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624

B. A. JAY ARAM AND OTHERS ETC.

v.

UNION OF INDIA AND OTHERS.

1

August l!l, 1983

'

[D.' A. DESAI AND o. CHINNAPPA REDDY, JJ.]

Constitution of India-Art. 301-Scope of-Compensatory Ond regzilatory

taxes are outside the expanse of Art. 301.

C Motor Vehicles Act, 1939~Sec. 63(7)-lntroduced by amending Act 56 of-

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, 1969-Does not affect State's power either to impose or exempt tax on motor

vehicles.

Karnataka Motor Vehicles Taxation Act, 1957-A piece of regulatory and

compensatory legislation-Read with Entries 56 and 57 of List· 11 of SevenJh

Schedule to the Constitution-Taxes levied on motor_ vehicles are reiulatory and

compensatory-. Not within the vista of Art. 301 of th~ Constitution. , -

,In order to promote all India-and inter-state tourist traffic, the Parl ia­

mcnt amended the Motor vehicles Act, 1939 ~Y introducing in it sec. 63(7)

which enabled the State Transport Authority of every State to grant permits

valid .for the whole or any part of India, in respect of such number of tourist

vehicles as

may be specified by ,the Central Government. Later the Central

Government notified that each

State :rr3.nsport. Authority could issue 50 all­

India pe~mits for tourist omnibuses. As each State had the eright, within its

territory, to

levy a tax on a motor vehicle, it was found that unless tourist

vehicles with all-India permits

were exempted from tax by

other States than

their home state the object of sec. 63(7) would be frustrated. TherCfore, the

Central Governnient made a request in this behalf to all the State Govern­

ments. In pursuance of that.request the ·aovernment of Karnataka exempted

tourist vehicles·hoiding permit's under sec. 63(7) from payment of tax, provided

the tax payable

to the

State in which the vehicle was registered had already

been paid and provided furthei: that similar exemption_ from payment oftax

was granted in respect of similar veliicles to the State of Karnataka. Many

transpoz:t operators from

big and. comparatively prosperous

States floeked

to some small and comparatively poor and less advanced States arid after

getting all-India permits from them started . plying th_eir vehicles in other

States like Karnataka and Maharas~tra inore or less as ·regular stage

carriages. Having found that the. trarisport operators were misusing the a-11·

India permits and indulging in certain malpractices, the GoVernment of

Karnataka withdrew the exemption from payment of taX granted earlier. The

petitioners, who were transport operators holdiqg all-India permits, challenged

the withdrawal

cf exen1ption as unconstitutional and bad in law. The peti·

tioners Submitted that sec.

63(7) of the Motor Vehicles Act was designed to

vromote all Iµdia and ioter-state tourist traffic and thus to advance trade,

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B.A. JAYAl\AM V. UNION 625

commerce and inter-course throughout the terrHory of India. By withdrawing

the exemption. the object

of sec. 63(7) was defeated and therefor.e,

.freedom of

trade, Cominerce and inter-coi.lrse throughout the territory of India, guaranteed

·by Art. 301 of the Constitution was impaired. /

Dismissing the petitions,

HELD : By withdrawing the exemption there is no impairment Of the

freedoip under Art. 301. [637 BJ '

Taxes of a compensatory and regulatory character are outside the

expanse of Art. 301 of the Constitution. Regulatory measures and compensatory

taxes far from impeding the free flow of. trade and commerce,--often promote

such free flow of trade and commerce by creating agreeable conditions 3.nd

providing appropriate services. All that is necessary to uphold a tax which

purports to be

or is claimed to be a compensatory

tax· is; the existence of a

specific, identiflabie object behind the levy and a nexus between subject and

the object of a levy. Once the nexus between the levy and service is seen, the

levy must

be upheld unless the

Compensatory cha'racter is shown to be wholly'

or partly a mere mockery and in truth a design which is destructive of the

freedom

of inter-state trade, commerce and

inter-course.· [635 C-D, 636 A]

~

International Tourist Corporation v. State of Haryana, [1981] 2 S.C.R.

364. referred to.

