1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No(s).5534-5594 of 2011

THE STATE OF HIMACHAL

PRADESH AND OTHERS …APPELLANT(S)

VERSUS

GOEL BUS SERVICE KULLU

ETC. ETC. …RESPONDENT (S)

J U D G M E N T

Vikram Nath, J.

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but which appeals later on repealed by Rajasthan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.

2

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.

3

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

4

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

5

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, 1999

1 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 18

th

December, 1999, 23

rd

December, 1999,

1

In short “HPMVT(A) Act 1999”

6

6

th

January, 2000, 12.2.2000 and 31

st

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

7

compensatory tax and was, t herefore, 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

8

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:

• The constitutional Courts must restrain from

interfering in the matters of economic/tax legislation

9

until and unless the offending provision is manifestly

unjust or glaringly unconstitutional.

• Laws relating to economic activities should be viewed

with greater latitude and more play should be given

to the Government in comparison to other laws

relating to civil rights.

• Reliance was placed upon the following judgments in

support of the above submissions:

“(i) R.K. Garg etc. vs. Union of India &

Others reported in (1981) 4 SCC 675 (Para

7, 8, 16 & 2018).

(ii) Bhavesh D. Parish & Others vs. Union

of India & Another reported in (2000) 5

SCC 471 Para 26)).

(iii) Indian Oil Corporation vs. State of

Bihar reported in (2018) 1 SCC 242 (Para

25-28).”

• Lump sum tax could be levied as it would be

compensatory in nature.

• The wisdom of the State legislature should be read in

the broadest possible terms and merely because the

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levy is payable in lump sum or on one time basis

would not make it invalid or unconstitutional. Such

levy could be for administrative reasons and the

manner & mode of collection, cannot be the

conclusive test to decide the nature of levy.

• Quashing of the notifications dated 06.01.2000 and

01.04.2000 were also bad in law as imposition of

lump sum tax is by now well recognized by the

Courts.

• Reliance was placed upon the following judgments, in

support of the above submissions:

(i) State of T.N. vs. M. Krishnappan and

Anr. (2005) 4 SCC 53 (Para 18-23).

(ii) Commr. Of Agricultural Income Tax

vs. Netley ‘B’ Estate (2015) 11 SCC 462

(Para 20-22).

(iii) Ashok Leyland Ltd. vs. State of T.N.

(2004) 3 SCC 1 (Para 65 to 71).

11

(iv) Aas Mohammad v s. State of

Rajasthan (2020 2 RLW 1567 (Raj) (Para

22 to 26).

• The tax imposed under Section 3(A)3 of the 1972 Act

is regulatory and compensatory in nature. The

appellant-State being a hilly State with difficult

terrains, in order to maintain roads and bridges

which are the life-line of hilly terrains, a sizeable part

of the budget is spent on the construction,

development, repair, upkeep and maintenance of

roads and bridges.

• Reference was made to the counter affidavit filed by

the State before the High Court and also referred to

in the impugned judgment , enumerating special

circumstances for imposition and upholding of a

compensatory or a regulatory tax as valid. In this

connection, reliance has been placed upon the

following judgments:

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(i) Ranjit Singh vs. Taxation Officer,

Rampur and etc (2002 SCC Online All 75

(Para 14,15, 22 and 23)

(ii) In State of Himachal Pradesh and

Ors. Vs. Yash Pal Garg (Dead) by LRs and

Ors. (2003) 9 SCC 92 (Para 11-13,20 and

23)

(iii) State of Uttar Pradesh and Ors. v s.

Sukhpal Singh Bal (2005) 7 SCC 615 (Para

11 to 19).

(iv) B.A. Jayaram and Ors . vs. Union of

India (UOI) and Ors. (1984) 1 SCC 168 (Para

9-11).

(v) Bolani Ores Ltd. vs. State of Orissa

(1974) 2 SCC 777 (Para 15 & 29)

(vi) Sharma Transport Rep. by D.P.

Sharma vs. Government of Andhra

Pradesh and Ors. (2002) 2 SCC 188 (Para,

1,8 and 11)).

(vii) State of Maharashtra and Ors. vs.

Madhukar Balkrishna Badiya and Ors.

(1988) 4 SCC 290 (Para 6 & 10).

(viii) Rajeev Suri vs. Delhi Development

Authority and Ors. (2021 SCC Online SC 7

(Para 220 to 226).

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(ix) Janhit Manch and Anr. vs. The State

of Maharashtra and Ors. (2019) 2 SCC 505

(Para 13).

• The High Court, though upheld the power of the State

legislature to enact provisions for levy of special road

tax under Sections 3-A(1)(2)(4), but at the same time

erred in holding the provisions under Section 3-A(3)

to be ultra vires being unconstitutional.

• The appeals be allowed, the judgment of the High

Court impugned be set aside and the writ petitions be

dismissed.

9. On the other hand, Shri Siddharth Bhatnagar,

learned Amicus Curiae made the following submissions:

• The offences and penalties in respect of using vehicles

without permit is covered under Chapter XIII of the

Motor Vehicles Act, 1988 and in particular Section

192-A thereof.

14

• The Motor Vehicles Act, 1988

2 being a Central Act is

relatable to Entry 35 of List III of the Seventh

Schedule to the Constitution.

• The penalty for use of vehicle without permit is

already provided in Section 192-A of the 1988 Act.

The 1988 Act provides a complete mechanism in

respect of laws relating to motor vehicles including its

violations, consequences and penalties thereon. The

said provision specifically deals with the act of a

transport vehicle being used without a permit.

