G. K. Krishnan Vs. The State of Tamil
Nadu & ANR [1974] INSC 239 (12 November 1974)
MATHEW, KUTTYIL KURIEN MATHEW, KUTTYIL KURIEN
RAY, A.N. (CJ) ALAGIRISWAMI, A.
CITATION: 1975 AIR 583 1975 SCR (2) 715 1975
SCC (1) 375
CITATOR INFO :
R 1975 SC 594 (4,8) F 1975 SC1006 (2) RF 1981
SC 711 (10) D 1983 SC 634 (16,18,21) OPN 1983 SC1005 (7) R 1985 SC 660 (24) R
1988 SC2062 (15) R 1989 SC 100 (31) F 1990 SC 913 (27) R 1990 SC1637 (21)
ACT:
Madras Motor Vehicles Taxation Act (3 of
1931)-Tax on contract Carriages enhanced by notification-If violative of Art.
301-Motive for enhancing tax, if relevant-If discriminatory as compared to
stage carriages and violative of Art. 14.
HEADNOTE:
The enhancement of motor vehicles tax on
omnibuses imposed by the State Government, by notification dated September 20,
1971, from Rs. 30/per seat per quarter to Rs. 100 per seat per quarter was
challenged on the following grounds :(1) The notification was not a measure of
taxation but a device to eliminate the competition of omnibus" with stage
carriages run by the Government;
(21 Since the tax operates as a restriction
on the freedom of trade, commerce and intercourse within the State, it could be
imposed only by a law which had obtained the previous sanction of the President
under Art. 304. and as the notification was issued by the government in the
exercise of its delegate power, it was not a law made by the legislature, nor
could the previous sanction of the President be obtained for it; and (3)The
distinction made between contract carriages and stage carriages. in the matter
of levy of vehicle tax offends Art.
14.
Rejecting the contentions.
HELD : 1. The tax was imposed by the
Government in the exercise of its power under S. 4 of the Madras Motor Vehicles
Taxation Act, 1931. 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. There can be no plea of a
colourable exercise of power to tax if the Government had power to impose the
tax and the fact that the imposition of the tax was for the purpose of
eliminating competition would not detract from its validity. [720A-B]
2. (a) Article 301 imposes a general
limitation on all legislative power in order to secure that trade, commerce and
intercourse throughout the territory of India shall be free. The word 'free'
does not mean freedom from regulation. There is a distinction between laws
interfering with freedom to carry out the activities constituting trade and law
imposing on those engaged therein rules of proper conduct or other restraints
directed to the due and orderly manner of carrying out the activities. This
distinction is described as regulation. The true solution in any given case
could be found by distinguishing between features of the transaction or
activity in virtue of which it fell within the category of trade, commerce and
intercourse and those features which, though invariably found to occur in some
form or another in the transaction or action are not essential to the
conception. what is relevant is the contrast between the essential attributes
of trade and commerce and the incidents of the transaction which do not give it
necessarily the character of trade and commerce.
Laws for government of such incidents,
,regulate'. If a tax is compensatory or regulatory, it cannot operate as a
restriction on the freedom of trade or commerce. A compensatory tax is based on
the nature and the extent of the use made of the roads. if the proceeds are devoted
to the repair, upkeep, maintenance of relevant roads and the collection of the
exaction involves no substantial interference with the movement. What is
essential for the purpose of securing freedom of movement by road is that no
pecuniary burden should be placed upon. it 716 which goes beyond a proper
recompense to the state for the actual use made of the physical facilities
provided in the shape of a road. Motor vehicles require, for their safe,
efficient and economical use, roads of considerable width, hardness and
durability. and the maintenance of such roads will cost the government money.
But, because the users of vehicles generally and of public motor vehicles in
particular, stand in a special and direct relation to such roads, and may be
said to derive a special and direct benefit from them. it is not unreasonable
that they should be called upon to make a special contribution to their
maintenance over and above their general contribution as tax payers of the
State. [721C-H; 722B-F] (b) In the counter affidavit filed on behalf of the
State, the averment in that Government has incurred an expenditure of Rs. 19.51
crores in the year 1970-71 on the maintenance and construction of roads while
the receipts from out of the vehicle tax was only Rs. 16.38 crores. 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 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 not paying patently much more than
what is required for providing the facilities. 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 always difficult to evolve a formula which
will in all cases ensure exact compensation for the use of the road by vehicles
having regard to their type, weight and mileage. Rough approximation, rather
than mathematical accuracy is all that is required. [722G; 723A-D] Automobile
Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 S.C.R. 491 followed.
(c) If the tax is attacked on the ground that
it is excessive, the burden ,of proof is upon the one attacking its validity.
The amount of the charges and the method of collection are primarily for
determination by the State itself, although they must be reasonable and fixed
according to some uniform, fair and practical standard. Although any method of
taxation which has a direct bearing upon or connection with the use of the
highways is apparently valid, a tax which has no such apparent bearing and is
not shown to be compensatory, but is rather a tax on the privilege of engaging
in trade and commerce, is beyond the power of the State. It is also not
necessary that there should be a separate fund or expenses allocation of money
for the maintenance of roads to prove the compensatory purpose when such
purpose is proved by alternative evidence. [723G-724B] (d) It could not be said
that vehicle tax can be levied only for the the of the road in existence and
that the levy is not compensatory because government, has included the cost of
the construction of new roads also in their 'road costs' because. [724B-C] (i)
Even if the cost of construction of new roads is excluded, the receipts would
not be sufficient to meet the expenses incurred for maintenance of old roads
and therefore. it is difficult to say that in actual fact, capital expenditure
for construction of new roads was taken into account in the levy of vehicle
tax. [724E-F] (ii) This court approved in the Automobile case the reason given
by the High Court that the State was charging far the cost incurred in
maintaining and making roads. [724G-725A] (iii) The State may impose even upon
motor vehicles as compensation 'for the use of the public highways a charge)
which is a fair contribution to the cost of (constructing and maintaining roads
and "for regulating traffic thereon.
[725B-C] Artmstrong and Ors. v. The State of
Victoria and Ors. 99 Commonwealth 'Law Reports 28; Commonwealth Freighters P. Ltd.
v. Sneeddon 102 Commonwealth Law Reports 280;
Interstate Transit Inc. v. Lindsey 283 U.S.
183, at 185 and Capital Greyhound Lines v. Brice 339 U.S. 542 referred to.
717 Therefore, the tax imposed by the
notification is compensatory in character and could not therefore restrict the
freedom of trade and commerce. [726C-D] (e) There is no material to show that
the tax is cofiscatory or excessive and operates as an unreasonable restriction
upon the appellants right to carry on the trade. A tax which is compensatory
cannot operate as an unreasonable restriction upon the fundamental right of the
appellants to carry on the business, for, the very idea of a 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. because, that is part of the cost of carrying on the
business. [726E-F]
3. (a) The reasons for enhancing the vehicle
tax on contract carriages are, (a) that contract carriages run more miles, (b)
carry more load, and (c) stage carriages pay surcharge on the fare collected;
while owners of contract carriage are not liable to pay the surcharge. It
cannot be said that a classification made on the basis of the capacity of the
contract carriage to run more miles is unreasonable, because, these carriages
will be using the road more than the stage carriages which have got time
schedules. specified routes and maximum and minimum number of trips.
[727D-728C] (b) There is always a presumption that a classification is valid,
especially in a taxing statute and a person who challenges a classification as
unreasonable has the burden of proving it. Classification depends to a great
extent upon an assessment of the local conditions under which these carriages
are being run which the legislature or the administrative body alone is
competent to make. The Act in its II Schedule classifies contract carriages and
stage carriages separately for tax purposes. Therefore, when the Government, in
the exercise of its power to tax, made a classification between stage carriages
on the one hand and contract carriage on the other hand and fixed a higher rate
of tax on the latter, the presumption is that 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; and this Court has to assume, in the absence of any materials placed by
the owners of contract carriages, that the classification is reasonable. Hence,
the levy of an enhanced rate of vehicle tax on contract carriages is not hit by
Art. 14. [730G-731E] State of Gujarat v. Ambica Mills Ltd. [1974] 11 S.C.J.
211, at 231. San Antonio School District v. Rodriguez 411 U.S. 1 and Carmichael
v. Southern Coal & Coke Co. 301 U.S. 495 referred to
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 2415 of 1972 and 128 to 132 of 1973.
Appeals by Special Leave from the Judgments
and Order dated the 14th February, 1972 of the Madras High Court in WPs.
Nos. 3062/71 and 3069-3073 of 1971.
S. V. Gupte (In CA No. 128/73), K. S.
Ramamurthi (In CA No. 129 of 1973 and 2415 of 1972) and A. T. M. Sampath, for
the appellants (in CAs. Nos. 2415/72 and 128-132/73).
S. Govind Swaminathan, Advocate Gen. for the
State of Tamil Nadu, N. S. Sivan, A. V. Rangam and A. Subhashini, for the
respondent (in C.A. 2415/72 and 128-129/73).
A. T. M. Sampath, for the petitioners in WPs.
Nos. 105154, 1120, 1463-65 and 488-495/73.
E. C. Agarwala, for the petitioners (in WPs.
No. 994 and 1312/73 K. R. Nambiar, for the petitioners (in WP. No,. 1850/73).
718 N. Natesan (In WP. Nos. 253 and 394/73),
A. K. Sen (In 395/73) and K. Doraiswami and K. Jayaram, for the petitioners (in
all rest of petitions).
S. Govind Swarninadhan, Advocate Gen. for
State of Tamil Nadu A. V. Rangam and A. Subhashini, for the respondents (In all
the petitions).
The Judgment of the Court was delivered by
MATHEW, J.-In the Civil Appeals, the questions for consideration are whether
the enhancement of motor vehicles tax on omnibuses imposed by G.O. No.
2044-Home dated 20-91971 by the Government of Tamil Nadu from Rs. 30 per seat
per quarter to Rs. 100/per seat per quarter is constitutionally valid and
whether the distinction made between contract carriages and stage carriages in
the matter of levy of vehicle tax offends Article 14 of the Constitution.
The writ petitions assail the validity of the
aforesaid notification on the additional ground, namely, that the tax levied
under the notification imposes restrictions on the freedom of trade, commerce
and intercourse 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 Rs. 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 Rs.
10/per seat per quarter was increased to Rs. 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 19-41969
increased the rate of tax with respect to omnibuses from 'Rs. 30/to Rs. 50/per
seat per quarter with effect from 1-7-1969. It was announced that this measure
was with a view to avoid unhealthy competition between omnibuses and regular
stage carriage buses and to put down the misuse of omnibuses. The owners of
omnibuses questioned the validity of the notification in Writ Petition No. 1412
of 1969, etc.
During the pendency of those writ petitions,
the government increased the rate of tax from Rs. SO/to Rs. 100/per seat per
quarter with effect from 1-9-1970 by G.O.M.S. 434Home dated 27-2-1970. The
avowed object of this measure also was to avoid unhealthy competition of
omnibuses with regular stage carriages. A number of writ petitions were, filed
challenging the validity of this 719 notification. By a common judgment dated
29-1-1971, the High Court allowed the writ petitions and quashed the aforesaid
notifications holding that the notifications were a device to eliminate the
operation of contract carriages and that the notifications were not made in the
exercise of the power of taxation. The result was that the rate of tax was
restored to Rs. 30/per seat per quarter.
Appeals were preferred against this decision
to this Court.
Thereafter, the Government of Tamil Nadu
issued G.O.M.S. 2544 Home dated 20-1-1971 enhancing the tax from Rs. 30/to Rs.
100/per seat per quarter with effect from 1-7-1971. It is this G.O. which the
petitioner challenges in the writ petition.
Counsel for the petitioner submitted,
firstly, that the notification was not a measure of taxation but a device to
eliminate the competition of omnibuses with stage carriages run by Government
and, therefore, the tax is bad. Secondly, he submitted that the tax is neither
compensatory nor regulatory_ in character and, therefore, the tax is a
restriction on the freedom of trade, commerce and intercourse guaranteed under
Article 301 and as the notification is not a law passed with the previous
sanction of the President, it would not be saved by Article 304(b).
In other words, the submission was that since
the tax operates as restriction on the freedom of trade, commerce and
intercourse within the State, it could be imposed only by a law which had
obtained the previous sanction of the President and as the notification in
question was issued bythe Government in the exercise of its delegated power, it
was not a law made by the legislature nor could the previous sanction 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 subsection (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." 15-L319SupCI/75 720
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 put it differently, there can be no plea
of a colourable exercise of power to tax if the Government had power to impose
the tax and the fact that the imposition of the tax was for the purpose of
eliminating competition would not detract from its validity. if an authority
has power to impose a tax, the fact that it gave a wrong reason for exercising
the power would not derogate from the validity of the tax. Therefore, there is
no substance in the first contention.
The second submission raises the point
whether tax in question is a restriction on the freedom of trade, commerce and
intercourse guaranteed by Article 301 of the Constitution.
In Atiabari Tea Co. v. State of Assam(1)
(hereinafter referred to as 'Atiabari Case'), the appellants challenged the
validity of the Assam Taxation (on Goods carried by Roads and Inland Waterways)
Act, 1954, on the ground that it violated Article 391 and was not saved by
Article 304(b).
By a majority of 4 to 1, this Court upheld
the challenge and declared the Act to be void. The majority said that it would
be reasonable and proper to hold that restrictions, freedom from which is
guaranteed by Article 301, would be such restrictions as directly and
immediately restrict or impede the free flow or movement of trade and that
taxes may and do amount to restrictions, but it is only such taxes as directly
and immediately restrict trade that would fall within the purview of Article
301. Sinha, C.J. dissented. He held that taxation simpliciter, as opposed to
discriminatory taxation, was not within Article 301. Shah, J. who delivered a
separate judgment said that Article 301 guaranteed freedom in its widest
amplitude-freedom from prohibition, control, burden or impediment in commercial
intercourse.
The direct and immediate restriction test had
great adverse effect upon the financial autonomy of states. For instance, a law
passed by a state legislature under entry 56 in List 11, namely "taxes on
goods and passengers carried by road or on inland waterways" would be a
restriction which is immediate and direct on the movement part of trade and
commerce and would be bad. This means that Entry 56 in List 11 is rendered
otiose.
In view of the grave impact of this judgment,
when appeals from Rajasthan High Court came up for consideration in Automobile
Transport (Rajasthan) Ltd. v. State of Rajasthan(2) (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 (1) [1961] 1 S.C.R. 809.
(2) [1963] 1 S.C.R. 491.
721 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(1), 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 Automobile Case is that a compensatory tax is not a restriction
upon the movement part of trade and commerce.
Article 301 imposes a general limitation on
all legislative power in order to secure that trade, commerce and intercourse
throughout the territory of India shall be free.
Article 302 gave power to Parliament to
impose general restrictions upon that freedom. But a restriction is put on this
relaxation by Article 303(1) which prohibits Parliament from giving preference
to one State over another or discriminating between one State and another by
virtue of the entries relating to trade and commerce in Lists I and III of
Seventh Schedule and a similar restriction is placed on the states, though the
reference to the states is inappropriate. Each of the clauses of Article 304
operates as a proviso to Articles 301 and 303. Article 304(a) places goods
imported from sister-states on a par with similar goods manufactured or
produced inside the state in regard to state taxation within the allocated
filed. Article 304(b) is the State analogous to Article 302, for it makes the
state's power contained in Article 304(b) expressly free from the prohibition
contained in Article 303(1) by reason of the opening words of Article 304.
Whereas in Article 302 the restrictions are not subject to the requirement of
reasonableness, the restrictions under Article 304(b) are so subject. The word
'free' in Article 301 does not mean freedom from regulation. There is a clear
distinction between laws interfering with freedom to carry out the activities
constituting trade and laws imposing on those engaged therein rules of proper
conduct or other restraints directed to the due and orderly manner of carrying
out the activities. This distinction is described as regulation.
The word 'regulation' has no fixed
connotation. Its meaning differs according to the nature of the thing to which
it is ,applied. The true solution, perhaps, in any given case, could be found
by distinguishing between features of the transaction or activity in virtue of
which it fell within the category of trade, commerce and intercourse and those
features which, though invariably found to occur in some form or another in the
transaction or action are not essential to the conception. What is relevant is
the contrast between the essential attribute of trade and commerce and the
incidents of the 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'(2).
(1) [1964] 5 S.C.R.975.
(2) See Wynes, "Legislative, Executive
and Judicial Powers", p. 270.
722 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
devoted to the repair, upkeep, maintenance and depreciation of relevant roads
and the collection of the exaction involves no substantial interference with
the movement. The expression 'reasonable compensation' is convenient but vague.