By virtue of fhe power givCn to them by Entries · 56 or 57 of List II

every one of the States has the right to make its own 1egisJation to cQmpensate

it for the services, benefits and facilities provided by

it for motor vehicles

operating within

the territory of the. State. Taxes resulting from such legis­

lative activity are by their very nativity and nature, cast and character, regula­

tory and compensatory and, are therefore, not withiri the· vista of Art. 301,

unless the tax is a mere pretext designed to injure tbe freedom of inter-state

trade, commerce and inter course. The nexus between the levy and the service

is so p~tent in the case of such taxes that one need say no. more about it.

, The Karnataka.Motor Vehicles Taxation Act and the Motor Vehicles Taxation

. Acts

of other States are without doubt regulatory and compensatory legislation

outside the range of Art.

301 of the Constitution. · [636 B-D]

-,Taxes on vehicles ..... suitable for use on roads' is a State legislative

subject and it

is for the

State Legislature to impose a levy and to exempt fr~m

, the Ievy. ·Entry 57 of the S_tate List is subject to Entry. 35 of the .Concurrent

List and,

it is iherefore.open.to t.he

Parliament to Jay down the,principleson

which taxes may be levied on mCchanically propelled vehicles. But the

Parliament while enacting Sec. 63(7) of the Motor Vehicles Act refrained ·from

indicating any such principles, either expressly or by nece~sary implication.

The State's power to tax <_tnd to exempt was left uninhibited. It may be that a

State Legislation, plenary or sllbordinate, which exempts "nonhome-state

tourist vehicle"s" from tax would be advancing the object of sec. 63(7), but

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626 SUPREME COURT .REPORTS (1983) 3 s.c.R. ·

tho State Legisla~ure are not obliged to fall in line line and fo so arrange their

tax laws as to advance the 'objeet of sec. 63(7), be it ever so deSirable. The

State is obliged neither to grant an exemption nor to perpetuate an exemptjon

once granted. There is no question of impairing th;e freedom under Art. 301

by refusing to exompt or by withdrawing an exemption. [636 E-637 A]

ORIGINAL JURISDICTION : Writ Petitions Nos. 1854-60/81,2125,

2224, 2829, 3321, 3341, 3360,.3604, 4486, 3737, 3774, 4128, 4404,

4415; 4428, 4429, 4430, 4431, 4432, 4436, 4437, 6310, 7090-92, 7138,

7687, 9927, 8481-82, 6790-91/82, 5356-64/83, 1868, 3929/81, ~31-32,·'

533·534, 3957, 3975, 4574-4583, 8004, 8007-8008 and 8047/83, 5327,

5622-24, 7510-11, 807_5/83, 7490-92/82, 2008, 2328/81, 2858, 2859,

4920-4923, 5616, 6065-73, 5818, 5193-5201/82, 8341-8343, 3149-50,

8381-8382, 9927 /82, 377-378, 535/83, 8347~8348, 3560/83, 8003, 8005,

8006/83, 8787-8788/83 and 9011-13of1983.

..

Under Ariicle 32 of the Constition of India'

WITH

Special Leave Petition Nos. 11243-46 of 1983.

From the Judgment and Order dated the 8th July, 1983 of the

Karanataka High.Court in Writ Petition Nos. 11268 to 11271 of

1981,

For The Appearing Petitioners ·

Shanti Bhushan, Y.S. Chittile, K.K. Venugopa/ K.N. · Bhat, .

V.K. Verma, S. Ravindra Bhat, N. Ganpathy, C.S. Vaidayanathan,

N.·Nattar, R.B. Datar, A.V .. Rangam, V.G. Gupta, T.V.S.N. Chari

A.T.M. Sampath, Vineet Knmar, b.P. Singh, Miss H. Wahl, B.N.

Tawakley, S. Srivinasan, P.R. Ramashesh, P.N. Ramlingam, S.R.

Srivastava and Rathin Das

For The Appearing Respondents

R.P. Bhatt, V.S. Desai, Harbans. Lal, Swaraj K,aushal, M.N.