• The Himachal Pradesh Motor Vehicle Taxation Act

relates to Entry 57 of the List II of the Seventh

Schedule of the Constitution. It is subject to two

limitations (i) that the vehicle be suitable for use on

roads and (ii) any law made under this entry would

be subject to any law made under Entry 35 of list III.

2

the 1988 Act

15

• Any enactment by the State which encroaches on or

overlaps with the provisions of the 1988 Act would be

invalid to that extent.

• Reliance is placed upon the judgment of the Supreme

Court in State of West Bengal Vs. Kesoram

Industries Ltd. & Others, (2004) 10 SCC 201.

• The tax sought to be levied under Section 3A (3) is in

the nature of penalty which cannot be done in view of

the provisions contained in the 1988 Act. Reliance

was placed upon the following two decisions of the

Supreme Court:

(i) M.P. AIR Permit Owners Association

and Another Vs. State of Madhya Pradesh,

(2004) 1 SCC 320,

(ii) Hardev Motor Transport Vs. State of

M.P. and Others, (2006) 8 SCC 613.

• The impugned judgment does not suffer from any

infirmity in holding that the special tax sought to be

levied under Section 3A (3) is a penalty. The appeals

are, thus, liable to be dismissed.

16

Relevant Constitutional & Legal provisions:

10. Before proceeding to deal with the submissions

advanced, a brief reference to statutory and constitutional

provisions may be noted.

11. Article 246 of the Constitution lays down the subject

matters of the laws to be made by the Parliament and by

the Legislatures of States. According to it, three lists of

the Seventh Schedule would be determining the subjects

over which the Parliament may have exclusive power to

make laws (List I also referred to as the Union List),

subjects over which the State would have exclusive power

to make laws (List II also referred to as the State List) and

also the subjects where the Parliament as also the

Legislature of States would have power to make l aws

covered by List III (referred to as the Concurrent List).

Additional power is given to the Parliament under sub-

Article 4 to make laws with respect to any matter for any

part of the territory of India not included in a State even

17

though such matter is enumerated in the State List.

Article 246 is reproduced hereunder:

“(1) Notwithstanding anything in clauses (2) and (3),

Parliament has exclusive power to make laws with

respect to any of the matters enumerated in List I in

the Seventh Schedule (in this Constitution referred to

as the “Union List”).

(2) Notwithstanding anything in clause (3),

Parliament, and, subject to clause (1), the Legislature

of any State also, have power to make laws with

respect to any of the matters enumerated in List III in

the Seventh Schedule (in this Constitution referred to

as the “Concurrent List”).

(3) Subject to clauses (1) and (2), the Legislature of

any State has exclusive power to make laws for such

State or any part thereof with respect to any of the

matters enumerated in List II in the Seventh Schedule

(in this Constitution referred to as the “State List”).

(4) Parliament has power to make laws with respect

to any matter for any part of the territory of India not

included in a State notwithstanding that such matter

is a matter enumerated in the State List.”

12. Article 254 of the Constitution of India provides for

the effect in case of inconsistency between laws made by

the Parliament and the laws made by the Legislature of

States. The same is reproduced hereunder:

18

“(1) If any provision of a law made by the Legislature

of a State is repugnant to any provision of a law made

by Parliament which Parliament is competent to

enact, or to any provision of an existing law with

respect to one of the matters enumerated i n the

Concurrent List, then, subject to the provisions of

clause ( 2 ), the law made by Parliament, whether

passed before or after the law made by the Legislature

of such State, or, as the case may be, the existing law,

shall prevail and the law made by the Legislature of

the State shall, to the extent of the repugnancy, be

void

(2) Where a law made by the Legislature of a State

with respect to one of the matters enumerated in the

concurrent List contains any provision repugnant to

the provisions of an earlier law made by Parliament or

an existing law with respect to that matter, then, the

law so made by the Legislature of such State shall, if

it has been reserved for the consideration of the

President and has received his assent, prevail in that

State: Provided that nothing in this clause shall

prevent Parliament from enacting at any time any law

with respect to the same matter including a law

adding to, amending, varying or repealing the law so

made by the Legislature of the State.”

13. As already noted above, the Seventh Schedule flowing

out from Article 246 has three lists, which gives power to

the Parliament and the State Legislatures to make laws on

19

the subjects enumerated therein. It would be relevant to

mention that List I (the Union List) does not cover any

subject relating to motor vehicles or taxation relating to it.

List II (the State List) has two entries viz. 56 and 57 which

refer to subjects relating to taxes on goods and passengers

and taxes on vehicles. Both the above entries of List II are

reproduced below:

“56. Taxes on goods and passengers carried by road

or on inland waterways.

57. Taxes on vehicles, whether mechanically

propelled or not, suitable for use on roads, including

tramcars subject to the provisions of entry 35 of List

III.”

The above subjects fall within the domain of Legislature of

the State to make laws.

14. Under List III (the Concurrent List), Entry 35 spells

out the subject as mechanically propelled vehicles and

also the principles on which taxes on such vehicles can be

levied. Under this entry both the Parliament and the

20

Legislatures of State could frame laws. The said Entry 35

of List III is reproduced hereunder:

“35. Mechanically propelled vehicles including the

principles on which taxes on such vehicles are to be

levied.”

