http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 10

CASE NO.:

Appeal (civil) 1869-1880 of 2000

PETITIONER:

The State of Tamil Nadu

RESPONDENT:

M. Krishnappan & Another Etc.

DATE OF JUDGMENT: 18/03/2005

BENCH:

S.N. VARIAVA,Dr. AR. LAKSHMANAN & S.H. KAPADIA

JUDGMENT:

J U D G M E N T

KAPADIA, J.

The question which arises for determination in these civil

appeals is \026 whether "life time tax" leviable in lump sum in

advance for the life time of a motor vehicle (four wheeler) on

the basis of the index of "weight-cum-value" ceases to be

compensatory in nature as held by the impugned judgment of

the Madras High Court dated 11.11.1999 in Writ Petition

Nos.11815, 15139 & others of 1999.

At the outset, it may be stated that the impugned

judgment covers twelve writ petitions filed in the Madras High

Court, all of them seeking to challenge section 4(1-A)(a) read

with Part-I Schedule-III to the Tamil Nadu Motor Vehicles

Taxation Act, 1974 (hereinafter referred to as "the 1974 Act"),

as amended.

For the sake of convenience, we may mention the facts of

the case in writ petition no.15139 of 1998.

M. Krishnappan, respondent herein challenged the

provisions of section 4(1-A)(a) imposing life time tax on motor

vehicles to be registered on and after 1.7.1998 being the date on

which the amending Act 27 of 1998 came into force. By the

said amending Act, section 3A as also the aforestated section

4(1-A) (a)(b) came to be inserted in the said 1974 Act by which

a dichotomy was created between the vehicles registered prior

to 1.7.1998 (old vehicles) and the vehicles registered thereafter

(new vehicles). In respect of the old vehicles, an option was

given either to pay one time tax or an annual tax, but in the case

of new vehicles no such option was provided for and

consequently, it became compulsory to pay one time tax on and

after 1.7.1998. At this stage, it may be stated that the

respondent herein, M. Krishnappan, had purchased, on

23.9.1998, a passenger car "Tata Sumo", on payment of

Rs.5,25,451/-, the unladen weight of which was 1700 kg. on

which he was charged a one time tax of Rs.20,540/-.

The impost was accordingly challenged as

unconstitutional, discriminatory, arbitrary and violative of

article 14 of the Constitution, besides being inconsistent with

the scheme of the 1974 Act. The main thrust of the challenge

was that the levy of motor vehicle tax was compensatory in

nature for the use of public road; that the wear and tear of such

roads maintained by the State had relevance to the unladen

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 10

weight of the vehicles and not to the value of the vehicle

specified in part-I of the third schedule; that the value of the

vehicle cannot constitute the basis for fixing the life time tax

and that such value had no relevance with the maintenance of

the roads and consequently the levy was arbitrary and

unreasonable. The other incidental contentions were : that by

insertion of section 4(1-A)(a) read with Part-I of Schedule-III to

the Act, an inconsistency stood introduced in the said 1974 Act,

as the pre-amended Act was based on the laden weight of the

vehicle; that the said parameter continued to apply for vehicles

registered before 1.7.1998; that the new index of "weight-cum-

value" was made applicable only to new vehicles; that the said

index had no relevance to the use and maintenance of the road;

that the differentia between old and new vehicles had no nexus

with the wear and tear of the roads; that there was no difference

between the two types of vehicles in terms of user of the roads;

and that, the State Legislature had committed a grave blunder in

introducing section 4(1-A)(a) making it compulsory for the

registered owners of the new motor vehicles to pay one time tax

resulting in an unwarranted and unjustified increase in the

payment of tax.

In the counter affidavit, filed on behalf of the State, the

levy was sought to be justified on the ground that w.e.f.

1.4.1989, two-wheelers (non-transport) vehicles were made to

pay "life time" tax at the time of its registration by inserting an

amendment to section 4 of the Act, as section 4(1-A).

In view of the success of "life time tax" for two wheelers,

the Government decided to introduce life time tax, without

option, for four wheelers, like cars and jeeps. (See Statement of

Objects & Reasons of the Amending Act 27/98). That, option

given to the said old vehicles was continued and the

classification between old and new cars in the payment of "life

time tax" was based on an intelligible differentia, hence, there

was no violation of article 14 of the Constitution.