Shroff, G. V. Subba Rao, N.S. _Das Bahl and R,N. Poddar

The Judgment of the Court was delivered by

CHINNAPPA REDDY, J. Prior to 1969 there was no coneept of

what may be termed as 'An All India' permit which would be valid

,-__;

ii.A. JAYARAM v. UNION (Chinrldppa Reddy, J.) 621-

for the whole of India and which would. enable the holder of the·

permit to ply his contract carriage throughout India. Section 63 (!)

of the Motor Vehicles Act, provides that, except as may be otherwise

prescribed, a permit granted

by

the regional transport authority of

any.one region shall not be valid in 'any other region, unless the

permit has been counter signed by the regional transport authority of

that other region, and a permit granted in any one state shall not

be valid in any other state unless counter-signed by the State

Transport Authority of that other state or by the regional transport

authority concerned. The procedure prescribed for obtai!Jing tbe

counter-signature

of the transport authorities of other regions and

states

was cumbersome and was-not conducive to the development

of all India or iner-state tourist traffic. In order to remedy the

situation and promote

all India and inter-state tourist traffic,

the·

Parliament amended the Motor Vehicles Act and introduced sec. 63

(7) by ani_ending Act 56 of 1969. This new· provision enables the

State Transport Authority of every state to grant permits valid for

the. whole or any part of India, in respect of such number of tourist

vehicles

as the_ Central

'Government may, in respect of that state

specify in that behalf. Preference

is to be given, to applications for

·

permits from the India Tourism Developmeht Corporation, a State

Tourism Development Corporation, a State Tourist -Department and

such oprators and tourist cars or such. travel agents as may

be

approved in that behalf by the Central Government. This

was but

the first basic step towards e_n~ouraging all India or inter-state

tourist traffic. There

were other hurdles to be cleared before any

scheme for grant of all India permits could be effectively

imple·

mented. One of tbe hurdles was this : Under Entry 57 of List II

of the Seventh Schedule to the Constitution, the State Legislature is

empowered to levy "Taxes on vehides, whether mechanically propel·

l_ed or 1)-0t, suitable for use on roads, including tramcars· subject to

the provisions of entry 35 of list III". Entry 35 of list III reads:

"Mechanically propelled vehicles including the principles on which

taxes on such vehicles are to be levied". A coherent reading of

Entry 57 of list II and Entry 35 of list III makes it abundantly clear

that the power to

levy taxes on

vehicles suitable for use on •roads

vests solely in the State Legislature though it may 'be open to the

Parliament to

lay down the principles on which taxes may be levied

. on mechanically propelled vehicles. In other words the Parliament

may lay down the guide lines for the levy

of· taxes on mechanically

propelled vehicles but the right to

levy such

:axes vests solely in the

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628 SUPREME COURT REPORTS (19831 3 s.c.R.,

State Legislature. Now there are twenty two States and nine Union

Territories in India, specified in the first schedule to the Constitution.

Each

of the

States has the right, withiu its territory. to levy a tax on

motor vehicles. Ifa tourist vehicle holding an 'All India Permit'

under

sec. 63 (7) of the Motor 'Vehicles Act chooses to visit half

a dozen states in the course

of a ·round trip from, say, Delhi to·

Kanyakumari or Srinagar to Hyderabad tax

will ordinarily have .to

be paid in all the half a dozen or so

States. The burden will surely

be intolerable and the whole object of sec. 63 (7), namely promotion

of all India or inter-state tourist traffic will be frustrated.· The Central

Government

was alive to the problem and referred the matte.r to the

Transport Development Council for its

. a\ivice. The • T(ansport

Development Council

is a non-statutory ,body constituted by the · Central Government and consists of the representatives of the

Governments

of all the

States. The Transport Advisory Council

. . .

advised the Central Government that there· should be a single-state

taxation on tourist vehicles holding permits under

sec. 63 (7),

that

is, tax should be paid in the 'home state' and the vehicle shouid be

exempted from payment of tax in states other than the home staie.

This could be done

by the respective

State Governments issuing

notificatfons under their taxation legislation exempting tourist vehicles

regi~tered in other states from payment of tax, if tax has already

been paid in the home state. The Government

of India accepted the

suggestion and requested the

State Governments -and Union

Administrations to issue necessary.notifications. The suggestion ran

into trouble right from the start.

While the Governments of Andhra Prapesh, Bihar, Goa, Daman and Diu, ·Maharashtra, Nagaland and

Uttar Pradesh readily agreed to issue such notifications on the basis

of ~eciprocity, there was no such ready response · from some other

states. The Government ofKarnafaka was in particular opposed to

the grant

of any such ·exemption. Finally, the ·Government

of•

Karnataka and the .Governments of other states too were persuaded

to a'gree to issue such notifications. In'the meanwhile the Govern­

ment ~f India, in exer~ise of its power under sec. 63 (7) of the

Motor

Vehicles Act, issued notifications specifying the number

and.

class of tourist vehicles ill, respect of which each of the State

Transport authorities of the States could grant All India ·permits. The

last

of the notifications specified that each

State Transport authority

could issue 50 permits for tourist omnibuses.

