PETITIONER: G. K. KRISHNAN ETC. ETC. Vs. RESPONDENT: THE STATE OF TAMIL NADU & ANR. ETC. DATE OF JUDGMENT12/11/1974 BENCH: MATHEW, KUTTYIL KURIEN BENCH: MATHEW, KUTTYIL KURIEN RAY, A.N. (CJ) ALAGIRISWAMI, A. CITATION: 1975 AIR 583 1975 SCR (2) 715 1975 SCC (1) 375 CITATOR INFO : R 1975 SC 594 (4,8) F 1975 SC1006 (2) RF 1981 SC 711 (10) D 1983 SC 634 (16,18,21) OPN 1983 SC1005 (7) R 1985 SC 660 (24) R 1988 SC2062 (15) R 1989 SC 100 (31) F 1990 SC 913 (27) R 1990 SC1637 (21) ACT: Madras Motor Vehicles Taxation Act (3 of 1931)-Tax on contract Carriages enhanced by notification-If violative of Art. 301-Motive for enhancing tax, if relevant-If discriminatory as compared to stage carriages and violative of Art. 14. HEADNOTE: The enhancement of motor vehicles tax on omnibuses imposed by the State Government, by notification dated September 20, 1971, from Rs. 30/per seat per quarter to Rs. 100 per seat per quarter was challenged on the following grounds :- (1) The notification was not a measure of taxation but a device to eliminate the competition of omnibus" with stage carriages run by the Government; (21 Since the tax operates as a restriction on the freedom of trade, commerce and intercourse within the State, it could be imposed only by a law which had obtained the previous sanction of the President under Art. 304. and as the notification was issued by the government in the exer- cise of its delegate power, it was not a law made by the legislature, nor could the previous sanction of the President be obtained for it; and (3)The distinction made between contract carriages and stage carriages. in the matter of levy of vehicle tax offends Art. 14. Rejecting the contentions. HELD : 1. The tax was imposed by the Government in the exercise of its power under S. 4 of the Madras Motor Vehicles Taxation Act, 1931. As the State Legislature was competent to pass the Act and as the Government is authorised under s. 4 to levy the tax, the question of the motive with which the tax was imposed is immaterial. There can be no plea of a colourable exercise of power to tax if the Government had power to impose the tax and the fact that the imposition of the tax was for the purpose of eliminating competition would not detract from its validity. [720A-B] 2. (a) Article 301 imposes a general limitation on all legislative power in order to secure that trade, commerce and intercourse throughout the territory of India shall be free. The word 'free' does not mean freedom from regula- tion. There is a distinction between laws interfering with freedom to carry out the activities constituting trade and law imposing on those engaged therein rules of proper conduct or other restraints directed to the due and orderly manner of carrying out the activities. This distinction is described as regulation. The true solution in any given case could be found by distinguishing between features of the transaction or activity in virtue of which it fell within the category of trade, commerce and intercourse and those features which, though invariably found to occur in some form or another in the transaction or action are not essential to the conception. what is relevant is the contrast between the essential attributes of trade and commerce and the incidents of the transaction which do not give it necessarily the character of trade and commerce. Laws for government of such incidents, ,regulate'. If a tax is compensatory or regulatory, it cannot operate as a restriction on the freedom of trade or commerce. A compensatory tax is based on the nature and the extent of the use made of the roads. if the proceeds are devoted to the repair, upkeep, maintenance of relevant roads and the collection of the exaction involves no substantial interference with the movement. What is essential for the purpose of securing freedom of movement by road is that no pecuniary burden should be placed upon. it 716 which goes beyond a proper recompense to the state for the actual use made of the physical facilities provided in the shape of a road. Motor vehicles require, for their safe, efficient and economical use, roads of considerable width, hardness and durability. and the maintenance of such roads will cost the government money. But, because the users of vehicles generally and of public motor vehicles in particular, stand in a special and direct relation to such roads, and may be said to derive a special and direct benefit from them. it is not unreasonable that they should be called upon to make a special contribution to their maintenance over and above their general contribution as tax payers of the State. [721C-H; 722B-F] (b) In the counter affidavit filed on behalf of the State, the averment in that Government has incurred an expenditure of Rs. 19.51 crores in the year 1970-71 on the maintenance and construction of roads while the receipts from out of the vehicle tax was only Rs. 16.38 crores. It would not be right to say that a tax is not compensatory because the precise or specific amount collected is not actually used for providing any facilities, and a working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and not paying patently much more than what is required for providing the facilities. It would be impossible to judge the compensatory nature of a tax by a meticulous test and, in the nature of things, it could not be done. It is always difficult to evolve a formula which will in all cases ensure exact compensation for the use of the road by vehicles having regard to their type, weight and mileage. Rough approximation, rather than mathematical accuracy is all that is required. [722G; 723A-D] Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 S.C.R. 491 followed. (c) If the tax is attacked on the ground that it is excessive, the burden ,of proof is upon the one attacking its validity. The amount of the charges and the method of collection are primarily for determination by the State itself, although they must be reasonable and fixed according to some uniform, fair and practical standard. Although any method of taxation which has a direct bearing upon or connection with the use of the highways is apparently valid, a tax which has no such apparent bearing and is not shown to be compensatory, but is rather a tax on the privilege of engaging in trade and commerce, is beyond the power of the State. It is also not necessary that there should be a separate fund or expenses allocation of money for the maintenance of roads to prove the compensatory purpose when such purpose is proved by alternative evidence. [723G-724B] (d) It