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CASE NO.:

Appeal (civil) 8871 of 2003

PETITIONER:

State of U.P. & Others

RESPONDENT:

Sukhpal Singh Bal

DATE OF JUDGMENT: 02/09/2005

BENCH:

B.P. SINGH & S.H. KAPADIA

JUDGMENT:

J U D G M E N T

WITH

CIVIL APPEAL NOs.8875, 8881 to 8883, 8885,

8887 to 8890, 8893, 8895, 8897, 8900, 8903,

9591 AND 9592 OF 2003.

KAPADIA, J.

These civil appeals by special leave are directed against

the judgment and order of the High Court of Allahabad,

declaring section 10(3) of the Uttar Pradesh Motor Vehicles

Taxation Act, 1997 (for short "the 1997 Act") as ultra vires

articles 14 and 19(1)(g) of the Constitution.

The facts lie within a narrow compass and they are as

follows:

Sukhpal Singh is the owner of a tanker bearing

registration No.MP-24C-0377. The said tanker is covered by

national permit granted by the Regional Transport Authority,

Durg. The national permit granted was for Chattisgarh,

Maharashtra, Uttar Pradesh and Andhra Pradesh. Sukhpal was

granted an authorization certificate on the basis of the national

permit valid up to 14.2.2003.

On 26.2.2002, while carrying goods from Bhilai Steel

Plant to Sonepat, the tanker in question entered the State of U.P

and after unloading the goods returned from Sonepat. While

doing so, the tanker crossed the U.P. border at Masaura and

when it was about 8 kms. in the State of M.P., the vehicle was

seized by the Assistant Regional Transport Officer, Lalitpur on

4.3.2002.

On 5.3.2002, Sukhpal made an application for release of

his vehicle on which the Assistant RTO passed an order

directing Sukhpal to pay Rs.5100/- as composite tax plus ten

times penalty under section 10(3) of the said 1997 Act, as

amended by U.P. Amending Act No.25 of 2001.

The order of penalty was challenged by Sukhpal vide

writ petition in the High Court of Allahabad, in which the

validity of section 10(3) was put in issue.

We have quoted the facts in the case of Sukhpal as a

representative matter in the group of similar matters.

Smt. Shobha Dixit, learned senior counsel appearing on

behalf of the appellant-State submitted that on account of huge

evasion of tax, the legislature had to enact section 10(3)

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providing for a deterrent penalty as the State of U.P. has a vast

boundary and the vehicles could enter from distant corners

without payment of statutory dues at the entry point. Learned

counsel pointed out that drivers would carry demand drafts in

their pockets and they did not pay the taxes (including

additional tax) till they were apprehended and when

apprehended they made an excuse of paucity of collection

centres. She contended that the aforestated defaults constituted

tax evasion and, therefore, the State Legislature incorporated

section 10(3) into existing section 10 by Amending Act No.25

of 2001 imposing ten times penalty. Learned counsel next

contended that the vehicle in question was "goods carriage"

operating under national permit granted under section 88(12) of

the Motor Vehicles Act, 1988 (for short "the M.V. Act, 1988")

and, therefore, it was liable to pay additional tax at the rate

applicable to such "goods carriage" under part 'B' of the third

schedule [See: section 5(1)(b) of the 1997 Act]. Learned

counsel submitted that under section 5, additional tax has been

levied on goods carriage plying under permits granted by the

authorities within UP, goods carriage operating under national

permit granted under section 88(12) of the M.V. Act, 1988 and

goods carriage plying under permits granted by authorities

outside Uttar Pradesh for inter-State route partly lying in Uttar

Pradesh and, therefore, there was no discrimination to the levy

of additional tax. Learned counsel further contended that under

section 9(1)(iii) of the 1997 Act, additional tax is payable on

goods carriage under section 5(1)(a) in advance on or before the

fifteenth day of January, April, July and October in each year.

Learned counsel urged that under section 9(3), in cases where

breach occurs in payment of additional tax within the period

specified under section 9(1), a penalty of twenty five per cent of

the due amount has been prescribed for goods carriage plying

under permits granted by authorities within UP, whereas a ten

times penalty is imposed for the same offence on transport

vehicles having national permit under section 10(3) as it was

found that in the former case, the authorities within the State of

UP had better control as compared to goods carriages registered

outside the State of UP plying under the national permit under

section 88(12) of the M.V. Act, 1988 and, therefore, there was

no discrimination between the two categories as alleged.

Learned counsel further contended that under section 10

of the 1997 Act, no transport vehicle under temporary permit

granted under section 87 of the M.V. Act, 1988 or under

national permit granted under section 88(12) of the M.V. Act,

1988 or under permit by section 88(9) of the said M.V. Act,

1988 can ply in U.P. without payment of tax at the specified

rate for each of the three categories. According to the learned

counsel in the present case, we are concerned with section

10(1)(b) of the 1997 Act, as the offending vehicle was a

transport vehicle under national permit granted under section

88(12) of the M.V. Act, 1988 by a authority in State of M.P.

and, therefore, it was liable to pay additional tax under section 5

at the rate mentioned in clause 'B' of the third schedule to the

1997 Act.

Learned counsel submitted that since the offending

vehicle was found plying in the State of U.P. without payment

of additional tax, it became liable to ten times penalty. Learned

counsel further pointed out that section 12 of the 1997 Act

provides for refund and in cases where refund is refused, the

aggrieved person is entitled to move the appellate authority and,

therefore, determination and adjudication is also provided for in

the Act. Learned counsel, therefore, urged that the High Court

had erred in striking down section 10(3) of the 1997 Act as

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oppressive, coercive and unreasonable and, therefore, violative

of articles 14 and 19(1)(g) of the Constitution.

On behalf of the respondent, it was urged that there was

paucity of collection centres in UP and in most cases these

centres were located 50 to 60 kms. from the entry point and

consequently, the drivers were required to carry demand

drafts/cash to pay composite tax in these centres and in the

process if apprehended, they are fined under section 10(3) of

the Act. It was further submitted that the imposition of ten

times penalty in any event was harsh, unreasonable,

unconscionable and confiscatory in nature. In this connection,

it was urged that on the composite tax of Rs.5100/-, ten times

penalty would come to Rs.51000/-, which was unreasonable

and, therefore, violative of article 19(1)(g) of the Constitution.

It was urged that penalty up to ten times could have been

imposed so that in genuine cases, the respondents could be

made liable for lesser penalty in cases of mistakes in non-

payment of tax. However, in the present case, under section

10(3), ten times penalty at a fixed rate on composite tax was

harsh, arbitrary and unreasonable as no opportunity is provided

to the alleged offending vehicle to explain its case and to get the

penalty reduced. It was urged that in imposition of ten times

penalty, there was no adjudication and determination of the

quantum. It was urged that to impose ten times penalty without

determination violated the rights of the respondent under

articles 14 and 19(1)(g) of the Constitution. It was next

contended that the imposition of ten times penalty was

discriminatory and irrational as for the same offence in respect

of vehicles failing under section 9(3), penalty does not exceed

twenty five per cent of the due amount, whereas transport

vehicle plying in UP under national permit on default is liable

to ten times penalty and, therefore, the said levy was

unreasonable, irrational and discriminatory and consequently,

violative of article 14 of the Constitution. It was further urged

that vehicles registered in UP had to pay Rs.550/- as composite

tax and ten times penalty for such vehicles came to Rs.5500/-

whereas transport vehicles plying under national permit have to

pay composite tax of Rs.5100/- and on default, they are liable to

penalty of Rs.51000/-, which according to the respondent was

unreasonable, discriminatory and violative of their rights under

article 14 of the Constitution.

Before dealing with the aforestated contentions, we may

analyse the provisions of the U.P. Motor Vehicles Taxation

Act, 1997. The Act was enacted to provide for imposition of

tax in the State on motor vehicles. The Act was also enacted to

provide for imposition of additional tax on motor vehicles

engaged in the transport of passengers and goods for hire.