Pursuant to the request

of the Central Government to which

all the

State Oovernmeuts finally agreed, notifiQations .were issued

i

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ii.A, JAYARAM v. UNION (Chinnappa ;tleddy, J.) 62~

exempting tourist vehicles holding permits under sec. 63 (7! from

payment

of tax, if tax had been paid in the home state. We are

particularly concerned in these cases with the notifications issued

from iime to time

by the Government of Karnataka, since that is

where the trouble started. The first of the notifications issued by the

Government of Karnataka

was on September 18, 1972 and· it

exempted, from payment of taxes payable under the Karnataka

M_otor

Vehicles Taxation Act 1957, tourist . motor Cabs and tourist

omnibuses registered in the States other than the State of Karnatal!;a

and plying in the State of Karnataka under permits which were valid

without counter signature in the state

of Karnataka, provided that

the tax payable in respect of such vehicles had been paid to the

State

. in which the vehicles were registered and provided further that the

said State granted similar exemption to tourist motor cabs ~nd tourist

omnibuses whose permits

were endorsed in the

State of Karnataka

under Rule

123-A of the Karnataka Motor

Vehicles Rules. On July

15,

1976, the Government of Karnataka issued a notification

reduc­

ing the tax payab)e unger the Motor Vehicles Taxation Act, 1957, in

respect of tourist vehicles for which permits had

been issued under

sec. 63 (7) or endorsement granted under Rule 123-A of the

-

Kar~ataka Motor Vehicles Rules. On December 20, 1976, a further

notification

was issued in partial modification of the earlier

notifica­

tion dated September 18, 1972. Exemption from payment of tax

was ·given to tourist motorcabs and . tourist omnibuses registered in

States other than the State of Karnataka and plying in the State of

Karnataka under the authority of a permit granted under-sec. 63 (7),

'provided that the tax payable in respect

of the vehicle to the

State in

which it was registered had already been paid and provided further

that similar exemption from payment

of tax was granted in respect

·of similar vehicles of the

State of Karriataka.

This

scheme for the

gran~ of' All India Permits', designed as it

was to promote all India and inter-state tourist traffic, soon fell into

abuse at the hands

of sch.eming

transport operators. Within the

scheme itself lay the seeds

for abuse. The scheme enabled the

State

Transport Authority of each State, to . issue fifty all India permits,

uniformly, irrespective

of the size. o.f the

State, its resources, its

accessibility, its communications, its facilities, the availability

of

transport services and operators . in the

State with the necessary

expertise, experience and finance to operate all-India tourist servi~es

and a host of such other factors. Apparently it was thought

undesirable to make a distinction between ~tate and State on what

·

were perhaps thought to be

elusive criteria and possibly the scheme

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630 SUPREME COURT REPORTS [19S3J 3 s.C.R.

was expected to give a boost to the transport b.usiness in · the smaller

and

less advanced States. And, of course, it was necessary to obtain

the agreement and cooperation

of all the States.

·But, the result was

that transport operators from big and comparatively prosperous and

advanced States,

well

versed in the intricacies of the transport

· business very. soon flocked to small and comparatively poor and

less advanced States like Manipur and Nagaland to apply for and ,

obtain all-India permits from the State 'Transport Authorities of these

States. It

is conceded before us that a large number of. persons

holding all-India permits from

some of these small Siates do not

belong to these States at all, but are transport operators coming

from far off States. Another factor which appears to have influenced

the flocking

of

transpod operators from other States to States lilre

Nagaland arid Manipur is the nationalisation of contract carriage

service in States like Karnataka. Once the permits were obtained

and the

vehicles were registered, these small States saw the. last of the .

operators. Having obtained the permits, the operators with their

vehicles flocked back to the parent State of the operators (not of the

vehicles) or to a State

like Karnataka where all contract carriages

having been nationalised no private contract carriage was available

and there was therefore a great' opportunity to ply the vehicles as .

contract carriages within the State.

States like Karnataka ivere swamped by tourist vehicles from

all over the country, registered in other States. These tourist

vehicles

practically 'colonised' Karnataka and like States and started operating

more or

less as stage carriages within the particular State,

·never and.·

rarely if ever, ·moving out of the State. There was no ihought or

Question

of

undertaking all India or interstate tours, aud out went

the worthy object of sec. 63(7). Quick and easy money with the least .

trouble ~nd iiJ. the shortest time, by whatever method, was the only

object. In the counter-affidavit

filed on behalf of the

State of

Karnataka in some of the Writ Petitions, it is stated.

"Though the vehicles were registered outside the State

of Karnataka, they have been permanently §tationed in

the State

of Karnataka and particularly at Bang.alore, and

the vehicles

were all being plied as Stage Carriages.

Though

All India Tourist Permits were obtained by the

residents

of other states, the permits were used by taking

the

vehicles and keeping them in the State of Karnataka.

The operators run their

t.ourist buses at fixed timings

>

Ii.A, i1-YARAM v. UNION (Chinnappa Reddy, J.) 6~1

from particular place like the Stage carriages operated by

the Katnataka State Road Trausport Corporation (herein­

after called the K.S.R.T.C.) and other private state carriage/

operators. On checking of the vehicles and verification

of the passengers, it was found that the passengers found

in the vehicle

were not genuine tourists and the driv.ers or

the persons incharge

of the vehicles were not in a position

to produce the trip sheet,

name list with whom they

en­

tered .into contract. It was also found that the passengers

found ·in the vehicles had boarded the buses from one

point without any contract or otherwise and without they

being tourists. The passengers found in the tourist buses

are regular passengers going from one place to another.

-for purposes other than tourism. These vehicles were

found catering to the needs of general travellers who can

make

use of the

Stage Carriages operated by the

K.S.R.T.C., or other private stage carriage operators. The·

respondent produces herewith statements

as

ANNEXURES

. 1 to 9 showing the clandestine operation of. the vehicles

covered

by All India Tourist Permits, the remarks and

irregularities noticed

by the Motor Vehicles Inspectors

while checking the vehicles covered

by All India Tourist

permit, the frequent detection

of these vehicles running as

Stage Carriages by collecting individual fares and picking

passengers from one point and setting down them at

another

p.oint and bringing different passengers in the

return journey. From the statements enclosed, it

is clear

that the operators

of the tourist buses coyered by All

India Tourist permits have misused the Tourist Buses by

running them as regular stage carriages, competing with

theXSRTC buses and other private stage carriages within

the. State.

As a result of indiscriminate misue of the

Vehicles as

Stage Carriages-even though the permits were

obtained under Section

63 (7) of

lhe Central Act for

Tourism, the State Government has suffered considerable

loss in Revenue .. These· bnses actually made use of the

passengers which would have normally

gone to the KSR TC buses and other private carriages. The very

object of obtaining permits under section 63(7) of the

Central Act, which intended to promote tourism has been

misued

by these operators of the Tourists buses by plying

their vehicles regularly

as

stage· carriages. Most of the

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SUPREME COURT REPORTS it983} 3 s.c.R.

permits obtained under Section 63 (7) of the Central Act

in the States other than the State of Karnataka are made

use of for the purported u·se of running the tourist buses ..

but actually the permits were misused to run the tourist

.

vehicle either as.stage carriages or as contraGt

carriages.".

A survey made by the Transport Commissioner of Maharashtra

revealed' a similar state

of affairs. The Transport Commissioner

submitted a .report to the Government

of Maharashtra, a copy of

which has been made available to us. It is stated in the report, "Our estimate is that out of these J 300 permits any-

. thing between 300 to 400 buses are operating in Mahara-.

shtra with Bombay

as the main centre. Mast of these

-

buses for all practical purposes operate a; stage carriage

servi.l:es masquerading as contract carriages. In Mahara­

shtra the ordinary passenger transport by stage carriages

and contract carriages has

been completely nationalised.

The

AU India-Tourist Buses on the other hand are

e~ploiting the loopholes available in the law and operate

point. to point passenger services on routes where the

volume of traffic is heavy viz.. routes like· Bombay­

Kolhapur, Bombay Mangalore (Mangalore), Bombay-.

Panaji, · Bombay.Belgitum, Bombay-Ahmedabad and

Bombay-Indore

.............................

, ....... : .. : ........... .

..................... .. .... ... ... ...... ... ........ : .......... { ............ .

..

............. ······~· ................... ·········.

"On 9/!0th April 1983, the Transport Commissioner

had personally visited the Charoti Check Naka which is

'our border check post' bordering Gujarat on the'Bombay

Ahmedabad road. From the records of the'check'post he·

found that as many as I J 5 All India Tourist Buses are

regularly playing on this route:' After' making an analysis

of these 115 All llldia Tourist Buses,'he found that 41 per­

mits had been issued by the State' Transport Authority of

· M'.anipur. 17 had been issued by State Transport Authority

Nagar Haveli, 8

by the

State Tran.sport Authority,

Meghalaya and 5

by the

State Transport Authority Naga­

land. · A large number of All India Tourist Buses operat­

ing with their base in Bombay appear to have been issued

by Manipur Nagaland and

.the

Union Territory of Dadra

Nagar Haveli''.

. ...

J

fl.A.. iAYARAM v. UNION (Chinnappa Reddy, J.) 633

The petitioners, who are transport operators holding all-India per­

mits, deny that any of them was guilty of any malpractice or J11isuse

of the permits held by them. But, notwithstanding the petitioners'

denial

we do not have the slightest doubt that the allegations of

misuse and malpractice made in the counter-affidavit, filed on behalf

of the Karnataka Government, are generally and substantially

correct.

Complaints about the abuse·ofthe scheme appear to have been· made

to the Central Gov·ernment and the Transport Advisory Council also .

.

we are also told that the question of meeting the challenge posed by

these abuses is receiving the attention of the Central Goyernment.

The Government

of Karnataka, apparently the worst sufferer,

reacted sharply. The concession given to the holders

of all

India

· . permits by way of exempting the all India tourist Vehicles, registered

in other States. from p'ayment of the Karnataka Tax, if tax had

already been paid in the home State was withdrawn by a notificatfon

dated 31st March,

81. It is this notification

and the consequences of

the notification that are in question in these several Writ Petitions.

We are informed· that the State of Andhra Pradesh has also

issued a notification similar to that

of the

State of Karnataka

. withdrawing

the. exemption which it had granted earlier to vehicles

operating on permits issued under

sec. 63 (7) and registered

in other

States. Other states have not withdrawn the exemption

previously granted

by them to vehicles registered in other. states and

operating on permits issued under

sec. 63(7). But as the exemption

·granted

by most of them is on a reciprocal basis, 'the withdrawal of

exemption by the

States of Karnataka and Andhra Pradesh has the

effect of making vehicles registered in Karnataka and Andhra Pradesh,

immediately subject to payment of tax in every one

of those

States

through which they pass. The collection of tax by the other States

is also resisted in these writ petitions. The power of the State Legis--

lature to levy the particuar tax, the power of the State Government

to grant exemption from payment

of tax ·under the authority delegated

to

it by the Legislature a.nd the implied power of the State Govern•

ment to withdraw an exemption granted by it are conceded. Yet a

number of ingenious .and platitudinous submissions have been though

we must confess that many of them have only to be stated to be

rejected. Some of them served no better purpose than occupy the

time

of the Court, time which has become dear and precious because

of

tl;te mountainous arrears of cases awaiting the decision of this

Court.

We do wish it is remembered that the

Supreme Court is the

. highest Court in the land and its time is not to be frittered away in

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li34 SUPREME COURT REPORTS (!983) 2 S.C.R.

listening to hopeless arguments advanced just for the, sake of argu­

ment. The time has come for judges and lawyers to make a

determined effort to chop certain arguments and prune certain

others­

judgments following suit. In fairness to the counsel who appeared

in the cases before

us, we must say that everyone was brief and none

over -stated his case.

It

was submitted that see. 63 (7) of the

Motor Vehicles Act was

designed to promote All India and inter-state tour ist traffic and thus

to advance trade, Co~merce and inter-course throughout the

territory of India.