could not be said that vehicle tax can be levied only for the the of the road in existence and that the levy is not compensatory because government, has included the cost of the construction of new roads also in their 'road costs' because. [724B-C] (i) Even if the cost of construction of new roads is excluded, the receipts would not be sufficient to meet the expenses incurred for maintenance of old roads and therefore. it is difficult to say that in actual fact, capital expenditure for construction of new roads was taken into account in the levy of vehicle tax. [724E-F] (ii) This court approved in the Automobile case the reason given by the High Court that the State was charging far the cost incurred in maintaining and making roads. [724G-725A] (iii) The State may impose even upon motor vehicles as compensation 'for the use of the public highways a charge) which is a fair contribution to the cost of (constructing and maintaining roads and "for regulating traffic thereon. [725B-C] Artmstrong and Ors. v. The State of Victoria and Ors. 99 Commonwealth 'Law Reports 28; Commonwealth Freighters P. Ltd. v. Sneeddon 102 Commonwealth Law Reports 280; Interstate Transit Inc. v. Lindsey 283 U.S. 183, at 185 and Capital Greyhound Lines v. Brice 339 U.S. 542 referred to. 717 Therefore, the tax imposed by the notification is compensatory in character and could not therefore restrict the freedom of trade and commerce. [726C-D] (e) There is no material to show that the tax is cofiscatory or excessive and operates as an unreasonable restriction upon the appellants right to carry on the trade. A tax which is compensatory cannot operate as an unreasonable restriction upon the fundamental right of the appellants to carry on the business, for, the very idea of a compensatory tax is service more or less commensurate with the tax levied. No citizen has a right to engage in trade or business without paying for the special services he receives from the State. because, that is part of the cost of carrying on the business. [726E-F] 3. (a) The reasons for enhancing the vehicle tax on contract carriages are, (a) that contract carriages run more miles, (b) carry more load, and (c) stage carriages pay surcharge on the fare collected; while owners of contract carriage are not liable to pay the surcharge. It cannot be said that a classification made on the basis of the capacity of the contract carriage to run more miles is unreasonable, because, these carriages will be using the road more than the stage carriages which have got time schedules. specified routes and maximum and minimum number of trips. [727D-728C] (b) There is always a presumption that a classification is valid, especially in a taxing statute and a person who challenges a classification as unreasonable has the burden of proving it. Classification depends to a great extent upon an assessment of the local conditions under which these carriages are being run which the legislature or the administrative body alone is competent to make. The Act in its II Schedule classifies contract carriages and stage carriages separately for tax purposes. Therefore, when the Government, in the exercise of its power to tax, made a classification between stage carriages on the one hand and contract carriage on the other hand and fixed a higher rate of tax on the latter, the presumption is that Government made that classification on the basis of its information that contract carriages are using the roads more than the stage carriages because they are running more miles; and this Court has to assume, in the absence of any materials placed by the owners of contract carriages, that the classification is reasonable. Hence, the levy of an enhanced rate of vehicle tax on contract carriages is not hit by Art. 14. [730G-731E] State of Gujarat v. Ambica Mills Ltd. [1974] 11 S.C.J. 211, at 231. San Antonio School District v. Rodriguez 411 U.S. 1 and Carmichael v. Southern Coal & Coke Co. 301 U.S. 495 referred to JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2415 of
1972 and 128 to 132 of 1973.
Appeals by Special Leave from the Judgments and Order dated
the 14th February, 1972 of the Madras High Court in WPs.
Nos. 3062/71 and 3069-3073 of 1971.
S. V. Gupte (In CA No. 128/73), K. S. Ramamurthi (In CA
No. 129 of 1973 and 2415 of 1972) and A. T. M. Sampath, for
the appellants (in CAs. Nos. 2415/72 and 128-132/73).
S. Govind Swaminathan, Advocate Gen. for the State of
Tamil Nadu, N. S. Sivan, A. V. Rangam and A. Subhashini, for
the respondent (in C.A. 2415/72 and 128-129/73).
A. T. M. Sampath, for the petitioners in WPs. Nos. 1051-
54, 1120, 1463-65 and 488-495/73.
E. C. Agarwala, for the petitioners (in WPs. No. 994 and
1312/73
K. R. Nambiar, for the petitioners (in WP. No,. 1850/73).
718
N. Natesan (In WP. Nos. 253 and 394/73), A. K. Sen (In
395/73) and K. Doraiswami and K. Jayaram, for the
petitioners (in all rest of petitions).
S. Govind Swarninadhan, Advocate Gen. for State of Tamil
Nadu A. V. Rangam and A. Subhashini, for the respondents
(In all the petitions).
The Judgment of the Court was delivered by
MATHEW, J.-In the Civil Appeals, the questions for
consideration are whether the enhancement of motor vehicles
tax on omnibuses imposed by G.O. No. 2044-Home dated 20-9-
1971 by the Government of Tamil Nadu from Rs. 30 per seat
per quarter to Rs. 100/- per seat per quarter is
constitutionally valid and whether the distinction made
between contract carriages and stage carriages in the matter
of levy of vehicle tax offends Article 14 of the Consti-
tution.
The writ petitions assail the validity of the aforesaid
notification on the additional ground, namely, that the tax
levied under the notification imposes restrictions on the
freedom of trade, commerce and intercourse guaranteed by
Article 301 of the Constitution and that, as the
notification is not law passed after obtaining the previous
sanction of the President of India, the tax is invalid.
We take up for consideration Writ Petition No. 253 of 1973
and the judgment therein will dispose of the Civil Appeals
and the Writ Petitions.
The petitioner is the owner of an omnibus which has a
capacity to accommodate 54 passengers. He obtained a permit
on 16-5-1968 to operate it as a contract carriage and was
paying tax at the rate of Rs. 30/- per seat per quarter
under the Madras Motor Vehicles Taxation Act 3 of 1931
(hereinafter called the ‘Act’). This Act was passed with a
view to abolish levy of tolls in the Presidency of Madras
and the, levy of taxes on motor vehicles by local bodies.
The rate of tax which originally stood at Rs. 10/- per seat
per quarter was increased to Rs. 30/- per seat per quarter
when the systems of issuing permits for omnibuses by the
regional transport authorities came into vogue. The
Government of Tamil Nadu by G.O.M.S. 923-Home dated 19-4-
1969 increased the rate of tax with respect to omnibuses
from ‘Rs. 30/- to Rs. 50/- per seat per quarter with effect
from 1-7-1969. It was announced that this measure was with
a view to avoid unhealthy competition between omnibuses and
regular stage carriage buses and to put down the misuse of
omnibuses. The owners of omnibuses questioned the validity
of the notification in Writ Petition No. 1412 of 1969, etc.
During the pendency of those writ petitions, the government
increased the rate of tax from Rs. SO/- to Rs. 100/- per
seat per quarter with effect from 1-9-1970 by G.O.M.S. 434-
Home dated 27-2-1970. The avowed object of this measure
also was to avoid unhealthy competition of omnibuses with
regular stage carriages. A number of writ petitions were,
filed challenging the validity of this
719
notification. By a common judgment dated 29-1-1971, the
High Court allowed the writ petitions and quashed the
aforesaid notifications holding that the notifications were
a device to eliminate the operation of contract carriages
and that the notifications were not made in the exercise of
the power of taxation. The result was that the rate of tax
was restored to Rs. 30/- per seat per quarter.
Appeals were preferred against this decision to this Court.
Thereafter, the Government of Tamil Nadu issued G.O.M.S.
2544 Home dated 20-1-1971 enhancing the tax from Rs. 30/- to
Rs. 100/per seat per quarter with effect from 1-7-1971. It
is this G.O. which the petitioner challenges in the writ
petition.
Counsel for the petitioner submitted, firstly, that the
notification was not a measure of taxation but a device to
eliminate the competition of omnibuses with stage carriages
run by Government and, therefore, the tax is bad. Secondly,
he submitted that the tax is neither compensatory nor
regulatory_ in character and, therefore, the tax is a
restriction on the freedom of trade, commerce and
intercourse guaranteed under Article 301 and as the
notification is not a law passed with the previous sanction
of the President, it would not be saved by Article 304(b).
In other words, the submission was that since the tax
operates as restriction on the freedom of trade, commerce
and intercourse within the State, it could be imposed only
by a law which had obtained the previous sanction of the
President and as the notification in question was issued by-
the Government in the exercise of its delegated power, it
was not a law made by the legislature nor could the previous
sanction of the President be obtained for it.
The tax was imposed by the Government in the exercise of its
power under s. 4 of the Madras Motor Vehicles Taxation Act,
1931. That section provides :
“4(1) The State Government may, by
notification in the official gazette, from
time to time direct that a tax shall be levied
on every motor vehicle using any public road
in the Presidency of Madras,
(2) The notification issued under sub-
section (1) shall specify the rates at which,
and the quarter from which, the tax shall be
levied :
Provided that the rates shall not exceed the
maxima specified in Schedule II.
(3) A notification under sub-section (1) may
be issued so as to have retrospective effect
from a date not earlier than the 1st day
of July, 1962.
Provided that a notification under sub-section
(1) ill respect of the rates as amended by the
Madras Motor Vehicles Taxation (Amendment)
Act, 1967 shall not have retrospective effect
from a date earlier than the 1st day of July,
1967.”
15-L319SupCI/75
720
As the state legislature was competent to pass the Act and
as the Government is authorised under S. 4 to levy the tax,
the question of the motive with which the tax was imposed is
immaterial. To put it differently, there can be no plea of
a colourable exercise of power to tax if the Government had
power to impose the tax and the fact that the imposition of
the tax was for the purpose of eliminating competition would
not detract from its validity. if an authority has power to
impose a tax, the fact that it gave a wrong reason for
exercising the power would not derogate from the validity of
the tax. Therefore, there is no substance in the first
contention.
The second submission raises the point whether tax in
question is a restriction on the freedom of trade, commerce
and intercourse guaranteed by Article 301 of the
Constitution.
In Atiabari Tea Co. v. State of Assam(1) (hereinafter
referred to as ‘Atiabari Case’), the appellants challenged
the validity of the Assam Taxation (on Goods carried by
Roads and Inland Waterways) Act, 1954, on the ground that it
violated Article 391 and was not saved by Article 304(b).
By a majority of 4 to 1, this Court upheld the challenge and
declared the Act to be void. The majority said that it
would be reasonable and proper to hold that restrictions,
freedom from which is guaranteed by Article 301, would be
such restrictions as directly and immediately restrict or
impede the free flow or movement of trade and that taxes may
and do amount to restrictions, but it is only such taxes as
directly and immediately restrict trade hat would fall with
in the purview of Article 301. Sinha, C.J. dissented. He
held that taxation simpliciter, as opposed to discriminatory
taxation, was not within Article 301. Shah, J. who
delivered a separate judgment said that Article 301
guaranteed freedom in its widest amplitude-freedom from
prohibition, control, burden or impediment in commercial
intercourse.
The direct and immediate restriction test had great adverse
effect upon the financial autonomy of states. For instance,
a law passed by a state legislature under entry 56 in List
11, namely “taxes on goods and passengers carried by road or
on inland waterways” would be a restriction which is
immediate and direct on the movement part of trade and
commerce and would be bad. This means that Entry 56 in List
11 is rendered otiose.
In view of the grave impact of this judgment, when appeals
from Rajasthan High Court came up for consideration in
Automobile Transport (Rajasthan) Ltd. v. State of
Rajasthan(2) (hereinafter referred to as the ‘Automobile
Case’), a larger Bench was constituted and that Bench
considered the question once again. The appellants in that
case impugned the Rajasthan Motor Vehicles Taxation Act,
1951, inter alia as violating Article 301. The High Court
dismissed the petitions ‘and this Court, by a majority of 4
to 3 held that the Act was valid and dismissed the appeals.
The case practically overruled the decision in Atiabari
Case(17), insofar as it held that if a state legislature
wanted to impose tax to raise moneys necessary in order to
(1) [1961] 1 S.C.R. 809.
(2) [1963] 1 S.C.R. 491.
721
maintain roads, that could only be done after obtaining the
sanction of the President as provided in Article 304(b). In
Khverbari Tea co. Ltd. v. The State of,, Assam(1), it was
said that the decision in Atiabar.; case was affirmed in
Automobile Case with a clarification that-regulatory
measures or measures imposing compensatory tax do not come
within the purview of restrictions contemplated in Article
301 and that such measures need not comply with the
requirement of the provisions of Article 304(b). In
whatever way one may choose to put it, the effect of the
majority decision in the Automobile Case is that a
compensatory tax is not a restriction upon the movement part
of trade and commerce.
Article 301 imposes a general limitation on all legislative
power in order to secure that trade, commerce and
intercourse throughout the territory of India shall be free.
Article 302 gave power to Parliament to impose general
restrictions upon that freedom. But a restriction is put on
this relaxation by Article 303(1) which prohibits Parliament
from giving preference to one State over another or
discriminating between one State and another by virtue of
the entries relating to trade and commerce in Lists I and
III of Seventh Schedule and a similar restriction is placed
on the states, though the reference to the states is
inappropriate. Each of the clauses of Article 304 operates
as a proviso to Articles 301 and 303. Article 304(a) places
goods imported from sister-states on a par with similar
goods manufactured or produced inside the state in regard to
state taxation within the allocated filed. Article 304(b)
is the State analogous to Article 302, for it makes the
state’s power contained in Article 304(b) expressly free
from the prohibition contained in Article 303(1) by reason
of the opening words of Article 304. Whereas in Article 302
the restrictions are not subject to the requirement of
reasonableness, the restrictions under Article 304(b) are so
subject. The word ‘free’ in Article 301 does not mean
freedom from regulation. There is a clear distinction
between laws interfering with freedom to carry out the
activities constituting trade and laws imposing on those
engaged therein rules of proper conduct or other restraints
directed to the due and orderly manner of carrying out the
activities. This distinction is described as regulation.
The word ‘regulation’ has no fixed connotation. Its meaning
differs according to the nature of the thing to which it is
,applied. The true solution, perhaps, in any given case,
could be found by distinguishing between features of the
transaction or activity in virtue of which it fell within
the category of trade, commerce and intercourse and those
features which, though invariably found to occur in some
form or another in the transaction or action are not
essential to the conception. What is relevant is the
contrast between the essential attribute of trade and
commerce and the incidents of the transaction which do not
give it necessarily the character of trade and commerce.
Such matters relating to hours, equipment, weight/size of
load, lights, which form the incidents of transportation,
even if inseparable, do not give the transaction its
essential character of trade or commerce. Laws for
government of such incidents ‘regulate'(2).
(1) [1964] 5 S.C.R.975.
(2) See Wynes, “Legislative, Executive and Judicial
Powers”, p. 270.
722
Regulations like rules of traffic facilitate freedom of
trade and commerce whereas restrictions impede that freedom.
The collection of toll or tax for the use of roads, bridges,
or aerodromes, etc., do not operate as barriers or hindrance
to trade. For a tax to become a prohibited tax, it has to,
be a direct tax, the effect of which is to hinder the
movement part of-the trade. If the tax is compensatory or
regulatory, it cannot operate as a restriction on the
freedom of trade or commerce.
The question for consideration then is, whether the tax
here, is a compensatory tax.
Strictly speaking, a compensatory tax is based on the nature
and the extent of the use made of the roads, as, for
example, a mile-age or ton-mileage charge or the like, and
if the proceeds are devoted to the repair, upkeep,
maintenance and depreciation of relevant roads and the
collection of the exaction involves no substantial
interference with the movement. The expression ‘reasonable
compensation’ is convenient but vague. The standard of
reasonableness can only lie in the severity with which it
bears on traffic and such evidence of extravagance in its
assessment as come from general considerations. What is
essential for the purpose of securing freedom of movement by
road is that no pecuniary burden should be placed upon it
which goes beyond a proper recompense to the state for the
actual use made of the physical facilities provided in the
shape of a road. The difficulties arc very great in
defining this conception. But the conception appears to be
based on a real distinction between remuneration for the
provision of a specific physical service of which particular
use is made and a burden placed upon transportation in aid
of the general expenditure of the state. It is clear that
the motor vehicles require, for their safe, efficient and
economical use,, roads of considerable width, hardness and
durability; the maintenance of such roads will cost the
government money. But, because the users of vehicles
generally, and of public motor vehicles in particular, stand
in a special and direct relation to such roads, and may be
said to derive a special and direct benefit from them, it
seems not unreasonable that they should be called upon to
make a special contribution to their maintenance over and
above their general contribution as taxpayers of the State.
If, however, a charge is imposed, not for the purpose of
obtaining a proper contribution to the maintenance and
upkeep of the road, but for the purpose of adversely
affecting trade or commerce, then it would be a restriction
on the freedom of trade, commerce or intercourse(1).
In the counter-affidavit filed on behalf of the State, the
averment is that Government has incurred an expenditure of
Rs. 19.51 crores in the year 1970-71 on the maintenance and
construction of roads while the receipts from out of vehicle
tax is only Rs. 16.38 crores. It is also stated therein
that the amount of Rs. 19.51 crores did not include the
grants made to local bodies like municipalities and Pancha-
yat Unions for the repair and maintenance of roads within
their jurisdiction: “Road costs”, according to the
affidavit, not only includes
(1) see Freightlines & Construction Holding Ltd. v. State of
New South Wales,
(1) [1968] A.C. 625.
723
he cost of construction and maintenance of roads, but also
the costs elating to the erection and maintenance of traffic
control devices, safety measures, improvements to old
layouts and the increased establishment of enforcement
staff.
In the Automobile Case (supra) this Court said that it would
not be right to say that a tax is not compensatory because
the precise or specific amount collected is not actually
used for providing any facilities and that a working, test
for deciding whether a tax is compensatory or not is to
enquire whether the trades people are having the use of
certain facilities for the better conduct of their business
and paving not patently much more than what is required from
providing the facilities, and that it would be impossible to
judge the compensatory nature of a tax by a meticulous test
and, in the nature of things, it could not be done.
It is well to remember the practical administrative
difficulties in imposing a tax at a rate per mile. It is
always difficult to evolve a formula which will in all cases
ensure exact compensation for the use of the road by
vehicles having regard to their type, weight and mileage.
Rough approximation, rather than mathematical accuracy, is
all that is required. In all such matters, it is well to
remember the profound truth of the sayings “it is the mark
of an educated man to look for precision in each class of
things just so far as the nature of the subject admits”(1).
The Supreme Court of U.S.A. takes the view that the validity
of a tax on vehicles must be determined not by way of a
formula but rather by the result, and in several cases, the
court has upheld the validity of a flat fee not geared to
weight, mileage or seating capacity, provided the fee is
reasonable in amount and is not shown to be in excess of the
compensation for the use of the roads (2). According to that
Court, since the purpose of the tax imposed by the state on
motor vehicle using its road is to obtain from them a fair
contributive share of the cost of constructing and
maintaining the public highways and facilities furnished and
to defray the expense of administering the police
regulations enacted for the purpose of ensuring the, public
safety, the method used by the state for imposing tax does
not seem to be of great significance; but such taxation,
however, can only be for the purpose of compensating the
state for the use of its roads and to defray the cost of
construction and maintenance and expenses in regulating
motor traffic, and it must affirmatively appear that such is
the purpose of the legislation sought to be upheld. But,
once a proper purpose is established, the state has consi-
derable discretion in the method, measurement and amount of
the tax.
It has been said that the amount of the charges and the
method of collection are primarily for determination by the
state itself, although they must be reasonable and fixed
according to some uniform, fair and practical standard. If
the tax is attacked on the ground that it is excessive, the
burden of proof is upon the one, attacking its validity.
(1) see Basic Works of Aristotle, Ed. Richard McKson, p.
936.
(2) see Morf. v. Bingaman, 298 U. S. 407; and Aero
Mayflower Transit Co. v Board of R. R. Commrs., 332 U. S.
497.
724
Although any method of taxation which has a direct bearing
upon or connection with the use of the highways is
apparently valid, a tax which has no such apparent bearing
and is not shown to be compensatory, but is rather a tax on
the privilege of engaging in trade or commerce, is beyond
the power of the state. Nor is it necessary that there
should be a separate fund or express allocation of money for
the maintenance of roads to prove the compensatory purpose
when such purpose is proved by alternative evidence.
Mr. Natesan appearing for some of the writ petitioners
submitted that the levy is not a compensatory tax, because,
the government has included the cost of the construction of
new roads also in their ‘road costs’ and that that would
derogate from the compensatory character of the tax. His
argument was that it is only for the use of the road in
existence that vehicle tax can be levied and that capital
expenditure for construction of new roads cannot be taken
into account and included in the levy of vehicle tax. In
Armstrong and Others v. The State of Victoria and Others(1),
the Court said that traffic is a constant flow and the
regularly recurring charges of maintaining a surface for it
to run. upon may be recoverable from the flowing traffic
without any derogation of the freedom of movement; but any
contribution to capital expenditure goes altogether outside
such a principle and the charge must be a genuine attempt to
cover or recover the costs of upkeep of the roads. In
Commonwealth Freighters Pvt. Ltd. v. Sneddon(2), the court
observed that it does not seem logical to include the
capital cost of new highways or other capital expenditure in
the costs taken as the basis of the computation of road
costs.
It is clear from the counter–affidavit filed that Rs. 19.51
crores have been spent not only for the maintenance of roads
but also for construction of new ones and that the receipt
from the vehicle tax was only Rs. 16.38 crores. However, it
is not clear whether any capital expenditure for
construction of new roads really entered into the actual
levy of vehicle tax. It might be that even if the cost of
construction of new roads is excluded, the receipts would
not be sufficient to meet the expenses incurred for
maintenance of old roads and, therefore, it is difficult to
say that in actual fact, capital expenditure for construc-
tion of new roads was taken into account in the levy of
vehicle tax.
That part, in the Automobile Case (supra), this Court quoted
with approval a passage from the judgment of the High Court.
The passage is as follows
“…We find that in 1952-53 income from motor
vehicles taxation under the Act was in
neighbourhood of 34 lakhs. In that very year,
the expenditure on new roads and maintenance
of old roads was in the neighbourhood of
60 lakhs. In 1954-55, the estimated income
from the tax was 35 lakhs, while the estimated
expenditure was over 65 lakhs. It is obvious
from these figures that the State is
(1) 99 Commonwealth Law Reports 28.
(2) 102 Commonwealth Law Reports 280.
725
charging from the users of motor vehicles
something in the neighbourhood of 50% of the
cost it has to incur in maintaining and making
roads”.
The approach of this Court is supported by the decisions of
the Supreme Court of U.S.A. In Interstate Transit, Inc. v.
Lindscy(1), it is observed that while a state may not lay a
tax on the privilege of engaging in interstate commerce it
may impose even upon motor vehicles engaged exclusively in
interstate commerce a charge, as compensation for the use of
the public highways which is a fair contribution to the cost
of constructing and maintaining them and of regulating the
traffic thereon. In Capital Greyhound Lines v. Brice ( 2) ,
the state tax was upheld even though the attorney for the
state had conceded that the tax was allocated to the
construction and maintenance of the state highways.
Whether the restrictions visualized by Article 304(b) would
include the levy of a non-discriminatory tax is a matter on
which there is scope for difference of opinion. Article
304(a) prohibits only imposition of a discriminatory tax.
It is not clear from the article that a tax simpliciter ran
be treated as a restriction on the freedom of internal
trade. Article 304(a) is intended to prevent discrimination
against imported goods by imposing on them tax at a higher
rate than that borne by goods produced in the state. A
discriminatory tax against outside goods is not a tax
simpliciter but is a barrier to trade and commerce. Article
304 itself makes a distinction between tax and restriction.
That apart, taxing powers of the Union and States are
separate and mutually exclusive. It is rather strange that
power to tax given to states, say for instance, under
Entry 54 of List II to pass a law imposing tax on sale of
goods should depend upon the goodwill of the Union
executive. It is said that a tax on sale does not impede
the movement of goods. But Shah, J. said in State v.
Natarajan “that tax under Central sales tax on inter-state
sale, it must be noticed, is in its essence a tax which
encumbers movement of trade and commerce”. However,
Bachawat, J. in his separate judgment in that case said that
Article 301 makes no distinction between movement from one
part of the state to another part of the same state and
movement from one state to another, that if a tax on
intrastate sale does not offend Article 301, equally, a tax
on inter-state sale cannot do so, and that, neither tax
operate directly or immediately on the free flow of trade or
free movement as the tax is on the sale, the movement being
incidental or consequential. What is guaranteed by Article
301 is freedom of trade, commerce and intercourse. Freedom
of movement of goods from one place to another is a very
important facet of freedom of trade and commerce. That is
perhaps the reason why the Court, in the Automobile Case
(supra) restricted the freedom of trade and commerce
guaranteed under Article 301 to the movement part of it.
Whether there is any warrant for restricting the concept of
freedom of trade and commerce to the movement part of it is
a matter upon which we are not called upon to make any
pronouncement. A tax on
(1)283 U. S. 183, at 185.
(3) [1968] 3 S.C.R. 829.
(2) 339 U. S. 5442.
726
sale of goods might encumber sale and purchase and, to that
extent, restricts the freedom of trade and commerce. That
apart, as Shah, J. said, if tax on inter-state sale is in
essence “a tax which encumbers movement of trade and
commerce”, a tax on intra-state, sale, if it Involves
movement from one part of the state to another part of the
same state, would encumber the movement part of it and is a
restriction on the freedom of trade and commerce. Generally
speaking, selling and buying involves delivery of the goods
sold and bought. If that be so, it would mean that
imposition of sales tax by a state on intrastate sale, at
any rate, when the sale involves movement of goods will be
restriction of trade and commerce and unless the law
imposing it has received the previous sanction of the
President, the law would be bad as a tax on sales is neither
regulatory nor compensatory. If the President were to
refuse his consent, the state will be bereft of that source
of revenue which the Constitution has expressly, given to
the State. It is unnecessary to pursue the matter further,
as we think the tax imposed by the notification is
compensatory in character and could not, therefore, restrict
the freedom of trade and commerce according to the decision
in Automobile Case (supra).
In the Civil Appeals, two points have been raised, namely,
(1) that the tax imposed is excessive and therefore, it
operates as unreasonable restriction upon the fundamental
right of the appellants to carry on the business; and (2)
that the imposition of different rates of tax on contract
and stage carriages is discriminatory and is, therefore, hit
by Article 14.
So far as the first contention is concerned, we do not think
that any material has been placed before us to hold that the
tax is confiscatory and operates as an unreasonable
restriction upon the appellants’ right to carry on the
trade. We have already held that the tax is compensatory in
character. If that is so, we do not think that it can
operate as an unreasonable restriction upon the fundamental
right of the appellants to carry on their business, for, the
very idea of compensatory tax is service more or less
commensurate with the tax levied. No citizen has a right to
engage in trade or business without paying for the special
services he receives from the state. That is part of the
cost of carrying on the business.
Mr. Gupte contended that there was no reason for imposing
vehicle tax at a higher rate on contract carriages than on
stage carriages. He said that both stage carriages and
contract carriages are similarly situated with respect to
the purpose of vehicle taxation, namely, the use of the road
and, therefore, a higher vehicle tax on contract carriages
is manifestly discriminatory. In other words, the argument
was that the classification of the vehicles as stage
carriages and contract carriages for the purpose of a higher
levy of vehicle tax on contract carriages has no reasonable
relation to the purpose of the Act.
The Act contained originally 3 schedules out of which
Schedule II was repealed in 1938 with the result that there
are now Schedules II and III only. Schedule II was made
under s. 4(2) of the Act and Schedule III under s. 5 (1 )
(c) of the Act. Section 17 of the Act gave
727
power to the State, Government to make rules amending
Schedule 11 or Schedule HI. Sub-clause (3) of S. 17
provided that any rule made under s. 17 shall be laid on the
table of the Legislative Assembly and the rule shall not be
made unless the Assembly approves the draft either without
modification cr. addition and on such rule being so made
shall be published in the official gazette and shall,
therefore, have full force and effect. Schedule II deals
with various types of motor vehicles. Entry 4(iii) therein
deals with vehicles permitted to ply as stage carriages and
to carry more than 6 persons and not plying exclusively in
the City of Madras or Municipalities. The maximum quarterly
tax is indicated in respect of such vehicles under 2 heads :
(1) vehicles fitted with pneumatic tyres; and (2) other
vehicles. For every seated passenger (.other than the
driver and the conductor) which the vehicle is permitted to
carry, the maximum quarterly tax for vehicles fitted with
pneumatic tyres as also for other vehicles was provided
depending upon the distance covered by such vehicles per
day. Entry 4(iv) deals with vehicles permitted to ply
solely as contract carriages carrying more than 5 persons
(other than the driver). For every person other than the
driver, which the vehicle is permitted to carry, the maximum
quarterly tax for vehicles fitted with pneumatic tyres and
for other vehicles is also provided.
The reason for enhancing the vehicle tax on contract
carriages is stated in the counter-affidavit. It is as
follows. Commercial vehicles consist of public transport
passenger buses, namely stage carriages and contract
carriages and goods vehicles namely, trucks of varying capa-
city. The tax on lorries is graduated, based on the
permitted laden weight, the higher the laden weight, the
higher the amount of tax. So far as the passenger buses are
concerned, the stage carriages cannot do unlimited mileage.
But contract carriages, depending upon the organisational
efficiency, can do much more distance of travel per day as
there is flexibility of space and time for its operation.
The stage carriages have to operate only on fixed time
schedules and on fixed routes and the number of miles they
can negotiate is limited by the rule to 250 miles. Besides.
they can operate only on roads duly certified by the
concerned authorities as fit for such operation. On the
other hand, in the-case of contract carriages, there is
neither any fixed time schedule nor any fixed route; the
number of miles they can run is also quite unlimited; they
are free to operate on any route whether the road is
certified as fit for such traffic or not. Hence the
contract carriages can run a larger number of miles than
stage carriages and therefore the wear and tear of the road
caused would be greater and in the case of roads which are
not fit for such operation, the damage to the road surface
due to wear and tear is quite likely to be much larger,
involving higher cost of maintenance of such roads; in other
words, the contract carriage even with the same passenger
seating capacity as a stage carriage can travel on any road
and on any type of surface at any time of the day or night,
and thus can cause greater damage to roads, especially of
the inferior type of road surfaces which it traverses. The
higher speed of vehicle will induce correspondingly higher
impact stresses on the pavement structure than the vehicle
of
728
the same capacity at lower speeds. These higher stresses in
the pavement layers affect the performance characteristics
ad durability of the, surface. Also, higher speeds require
longer accelerating and decelerating, distances which brings
in the maximum value of the frictional coefficient causing
increased wear and tear of the road surfaces. Moreover, the
load factor of a stage carriage including the passenger
luggage may be comparatively low. In the counter-affidavit
it is also stated that the rate ‘of tax payable on stage
carriage is Rs. 651- per seat per quarter and a surcharge of
10 paise per rupee on the fare collected, through there is a
provision for compounding the tax collected at Rs. 25/- per
seat per quarter under the Tamil Nadu Motor Vehicles
(Taxation of Passengers and Goods) Act, 1952, is also
payable by their owners and that owners of contract
carriages are not liable to pay the Surcharge.
Section 2(3) of the Motor Vehicles Act, 19,39, defines
“contract carriage” as follows :
” ‘ contract carriage’ means a motor vehicle
which carries a passenger or passengers for
hire or reward under a contract expressed or
implied for the use of the vehicle as a whole
at or for a fixed or agreed rate or sum-
(i) on a time basis whether or not with
reference to any route or distance, or
(ii) from one point to another, and in either
case without stopping to pick up,
or set down along the line of route passengers
not included in the contract; and includes a
motor cab notwithstanding that the passengers
may pay separate fares.”
“Stage carriage” has been defined in S. 2(29)
of that Act as under
” stage carriage’ means a motor vehicle
carrying or adapted to carry more than six
persons excluding the driver which carries
passengers for hire or reward at
separate fares paid by or for individual
passengers, either for the whole journey or
for stages of the journey”.
Under s. 46 of the Motor Vehicles Act, 1939, an
application for stage carriage permit must contain, among
other things, the route or routes or the area or areas to
which the application relates, the minimum and maximum
number of daily trips proposed to be provided in relation to
each route or area and the time table of normal trips.
Section 48 of that Act is clear that the regional transport
authority may attach a condition that the vehicle shall be
used only in a specified area or on a specified route and
also fix the minimum or maximum number of daily trips, the
number of passengers, the weight and nature of passenger
luggages. An application for a contract carriage permit
must contain, among other things, specification of the area
for which the permit is required (see s. 49) and the
regional transport
729
authority may attach a condition that the vehicle or
vehicles can be used only in a specified area or specific
route or routes and that except in accordance with specified
conditions, no contract of hiring, other than an extension
or modification of a subsisting contract may be entered into
outside the specified area (see S. 51). A stage carriage
permit may authorize the use of the vehicle as a contract
carriage (sees. 42). The State Government is authorised by
s. 43 to issue directions as to the fixing of fares and
freights including the maximum and minimum thereof for stage
carriages and contract carriages. The limit of the speed of
any motor vehicle can be fixed by the State Government or an
authority authorized in that behalf and the maximum speed
shall in no case exceed the maximum fixed in the eighth
schedule (sees. 71).