Section 2(a) defines "additional tax" to mean a tax imposed

under section 5 or section 6 in addition to the tax imposed

under section 4. Section 2(d) defines "goods carriage" to mean

any motor vehicle constructed or adapted wholly or partly for

use for the carriage of goods, or any motor vehicle not so

constructed or adapted when actually used for the carriage of

goods, and includes a trailer. Section 2(h) defines "owner" in

respect of a motor vehicle to mean the person whose name is

entered in the certificate of registration issued in respect of such

vehicle. Section 2(n) defines "transport vehicle" to mean a

goods carriage or a public service vehicle. Section 4 imposes

tax on motor vehicles other than transport vehicles used in any

public place in U.P. Section 4(1) inter alia states that no motor

vehicle, other than a transport vehicle, shall be used unless a

one-time tax at the rate applicable and as specified in part 'B'

of the first schedule is paid. Section 4(2), inter alia, states that

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no transport vehicle shall be used in any public place in U.P.

unless a tax at the rate prescribed in part 'D' of the first

schedule has been paid. Section 5 deals with levy of additional

tax on goods carriages. It states, inter alia, that no goods

carriage shall be operated in any public place in U.P., unless

there has been paid, in addition to the tax payable under section

4, an additional tax at the rate applicable to goods carriage

specified in the third schedule. The third schedule is again in

two parts. In the case of goods carriage plying under permits

granted by the State authorities, the tax payable is different

from the goods carriage operated under national permits

granted under section 88(12) of the 1988 Act. In the latter case,

additional tax is payable at the rate prescribed by part 'B' of the

third schedule. Therefore, sections 5(1)(a) and 5(1)(b) show a

dichotomy in the matter of levy of additional tax between

goods carriages plying under permits granted by authorities

within the State of U.P. and goods carriages plying under

national permits. Section 9 deals with payment of tax and

penalties. Under section 9(1)(ii), the tax payable under section

4(2) is payable in advance for each quarter at the time of

registration of the vehicle. Under section 9(1)(iii), the

additional tax payable under section 5(1)(a) is required to be

paid in advance on or before the 15th day of January, April, July

and October in each year. Under section 9(3), it is stated, that,

where the tax or additional tax in respect of a motor vehicle is

not paid within the period specified in sub-section (1), a penalty

at the rate not exceeding twenty five per cent of the due

amount, shall be payable, for which the owner and the operator

shall be jointly and severally liable. Section 10 deals with

transport vehicles which ply in U.P. It begins with the non

obstante clause. It states that notwithstanding anything

contained in section 9, no transport vehicle shall ply in the State

under a temporary permit granted under the 1988 Act unless the

vehicle has paid a tax under section 4 calculated at the

appropriate rate specified in the first schedule, as also

additional tax under section 5 calculated at the appropriate rate

specified in the sixth schedule. Under section 10(1)(b), no

transport vehicle shall ply in U.P. under a national permit

granted under section 88(12) of the M.V. Act, 1988 by an

authority having jurisdiction outside U.P. unless the vehicle has

paid additional tax under section 5 at the rate specified in

clause 'B' of the third schedule.

The main question in these civil appeals is whether

section 10(3) inserted by Amending Act No.25 of 2001

imposing ten times penalty is void for infringement of

respondent's rights under articles 14 and 19(1)(g) of the

Constitution as held by the impugned judgment. Therefore, we

are concerned with the validity of the said section which reads

as follows:

"10. Vehicles not to be used in Uttar Pradesh

without payment of tax.\027 (3) If such transport

vehicle is found plying in Uttar Pradesh without

payment of the tax or additional tax payable under

this Act such tax or additional tax along with a

penalty, equivalent to ten times of the due tax or

additional tax shall be payable."