By the impugned judgment, the High Court held that the

impugned amending Act 27/98, which imposed the levy of life

time tax based on the value of the vehicle registered on and

after 1.7.1998 was inconsistent with the section 4(1-A)(b); that

prior to the amending Act 27/98, the tax was levied only on

laden weight and not on the value of the vehicle which had no

nexus with the use of the roads; that by introducing the "value"

as an index, the tax has ceased to be compensatory and

consequently, the levy fell outside entry 57 of list-II of the

seventh schedule to the Constitution, which in turn attracted

article 265 of the Constitution resulting in levy and collection

of tax without the authority of law.

Mr. A.K. Ganguly, learned senior advocate appearing on

behalf of the State submitted that the concept of collection of

one time tax incorporated in section 4(1-A)(a) read with

schedule-III (part-I) of the 1974 Act has been upheld. In this

connection, reliance was placed on the judgment of this Court

in the case of State of Maharashtra & others v. Madhukar

Balkrishna Badiya & others reported in (AIR 1988 SC 2062).

It was urged that the index of "weight-cum-value" will not

make the levy loose its regulatory and compensatory character.

That, the mode of collection will not alter the nature of the levy

under section 3 of the said 1974 Act. That, imposition of tax

depending on the status of the owner or the nature of the vehicle

will not alter the nature of the levy. It was urged that

continuance of the option to pay the tax annually or on one time

basis did not violate article 14. According to the learned

counsel, the State Legislature was competent to tax the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 10

vehicles, hence, the impugned impost fell under entry 57 list-II

of the seventh schedule to the Constitution.

Mr. M.G. Ramachandran, learned advocate for the

assessees submitted that collection of one time tax based on the

value of the vehicle in the garb of regulation had no nexus with

the use and maintenance of roads; that, "value" had no

connection with the costs or expenses of administration; that the

impugned levy based on the status of the owner or the nature of

the vehicle made the levy fall outside entry 57 list-II and the

classification for the purposes of the said tax between the old

and the new vehicles made the levy arbitrary, discriminatory

and unreasonable under article 14 of the Constitution. In the

circumstances, it was submitted that no interference was called

for with the impugned judgment.

Before proceeding to consider rival contentions, it is

essential to discuss the statutory provisions of the 1974 Act, as

amended. Section 2 is the definition section wherein the

expressions "laden weight" and "life time tax" have been

defined. Section 3(1) inter alia provides that the said tax shall

be levied on motor vehicles used in the State at the rates

specified in the first schedule or in the second schedule or in the

third schedule, as amended by Act 27/98. Under section 3(2),

the Government is empowered by a notification to increase the

rate of tax specified in the schedules from time to time,

provided such increase, at a given, time shall not in the

aggregate exceed fifty percent of the rate specified in the

respective schedule, as the case may be.

Section 4, as amended by Act 27/98, reads as under:-

"4. Payment of Tax

(1) The tax levied under this Act shall subject to

the provision of sub-section (1-A), be paid in the

manner prescribed by the registered owner or by

any other person having possession or control of

the motor vehicle, at his choice, either quarterly,

half-yearly or annually, on a licence to be taken

out by him for that quarter, half-year or year, as the

case may be.

(1-A) Notwithstanding anything contained in sub-

section (1), -

(a) in respect of the motor vehicles specified in

item (A) in Part-I of the Second Schedule and in

Part-I of the Third Schedule, at the time of its

registration, a life time tax shall be paid at the rates

specified in item (A) in Part-I of the Second

Schedule or in Part-I of the Third Schedule, as the

case may be, on a licence to be taken out for the

life time of such vehicles.

(b) In respect of motor vehicles specified in

item (B) in Part-I of the Second Schedule and in

Part-II of the Third Schedule, the tax shall be paid

either annually at the rates specified in the First

Schedule or for the life time of such vehicles at the

rate specified in item (B) in Part-I of the Second

Schedule or in Part-II of the Third Schedule, as the

case may be, on a licence to be taken out for such

vehicles for that year or for the life time, as the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 10

case may be; and

(bb) in respect of motor vehicles specified in

Part-II of the Second Schedule, a life time tax shall

be paid at the rate specified in Part-II of the

Second Schedule.

(c) in respect of motor vehicles specified in

clauses 6 and 7 of the First Schedule, the tax shall

be paid annually at the rates specified therein on a

licence to be taken out for that year.

Explanation: The tax for a half-yearly licence

shall not exceed twice and the tax for an annual

licence shall, not exceed four times the tax for a

quarterly licence. The Government may, by

notification, grant, subject to such condition as

may be specified, a suitable rebate in case of half-

yearly, annual and life-time licences.

(1-B) Notwithstanding anything contained in sub-

section (1), in the case of motor vehicles specified

in class 5-A of the First Schedule, in respect of

which permits are granted under the Motor

Vehicles Act, 1988 (Central Act 59 of 1988) for a

period of five years, the tax shall be paid at the

rates specified in the First Schedule, for five years

at a time, at the time of issue of such permits:

Provided that in respect of the motor

vehicles specified in class 5-A which are already

covered by permits, the tax shall be paid annually

till the renewal of such permits.

(1-C) Notwithstanding anything contained in sub-

section (1), in the case of motor vehicles specified

in class I of the First Schedule in respect of which

permits are granted under the Motor Vehicles Act,

1988 (Central Act 59 of 1988) for a period of five

years, the tax under this Act may be paid by the

registered owner or by any person having

possession or control of the motor vehicle, at his

option, at the rates specified in the First Schedule

for five years at a time, at the time of issue of suit

permit.

(2) No motor vehicle shall be used or kept for

use in the State of Tamil Nadu at any time unless a

licence has been obtained.

(3) Notwithstanding anything contained in sub-

section (1), no person shall be liable to tax during

any period on account of any taxable motor

vehicle, if the tax due in respect of such vehicle for

the same period has already been paid by some

other person.

(4) Where a life time tax has been paid in

respect of a motor vehicle referred to in the Second

Schedule or in the Third Schedule the registered

owner or any other person having possession or

control of such vehicle shall not be required to pay

any additional tax either by way of increase or

otherwise."

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 10

Similarly, by the amending Act 27/98, a new schedule

was added as the Third Schedule (Part-I), which reads as

under:-

"THIRD SCHEDULE

PART - I

AT THE TIME OF REGISTRATION OF NEW MOTOR VEHICLES

Item

If the value of the

vehicle is not more

than Rs.5 lakhs

If the value of the vehicle

is more than Rs.5 lakhs

but not more than Rs.10

lakhs

If the value of the

vehicle is more than

Rs.10 lakhs.

Individual

Others

Individual

Others

Individual

Others

(1)

(2)

Rs.

(3)

Rs.

(4)

Rs.

(5)

Rs.

(6)

Rs.

(7)

Rs.

(a) Weighing

not more than

700 kgs.

unladen..

8,210

16,420

12,320

24,640

16,420

32,840

(b) Weighing

more than 700

kgs. but not

more than

1,500 kgs.

unladen..

10,950

21,900

16,430

32,860

21,900

43,800

(c) Weighing

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 10

more than

1,500 kgs. but

not more than

2,000 kgs.

unladen..

13,290

27,380

20,540

41,080

27,380

54,760

(d) Weighing

more than

2,000 kgs. but

not more than

3,000 kgs.

unladen..

15,060

30,120

22,590

45,180

30,120

60,240

(e) Weighing

more than

3,000 kgs.

unladen in

respect of

which private

transport

vehicles permit

is not required

under Motor

Vehicles Act.

17,110

34,220

25,670

51,340

34,220

68,440

Explanation: For the purpose of this Schedule, the word

"Individual" means a person known by his proper name."

A bare reading of the aforestated schedule shows the

introduction of "weight-cum-value" index as the basis for

payment of "life time tax"; that there is an in-built

rationalization of the rates according to the status of the holder

(paying capacity) and the nature of the vehicle (Indian and

imported cars). Such a rationalization of rates conceptually has

been accepted by the Court in the case of Union of India &

others v. Bombay Tyre International Ltd. reported in AIR

1984 SC 420, in which it has been held that any standard which

maintains a nexus with the essential character of the levy can be

regarded as a valid basis for assessing the measure of the levy.

In the case of Automobile Transport (Rajasthan) Ltd.

etc. v. State of Rajasthan & others reported in [AIR 1962 SC

1406], there was a challenge to section 4 of Rajasthan Motor

Vehicles Taxation Act, 1951, under which the levy was charged

at the rates specified in the schedule. Under schedule-II, taxes

were fixed on day-to-day basis in respect of certain goods

vehicles and in other cases, they were fixed on annual basis.

These provisions were challenged as ultra vires articles 301 and

19(1)(g) of the Constitution.