It cannot be said that a classification made on the basis of
the capacity of the contract carriages to run more miles is
unreasonable because those carriages will be using the road
more than the stage’ carriages which have got time
schedules, specified routes and minimum and maximum number
of trips. A person.who challenges a classification as
unreasonable has the burden of proving it. There is always
a presumption that a classification is valid, especially in
a taxing statute. The ancient proposition that a person who
challenges the reasonableness of a classification, and
therefore, the constitutionality of the law making the
classification, has to prove it by relevant materials, has
been reiterated by this Court recently.(1) In the context of
commercial regulation, Article 14 is offended only if the
classification rests on grounds wholly irrelevant to the
achievement of the objective and this lenient standard is
further weighted in the State’s favour by the fact that a
statutory discrimination will not be set aside if a: state
of facts may reasonably be conceived by the Court to justify
it.(2)
.lm15
In State of Gujarat v. Ambica Mills Ltd. (3), this Court
said : “. . . 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 of judicial
wisdom and institutional prestige and stability (see Joseph
Tussman and Jacobus tenBroek, “The Equal Protection of the
Laws”, 37 California Law Rev. 341.’
This approach is consistent with the latest reported
decision of the Supreme Court of the U.S.A. in San Antonio
School District v. Bodrigues(4) where the majority speaking
through Justice Stewart said:
“Thus, we stand on familiar ground when we
continue to acknowledge that the Justices of
this Court lack both the ex-
(1) see Amalgamated Tea Estates v. State of Kerala. (1974)
4 S.C.C. 415 & Murthy Match Works v. Asstt. Collector of
Central Excise, [1974] 4 S.C.C. 428.
(2) see McGowan v. Maryland, 366 U. S., at 425-626.
(3) [1974] 11 S.C.J. 211, at 231.
(4) 411 U.S.I.
730
pertise and the familiarity with local
problems so necessary to the making of wise
decisions with respect to the raising and
disposition of public revenues. Yet, we are
urged to direct the States either to alter
drastically the present system or to throw out
the property tax altogether in favour of some
other form of taxation. No scheme of
taxation, whether the tax is imposed on
property, income, or purchases of goods and
services, has yet been devised which is
free of all discriminatory impact. In such a
complex arena in which no perfect alternatives
exist, the Court does well not to impose too
rigorous a standard of scrutiny lest all local
fiscal schemes become subjects of criticism
under the Equal Protection Clause.”
Marshall, J. in his dissenting judgment (with
which Douglas, J. concurred), summed up, his
conclusion as follows :
“In summary, it seems to me inescapably clear
that this Court has consistently adjusted the
care with which it will review state
discrimination in light of the constitutional
significance of the interests affected and the
invidiousness of the particular
classification. In the context of economic
interests, we find that discriminatory, state
action is almost always sustained, for such
interests are generally far removed from
constitutional guarantees. Moreover, “the
extremes to which the Court has gone in
dreaming up rational bases for state
regulation in that area may in many instances
be ascribed to a healthy revulsion from the
Court’s earlier excesses in using the
Constitution to protect interests that have
more than enough power to protect themselves
in the legislative halls” Dandridge v.
Williams, 397 US, at 520.”
Judicial deference to legislature in instances of economic
regulation is sometimes explained by the argument that
rationality of a classification may depend upon ‘local
conditions’ about which local legislative or administrative
body would be better informed than a court. Consequently,
lacking the capacity to inform itself fully about the
peculiarities of a particular local situation, a court
should hesitate to dub the legislative classification
irrational (see Carmichael v. Southern Coal & Coke Co.(1).
Tax laws, for example, may respond closely to local needs
and court’s familiarity with these needs is likely to be
limited. Therefore, the Court must be aware of its own
remoteness and lack of familiarity with the local problems.
Classification is dependent on peculiar needs and specific
difficulties of the community. The needs and the
difficulties of a community are constituted out of facts and
information beyond the easy ken of the court. It depends to
a great extent upon an assessment of the local condition
under which these carriages are being run which the
legislature or the administrative body ;alone was competent
to make(2). Therefore, when the Government,
(1)301 U.S. 491
(2) See State of Gujarat v. Ambica Mills Ltd. [1974] 11
S.C.J. 211 Chiranjit lal v. Union of India [1950] S.C.R.
869; State of West Bengal v. Anwar Ali Sarkar [1952] S.C.R.
284 at 303.
731
in the exercise of its power to tax, made a classification
between stage. carriages on the one hand and contract
carriages on the other and fixed a higher rate of tax on the
latter, the presumption is that the Government made that
classification on the basis of its information that contract
carriages are using the roads more than the stage carriages
because they are running more miles. Therefore, this Court
has to assume, in the absence of any materials placed by the
appellants and petitioners, that the classification is
reasonable. It was a matter exclusively within the
knowledge of the petitioners and the appellants as to, how
many miles the contract carriages would run on
an average per day or month. When, in the counter-affidavit
the allegation was made that the owners of the contract
carriages are free to run at any time throughout the State
without restrictions, the inference which the State wanted
the Court to draw was that the owners of the contract
carriages were utilizing this freedom for running more miles
than the stage carriages. As to the number of miles run
by the contract carriages, it was not possible for the state
government to furnish any statistics. They could only
say that since there are no restrictions, they must have run
more miles and that cannot be said to be a purely
speculative assessment. If the petitioners and the
appellants had a case that contract carriages were not
running more miles on an average than the stage
carriages, it would have been open for them to place
relevant materials before the Court as the materials were
within their exclusive knowledge and possession. In these
circumstances, we think there is the presumption that the
classification is reasonable, especially in the light of the
fact that the classification is based on local conditions of
which the Government was fully cognizant. Since the
petitioners and the appellants have not discharged the
burden of proving that the classification is unreasonable,
we hold that the levy of an enhanced rate of vehicle tax on
contract carriages was not hit by Article 14.
We dismiss the writ petitions and appeals without any order
as to costs.
V.P.S. Petitions dismissed.
732