It was implicit in sec. 63 (7) that the States would

exercise their power

of taxation in such a way as not to impose

an additional burden on tourist

vehicles registered in other states

-and plying on permits issued under sec. 63(7), over and above the

tax paid in the home State. In other words, it was implicit that all

the States would exempt from taxation tourist vehicles registered

in other State's and plying on permits issued under sec. 67 (7) was

withdrawing the exemption, the object of sec. 63 (7) was defeated

and'therefore, freedom

of trade, Commerce and inter-course

through­

out the territory of India, guaranteed by Art. 301 of the Constitution

was impaired. The -withdrawal of exemption was, therefore,

unconstitutional and bad

in law. The transport

_ operators of

Karnataka who were not. directly hit by the withdrawal of the.

exemption by the Government of Karnataka advanced a subtler

argument and sugg,sted that they were in fact the worst hit. The

argument

was that though despite the withdrawal of the exemption,

they

were paying

no more tax to the State of Karnataka than they were

paying hitherto, the withdrawal of the exemption had created a

, situation which denied them the benefit of exemption granted by the

Governments

of all others

States, since those exemptions were reci­

procal in condi:ion. The situation indirectly created -by the action

of the Government of Karnataka imposed an intolerable burden on

them

by compelling them to pay taxes in every

State other th~n

G , Karnataka through which their vehicles passed and thus virtually

denied to them the freedom

of trade, Commerce and inter-course

throughout the territory

of India guaranteed

By Art. 30 I of the

Constitution.

H

We are wholly -

unable to .see any force in these sub\llissions.

The learned counsel for the parties on either side _·invited our atten·

-. .(

1

•

B.A. JAYARAM v. UNION (Chinnappa Reddy, J.) 635.

tion to the Automobile Transport (Rajasthan) Ltd. v. The State of

Rajasthan & Ors.(

1

), Boiani· Ores Ltd. v .. State ofOrissa('), G. K. A

Krishnan v. State of Tamil Nadu(

9

) International Tourist. Corporation

v. State· of Haryana(') and Malwa Bus Service Pvt. Ltd. v. State of

Punjab(

6

)

to explain the extent and the limits of

the freedom of trade,

commerce and intercourse throughout the

.territo,ry of India proclaimed

by Art.

301 of the Constitution. Wedo not propose to.refer to any B

of these cases since the law appears to us to be well-settled :

Taxes of a compen~atory and regulatory character are outside

the expanse of Art. 301 of the Constitution. · Regulatory measures

and compensatory taxes far .from impeding the free

flow of trade

and commerce, often promote suchJree

flow of trade and commerce

by creating agreeable conditions and providing appropriate services.

All that is necessary to uphold a tax

which purports to be or is claim·

ed to be a compensatory tax is "the existence of a specific, identifi­

able object behind the

·levy and a nexus between subject and the

object

of a

levy".(") "If the object behind the levy is identifiable and

if there is sufficient nexus between the subject and the object of the

levy, it is not necessary that the money realised by the levy should be

put into a separate fund or that the

levy should be proportionate to

the expenditure. There can be no bar to an inter-mingling

of

the'

revenue realised from regulatory and compensatory taxes and from

the

taxes of a general nature nor can there be any objection to

more

or less expenditure being incurred on the object behind the

compensatory and regulatory

levy than the realisation from the levy".(") It should be patent that "it would ordinarily. be well·nlgh

impossible to identify and measure with any exactitude the benefits

received and the expenditure incurred and

levy the tax according to the benefits received and the expenditure incurred". Nor is the

court to interpose itself by assuming the role of a cost accountant

and attempt to balance meticulously the cost

of the services, benefits

and facilities against the realisation from the levy. And, if the levy

as a

whole is justified by the need generally, it does not have to be

separately justified with reference to every group of persons claiming

. (1) [1963) l S.C.R. 491.

(2) [1975) 2 S.C.R. 138.

(3) [1975) 2 S.C.R. 715.

(4) [1981] 3 S.C.R. 364.

(5) A.I.R. 1983 S.C. 637.

(6) [19811 2 S,C.R. 364,

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636

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SUPREME COURT REPORTS (1983) 3 S.C.R.

to require and receive less service than others. Once the nexus

between the levy and service is seen, the hivy must be upheld unless

the compensatory character is shown to be wholly or partly, a mere

mockery and in truth a design which is destructive of the freedom

of inter-state trade, commerce and inter-course.

· By vi~tue of the power given ·to them by Entries 56 and 57 of

IJst II every one of the States has the right to make its own· legis­

lation to compensate it for the services, benefits and facilities

provided

by it for motor vehicles operating

\vithfo. the territory ·of the

State.· Taxes resulting from such legislative activity are by their very

nativity and nature, cast and character, regulatory and compensatory

and, are therefore, not within

the vista of Art.