On examination of the provisions of the Act, this Court

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 10

held that if the statute fixes a charge for a convenience or

service provided by the State and imposes it upon those who

choose to avail themselves of such services or convenience, the

imposition assumes the character of remuneration or

consideration charged in respect of an advantage sought and

received and, therefore, the tax was regulatory and

compensatory in nature and consequently did not attract article

301 of the Constitution.

The short question which arises for consideration in the

present case is \026 whether the High Court was right in holding

that with the introduction of the concept of "value" as the basis

of the tax, the impugned levy fell outside entry 57 of list-II of

the seventh schedule to the Constitution.

It is well to remember that the State maintains old roads

and makes new ones. These roads are at the disposal of those

who use motor vehicles either for private purpose or for trade or

commerce. India is a cost-push economy. It has high rate of

inflation. The costs of maintenance as well as the costs of

material used in the maintenance of the roads increases by the

day. This naturally costs the State, which has to find funds for

making new roads and for maintenance of those that are in

existence. The impugned tax is regulatory and compensatory in

nature in the sense that it is imposed to meet the increasing

costs of maintenance and upkeep and to that extent it is not

plenary. However, as stated above, the limited question is :

whether the tax ceases to be compensatory and regulatory with

the introduction of "weight-cum-value" index and whether the

said index is contrary to the scheme of the said 1974 Act.

At the outset, it may be noted that depreciation is a

function of time and maintenance. In the present case, we are

concerned with the "life time tax" which is one time payment

spread over the economic life of the vehicle. The said tax is

based on time, use and maintenance of the roads. As stated in

the judgment of this Court in Bombay Tyre (supra), any

standard, which maintains a nexus with the essential character

of the levy can be regarded as a valid basis for assessing the

measure of the levy. Applying the said test to the present case,

we hold that the index of "weight-cum-value" maintains the

nexus with the essential character of the levy in question and,

therefore, the High Court erred in holding that by introduction

of the value of the vehicle as a parameter, the levy ceases to be

regulatory and compensatory in nature. It is important to bear

in mind that entry 57 of list-II of the seventh schedule to the

Constitution refers to taxes on vehicles suitable for use on

roads. Under the said entry, a field is provided to the State

Legislature to impose the impugned tax in respect of every

aspect of a vehicle. When the Constitution provides a field of

legislation, it has to be read in the broadest possible terms.

When the State is empowered to levy taxes on goods, it is

empowered to levy such taxes on every aspect of such goods.

Similarly, when the State is empowered to levy tax on the

vehicle, it is empowered to levy tax on every aspect of the

vehicle. Throughout the Constitution, the legislative power

relating to taxes and the legislative power relating to general

subjects is treated separately and is not subsumed under a

general head. Applying the above tests to the present case, we

are of the view that the High Court had erred in holding that on

account of introduction of "weight-cum-value" index in the

third schedule to the Act, the impugned tax had ceased to be

regulatory and compensatory and consequently, the said levy

fell outside entry 57 list-II.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 10

In the case of Commissioner of Central Excise,

Lucknow, U.P. v. Chhata Sugar Co. Ltd. reported in (2004) 3

SCC 466, this Court has held that a regulating measure may

also contain taxing provisions.

In the case of State of W.B. v. Kesoram Industries Ltd.

& others reported in (2004) 10 SCC 201, the Constitution

Bench of this Court has held that a power to tax may be

exercised for the purposes of regulating trade, industry,

commerce or any other activity; the purpose of levying such an

impost is the exercise of sovereign power to effectuate

regulation though incidentally the levy may contribute to the

revenue.

In the present case, we are satisfied that the levy in

question being one time tax continues to be a part of regulatory

measure. For administrative reasons, in the matter of collection

of tax, one time payment of tax is administratively convenient

and at the same time, it is also beneficial to the users of the

vehicles who do not have to go to the office of the RTO every

year to pay the annual taxes. It is also beneficial to the users of

the motor vehicles, as they do not have to pay taxes at the

increased rates from time to time over the economic life of

vehicle as contemplated by section 3(2) of the Act. Moreover,

weight alone may not provide a sufficient parameter/basis for

imposition of "life time tax". As an illustration, we may point

out that the weight of the Honda CRV Car is 1500 kg. as

against the weight of Tata Indigo GLX which weighs 1490 kg.

and yet the cost of Honda CRV is Rs.15,24,396 lacs whereas

the price of Tata Indigo is 5.08,651 lacs. Hence, weight index

alone may not constitute the basis of "life time tax".

In the circumstances, we reiterate that introduction of

"weight-cum-value" index will not make the levy non-

regulatory/non-compensatory. Further, under the unamended

1974 Act, weight was the basis of the impugned levy as an

annual tax. But with the introduction of a "life time tax", the

entire future projection spread over the economic life of the

vehicle had to be taken into account along with other factors

like fall in the value of the rupee, inflation, rising costs of the

material, cross subsidy etc. and consequently, it was necessary

to introduce the new index of "weight-cum-value" and factors

like paying capacity of the owner. In our view, these factors

have nexus with the use of the roads over a period of time and

hence, the impugned levy fell within entry 57 list-II of the

seventh schedule to the Constitution.

We also do not find the impugned levy to be

discriminatory, arbitrary or unreasonable so as to violate article

14 of the Constitution as held by the High Court. In the case

of Municipal Corporation of the City of Ahmedabad & others

v. Jan Mohammed Usmanbhai & another reported in [(1986)

3 SCC 20], this Court held that article 14 forbids class

legislation and not reasonable classification and in order to pass

the test of reasonable classification, the classification must be

founded on an intelligible differentia which distinguishes

persons or class of persons that are grouped together from the

others left out of that group and that such differentia must have

a rational relation to the object sought to be achieved by the

statute in question.

In the case of The State of Gujarat & another etc. v.

Shri Ambica Mills Ltd., Ahmedabad & another etc. reported in

(1974) 4 SCC 656, this Court held that where size is an index,

discrimination between large and small is permissible. Article

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 10

14 does not require that every regulatory statute should apply to

each and everyone equally in the same business.

Similarly, in the case of Sate of Maharashtra v.

Madhukar Balkrishna Badiya (supra), this Court has held that

taxing of a company owned vehicle at three times the rate

payable by an individual owner did not make the enactment

violative of article 14 as the Legislature had the power to

distribute the tax burden in a flexible manner and the Court

would not interfere with the same.

There is no merit in the contention advanced on behalf of

the respondent herein that there is violation of article 14 of the

Constitution by imposing higher burden of tax on vehicles

owned by "others" vis-`-vis the vehicles owned by the

"individuals" in part-I of the third schedule. We do not find

merit in this argument. Firstly, as held by this Court in the case

of Bombay Tyre (supra), levy is a constitutional concept,

whereas collection of a tax as well as incidence of tax comes

within the statutory measure. The mode of collection or the

incidence of tax cannot be the conclusive test to decide the

nature of the levy. The nature of the levy is a concept different

from the mode of collection of tax. Levy is a constitutional

concept whereas mode of collection of tax is a statutory

concept. They stand on different footings. Secondly, it is

important to remember the words of Lord Wilberforce, quoted

with approval by House of Lords in the case of Barclays

Mercantile Business Finance Ltd. v. Mawson (Inspector of

Taxes) reported in (2005) 1 All ER 97 stating that "a tax is

generally imposed by reference to economic activities or

transactions which exist in the real world". When an economic

activity is to be valued, it is open to the law maker to take into

account various factors including the paying capacity of the

user, the value of the vehicle, the economic life of the vehicle

etc. Lastly, in the present case, for the vehicles registered

before 1.7.1998 the option between annual and one time tax is

retained.

Before concluding, we may quote the observations of the

Division Bench of the Kerala High Court in the case of Anas v.

State of Kerala reported in 1999 (3) KLT 147 [to which one of

us, Dr. AR. Lakshmanan, J., was a party], which state as

under:-

"A taxing statute can be held to contravene

Art. 14 of the Constitution only if it purports to

impose on the same class of property similarly

situated an incidence of taxation which leads to

obvious inequality. It is for the Legislature to

decide on what objects to levy what rate of tax and

it is not for the Courts to consider whether some

other objects should have been taxed or whether a

different rate should have been prescribed for the

tax. It is also to be noted that the Legislature is

competent to classify persons or properties into

different categories and tax them differently, and if

the classification thus made is rational, the taxing

statute cannot be challenged merely because

different rates of taxation are prescribed for

different categories of persons or objects."

For the aforestated reasons, there is no violation of article

14 of the Constitution. As stated above, the impugned levy of

life time tax is based on rational and reasonable classification

founded on an intelligible differentia having a rational relation

to the object of the impugned levy.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 10

Accordingly, the appeals filed by the State succeed, the

impugned judgment and order of the High Court is set aside,

with no order as to costs.