15. The first enactment relating to motor vehicles in India

was the Indian Motor Vehicles Act, 1914. It was replaced

by the second enactment which came in 1939 as Motor

Vehicles Act, 1939. After the coming of the Constitution

in 1950, a new Motor Vehicles Act was enacted by the

Parliament in 1988, the Motor Vehicles Act, 1988. The

Parliament enacted the 1988 Act drawing its source from

Entry 35 of the List III (the Concurrent List). The subject

covered by the above entry is mechanically propelled

vehicles including the principles on which taxes on such

vehicles are to be levied. The Parliament as also the

Legislature of States were thus competent to make laws

regarding the mechanically propelled vehicles including

the principles on which taxes could be levied on such

21

vehicles. Thus, the Concurrent List, insofar as taxes

concerned, is limited to the principles on which taxes are

to be levied. But the power to frame laws relating to

imposition of tax exclusively vests with the State

Legislatures under Entries 56 and 57 of List II. Entry 56

covers the subject of laying down law on imposition of

taxes on goods and passengers being carried by road or on

inland waterways. Whereas Entry 57 covers laws related

to taxation on vehicles, whether mechanically propelled or

not however such vehicles being suitable for use on roads.

The laws so framed would remain subject to the provisions

of entry 35 of List III.

16. Chapter V of the 1988 Act deals with Control of

Transport Vehicles. Section 66 makes it mandatory for

owners of motor vehicles to use such vehicles as a

transport vehicle whether actually carrying passengers or

goods only with a valid permit granted as provided therein.

Section 66 reads as follows:

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“66. Necessity for permits.—(1) No owner of a motor

vehicle shall use or permit the use of the vehicle as a

transport vehicle in any public place whether or not

such vehicle is actually carrying any passengers or

goods save in accordance with the conditions of a

permit granted or countersigned by a Regional or

State Transport Authority or any prescribed authority

authorising him the use of the vehicle in that place in

the manner in which the vehicle is being used:

Provided that a stage carriage permit shall, subject to

any conditions that may be specified in the permit,

authorise the use of the vehicle as a contract carriage:

Provided further that a stage carriage permit may,

subject to any conditions that may be specified in the

permit, authorise the use of the vehicle as a goods

carriage either when carrying passengers or not:

Provided also that a goods carriage permit shall,

subject to any conditions that may be specified in the

permit, authorise the use of the vehicle for the

carriage of goods for or in connection with a trade or

business carried on by him.

(2) The holder of a goods carriage permit may use the

vehicle, for the drawing of any trailer or semi-trailer

not owned by him, subject to such conditions as may

be prescribed: 1[Provided that the holder of a permit

of any articulated vehicle may use the prime-mover of

that articulated vehicle for any other semi-trailor.]”

17. Chapter XIII of the 1988 Act lays down the provisions

for Offences, Penalties and Procedure. Section 192A

introduced in 1994 provides that any motor vehicle being

23

driven in contravention of the provisions of sub-section (1)

of Section 66 or in contravention of any condition of permit

relating to the road on which or the area in which or the

purpose for which the vehicle may be used would be a

punishable offence which will result into imprisonment for

a term which may exten d to six months and fine of

Rs.10,000/- for the first offence and for subsequent

offences the imprisonment could extend to one year but

would not be less than six months or with fine of

Rs.10,000/- or with both.

18. Sub-section (2) thereof provides for an exception

where a motor vehicle may be used in an emergency for

carrying persons suffering from sickness or injury or for

supply of food or materials or medical supplies to relieve

distress. Other offences and penalties prescribed under

Chapter XIII are not relevant for the present controversy,

as such the same are not being referred to. Section 192A

reads as follows:

24

“(1) Whoever drives a motor vehicle or causes or

allows a motor vehicle to be used in contravention of

the provisions of sub-section (1) of section 66 or in

contravention of any condition of a permit relating to

the route on which or the area in which or the

purpose for which the vehicle may be used, shall be

punishable for the first offence with a fine which may

extend to five thousand rupees but shall not be less

than two thousand rupees and for any subseque nt

offence with imprisonment which may extend to one

year but shall not be less than three months or with

fine which may extend to ten thousand rupees but

shall not be less than five thousand rupees or with

both: Provided that the court may for reasons to be

recorded, impose a lesser punishment.

(2) Nothing in this section shall apply to the use of a

motor vehicle in an emergency for the conveyance of

persons suffering from sickness or injury or for the

transport of materials for repair or for the transport

of food or materials to relieve distress or of medical

supplies for a like purpose: Provided that the person

using the vehicle reports about the same to the

Regional Transport Authority within seven days from

the date of such use.

(3) The court to which an appeal lies from any

conviction in respect of an offence of the nature

specified in sub-section (1), may set aside or vary any

order made by the court below, notwithstanding that

no appeal lies against the conviction in connection

with which such order was made.]”

25

19. The State of Himachal Pradesh, exercising the powers

drawn from Entries 56 and 57 of List II of the Seventh

Schedule enacted the Himachal Pradesh Motor Vehicles

Taxation Act 1972

3. In the said Act various amendments

were brought from time to time. Vide Amending Act No.15

of 1999, Sections 3A, 3B and 3C were incorporated. The

object and reasons as spelled out for bringing out the

Amending Act of 199 9 was mainly to augment

finances/funds for development, construction and

maintenance of roads and bridges being a vital part of

expanding and developing trading facilities in the State. It

also mentioned that Himachal Pradesh being a hilly State,

substantial amount of its budget was spent on

construction, maintenance and development of roads and

bridges. Objects and reasons as reflected in the Bill No.

10 of 1999, is reproduced here under:

“Developed roads and bridges constitute arteries of a

healthy economy. Himachal Pradesh being a hill

3

HPMVT Act 1972

26

State, the importance of roads, their construction and

maintenance can hardly be over emphasized as a vital

trading facility. Each year, the government has to

incur considerable part of its budget on construction,

maintenance and development of roads and bridges

in the State. Since it is essential to finance these

activities, it is considered necessary to levy road tax

on transport vehicles used or kept for use on public

roads in Himachal Pradesh.”

20. In the original Act of 1972

4, Section 3 provided for levy

and collection of taxes on all motor vehicles which were to

be used or kept for use in the State of Himachal Pradesh.