301, unless, as we said,

the tax

is a mere pretext designed to injure the freedom. of interstate

trade, commerce and intercoune.. The

nexus between the levy and

the service

is so patent in the case of such taxes that we need say no

more about it. The Karnataka Motor

Vehicles Taxation Act and

·the Motor

Vehicles Taxation Acts of other

States are without doubt

regulatory and ·compensatory legislations outside the range of Art.

301 of the Constitution. . .

It is true that the object of enacting sec. 63 (7) by the

Parliament

was to promote all-India and inter-state tourist traffic.

But 'taxes on vehicles

.......

, ..... suitable for use on roads' is a State

legislative subject and it is for the State Legislature to impose a levy

and to exempt from the levy .. True again, Entry 57 ofthe State List

is subject to Entry 35 of the Concurrent List and, as explained by

us at the outset, it is therefore open to the Parliament to lay down the •

principles on which taxes may be levied on mechanically propelled

vehicles. · But the Parliament while enacting S. 63 (7) of the Motor

Vehicles Act refrained from indicating any suc\l. principles, either

express!)!. or by necessuy implication. The State's power to tax

and to exempt

was left uninhibited. It may be that a a

State

legislation, plenary or subordinate, which exempts "non-home-state

tourist vehicles" from tax would be advancing the object of sec. 63

(7) of the Motor Vehicles Act and accelerating inter-state trade,

commerce and intercourse. But

merely by

Parliament legisiating

sec. 63 (7), the State Legislatures are not obliged to fall in 1 ine and

to

so arrange their tax laws as to advance

the object of sec. 63 (7),

be it

ever so desirable. The.

State is obliged neither to grant an

exemption nor to perpetuate an exemption once granted., Tl;tere is

no question

of impairing the freedom under Art.

301 by refusing to

..

/

B.A. JAYARAM v UNION (Chirmappa Reddy, J.) _637

exempt or by withdrawing an exemption. Not to pat on the back is

not to stab in the back. True, straw by straw, the burden of taxa-.

tion on tourist

vehicles increases as

each 'State adds its bit of straw,

but, then, each State is concerned with its.coffers and has the right

to tax vehicles using its· roads; and, the contribution which a tourist'

carriage

is required to make to its treasury 'is no more than what

other contract carriages are required to make.

We are firinly of the

view that there is no impairment. of the freedom under Art.

301. The

special submission on behalf

of the 'Karn'ataka Operators' that th'e

withdrawal by the Karnataka Government of the exemption granted ·to 'outsiders' has resulted in the Karnataka Operators having to pay

tax in every State in the country and, therefore, the withdrawal has

impaired th~ freedom under Art. 301 is but the same general sub-·

mission, seen through gla'sses of a difftrent tint. It does not even

have the merit that the withdrawal .of the Karnataka exemption

affects them directly. The submission is rejected.

One of the sumbissions niade to us was that if there was a

misuse

of the all-India permits, the remedy was to punish the. wrong

doers by taking appropriate action against the wrong-doers

by

can­

celling the permit, if necessary, but not to withdraw the benefit of the

exemption altogether,

even in the case of honest operators.

'l:hat is ·

a matter for the Legislature and its delegate to decide but not for

the court.

If the situation had

becom~ so malignant that 'drastic

action was called for, it is not for the court to substitute its judg­

ment to say that the object could perhaps be well achieved by

adopting a less drastic procedure.

It

was submitted that all-India tourist vehicles do not use the

roads

of the

State as much as the contract carriages operating in the

State and therefo~e, the State was wrong in. treating them alike. It

was said that treatment of unequals as equals had resulted in an

infringment

of Art.

·14 of the Constitution. It was also submitted

that vehicles holding inter-State permits under inter-state agreements

were still exempt from tax and

thfa was also a violation of Art. 14 of

the Constitution. Another contention raised was that there was some

sort

of promissory estoppel which prevented the

State Government

from withdrawing the exemption. Yet another argument was that

the withdrawal of the exemption

was arbitrary and therefore, judicial

review

was necessary. These and other like submissions which were

inade to us, in our· opinion, fall in the category of arguments which,

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638 SUPREME COURT REPORTS (1983) 3 s.c.R.

we mentioned earlier, have only to be stated to be rejected. The

A answers are self-evident. The submissions are totally without merit

and

we see no justification for increasing the

length of our judgment

by further futile discussion. All the Writ petitions are dismissed ·

'with costs and the interim orders are vacated.

B'

H.S.K.· Petitions dismissed.

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