The State of Himachal Pradesh and Others vs Goel Bus Service Kullu etc. etc.

Tax / Taxation – Fiscal statutes – Scope of interference – Held: 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 – Testing the provisions of the offending section with regard to the settled principles of interpretation of taxing statutes, it is to be ascertained on the following three aspects: (1) Whether it is manifestly unjust or glaringly unconstitutional; (2)Whether it is regulatory or compensatory in nature; and (3) Whether there is any repugnancy with the provisions in the Central enactment. The State of Himachal Pradesh, exercising the powers drawn from Entries 56 and 57 of List II of the Seventh Schedule enacted the Himachal Pradesh Motor Vehicles Taxation Act 1972. Section 3 of the 1972 Act provided for levy and collection of taxes on all motor vehicles which were to be used or kept for use in the State of Himachal Pradesh. By the Amending Act of 1999, Section 3A was introduced which carries a heading: Levy of Special Road Tax. This special road tax was in addition to the tax levied under Section 3. The special road tax was also levied and charged on all transport vehicles used or kept for use in Himachal Pradesh specified in column 2 of Schedule 3 and the rate of tax was to be not exceeding the rates specified in column 3 of Schedule

3 of the Act. The High Court declared sub-section (3) of Section 3A as ultra vires opining that the tax imposed by Section 3A(3) was in the nature of penalty and for which the State Legislature had no power to make laws. According to the High Court it was penalty because a further special road tax was leviable where a transport vehicle was plied without any valid permit or in any manner not authorized by the permit to be plied. The High Court opined that imposition of such an additional special road tax for a default or a wrong committed with respect to a transport vehicle would amount to a penalty and not a tax.

Allowing the appeals, the Court

HELD : 1.

A: SCOPE OF INTERFERENCE IN FISCAL STATUTES:

1. It is by now well settled that any tax legislation may 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. [Para 25][904-H; 905-A] SPECIAL ROAD TAX

COMPENSATORY IN NATURE

IS

REGULATORY

OR

2.1. The appellant State being a hilly State, the roads and bridges are its lifeline. The State has to allocate sizeable part of its budget for the construction, development, repair, upkeep and maintenance of roads and bridges. It was with this object in the background that the offending provisions were brought in by way of amendments in 1999 and 2001 which are described as special road tax. This Court in a number of cases dealing with similar provisions has upheld the same. It has withheld that tax charged for non-fulfilment of any obligation would also be compensatory and regulatory in nature. Distinction was carved out between a penalty imposed for breach of statutory duty and penalty imposed being a subject matter of a complaint that would require adjudication. The view expressed consistently is that it would be compensatory or regulatory where it is imposed for breach of a statutory duty. [Para 31][906-F-H; 907-A]

2.2. From the very object and reasons of the Amending Act 1999, it is apparent that the special road tax was introduced as a compensatory measure. 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. [Paras 34, 35][908-E, H; 909-A]

2.3. The argument by the amicus is that the offending provision contained in Section 3A(3) being repugnant to the central legislation, will have to give way and cannot be sustained. His submission is that the power to impose penalty is given in Section 192A of the Motor Vehicles Act, 1988. According to him, Entry 57 of List II being subject to the provisions of Entry 35 of List III under which the 1988 Act has been enacted, Section 192A provides for penalty being imposed on vehicles being used without permit or in contravention of the provisions of subsection (1) of Section 66 (providing for necessity for permits). According to him once the central Act contains a penal provision for such a violation of imprisonment as also fine, the State could not have imposed a tax for the same violation. This submission can be sustained only if any repugnancy or any conflict can be established between the State law and the Central law. The provisions under Section 192A are in no way violated or conflicted by imposing an additional special tax for violation of use of vehicles without permit. It can be said to be in addition to the penalty provided in Section 192A of the 1988 Act. This Court, in the case of Sukhpal Singh Bal has already upheld that such imposition of tax for violation of statutory provisions, is to be treated as a regulatory measure and only to work as a deterrent of the vehicle owners’ violating the law. Such a tax would be regulatory in nature and would only check violations of the statutory provisions. In the case of Sharma Transport Rep. by D.P. Sharma, a similar issue was considered and this Court was of the view that under Entry

35 of List III the permission is to lay down the principles on which the tax may be levied whereas the State had a right to levy such tax. [Para 38][911-H; 912-A-F]

3.1. Section 3 of the Himachal Pradesh Motor Vehicles Taxation Act 1972 provided for levy of taxes on all motor vehicles kept or used in the State of Himachal Pradesh as per the schedules appended to the said Act. Insertion of Section 3A provided for levy of special road tax. The special road tax as provided under sub-sections (1), (2) and (4) of Section 3A have been upheld by the High Court. It is only the levy of special road tax under sub-section (3) which has been struck down. Testing the provisions of the offending section with regard to the settled principles of interpretation of taxing statutes, it is to be ascertained on the following three aspects: (1) Whether it is manifestly unjust or glaringly unconstitutional; (2) Whether it is regulatory or compensatory in nature; and (3) Whether there is any repugnancy with the provisions in the Central enactment. [Para 41[914-A-C]

Manifestly unjust or glaringly unconstitutional:

3.2. The Legislatures of the State have not only the 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. [Para 42][914-D-F]

Regulatory or Compensatory:

3.3. The objects and reasons for bringing in the 1999 Amendment was clearly compensatory in nature. The object was to augment funds and finance for construction, maintenance, repair and upkeep of the roads in the State of Himachal Pradesh which has a totally hilly terrain. The offending section only provided that if any vehicle used without a valid permit or in any manner not authorised by the permit, further special road tax would be levied, charged and paid to the state government in addition to the tax payable under sub-section (1) at such rates as may be specified by the state government by notification. However, the restriction was that the same would not exceed the rates specified in column 3 of Schedule 3 of the Act. [Para 43][914-G-H; 915-A]

3.4. 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. This Court in the case of Sukhpal Singh Bal relating to challenge to Section 10(3) of the U.P. Motor Vehicles Taxation Act, 1997 where a similar provision was incorporated and even though termed as penalty, was held to be regulatory and compensatory in nature. The High Court had struck down the said provision but this Court held that such penalty imposed under Section 10(3) to protect public revenue and as a deterrent for tax evasion. In view of the above, 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. [Paras 44, 45][915-B-D] Repugnancy, if any, with Central enactment:

3.5. Entry 35 of List III conferred the power on the Parliament as also the State Legislatures to make laws relating to mechanically propelled vehicles of all kinds and also to lay down the principles on which taxes on such vehicles are to be levied. The central enactment i.e. the law made by the Parliament has not laid down any principles for levy of taxes. The State Legislatures had the power to levy taxes not only under Entries

56 and 57 of List II but also to lay down the principles under Entry 35 of List III. Therefore, no repugnancy of any kind could be alleged or pleaded or proved in the absence of there being any central law laying down principles of levy of tax. In view of the above, no repugnancy or conflict of the State enactment with the central enactment could be sustained. [Para 46][915-E-G]

3.6. The argument with respect to the 1988 Act containing Section 192A wherein violation of Section 66(1) would constitute a criminal offence punishable with sentence and also fine, as such the offending section being repugnant to the said provision, cannot be sustained. 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. [Para 47[915-H; 916-A-D]

3.7. 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. [Para 48][916E]

Lumpsum taxation:

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

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

R.K. Garg etc. v. Union of India and others (1981) 4 SCC 675 : [1982] 1 SCR 947; Bhavesh D. Parish and others v. Union of India and another (2000) 5 SCC

471 : [2000] 1 Suppl. SCR 291; Indian Oil Corporation Limited v. State of Bihar and another (2018) 1 SCC

242 : [2017] 13 SCR 477; State of Uttar Pradesh and Ors. v. Sukhpal Singh Bal (2005) 7 SCC 615 : [2005] 2 Suppl. SCR 1135; B.A. Jayaram and Ors. v. Union of India (UOI) and Ors. (1984) 1 SCC 168 : [1983] 3 SCR 624; Bolani Ores Ltd. v. State of Orissa (1974) 2 SCC 777 : [1975] 2 SCR 138; Sharma Transport Rep. by D.P. Sharma v. Government of Andhra Pradesh and Ors. (2002) 2 SCC 188 : [2001] 5 Suppl. SCR 390 and State of Tamil Nadu v. M. Krishnappan and Anr. (2005)

4 SCC 53 : [2005] 2 SCR 1112 – relied on.

State of Rajasthan v. Khalsa Travels (1998) 9 SCC 676; Commr. Of Agricultural Income Tax v. Netley ‘B’ Estate (2015) 11 SCC 462 : [2015] 3 SCR 630; Ashok Leyland Ltd. v. State of T.N. (2004) 3 SCC 1 : [2004] 1 SCR 306; Ranjit Singh v. Taxation Officer, Rampur and etc 2002 SCC Online All 75; State of Himachal Pradesh and Ors. v. Yash Pal Garg (Dead) by LRs and Ors. (2003)

9 SCC 92 : [2003] 3 SCR 1056; State of Maharashtra and Ors. v. Madhukar Balkrishna Badiya and Ors. (1988) 4 SCC 290: [1988] 2 Suppl. SCR 482; Rajeev Suri v. Delhi Development Authority and Ors. 2021 SCC Online SC 7; Janhit Manch and Anr. v. The State of Maharashtra and Ors. (2019) 2 SCC 505: [2018] 14 SCR 860; State of West Bengal v. Kesoram Industries Ltd. & Others (2004) 10 SCC 201 : [2004] 1 SCR 564; M.P. AIR Permit Owners Association and Another v. State of Madhya Pradesh (2004) 1 SCC 320 : [2003] 6 Suppl. SCR 331 and Hardev Motor Transport v. State of M.P. and Others (2006) 8 SCC 613 : [2006] 7 Suppl. SCR

766 – referred to.

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

Morey vs. Doud 354 US 457 – referred to.