Section 3 reads as follows:

“SECTION-3** LEVY OF TAX.

*(1) Subject to the other provisions of this Act, on and

from the commencement of the Himachal Pradesh

Motor Vehicles Taxation (Amendment) Act, 2004,

there shall be levied, charged and paid to the State

Government, a tax on all motor vehicles specified in

column (2) of Schedule-I, used or kept for use in

Himachal Pradesh, at the rate as may be specified by

the State Government, by notification, but not

exceeding the rates specified in column (3) of

Schedule-I..

**(2) On and from the commencement of the Himachal

Pradesh Motor Vehicles Taxation (Amendment)

Act,2004, there shall be levied, charged and paid to

4

HPMVT Act 1972

27

the State Government, a tax on motor cycles/scooters

or personal vehicles, used or kept for use in Himachal

Pradesh, for a period of fifteen years from the date of

issue of certificate of registration under sub- section

(3) of section 41 of the Motor Vehicles Act, 1988, (59

of 1988) at the rates as may be specified by the State

Government, by notification, on the basis of the price

of such motor cycle/scooter or personal vehicle,

subject to the maximum of ten percent of the price

thereof.

**(3) Notwithstanding anything contained in sub -

sections (1), on and from the commencement of the

Himachal Pradesh Motor Vehicles Taxation

(Amendment) Act, 2004, there shall be levied, charged

and paid to the State Government, a tax on motor

cabs or maxi cabs which are allowed to be converted

as personal motor vehicles, and on second hand

personal motor * Substituted vide H.P. Motor Vehicles

Taxation (Amendment) Act, 2004. * Substituted vide

H.P. Motor Vehicles Taxation (Amendment) Act, 1999.

6 vehicles which are to be registered in the State of

Himachal Pradesh for the first time, used or kept for

use in Himachal Pradesh, at the rates as may be

specified by the State Government, by notification,

subject to the maximum of ten percent of the price of

such motor vehicles to be determined by the taxation

authority after deducting eight percent depreciation

per annum from the original price of the motor vehicle

provided that:- (a) in the case of motor vehicles having

original price upto two lacs fifty thousand rupees, the

floor price shall not be less than fifty thousand

rupees, or (b) in the case of motor vehicles having

28

original price more than two lacs fifty thousand

rupees but not exceeding five lacs fifty thousand

rupees, the floor price shall not be less than one lac

rupees, or (c) in the case of motor vehicles having

original price more than five lacs fifty thousand

rupees but not exceeding ten lacs rupees, the floor

price shall not be less than two lacs rupees, or (d) in

the case of motor vehicles having original price more

than ten lacs rupees, the floor price shall not be less

than four lac rupees, or (e) in the case of two wheelers,

the floor price shall not be less than five thousand

rupees.”

21. By the Amending Act of 1999, Section 3A was

introduced which carries a heading: Levy of Special Road

Tax. This special road tax was in addition to the tax levied

under Section 3. The special road tax was also levied and

charged on all transport vehicles used or kept for use in

Himachal Pradesh specified in column 2 of Schedule 3 and

the rate of tax was to be not exceeding the rates specified

in column 3 of Schedule 3 of the Act. Section 3A is

reproduced hereunder:

“3-A. Levy of special road tax.-

(1) In addition to the tax levied under section 3, on

and from the commencement of the Himachal

Pradesh Motor Vehicles Taxation (Amendment) Act,

29

1999, there shall be levied, charged and paid to the

State Government, a special road tax on all transport

vehicles specified in column (2) of Schedule-III, used

or kept for use, in Himachal Pradesh, and, at such

rates as may be specified by the State Government,

by notification, but not exceeding the rates specified

in column (3) of Schedule-III of this Act.

2 [(2) The rates of special road tax, as may be specified

under subsection (1), in respect of stage carriages

shall be applicable to and charged on the entire

distance covered as per time table fixed by the

Regional Transport Authority and shall be payable

monthly by such date as may be notified by the State

Government from time to time.]

(3) Where a transport vehicle is plied without a valid

permit or in any manner not authorised by the permit

to be plied, there shall be levied, charged and paid to

the State Government further special road tax in

addition to the tax payable under sub-section (1), on

such vehicles at the rates as may be specified by the

State Government, by notification, but not exceeding

the rates specified in column (3) of Schedule-III of this

Act.

(4) Where a transport vehicle is registered in a State

other than the State of Himachal Pradesh, enters and

is used on any public road, or kept for use, in the

State of Himachal Pradesh, the special road tax shall

become chargeable, on such entry in the prescribed

manner.

Explanation.- For the purpose of special road tax

levied under this Act, transport vehicles shall include

30

non-transport vehicles when used as transport

vehicles by the owner. ”

22. Challenge before the High Court was also to the

validity of a few other provisions. However, the High Court

upheld the validity of all other provisions and it only

declared sub-section (3) of Section 3A as ultra vires. What

is, thus, required to be decided in this reference is whether

the High Court was right in declaring Section 3A(3) as ultra

vires.

23. The High Court was of the opinion that the tax

imposed by Section 3A(3) was in the nature of penalty and

for which the State Legislature had no power to make laws.

According to the High Court it was penalty because a

further special road tax was leviable where a transport

vehicle was plied without any valid permit or in any

manner not authorized by the permit to be plied. The High

Court opined that imposition of such an additional special

road tax for a default or a wrong committed with respect

to a transport vehicle would amount to a penalty and not

31

a tax. The finding recorded by the High Court is

reproduced hereunder:

“Further, the powers of State Legislature under the

entry aforesaid being subject to Entry 35 of List III, if

there is an existing law made by the Parliament laying

down the principles on which taxes on mechanically

propelled vehicles should be levied, then any State

Legislation enacted under this entry must conform to

these principles as laid down in the existing laws or

the earlier law made by the Parliament. If the

provisions of the State Laws are repugnant to those

principles, the Law made by the State Legislature

must fail to the extent of repugnancy, unless reserved

for the consideration of and assented to by the

President. The tax under this entry is leviable by the

State Legislature or all vehicles suitable for use on

roads, which are kept in the State, but such tax must

have some nexus with the vehicles using the public

roads of the State because it is compensatory in

nature, even though registered under the Motor

Vehicles Act. Contra the State Legislature is not

competent to levy, under the present entry, an impost

which is not in substance a regulatory or

compensatory tax for the transport of the vehicle

along the road, but a fine , for example using a vehicle

without a valid permit or for issuing it in a manner

not authorized by the permit, is beyond the

competence of the State Legislature, thus ultra vires.

(Please See AIR 1992, Rajasthan 181 DB). Further on

the perusal of Section 3-A (3), it transpires that the

tax specified therein is in substance a fine for the

32

alleged offence of plying a vehicle without a valid

permit or in any manner not authorized by the permit

to be plied. Such a penalty cannot be treated as a part

of regulatory or compensatory tax and is out of the

legislature competence of the State. The nature of

penalty without providing any mechanism for

show cause, adjudication or the appellate

authority by not providing any such mechanism,

also offends the principle of natural justice.

Therefore, it is held ultra vires the powers

conferred in the State Legislature under Entry 56

to 57 of List-II. For this, we put our reliance on

AIR 1992 Rajasthan 181 (DB).” (Emphasis added)

24. The High Court had also quashed the notifications

dated 06.01.2000, 01.04.2000 as also the decision dated

01.01.2000 being contrary to statutory provisions.

Quashing of the notifications would be dealt with at a later

stage after first dealing with the issue relating to

declaration of Section 3A(3) as ultra vires.

ANALYSIS:

A: Scope of Interference in Fiscal Statutes:

25. It is by now well settled that any tax legislation may

not be easily interfered with. The Courts must show

33

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.

26. In the case of R.K. Garg etc. vs. Union of India and

others, (1981) 4 SCC 675, the Constitution Bench was

judging the constitutionality of economic legislation

wherein challenge was to the validity of the provisions of

Special Bearer Bonds (Immunities and Exemption Act,

1981) on the grounds of discrimination and violation of

Article 14. P.N. Bhagwati J., speaking for himself, Chief

Justice Chandrachud, A.C. Gupta, S. Murtaza Fazal Ali

and A.N. Sen, J.J., observed in paragraph 7 regarding the

34

presumption in favour of constitutionality of the statute

and that the burden is on the person who attacks it, to

establish that there has been clear transgression of the

constitutional principles. In paragraph 8, it was laid down

that laws relating to economic activities should be viewed

with greater latitude than laws touching civil rights such

as freedom of speech, religion, etc. The views of Justice

Frankfurter in the case of Morey vs. Doud, 354 US 457

was relied upon. The same is reproduced hereunder:

“In the utilities, tax and economic regulation cases,

there are good reasons for judicial self-restraint if not

judicial deference to legislative judgment. The

legislature after all has the affirmative responsibility.

The courts have only the power to destroy, not to

reconstruct. When these are added to the complexity

of economic regulation, the uncertainty, the liability

to error, the bewildering conflict of the experts, and

the number of times the judges have been overruled

by events - self-limitation can be seen to be the path

to judicial wisdom and institutional prestige and

stability.”

27. In case of Bhavesh D. Parish and others vs. Union

of India and another, (2000) 5 SCC 471, the challenge

35

was to the validity of section 9 of Reserve Bank of India

Act as amended by the Amendment Act 1997 on the

ground that it was violative of Article 14 and Article

19(1)(g) of the Constitution. This Court dismissed the

challenge to the said provision in paragraph 26 of the

report. It observed that matters of economic policy should

be best left to the wisdom of the legislature. Further, it

went on to state that in the context of a changed economic

scenario the expertise of the people dealing with the

subject should not be lightly interfered with. It was also

observed that while dealing with economic legislation, this

court would interfere only in those few cases where the

view reflected in the legislation is not possible to be taken

at all.

28. In the case of Indian Oil Corporation Limited vs.

State of Bihar and another, (2018) 1 SCC 242,

provisions of the Bihar Tax on Entry of Goods into Local

Areas for Consumption, Use or Sale therein Act 1993, was

36

under challenge. Justice Nariman speaking for the Bench

observed in paragraph 25 that when it comes to taxing

statute, the law laid down by this Court is clear that it can

be said to be breach only when there is perversity or gross

disparity resulting in clear and hostile discrimination

without any rational justification for the same.

SPECIAL ROAD TAX IS REGULATORY OR

COMPENSATORY IN NATURE

29. The arguments raised before the High Court by the

respondent Transport operators (original writ petitioners

before the High Court) was that the fine imposed by

Section 3(A)(3) was in the nature of a penalty and the State

Legislature had no power to impose a penalty. The High

Court had accepted the said contention and accordingly

struck down the said provision.

30. The object and reasons for offending enactment is

already reproduced in the earlier part of this judgment. At

the cost of repetition, it is stated that the appellant State

being a hilly State, the roads and bridges are its lifeline.

37

The State has to allocate sizeable part of its budget for the

construction, development, repair, upkeep and

maintenance of roads and bridges. It was with this object

in the background that the offending provisions were

brought in by way of amendment s in 1999 and 2001

which are described as special road tax.

31. This Court in a number of cases dealing with similar

provisions has upheld the same. It has withheld that tax

charged for non-fulfilment of any obligation would also be

compensatory and regulatory in nature. Distinction was

carved out between a penalty imposed for breach of

statutory duty and penalty imposed being a subject matter

of a complaint that would require adjudication. The view

expressed consistently is that it would be compensatory or

regulatory where it is imposed for breach of a statutory

duty.

32. In the case of the State of U.P and others vs.

Sukhpal Singh Bal, (2005) 7 SCC 615, Justice Kapadia

38

speaking for the Bench held that section 10(3) of U.P.

Motor Vehicles Taxation Act, 1997, which provided for

charging of such tax or additional tax along with penalty

where transport vehicles were found plying in Uttar

Pradesh without payment of tax or additional tax under

the said Act to be valid as being regulatory and

compensatory.

33. The High Court had struck down the said provision.

This Court allowed the appeal of the State. After referring

to the judgments in the case of Bhavesh D. Parish and

R.K. Garg, this Court went on to hold that section 10(3)

was enacted to protect public revenue and as a deterrent

for tax evasion. Deterrence was the main theme and object

behind the imposition of penalty under Section 10(3) as

such would be regulatory in nature. Paragraphs 15 and

16 of the report in the case of Sukhpal Singh Bal (supra)

are reproduced below:

39

“15. 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 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).

40

16. 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. ”

34. From the very object and reasons of the Amending Act

1999, it is apparent that the special road tax was

introduced as a compensatory measure. The object and

reasons as spelled out in the original bill at the cost of

repetition is reproduced below:

“Developed roads and bridges constitute arteries of a

healthy economy. Himachal Pradesh being a hill

State, the importance of roads, their construction and

maintenance can hardly be over emphasised as a vital

trading facility. Each year, the government has to

incur considerable part of its budget on construction,

maintenance and development of roads and bridges

41

in the State. Since it is essential to finance these

activities, it is considered necessary to levy road tax

on transport vehicles used or kept for use on public

roads in Himachal Pradesh.”

35. What is to be seen is whether the tax imposed will

have identifiable object and a nexus between the subject

and the object of the levy. The power has been given to

the States to make its own legislations by imposing tax on

motor vehicles as also the goods being transported in

order to compensate itself for the services, benefits and

facilities provided by it.

36. This Court in B.A. Jayaram and Ors. vs. Union of

India (UOI) and Ors. (supra) laid down the proposition

that to uphold a tax claim to be compensatory tax, there

must be existence of a specific identifiable object behind

the levy. It further laid down that the levy must have a

nexus between the subject and the object of levying. In

the said case the challenge was to a notification issued by

the State of Karnataka dated 31 May, 1981 withdrawing

the exemption granted under Section 63(7) of the 1939

42

Act. The said exemption was granted to promote tourist

traffic on an inter-state basis. This Court, after

considering the object behind the compensatory and

regulatory levy, held that such tax fell outside Article 301

of the Constitution of India and withdrawal of the

exemption granted would neither be discriminatory nor

arbitrary and, accordingly, upheld the withdrawal. In this

context, it would be useful to reproduce paragraphs 9 and

10:

“9. By virtue of the power given to them by Entries 56

and 57 of List Il each one of the States has the right

to make its own legislation to compensate it for the

services, benefit and facilities provided by it for motor

vehicles operating within the territory of the State.

Taxes resulting from such legislative activity are by

their very nativity and nature, cast (sic caste) and

character, regulatory and compensatory and, are

therefore, not within the vista of Article 301. unless,

as we said, the tax is a mere pretext designed to injure

the freedom of inter-State trade, commerce and

intercourse. 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

43

regulatory and compensatory legislations outside the

range of Article 301 of the Constitution.

10. It is true that the object of enacting Section 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 of the 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 Section 63(7) of the

Motor Vehicles Act refrained from indicating any such

principles, either expressly or by necessary

implication. The State's power to tax and to exempt

was left uninhibited. It may be that a State legislation,

plenary or subordinate, which exempts "non-home-

State tourist vehicles" from tax would be advancing

the object of Section 63(7) of the Motor Vehicles Act

and accelerating inter-State trade, commerce and

intercourse. But merely by Parliament legislating

Section 63(7), the State Legislatures are not obliged

to fall in line and to so arrange their tax laws as to

advance the object of Section 63(7), be it ever so

desirable. The State is obliged neither to grant an

exemption nor to perpetuate an exemption once

granted. There is no question of impairing the

freedom under Article 301 by refusing to exempt or by

withdrawing an exemption. Not to pat on the back is

not to stab in the back. True, straw by straw, the

44

burden of taxation 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 firmly of the view that there

is no impairment of the freedom under Article 301.

The special submission on behalf of the 'Karnataka

Operators' that the 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 the freedom under

Article 301 is but the same general submission, seen

through glasses of a different tint. It does not even

have the merit that the withdrawal of the Karnataka

exemption affects them directly. The submission is

rejected.”

37. Similarly, in the case of Bolani Ores Ltd. vs. State

of Orissa (supra), a question arose with regard to the

taxes imposed under Entry 57 of List II being in the nature

of regulatory and compensatory measures. The appellants

in the said case were companies engaged in mining

operations and were seeking a declaration that rockers,

dumpers and tractors were not taxable under the Bihar

45

and Orissa Motor Vehicles Taxation Act 1930 as they were

not motor vehicles defined under the Act. The contention

of the appellants was that the tractors, dumpers and

rockers were not using any roads but were only plied

within the premises of the mining area which was privately

owned by the companies, and would not be liable to any

tax so long as they are within the premises. However, if

they use the roads, then the tax component will be

applicable. In para 29 of the report, this Court again

explained the nature of the State Legislation relating to

taxation on motor vehicles as being regulatory measure

and compensatory in nature to raise revenue. Relevant

extract is reproduced hereunder:

“The Taxation Act is a regulatory measure imposing

compensatory taxes for the purpose of raising

revenue to meet the expenditure for making roads,

maintaining them and for facilitating the movement

and regulation of traffic. The validity of the taxing

power under Entry 57 List I of the Seventh Schedule

read with Article 301 of the Constitution depends

upon the regulatory and compensatory nature of the

taxes. It is not the purpose of the Taxation Act to levy

46

taxes on vehicles which do not use the roads or in any

way form part of flow of traffic on the roads which is

required to be regulated. The regulations under the

Motor Vehicles Act for registration and prohibition of

certain categories of vehicles being driven by persons

who have no driving licence, even though those

vehicles are not plying on the roads, are designed to

ensure the safety of passengers and goods etc. etc.

and for that purpose it is enacted to keep control and

check on the vehicles. Legislative power under Entry

35 of List III (Concurrent List) does not bar such a

provision. But Entry 57 of List Il is subject to the

limitations referred to above, namely, that the power

of taxation thereunder cannot exceed the

compensatory nature which must have some nexus

with the vehicles using the roads viz. public roads.”

38. The argument by Mr.Bhatnagar, learned amicus that

the offending provision contained in Section 3A(3) being

repugnant to the central legislation, will have to give way

and cannot be sustained. His submission is that the

power to impose penalty is given in Section 192 A of the

1988 Act. According to him, Entry 57 of List II being

subject to the provisions of Entry 35 of List III under which

the 1988 Act has been enacted, Section 192A provides for

47

penalty being imposed on vehicles being used without

permit or in contravention of the provisions of sub-section

(1) of Section 66 (providing for necessity for permits).

According to him once the central Act contains a penal

provision for such a violation of imprisonment as also fine,

the State could not have imposed a tax for the same

violation. This submission of Shri Bhatnagar can be

sustained only if any repugnancy or any conflict can be

established between the State law and the Central law.

The provisions under Section 192A are in no way violated

or conflicted by imposing an additional special tax for

violation of use of vehicles without permit. It can be said

to be in addition to the penalty provided in Section 192A

of the 1988 Act. This Court, in the case of Sukhpal Singh

Bal (supra) has already upheld that such imposition of tax

for violation of statutory provisions, is to be treated as a

regulatory measure and only to work as a deterrent of the

vehicle owners’ violating the law. Such a tax would be

regulatory in nature and would only check violations of

48

the statutory provisions. In the case of Sharma

Transport Rep. by D.P. Sharma vs. Gov ernment of

Andhra Pradesh and Ors. (supra), a similar issue was

considered and this Court was of the view that under

Entry 35 of List III the permission is to lay down the

principles on which the tax may be levied whereas the

State had a right to levy such tax. Paras 8 and 11 of the

said report dealing with the aforesaid aspect are

reproduced hereunder:

“8. This is not a case where the theory of occupied

field can be made applicable. The Taxation Act

essentially deals with fares charged from passengers

and freight collected from them. On the contrary, the

Act deals with levy on vehicles. They are conceptually

different. Whatever has been stated above in the

background of Article 73 is equally applicable to

Articles 256 and 257 of the Constitution. Article 256

provides that the executive power of every State shall

be so exercised as to ensure compliance with the laws

made by Parliament and any existing laws which

apply in that State and the executive power of the

Union shall extend to the giving of such directions to

a State as may appear to the Government of India to

be necessary for that purpose.

49

This article has application only when any law has

been made by Parliament and the executive power of

the State is made subservient to it by requiring it to

ensure compliance with such laws.

Where it appears to the Government of India that it is

so necessary to do, directions can be issued. Article

257 provides that the executive power of every State

shall be so exercised as not to impede or prejudice the

exercise of the executive power of the Union. Where

the Government of India feels it so necessary to do so,

it can issue a direction. At the cost of repetition it may

be noted that there is no law specifying the principles

of taxation on the subject-matter of controversy so as

to bring in application of either Article 256 or Article

257 of the Constitution.

11. Power to levy taxes on vehicles, whether

mechanically propelled or not vests solely in the State

Legislature, though it may be open to Parliament to

lay down the principles on which the taxes may be

levied on mechanically propelled vehicles in the

background of Entry 35 of List III. To put it differently,

Parliament may lay down the guidelines for the levy

of taxes on such vehicles, but the right to levy such

taxes vests solely in the State Legislature. No

principles admittedly have been formulated by

Parliament. In that sense, the Government of India's

communication dated 30-8-1993 does not in any

sense violate the power of the State Legislature or its

delegate to levy or exempt taxes from time to time.”

50

39. Mr. Mukerji, learned counsel for the appellants, has

referred to a number of judgments of this Court relating to

levy of tax being compensatory and regulatory in nature.

The same are not being discussed in detail to unnecessary

burden the judgment. However, a reference has already

been made to the said judgments quoted earlier.

40. In the above backdrop of the legal position, the

validity of Section 3A(3) of the 1972 Act introduced vide

Amending Act of 1999 is being discussed hereunder.

41. Section 3 of the 1972 Act provided for levy of taxes on

all motor vehicles kept or used in the State of Himachal

Pradesh as per the schedules appended to the said Act.

Insertion of Section 3A provided for levy of special road

tax. The special road tax as provided under sub-sections

(1), (2) and (4) of Section 3A have been upheld by the High

Court. It is only the levy of special road tax under sub-

section (3) which has been struck down. Testing the

provisions of the offending section with regard to the

51

settled principles of interpretation of taxing statutes, it is

to be ascertained on the following three aspects:

(1) Whether it is manifestly unjust or glaringly

unconstitutional;

(2) Whether it is regulatory or compensatory in nature;

and

(3) Whether there is any repugnancy with the provisions

in the Central enactment.

Manifestly unjust or glaringly unconstitutional:

42. The Legislatures of the State have not only the power

to make laws on the taxation to be imposed on motor

vehicles as also the passengers and goods being

transported by motor vehicles but also the power to lay

down principles on which taxes on vehicles are to be

levied. In the absence of any principles having been laid

down by the Parliament, no fault could be found in the law

enacted by Legislature of the State of Himachal Pradesh.

The offending provision is regulatory in nature and

52

therefore within the competence of the Legislature of State

of Himachal Pradesh. There is nothing on record to indict

the offending provision as being manifestly unjust or

glaringly unconstitutional.

Regulatory or Compensatory :

43. The objects and reasons for bringing in the 1999

Amendment was clearly compensatory in nature. The

object was to augment funds and finance for construction,

maintenance, repair and upkeep of the roads in the State

of Himachal Pradesh which has a totally hilly terrain. The

offending section only provided that if any vehicle used

without a valid permit or in any manner not authorised by

the permit, further special road tax would be levied,

charged and paid to the state government in addition to

the tax payable under sub-section (1) at such rates as may

be specified by the state government by notification.

However, the restriction was that the same would not

53

exceed the rates specified in column 3 of Schedule 3 of the

Act.

44. Imposition of such additional special road tax was

only to keep a check or a discipline on the transport

vehicle operators to use their vehicles in accordance with

the statutory provisions. This could work as a deterrent

for the transport operators to not commit any breach and

to follow the mandate of the law. Such additional special

road tax could be termed as regulatory in nature so as to

regulate other statutory provisions being implemented

and strictly followed.

45. This Court in the case of Sukhpal Singh Bal (supra)

relating to challenge to Section 10(3) of the U.P. Motor

Vehicles Taxation Act, 1997 where a similar provision was

incorporated and even though termed as penalty, was held

to be regulatory and compensatory in nature. The High

Court had struck down the said provision but this Court

held that such penalty imposed under Section 10(3) to

54

protect public revenue and as a deterrent for tax evasion.

In view of the above, it cannot be said that levy of such an

additional special road tax would be said to be manifestly

unjust or glaringly unconstitutional. It was, in effect, to

ensure payment of the chargeable taxes and use of the

vehicles as per the terms of the permit.

Repugnancy, if any, with Central enactment :

46. Entry 35 of List II conferred the power on the

Parliament as also the State Legislatures to make laws

relating to mechanically propelled vehicles of all kinds and

also to lay down the principles on which taxes on such

vehicles are to be levied. The central enactment i.e. the

law made by the Parliament has not laid down any

principles for levy of taxes. The State Legislatures had the

power to levy taxes not only under Entries 56 and 57 of

List II but also to lay down the principles under Entry 35

of List III. Therefore, no repugnancy of any kind could be

alleged or pleaded or proved in the absence of there being

55

any central law laying down principles of levy of tax. In

view of the above, no repugnancy or conflict of the State

enactment with the central enactment could be sustained.

47. The next argument of the learned amicus with respect

to the 1988 Act containing Section 192A wherein violation

of Section 66(1) would constitute a criminal offence

punishable with sentence and also fine, as such the

offending section being repugnant to the said provision,

cannot be sustained. Under Section 192A a punishment

of imprisonment along with fine is provided whereas under

the offending section, an additional special road tax is

being charged for such a violation of using vehicle without

permit or in contravention of the terms of the permit. The

offending section was incorporated with a view to augment

more revenue in order to construct and maintain the roads

of the state which uses a large chunk of its finances being

a state having a completely hilly terrain. The additional

special road tax chargeable under Section 3A(3) would be

56

in addition to any sentence or fine imposed under Section

192A. Punishment for offence is with an object to create

deterrence and curtailing such offences as it creates a fear

in the mind of offender likely to commit the offence. The

same is the object of the additional special road tax to

make it work as a deterrent from the transport operators

in plying vehicles without permit and in contravention of

the terms of the permit. As such there is no repugnancy

or any conflict caused by the offending provision with the

central enactment.

48. For all the reasons recorded above, the validity of

Section 3A(3), in our opinion, has been wrongly held to be

ultra vires by the High Court. The tax imposed under

Section 3A(3) is regulatory in character and is not a

penalty.

Lumpsum taxation:

49. The High Court had also quashed the notifications

issued by the State for levy of the taxes under Section

57

3A(3) holding that lumpsum taxes could not be levied on

general assessment and it had to be levied as per actual

default. Levy of lumpsum tax has been upheld by a three

Judge Bench of this Court in the case of State of Tamil

Nadu vs. M. Krishnappan and Anr. reported in (2005) 4

SCC 53. We find no reason to take a different view. It may

also be noted that the learned Amicus Curiae has also not

advanced any arguments on this point.

50. In view of the above, it would not be a futile exercise

to send the matters back to the regular Bench as we have

held that said Section 3A(3) of the 1972 Act being within

the legislative competence of the State Legislature, and

lumpsum tax could be levied. Nothing further remains to

be examined by the regular Bench in these appeals.

51. We, accordingly, allow the appeals, set aside the

impugned judgment and order of the High Court and

further dismiss the writ petitions.

58

52. There shall be no order as to costs.

53. Pending application(s), if any, are disposed of.

…..……..........................J.

[SANJAY KISHAN KAUL ]

………….........................J.

[ABHAY S. OKA]

………….........................J.

[VIKRAM NATH]

NEW DELHI

JANUARY 13, 2023.