In the case of State of Madras v. V. G. Row reported in

AIR 1952 SC 196 at p. 200, this Court observed as follows:-

"It is important in this context to bear in mind that

the test of reasonableness, wherever prescribed,

should be applied to each individual statute

impugned, and no abstract standard, or general

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pattern of reasonableness can be laid down as

applicable to all cases. The nature of the right

alleged to have been infringed, the underlying

purpose of the restrictions imposed, the extent and

urgency of the evil sought to be remedied thereby,

the disproportion of the imposition, the prevailing

conditions at the time, should all enter into the

judicial verdict."

In the case of Bhavesh D. Parish & Others v. Union of

India & Another reported in (2000) 5 SCC 471, this Court laid

down that while considering the scope of economic legislation

as well as tax legislation, the courts must bear in mind that

unless the provision is manifestly unjust or glaringly

unconstitutional, the courts must show judicial restraint in

interfering with its applicability. Merely because a statute

comes up for examination and some arguable point is raised,

the legislative will should not be put under a cloud. It is now

well-settled that there is always a presumption in favour of the

constitutional validity of any legislation unless the same is set

aside for breach of the provisions of the Constitution. The

system of checks and balances has to be utilized in a balanced

manner with the primary objective of accelerating economic

growth rather than suspending its growth by doubting its

constitutional efficacy at the threshold itself.

In the case of R.K. Garg etc. v. Union of India & Others

reported in (1981) 4 SCC 675, this Court held that every

legislation, particularly in economic matters, is essentially

empiric and it is based on experimentation. There may be

possibilities of abuse but on that account alone it cannot be

struck down as invalid. These can be set right by the legislature

by passing amendments. The Court must, therefore, adjudge the

constitutionality of such legislation by the generality of its

provisions. Laws relating to economic activities should be

viewed with greater latitude than laws touching civil rights

such as freedom of speech, religion etc. Moreover, there is a

presumption in favour of the constitutionality of a statute and

the burden is upon him who attacks it to show that there has

been a clear transgression of the constitutional principles. The

legislature understands and correctly appreciates the needs of

its own people, its laws are directed to problems made manifest

by experience and its discrimination are based on adequate

grounds. There may be cases where the legislation can be

condemned as arbitrary or irrational, hence, violative of article

14. But the test in every case would be whether the provisions

of the Act are arbitrary and irrational having regard to all the

facts and circumstances of the case. Immorality, by itself,

cannot be a constitutional challenge as morality is essentially a

subjective value. The terms "reasonable, just and fair" derive

their significance from the existing social conditions.

In the light of the above judgments as applicable to the

provisions of the said 1997 Act, we are of the view that the

High Court had erred in striking down section 10(3) as ultra

vires articles 14 and 19(1)(g) of the Constitution. "Penalty" is a

slippery word and it has to be understood in the context in

which it is used in a given statute. A penalty may be the

subject-matter of a breach of statutory duty or it may be the

subject-matter of a complaint. In ordinary parlance, the

proceedings may cover penalties for avoidance of civil

liabilities which do not constitute offences against the State.

This distinction is responsible for any enactment intended to

protect public revenue. Thus, all penalties do not flow from an

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offence as is commonly understood but all offences lead to a

penalty. Whereas the former is a penalty which flows from a

disregard of statutory provisions, the latter is entailed where

there is mens rea and is made the subject-matter of

adjudication. In our view, penalty under section 10(3) of the

Act is compensatory. It is levied for breach of a statutory duty

for non-payment of tax under the Act. Section 10(3) is enacted

to protect public revenue. It is enacted as a deterrent for tax

evasion. If the statutory dues of the State are paid, there is no

question of imposition of heavy penalty. Everything which is

incidental to the main purpose of a power is contained within

the power itself. The power to impose penalty is for the purpose

of vindicating the main power which is conferred by the statute

in question. Deterrence is the main theme of object behind that

imposition of penalty under section 10(3).