The standard of reasonableness can only lie in the severity with which it bears
on traffic and such evidence of extravagance in its assessment as come from
general considerations. What is essential for the purpose of securing freedom
of movement by road is that no pecuniary burden should be placed upon it which
goes beyond a proper recompense to the state for the actual use made of the
physical facilities provided in the shape of a road. The difficulties arc very
great in defining this conception. But the conception appears to be based on a
real distinction between remuneration for the provision of a specific physical
service of which particular use is made and a burden placed upon transportation
in aid of the general expenditure of the state. It is clear that the motor
vehicles require, for their safe, efficient and economical use,, roads of
considerable width, hardness and durability; the maintenance of such roads will
cost the government money. But, because the users of vehicles generally, and of
public motor vehicles in particular, stand in a special and direct relation to
such roads, and may be said to derive a special and direct benefit from them,
it seems not unreasonable that they should be called upon to make a special
contribution to their maintenance over and above their general contribution as
taxpayers of the State.
If, however, a charge is imposed, not for the
purpose of obtaining a proper contribution to the maintenance and upkeep of the
road, but for the purpose of adversely affecting trade or commerce, then it
would be a restriction on the freedom of trade, commerce or intercourse(1).
In the counter-affidavit filed on behalf of
the State, the averment is that Government has incurred an expenditure of Rs.
19.51 crores in the year 1970-71 on the maintenance and construction of roads
while the receipts from out of vehicle tax is only Rs. 16.38 crores. It is also
stated therein that the amount of Rs. 19.51 crores did not include the grants
made to local bodies like municipalities and Panchayat Unions for the repair
and maintenance of roads within their jurisdiction: "Road costs",
according to the affidavit, not only includes (1) see Freightlines &
Construction Holding Ltd. v. State of New South Wales, (1) [1968] A.C. 625.
723 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 compensation
for the use of the road by vehicles having regard to their type, weight and
mileage.
Rough approximation, rather than mathematical
accuracy, is all that is required. In all such matters, it is well to remember
the profound truth of the sayings "it is the mark of an educated man to
look for precision in each class of things just so far as the nature of the
subject admits"(1).
The Supreme Court of U.S.A. takes the view
that the validity of a tax on vehicles must be determined not by way of a
formula but rather by the result, and in several cases, the court has upheld
the validity of a flat fee not geared to weight, mileage or seating capacity,
provided the fee is reasonable in amount and is not shown to be in excess of
the compensation for the use of the roads (2). According to that Court, since
the purpose of the tax imposed by the state on motor vehicle using its road is
to obtain from them a fair contributive share of the cost of constructing and maintaining
the public highways and facilities furnished and to defray the expense of
administering the police regulations enacted for the purpose of ensuring the,
public safety, the method used by the state for imposing tax does not seem to
be of great significance; but such taxation, however, can only be for the
purpose of compensating the state for the use of its roads and to defray the
cost of construction and maintenance and expenses in regulating motor traffic,
and it must affirmatively appear that such is the purpose of the legislation
sought to be upheld. But, once a proper purpose is established, the state has
considerable discretion in the method, measurement and amount of the tax.
It has been said that the amount of the
charges and the method of collection are primarily for determination by the
state itself, although they must be reasonable and fixed according to some
uniform, fair and practical standard. If the tax is attacked on the ground that
it is excessive, the burden of proof is upon the one, attacking its validity.
(1) see Basic Works of Aristotle, Ed. Richard
McKson, p.936.
(2) see Morf. v. Bingaman, 298 U. S. 407; and
Aero Mayflower Transit Co. v Board of R. R. Commrs., 332 U. S.
497.
724 Although any method of taxation which has
a direct bearing upon or connection with the use of the highways is apparently
valid, a tax which has no such apparent bearing and is not shown to be
compensatory, but 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(1), 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 altogether outside such a principle and the charge
must be a genuine attempt to cover or recover the costs of upkeep of the roads.
In Commonwealth Freighters Pvt. Ltd. v. Sneddon(2), the court observed that it
does not seem logical to include the capital cost of new highways or other
capital expenditure in the costs taken as the basis of the computation of road
costs.
