State of Himachal Pradesh and Others Vs GOEL Bus Service Kullu Etc etc (Supreme Court of India)
Whether special road tax charged by State of Himachal Pradesh for motor vehicles violating the rules is in the nature of penalty and thus against the competence of the State under Constitution of India?
In this interesting case, the larger three judges bench of the Supreme Court was deciding the competency of the State of HP to levy special road tax under Entry No 56 and 57 of the List II of the Article 246 of Constitution of India when it was argued that the said tax was in the nature of penalty and was thus against the legislative competence of the State since there was already a law on the subject being Motor Vehicles Act which was passed by Central Government in terms of concurrent list.
The court made interesting discussion about when an imposition is in the nature of penalty and/or when it can be said to be a tax.
It has held 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. Moreover dealing with challenge to the legislation for being ultra vires, the court 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. It would be useful to refer to a couple of judgments on the above proposition.
Thus the special road tax was held to be tax and not penalty and the judgement of high court was reversed.
This judgement will be very helpful in interpretation of an impost as to whether it is in the nature of tax or penalty and will be useful across taxation laws.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. The above set of appeals were referred to larger Bench of three Judges in terms of the order dated 05.03.2020 which reads as follows:
“Considering the fact that the issue raised in these appeals was referred to a larger Bench of three Judges in terms of order dated 27.02.1998 in Civil Appeal No. 10457/1995 and other connected cases [reported in (1998) 9 SCC 676] but which appeals later on repealed by Rajasthan Act, 1951, which is on similar lines with the provision involved in the present appeals.
Hence, we deem it appropriate to refer these appeals to a larger Bench of three Judges for an authoritative pronouncement on the questions involved.
Registry is directed to place the matters before Hon’ble the Chief Justice of India for constituting the appropriate Bench for hearing these appeal(s).”
2. The above referred order dated 27.02.1998 passed in Civil Appeal No. 10457 of 1995 and connected matters reported in State of Rajasthan Vs. Khalsa Travels, (1998) 9 SCC 676 is reproduced below:
“1. These appeals filed by the State of Rajasthan raise questions relating to the constitutional validity of Section 4-B(3) of the Rajasthan Motor Vehicles Taxation Act, 1951 (hereinafter referred to as “the Act”) and Rule 4-CC of the Rajasthan Motor Vehicles Taxation Rules, 1951 (hereinafter referred to as “the Rules”) which make provision of levy of special road tax on a transport vehicle which is used without a valid permit or in any manner not authorized by the permit. By the impugned judgments the High Court has held that Section 4-B(3) is ultra vires the rule-making powers conferred on the State Government under the Act.
2. According to the High Court the imposition, though described as a tax, is, in substance, a fine for an alleged offence of plying the vehicle without a valid permit or in contravention of the conditions of permit and such a penalty cannot be treated as a part of regulatory or compensatory tax. On that view, The High Court has declared that Section 4-B(3) of the Act is ultra vires the powers conferred on the State Legislature under Entry 56 of List II of the Seventh Schedule to the Constitution of India. The question that falls for consideration in these appeals is whether the imposition under Section 4-B(3) is not a tax but a penalty and is ultra vires the legislative powers of the State Legislature under Entry 56 and Entry 57 of List II.
3. Having regard to the importance of the question, we consider it appropriate that these matters are considered by a Bench of three Judges. The matter may, therefore, be placed before the Hon’ble Chief Justice for necessary directions.”
A careful perusal of the above orders confines the question for consideration to be 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.
3. Civil Appeal No.10457 of 1995 was dismissed vide order dated 15.04.1998 for the reason that similar provisions enacted in the State of Rajasthan were repealed by the Rajasthan Finance Act, 1977 and, as such, the question raised was held to be no longer a live issue. The said appeals along with connected appeals were accordingly dismissed, however, the question was left open. The said order dated 15.04.1998 is reproduced hereunder: –
“These appeals involve the question regarding the validity of Section 4 (B) (3) of the Rajasthan Motor Vehicles Act, 1951 and Rule 4 CC of the Rajasthan Motor Vehicles Taxation Rules. While the matters were pending in this Court the State legislature has enacted Rajasthan Finance Act, 1977 whereby Section 4 (B) (3) has been repealed and since Rule 4 CC was made to give effect to the provisions contained in Section 4 (B) (3) the said rule also has ceased to apply. In view of the aforesaid amendment that has been made by the Rajasthan Finance Act, 1977 the question raised by the appellant in these appeals is no longer a live issue and, therefore, it is not necessary to go into the same. The appeals are accordingly dismissed and the question is left open. No order as to costs.”