In the case of State of Tamil Nadu v. M Krishnappan &

Another reported in (2005) 4 SCC 53, this Court has held that

entry 57 of list II of the seventh schedule to the Constitution

provides a field to the State legislature to impose tax in respect

of every aspect of a vehicle. The State has to find funds for

making new roads and for maintenance of existing roads. The

Motor Vehicles Act 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. In

the said judgment, it has been held that imposition of higher

burden of tax on vehicles based on intelligible reasoning and

differentia will not make the impugned levy discriminatory,

arbitrary or unreasonable so as to violate article 14 of the

Constitution.

Lastly, we may point out that under section 12, the

drivers/operators are entitled to claim refund of tax. Similarly,

under section 18, any person aggrieved by the order of the Tax

Officer under section 12 is entitled to move the appellate

authority within 30 days. Learned counsel for the State stated

before us and we record her statement that cases of this type

would come under section 18. Learned counsel for the State

also pointed out that in appropriate cases where the transport

vehicle carries perishable goods, the vehicle is released on the

driver depositing the relevant documents with the Tax Officer

so that payment could be made within a stipulated period.

Although section 18 refer to appellate authority, in our view, on

an examination of the scheme of the Act, we find from the

provisions of section 18 that the authority deciding appeals

against orders passed by Tax Officer under section 12 is really

exercising initial jurisdiction and that under the Act, there are

sufficient safeguards and conditions which are not onerous and

which provide a forum for the aggrieved party to get redressal

and, therefore, the High Court had erred in striking down

section 10(3) of the Act.

In the case of Rahimbhai Karimbhai Nagriwala v. B.B.

Patel & Others reported in (1974) 97 ITR 660, penalty under

section 271(1)(c) of the IT Act, as it stood at the relevant time,

was levied on the assessee at Rs.13,854/-, equal to 100 per cent

of the alleged concealed income. The assessee challenged the

constitutional validity of section 271(1)(c) on the ground that

the provision was violative of article 14 of the Constitution

inasmuch there was no classification at all though there was a

difference between various types of tax evasions. It was urged

that such a severe penalty of concealment of income was

confiscatory in nature. It was urged that under section

271(1)(a)(i) of IT Act, the penalty for not filing a return was

correlated to the amount of the tax evaded as against the

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correlation of penalty to concealed income under the impugned

provisions of section 271(1)(c)(iii) was totally arbitrary because

so far as concealed income was concerned, the penalty for

concealed income proceeded on a different footing from

penalty for omission to file a return in time. It was also

contended that the impugned penalty was disproportionate as

there was no nexus between penalty imposed and the tax

evaded and under the circumstances, it was urged that section

271(1)(c)(iii) was violative of articles 14 and 19(1)(g) of the

Constitution. This challenge was rejected by the Gujarat High

Court observing that everything which is incidental to the main

purpose of a power is contained within the power itself so that

it extends to matters which are necessary for the reasonable

fulfilment of the legislative power over the subject matter and,

therefore, the power to impose penalty is for the purpose of

vindicating the main power, which is conferred by the Act. The

object of the legislature in levying such penalty is to provide

deterrent against tax evasion and to put a stop to a practice

which the legislature considers to be against the public interest.

It has been further observed that while article 14 forbids class

legislation, it does not forbid reasonable classification for the

purposes of legislation. The Supreme Court has permitted a

very wide latitude in classification for taxation. The object of

the legislature in enacting the impugned provision is not to

provide for confiscation but to provide a penalty for

concealment of income and that too by providing a deterrent

penalty.

In our view, the judgment of the Gujarat High Court in

the case of Rahimbhai Karimbhai Nagriwala (supra), is

squarely applicable to the present case. Deterrence is the main

theme or object behind the imposition of penalty and, therefore,

it is not possible to say that in the instant case the provision of

section 10(3) infringes articles 14 and 19(1)(g) of the

Constitution, as held in the impugned judgment.

Accordingly, the appeals filed by the State succeed and

are hereby allowed, the impugned judgment and order of the

High Court is set aside, with no order as to costs.