It is clear from the counter--affidavit filed
that Rs. 19.51 crores have been spent not only for the maintenance of roads but
also for construction of new ones and that the receipt from the vehicle tax was
only Rs. 16.38 crores. However, it is not clear whether any capital expenditure
for construction of new roads really entered into the actual levy of vehicle
tax. It might be that even if the cost of construction of new roads is
excluded, the receipts would not be sufficient to meet the expenses incurred
for maintenance of old roads and, therefore, it is difficult to say that in
actual fact, capital expenditure for construction of new roads was taken into
account in the levy of vehicle tax.
That part, in the Automobile Case (supra),
this Court quoted with approval a passage from the judgment of the High Court.
The passage is as follows "...We find
that in 1952-53 income from motor vehicles taxation under the Act was in
neighbourhood of 34 lakhs. In that very year, the expenditure on new roads and
maintenance of old roads was in the neighbourhood of 60 lakhs. In 1954-55, the
estimated income from the tax was 35 lakhs, while the estimated expenditure was
over 65 lakhs. It is obvious from these figures that the State is (1) 99
Commonwealth Law Reports 28.
(2) 102 Commonwealth Law Reports 280.
725 charging from the users of motor vehicles
something in the neighbourhood of 50% of the cost it has to incur in
maintaining and making roads".
The approach of this Court is supported by
the decisions of the Supreme Court of U.S.A. In Interstate Transit, Inc. v.
Lindscy(1), it is observed that while a state
may not lay a tax on the privilege of engaging in interstate commerce it may
impose even upon motor vehicles engaged exclusively in interstate commerce a
charge, as compensation for the use of the public highways which is a fair
contribution to the cost of constructing and maintaining them and of regulating
the traffic thereon. In Capital Greyhound Lines v. Brice ( 2) , the state tax
was upheld 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 Shah, J. said in State v.
Natarajan "that tax under Central sales
tax on inter-state sale, it must be noticed, is in its essence a tax which
encumbers movement of trade and commerce". However, Bachawat, J. in his separate
judgment in that case said that Article 301 makes no distinction between
movement from one part of the state to another part of the same state and
movement from one state to another, that if a tax on intrastate sale does not
offend Article 301, equally, a tax on inter-state sale cannot do so, and that,
neither tax operate directly or immediately on the free flow of trade or free
movement as the tax is on the sale, the movement being incidental or
consequential. What is guaranteed by Article 301 is freedom of trade, commerce
and intercourse. Freedom of movement of goods from one place to another is a
very important facet of freedom of trade and commerce. That is perhaps the
reason why the Court, in the Automobile Case (supra) restricted the freedom of
trade and commerce guaranteed under Article 301 to the movement part of it.
Whether there is any warrant for restricting
the concept of freedom of trade and commerce to the movement part of it is a
matter upon which we are not called upon to make any pronouncement. A tax on
(1)283 U. S. 183, at 185.
(3) [1968] 3 S.C.R. 829.
(2) 339 U. S. 5442.
726 sale of goods might encumber sale and
purchase and, to that extent, restricts the freedom of trade and commerce. That
apart, as Shah, J. said, if tax on inter-state sale is in essence "a tax
which encumbers movement of trade and commerce", a tax on intra-state,
sale, if it Involves movement from one part of the state to another part of the
same state, would encumber the movement part of it and is a restriction on the
freedom of trade and commerce. Generally speaking, selling and buying involves
delivery of the goods sold and bought. If that be so, it would mean that
imposition of sales tax by a state on intrastate sale, at any rate, when the
sale involves movement of goods will be restriction of trade and commerce and
unless the law imposing it has received the previous sanction of the President,
the law would be bad as a tax on sales is neither regulatory nor compensatory.
If the President were to refuse his consent, the state will be bereft of that
source of revenue which the Constitution has expressly, given to the State. It
is unnecessary to pursue the matter further, as we think the tax imposed by the
notification is compensatory 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 is part of the cost of carrying on the business.
Mr. Gupte contended that there was no reason
for imposing vehicle tax at a higher rate on contract carriages than on stage
carriages. He said that both stage carriages and contract carriages are
similarly situated with respect to the purpose of vehicle taxation, namely, the
use of the road and, therefore, a higher vehicle tax on contract carriages is
manifestly discriminatory. In other words, the argument was that the
classification of the vehicles as stage carriages and contract carriages for
the purpose of a higher levy of vehicle tax on contract carriages has no
reasonable relation to the purpose of the Act.
The Act contained originally 3 schedules out
of which Schedule II was repealed in 1938 with the result that there are now
Schedules II and III only. Schedule II was made under s. 4(2) of the Act and
Schedule III under s. 5 (1 ) (c) of the Act. Section 17 of the Act gave 727
power to the State, Government to make rules amending Schedule 11 or Schedule
HI. Sub-clause (3) of S. 17 provided that any rule made under s. 17 shall be
laid on the table of the Legislative Assembly and the rule shall not be made
unless the Assembly approves the draft either without modification cr. addition
and on such rule being so made shall be published in the official gazette and
shall, therefore, have full force and effect. Schedule II deals with various types
of motor vehicles. Entry 4(iii) therein deals with vehicles permitted to ply as
stage carriages and to carry more than 6 persons and not plying exclusively in
the City of Madras or Municipalities. The maximum quarterly tax is indicated in
respect of such vehicles under 2 heads :
(1) vehicles fitted with pneumatic tyres; and
(2) other vehicles. For every seated passenger (.other than the driver and the
conductor) which the vehicle is permitted to carry, the maximum quarterly tax
for vehicles fitted with pneumatic tyres as also for other vehicles was
provided depending upon the distance covered by such vehicles per day. Entry
4(iv) deals with vehicles permitted to ply solely as contract carriages
carrying more than 5 persons (other than the driver). For every person other
than the driver, which the vehicle is permitted to carry, the maximum quarterly
tax for vehicles fitted with pneumatic tyres and for other vehicles is also
provided.
The reason for enhancing the vehicle 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
capacity. 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. Hence the contract carriages can run a larger number of miles
than stage carriages and therefore the wear and tear of the road caused would
be greater and in the case of roads which are not fit for such operation, the
damage to the road surface due to wear and tear is quite likely to be much
larger, involving higher cost of maintenance of such roads; in other words, the
contract carriage even with the same passenger seating capacity as a stage
carriage can travel on any road and on any type of surface at any time of the
day or night, and thus can cause greater damage to roads, especially of the
inferior type of road surfaces which it traverses. The higher speed of vehicle
will induce correspondingly higher impact stresses on the pavement structure
than the vehicle of 728 the same capacity at lower speeds. These higher
stresses in the pavement layers affect the performance characteristics ad
durability of the, surface. Also, higher speeds require longer accelerating and
decelerating, distances which brings in the maximum value of the frictional
coefficient causing increased wear and tear of the road surfaces. Moreover, the
load factor of a stage carriage including the passenger luggage may be
comparatively low. In the counter-affidavit it is also stated that the rate 'of
tax payable on stage carriage is Rs. 651per seat per quarter and a surcharge of
10 paise per rupee on the fare collected, through there is a provision for
compounding the tax collected at Rs. 25/per seat per quarter under the Tamil
Nadu Motor Vehicles (Taxation of Passengers and Goods) Act, 1952, is also
payable by their owners and that owners of contract carriages are not liable to
pay the Surcharge.
Section 2(3) of the Motor Vehicles Act,
19,39, defines "contract carriage" as follows :
" ' contract carriage' means a motor
vehicle which carries a passenger or passengers for hire or reward under a
contract expressed or implied for the use of the vehicle as a whole at or for a
fixed or agreed rate or sum(i) on a time basis whether or not with reference to
any route or distance, or (ii) from one point to another, and in either case
without stopping to pick up, or set down along the line of route passengers not
included in the contract; and includes a motor cab notwithstanding that the
passengers may pay separate fares." "Stage carriage" has been
defined 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 729 authority may
attach a condition that the vehicle or vehicles can be used only in a specified
area or specific route or routes and that except in accordance with specified
conditions, no contract of hiring, other than an extension or modification of a
subsisting contract may be entered into outside the specified area (see S. 51).
A stage carriage permit may authorize the use of the vehicle as a contract
carriage (sees. 42). The State Government is authorised by s. 43 to issue
directions as to the fixing of fares and freights including the maximum and
minimum thereof for stage carriages and contract carriages. The limit of the
speed of any motor vehicle can be fixed by the State Government or an authority
authorized in that behalf and the maximum speed shall in no case exceed the
maximum fixed in the eighth schedule (sees. 71).