FACTS:
4. The respondent and several other similarly situate public transport operators challenged the validity of Section 3-A, Section 3-C, Section 4-A, Section 5-A along with Schedule-III under Section 3-A introduced vide the Himachal Pradesh Motor Vehicles Taxation (Amendment) Act, 19991 to be held ultra vires the Constitution of India and further the notifications dated 18.12.1999, 23.12.1999, 31.12.1999, 06.01.2000, 12.02.2000 and 01.04.2000 be quashed and set aside. The relief as claimed in one of the petitions bearing C.W.P. No.32 of 2000 (Goel Bus Service Vs. State of Himachal Pradesh and others) is reproduced below:
“(i) That the impugned Annexure-PA, PB, PC, PD, PE, dated 18th December, 1999, 23rd December, 1999, 6th January, 2000, 12.2.2000 and 31st December, 1999 may kindly be quashed and set aside;
(ii) That Section 3-A, 3-C, 4-A, 5-A along with Schedule-III under Section 3-A may be struck down being ultra vires the Constitution of India.
(iii) Any other relied as may be deemed just and proper keeping in view the facts and circumstances of the case may also be granted in favour of the petitioner.”
5. The above provisions, validity of which was sought to be declared as ultra vires, were introduced vide HPMVT(A) Act 1999 as also vide HPMVT(A) Act 2001. Consequent to insertion of the said provisions, State of Himachal Pradesh issued several notifications referred to above, which were also assailed in a large number of writ petitions. The High Court, vide impugned judgment dated 06.07.2007, upheld the validity of all the Sections except Section 3A (3) under challenge as not offending either Part III or any other provision of the Constitution of India. With respect to Section 3-A (3) it was held that in substance it imposes a penalty and as such could not be treated as regulatory or compensatory tax and was, therefore, beyond the legislative competence of the State Legislature. It, further quashed the two notifications dated 06.01.2000 and 01.04.2000 being not in consonance with the scheme of the Constitution. It also struck down the decision dated 01.01.2000 based upon negotiations held on 31.12.1999 relating to special Toll Tax, as they were held to be against statutory provisions of the Act. The operative portion of the impugned judgment reads as follows:
“On account of the above reasoning and the findings, we are of the view that Sections 3-A (1), (2), (4) and Section 3-C do not offend either the fundamental rights or any other provision of the Constitution of India, therefore, these are held not ultra vires of the Constitution. Since Section 3-A (3) in substance imposes a fine as held above, therefore, such a nature of penalty can neither be treated as regulatory nor compensatory tax and is out of the legislature competence of the State and the subordinate legislation, that is the notifications dated 6.01.2000 and 1.04.2000 are based upon lump sum charges of the levy thus are not in consonance with the scheme of the Constitution, therefore, these are held to be ultra vires. Further, the decision dated 1.1.2000 based upon negotiations held on 31.12.1999 relating to SRT is against the statutory provisions of the Act as stated above. Therefore, it is struck down being contrary to law.
All the petitions are disposed of in the aforesaid terms. No orders as to costs.
All the Misc. applications in the writ petitions are also disposed of.”
6. The State of Himachal Pradesh is in appeal against the aforesaid judgment of the High Court.
7. We have heard Sri Abhinav Mukerji, learned counsel for the appellant-State of Himachal Pradesh and Sri Siddharth Bhatnagar, learned Senior Counsel appointed as Amicus Curiae to assist the Court on behalf of the respondent-operators.
SUMMARY OF SUBMISSIONS:
8. Submissions advanced on behalf of appellants are summarized as under:
