on every motor vehicle using any public road in the Presidency of Madras, (2) The notification issued under sub-section (1) shall specify the rates at which, and the quarter from which, the tax shall be levied : Provided that the rates shall not exceed the maxima specified in Schedule II. (3) A notification under sub-section (1) may be issued so as to have retrospective effect from a date not earlier than the 1st day of July, 1962. Provided that a notification under sub-section (1) ill respect of the rates as amended by the Madras Motor Vehicles Taxation (Amendment) Act, 1967 shall not have retrospective effect from a date earlier than the 1st day of July, 1967. As the state legislature was competent to pass the Act and as the Government is authorised under S. 4 to levy the tax, the question of the motive with which the tax was imposed is immaterial. To pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 S.C.R. 491.) (hereinafter referred to as the 'Automobile Case'), a larger Bench was constituted and that Bench considered the question once again. The appellants in that case impugned the Rajasthan Motor Vehicles Taxation Act, 1951, inter alia as violating Article 301. The High Court dismissed the petitions 'and this Court, by a majority of 4 to 3 held that the Act was valid and dismissed the appeals. The case practically overruled the decision in Atiabari Case(17), insofar as it held that if a state legislature wanted to impose tax to raise moneys necessary in order to maintain roads, that could only be done after obtaining the sanction of the President as provided in Article 304(b). In Khverbari Tea co. Ltd. v. The State of,, Assam([1964] 5 S.C.R.975.), it was said that the decision in Atiabar.; case was affirmed in Automobile Case with a clarification that-regulatory measures or measures imposing compensatory tax do not come within the purview of restrictions contemplated in Article 301 and that such measures need not comply with the requirement of the provisions of Article 304(b). In whatever way one may choose to put it, the effect of the majority decision in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction which do not give it necessarily the character of trade and commerce. Such matters relating to hours, equipment, weight/size of load, lights, which form the incidents of transportation, even if inseparable, do not give the transaction its essential character of trade or commerce. Laws for government of such incidents 'regulate'(See Wynes, Legislative, Executive and Judicial Powers , p. 270.). Regulations like rules of traffic facilitate freedom of trade and commerce whereas restrictions impede that freedom. The collection of toll or tax for the use of roads, bridges, or aerodromes, etc., do not operate as barriers or hindrance to trade. For a tax to become a prohibited tax, it has to, be a direct tax, the effect of which is to hinder the movement part of-the trade. If the tax is compensatory or regulatory, it cannot operate as a restriction on the freedom of trade or commerce. The question for consideration then is, whether the tax here, is a compensatory tax. Strictly speaking, a compensatory tax is based on the nature and the extent of the use made of the roads, as, for example, a mile-age or ton-mileage charge or the like, and if the proceeds are d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s , according to the affidavit, not only includes (1) see Freightlines Construction Holding Ltd. v. State of New South Wales, he cost of construction and maintenance of roads, but also the costs elating to the erection and maintenance of traffic control devices, safety measures, improvements to old layouts and the increased establishment of enforcement staff. In the Automobile Case (supra) this Court said that it would not be right to say that a tax is not compensatory because the precise or specific amount collected is not actually used for providing any facilities and that a working, test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paving not patently much more than what is required from providing the facilities, and that it would be impossible to judge the compensatory nature of a tax by a meticulous test and, in the nature of things, it could not be done. It is well to remember the practical administrative difficulties in imposing a tax at a rate per mile. It is always difficult to evolve a formula which will in all cases ensure exact comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is rather a tax on the privilege of engaging in trade or commerce, is beyond the power of the state. Nor is it necessary that there should be a separate fund or express allocation of money for the maintenance of roads to prove the compensatory purpose when such purpose is proved by alternative evidence. Mr. Natesan appearing for some of the writ petitioners submitted that the levy is not a compensatory tax, because, the government has included the cost of the construction of new roads also in their 'road costs' and that that would derogate from the compensatory character of the tax. His argument was that it is only for the use of the road in existence that vehicle tax can be levied and that capital expenditure for construction of new roads cannot be taken into account and included in the levy of vehicle tax. In Armstrong and Others v. The State of Victoria and Others(99 Commonwealth Law Reports 28.), the Court said that traffic is a constant flow and the regularly recurring charges of maintaining a surface for it to run. upon may be recoverable from the flowing traffic without any derogation of the freedom of movement; but any contribution to capital expenditure goes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even though the attorney for the state had conceded that the tax was allocated to the construction and maintenance of the state highways. Whether the restrictions visualized by Article 304(b) would include the levy of a non-discriminatory tax is a matter on which there is scope for difference of opinion. Article 304(a) prohibits only imposition of a discriminatory tax. It is not clear from the article that a tax simpliciter ran be treated as a restriction on the freedom of internal trade. Article 304(a) is intended to prevent discrimination against imported goods by imposing on them tax at a higher rate than that borne by goods produced in the state. A discriminatory tax against outside goods is not a tax simpliciter but is a barrier to trade and commerce. Article 304 itself makes a distinction between tax and restriction. That apart, taxing powers of the Union and States are separate and mutually exclusive. It is rather strange that power to tax given to states, say for instance, under Entry 54 of List II to pass a law imposing tax on sale of goods should depend upon the goodwill of the Union executive. It is said that a tax on sale does not impede the movement of goods. But S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pensatory in character and could not, therefore, restrict the freedom of trade and commerce according to the decision in Automobile Case (supra). In the Civil Appeals, two points have been raised, namely, (1) that the tax imposed is excessive and therefore, it operates as unreasonable restriction upon the fundamental right of the appellants to carry on the business; and (2) that the imposition of different rates of tax on contract and stage carriages is discriminatory and is, therefore, hit by Article 14. So far as the first contention is concerned, we do not think that any material has been placed before us to hold that the tax is confiscatory and operates as an unreasonable restriction upon the appellants' right to carry on the trade. We have already held that the tax is compensatory in character. If that is so, we do not think that it can operate as an unreasonable restriction upon the fundamental right of the appellants to carry on their business, for, the very idea of compensatory tax is service more or less commensurate with the tax levied. No citizen has a right to engage in trade or business without paying for the special services he receives from the state. That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle tax on contract carriages is stated in the counter-affidavit. It is as follows. Commercial vehicles consist of public transport passenger buses, namely stage carriages and contract carriages and goods vehicles namely, trucks of varying capa- city. The tax on lorries is graduated, based on the permitted laden weight, the higher the laden weight, the higher the amount of tax. So far as the passenger buses are concerned, the stage carriages cannot do unlimited mileage. But contract carriages, depending upon the organisational efficiency, can do much more distance of travel per day as there is flexibility of space and time for its operation. The stage carriages have to operate only on fixed time schedules and on fixed routes and the number of miles they can negotiate is limited by the rule to 250 miles. Besides. they can operate only on roads duly certified by the concerned authorities as fit for such operation. On the other hand, in the-case of contract carriages, there is neither any fixed time schedule nor any fixed route; the number of miles they can run is also quite unlimited; they are free to operate on any route whether the road is certified as fit for such traffic or not. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fined in S. 2(29) of that Act as under stage carriage' means a motor vehicle carrying or adapted to carry more than six persons excluding the driver which carries passengers for hire or reward at separate fares paid by or for individual passengers, either for the whole journey or for stages of the journey . Under s. 46 of the Motor Vehicles Act, 1939, an application for stage carriage permit must contain, among other things, the route or routes or the area or areas to which the application relates, the minimum and maximum number of daily trips proposed to be provided in relation to each route or area and the time table of normal trips. Section 48 of that Act is clear that the regional transport authority may attach a condition that the vehicle shall be used only in a specified area or on a specified route and also fix the minimum or maximum number of daily trips, the number of passengers, the weight and nature of passenger luggages. An application for a contract carriage permit must contain, among other things, specification of the area for which the permit is required (see s. 49) and the regional transport authority may attach a condition that the vehicle or vehicles can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esponsibility. The Courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events- self limitation can be seen to be the.path of judicial wisdom and institutional prestige and stability (see Joseph Tussman and Jacobus tenBroek, The Equal Protection of the Laws , 37 California Law Rev. 341.' This approach is consistent with the latest reported decision of the Supreme Court of the U.S.A. in San Antonio School District v. Bodrigues(411 U.S.I.) where the majority speaking through Justice Stewart said: Thus, we stand on familiar ground when we continue to acknowledge that the Justices of this Court lack both the expertise and the familiarity with local problems so necessary to the making of wise decisions with respect to the raising and disposition of public revenues. Yet, we are urged to direct the States either to alter drastically the present system or to throw out the property tax altogether in favour of some other form of taxation. No scheme of taxation, whether the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the legislature or the administrative body ;alone was competent to make(2). Therefore, when the Government, (1)301 U.S. 491 (2) See State of Gujarat v. Ambica Mills Ltd. [1974] 11 S.C.J. 211 Chiranjit lal v. Union of India [1950] S.C.R. 869; State of West Bengal v. Anwar Ali Sarkar [1952] S.C.R. 284 at 303 in the exercise of its power to tax, made a classification between stage. carriages on the one hand and contract carriages on the other and fixed a higher rate of tax on the latter, the presumption is that the Government made that classification on the basis of its information that contract carriages are using the roads more than the stage carriages because they are running more miles. Therefore, this Court has to assume, in the absence of any materials placed by the appellants and petitioners, that the classification is reasonable. It was a matter exclusively within the knowledge of the petitioners and the appellants as to, how many miles the contract carriages would run on an average per day or month. When, in the counter-affidavit the allegation was made that the owners of the contract carriages are free to run at any time throughout the State without restrictions, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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