It cannot be said that a classification made
on the basis of the capacity of the contract carriages to run more miles is
unreasonable because those carriages will be using the road more than the
stage' carriages which have got time schedules, specified routes and minimum
and maximum number of trips. A person. who challenges a classification as
unreasonable has the burden of proving it. There is always a presumption that a
classification is valid, especially in a taxing statute. The ancient
proposition that a person who challenges the reasonableness of a
classification, and therefore, the constitutionality of the law making the
classification, has to prove it by relevant materials, has been reiterated by
this Court recently.(1) In the context of commercial regulation, Article 14 is
offended only if the classification rests on grounds wholly irrelevant to the
achievement of the objective and this lenient standard is further weighted in
the State's favour by the fact that a statutory discrimination will not be set
aside if a: state of facts may reasonably be conceived by the Court to justify
it.(2) .lm15 In State of Gujarat v. Ambica Mills Ltd. (3), this Court said :
". . . In the utilities, tax and economic regulation cases, there are good
reasons for judicial self-restraint, if not judicial deference to legislative
judgment. The legislature, after all, has the affirmative responsibility.
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
eventsself 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(4) 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 ex(1)
see Amalgamated Tea Estates v. State of Kerala. (1974) 4 S.C.C. 415 &
Murthy Match Works v. Asstt. Collector of Central Excise, [1974] 4 S.C.C. 428.
(2) see McGowan v. Maryland, 366 U. S., at
425-626.
(3) [1974] 11 S.C.J. 211, at 231.
(4) 411 U.S.I.
730 pertise 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 tax is imposed on property, income, or purchases of goods
and services, has yet been devised which is free of all discriminatory impact.
In such a complex arena in which no perfect alternatives exist, the Court does
well not to impose too rigorous a standard of scrutiny lest all local fiscal
schemes become subjects of criticism under the Equal Protection Clause."
Marshall, J. in his dissenting judgment (with which Douglas, J. concurred),
summed up, his conclusion as follows :
"In summary, it seems to me inescapably
clear that this Court has consistently adjusted the care with which it will
review state discrimination in light of the constitutional significance of the
interests affected and the invidiousness of the particular classification. In
the context of economic interests, we find that discriminatory, state action is
almost always sustained, for such interests are generally far removed from
constitutional guarantees. Moreover, "the extremes to which the Court has
gone in dreaming up rational bases for state regulation in that area may in
many instances be ascribed to a healthy revulsion from the Court's earlier
excesses in using the Constitution to protect interests that have more than
enough power to protect themselves in the legislative halls" Dandridge v.Williams,
397 US, at 520." Judicial deference to legislature in instances of
economic regulation is sometimes explained by the argument that rationality of
a classification may depend upon 'local conditions' about which local
legislative or administrative body would be better informed than a court. Consequently,
lacking the capacity to inform itself fully about the peculiarities of a
particular local situation, a court should hesitate to dub the legislative
classification irrational (see Carmichael v. Southern Coal & Coke Co.(1).
Tax laws, for example, may respond closely to
local needs and court's familiarity with these needs is likely to be limited.
Therefore, the Court must be aware of its own remoteness and lack of
familiarity with the local problems.
Classification is dependent on peculiar needs
and specific difficulties of the community. The needs and the difficulties of a
community are constituted out of facts and information beyond the easy ken of
the court. It depends to a great extent upon an assessment of the local
condition under which these carriages are being run 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.
731 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 inference which the State wanted the Court to draw was that
the owners of the contract carriages were utilizing this freedom for running
more miles than the stage carriages. As to the number of miles run by the
contract carriages, it was not possible for the state government to furnish any
statistics. They could only say that since there are no restrictions, they must
have run more miles and that cannot be said to be a purely speculative
assessment. If the petitioners and the appellants had a case that contract
carriages were not running more miles on an average than the stage carriages,
it would have been open for them to place relevant materials before the Court
as the materials were within their exclusive knowledge and possession. In these
circumstances, we think there is the presumption that the classification is
reasonable, especially in the light of the fact that the classification is
based on local conditions of which the Government was fully cognizant. Since
the petitioners and the appellants have not discharged the burden of proving
that the classification is unreasonable, we hold that the levy of an enhanced
rate of vehicle tax on contract carriages was not hit by Article 14.
We dismiss the writ petitions and appeals
without any order as to costs.
V.P.S. Petitions dismissed.
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