Gujarat High Court
Vijaykumar Naranbhai Dhola vs State Of Gujarat & 5 on 9 June, 2017
Equivalent citations: AIR 2017 GUJARAT 140
Bench: M.R. Shah, B.N. Karia
C/SCA/5651/2011 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 5651 of 2011
With
SPECIAL CIVIL APPLICATION NO. 4157 of 2012
With
SPECIAL CIVIL APPLICATION NO. 964 of 2013
For Approval and Signature:
HONOURABLE MR.JUSTICE M.R. SHAH Sd/
and
HONOURABLE MR.JUSTICE B.N. KARIA Sd/
=============================================
1 Whether Reporters of Local Papers may be allowed to see No the judgment ?
2 To be referred to the Reporter or not ? No
3 Whether their Lordships wish to see the fair copy of the No
judgment ?
4 Whether this case involves a substantial question of law as No
to the interpretation of the Constitution of India or any order made thereunder ?
============================================= VIJAYKUMAR NARANBHAI DHOLA....Petitioner(s) Versus STATE OF GUJARAT & 5....Respondent(s) ============================================= Appearance:
MR RAMKRISHNA B DAVE, ADVOCATE for the Petitioner(s) No. 1 MR KAMAL TRIVEDI, ADVOCATE GENERAL with MS SANGITA VISHEN, ASSISTANT GOVERNMENT PLEADER for the Respondent(s) No. 1 MR MP SHAH, ADVOCATE for the Respondent(s) No. 4 MR PM DAVE, ADVOCATE for the Respondent(s) No. 5 MS BHARGAVI G THAKAR, ADVOCATE for the Respondent(s) No. 6 MS. KRUTI M SHAH, ADVOCATE with MS JASMIT MITTAL, ADVOCATE for the Respondent(s) No. 4 RULE SERVED for the Respondent(s) No. 2 3 ============================================= CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE B.N. KARIA Date : 09/06/2017 COMMON CAV JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) Page 1 of 24 HC-NIC Page 1 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT [1.0] As common question of law and facts arise in this group of petitions, all these petitions are heard, decided and disposed of together by this common judgment and order.
[1.1] In all these petitions under Article 226 of the Constitution of India, the respective petitioners have prayed to declare subsection (1A) of section 3 of the Bombay Motor Vehicles Tax Act, 1958 (hereinafter referred to as "Act, 1958") as ultra vires.
[1.2] For the sake of convenience, Special Civil Application No.4157/2012, which has been preferred by the petitioner - Ahmedabad Used Car Dealers' Welfare Association, be treated as a lead matter.
[2.0] That subsection (1A) of Section 3 of the Act, 1958 has been enacted by the Gujarat Act No.5 of 2010 which has come into force with effect from 01.04.2010. That by the said provision, which is under challenge, there shall be a levy of tax on vehicles at the time of change of ownership due to sale of such vehicles. That the levy of such tax shall be in addition to the tax paid at the time of registration. Subsection (1A) of Section 3 of the Act, 1958, which is under challenge, is as under:
"3(1A). Notwithstanding anything contained in subsection (1), a tax in lumpsum in respect of a motor vehicle, for which lumpsum tax has been paid and ownership of such motor vehicle is transferred on sale, shall be payable at such rates, as may be specified by the State Government, by notification in the official gazette, but not exceeding 25% of the lumpsum tax paid."
That the respective petitioners have challenged the vires / constitutional validity of subsection (1A) of Section 3 of the Act, 1958 as ultra vires to Entry 57 of List II in Schedule VII to the Constitution of India and also ultra vires to Article 265 of the Constitution of India.
Page 2 of 24HC-NIC Page 2 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT [3.0] Shri Ramkrishna B. Dave, learned Advocate has appeared on behalf of the petitioners and Shri Kamal Trivedi, learned Advocate General has appeared with Ms. Sangita Vishen, learned Assistant Government Pleader appearing on behalf of the State.
[4.0] Shri Dave, learned Advocate appearing on behalf of the petitioners has vehemently submitted that subsection (1A) of Section 3 of the Act, 1958 has been enacted under the alleged authority of Entry 57 of List II of Schedule VII to the Constitution of India. It is submitted that Entry 57 of List II provides that the taxes on vehicles can be imposed on such vehicles which are suitable for use on roads. It is submitted that therefore tax on vehicles can be imposed on the use of the vehicles and not on the ownership of the motor vehicle, which is transferred on sale, as provided under subsection (1A) of Section 3 of the Act, 1958. It is, therefore, submitted by Shri Dave, learned Advocate appearing on behalf of the petitioners that the impugned levy and subsection (1A) of Section 3 of the Act, 1958 by which a tax is imposed on transfer of the vehicle is beyond the legislative competence of the State Government.
[4.1] It is vehemently submitted by Shri Dave, learned Advocate appearing on behalf of the petitioners that therefore, the impugned levy is without authority under the law and therefore, ultra vires to Article 265 of the Constitution of India. It is vehemently submitted by Shri Dave, learned Advocate appearing on behalf of the petitioners that as per Article 265 of the Constitution of India, there shall not be levied any tax without the authority under the law. It is submitted that even the collection of tax also cannot be without authority under the law. It is submitted that therefore, the impugned levy and subsection (1A) of Section 3 of the Act, 1958 is, therefore, ultra vires to Article 265 of the Constitution of India.
Page 3 of 24HC-NIC Page 3 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT [4.2] It is further submitted by Shri Dave, learned Advocate appearing on behalf of the petitioners that even Entry 57 of List II provides that taxes on vehicles, whether mechanically propelled or not, suitable for use on roads including tram cars, subject to provisions of Entry 35 of List III. It is submitted that therefore this power of State Legislature under Entry 57 of List II, being subject to Entry 35 of List III, if there is any 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 Entry 57 of List II, must conform to those principles as laid down in the existing law or the earlier law made by the Parliament. It is submitted that if the provisions of the State law are repugnant to those laws, 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. It is submitted that the tax under Entry 57 is leviable by the State Legislature on all vehicles suitable for use on roads, which are kept in the State. It is submitted that therefore, the State Legislature has no authority to enact the law levying the tax on the sale of vehicles under the Act, 1958.
[4.3] It is further submitted by Shri Dave, learned Advocate appearing on behalf of the petitioners that even otherwise in view of Section 3 of Act, 1958, by which a lumpsum life time tax is levied at the time of purchase of the vehicle and the tax is levied on vehicle, once a life time tax is levied, there cannot be any tax on such vehicle thereafter and that too on transfer of such vehicle subsequently.
[4.4] It is further submitted by Shri Dave, learned Advocate appearing on behalf of the petitioners that the State Government introduced Gujarat Bill No.19 of 1987 further to amend the Act, 1958 with a view to give effect to the proposals contained in the Budget Speech of the Page 4 of 24 HC-NIC Page 4 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT Hon'ble Finance Minister on 16.02.1987 as stated in the Statement of Objects and Reasons. It is submitted that Hon'ble Finance Minister proposed to introduce the scheme to levy a life time lumpsum tax on nontransport vehicles with effect from 01.04.1987. It is submitted that once a life time lumpsum tax is levied on the vehicle, the State Government thereafter cannot levy further tax under the guise of a tax on sale of the vehicle or in any other manner. It is submitted that therefore also, the impugned levy of tax on sale / transfer of vehicle is bad in law which deserves to be quashed and set aside.
Making above submissions it is requested to allow the present petitions and to declare subsection (1A) of Section 3 of the Act, 1958 as ultra vires and bad in law.
[5.0] Present petitions are vehemently opposed by Shri Kamal Trivedi, learned Advocate General appearing on behalf of the State. It is vehemently submitted by Shri Trivedi, learned Advocate General that impugned levy of tax under subsection (1A) of Section 3 of the Act, 1958 is in consonance with Entry 57 of the State List and therefore, the State has a legislative competence to levy such tax under subsection (1A) of Section 3 of the Act, 1958. It is submitted that the impugned levy of tax under subsection (1A) of Section 3 of the Act, 1958 is neither illegal nor without authority under the law and therefore, the same is not ultra vires to Article 265 of the Constitution of India as contended on behalf of the petitioners.
[5.1] It is submitted by Shri Trivedi, learned Advocate General appearing on behalf of the State that the Act, 1958 is relatable to Entry 57 of the State List which authorizes the State to levy / impose the tax on vehicles suitable for use on roads or kept for use in the State. It is submitted that therefore the levy / charge under the Act, 1958 is on a Page 5 of 24 HC-NIC Page 5 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT motor vehicle suitable for use on roads or kept for use in the State. It is submitted that the taxable event under subsection (1) of Section 3 and under subsection (1A) of Section 3 of Act, 1958 are different. It is submitted that under subsection (1) of Section 3 of Act, 1958, the taxable event occurs when the vehicle is used or is kept for use in the State. It is submitted that however the taxable event under subsection (1A) of Section 3 of Act, 1958 occurs when any of the persons, i.e. a subsequent owner, becomes the owner on transfer of ownership of a motor vehicle by way of sale, for being used permanently in the State. It is submitted that however the nature of levy in question under the Act is not lost and does not get shifted on the sale of vehicle so as to qualify as "sales tax".
[5.2] It is further submitted by Shri Trivedi, learned Advocate General appearing on behalf of the State that taxation under Act, 1958 is essentially with reference to motor vehicle and liability of payment of tax in this behalf is of the person who uses the vehicle as registered owner or any person who is having possession or control of the motor vehicle for usage thereof. It is submitted that therefore the motor vehicle having been initially made subject to taxation under subsection (1) of Section 3 of the Act, 1958, would further become the subject matter of taxation, but in the hands of a subsequent owner under subsection (1A) of Section 3 of the Act, 1958 and therefore, no question arises of treating the said eventuality as double taxation.
[5.3] It is further submitted by Shri Trivedi, learned Advocate General appearing on behalf of the State that even otherwise, the nature of taxable event under subsection (1A) of Section 3 of Act, 1958 is in its "pith and substance" different from the nature of taxable event occuring under subsection (1) of Section 3 of the Act, 1958.
Page 6 of 24HC-NIC Page 6 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT [5.4] Shri Trivedi, learned Advocate General has submitted that while considering constituional validity of subsection (1A) of Section 3 of the Act, 1958, following aspects may be considered.
1. That under subsection (1A) of Section 3 the liability / burden to pay the tax is on the future owners (purchaser) and not on the original owner who might have paid the life time lumpsum tax under Section 3 of the Act, 1958;
2. Under subsection (1A) of Section 3 the sale of vehicle is a taxing event, which would be different than that of the taxing event under Section 3 of the Act, 1958. There is no question of double taxation as the person liable to pay tax under Section 3(1) and Section 3(1A) of the Act, 1958 are different and even the taxing events are also different.
3. Entry 57 of List II authorizes the State to levy tax on vehicles.
4. "Pith and Substance" of the levy of tax under subsection (1A) of Section 3 of Act, 1958 is required to be considered.
[5.5] Shri Trivedi, learned Advocate General appearing on behalf of the State has relied upon the following decisions of the Hon'ble Supreme Court and one, of the Madras High Court in support of his submissions that subsection (1A) of section 3 of the Act, 1958 is neither illegal nor bad in law nor ultra vires and/or without authority under the law.
2. Khyerbari Tea Co. Ltd. and Anr. vs. State of Assam and Ors.
AIR 1964 SC 925 (Paras 15 to 23, 44, 45)
3. (1981) 4 SCC 675 (Para 8) R.K. Garg vs. Union of India and Ors.
4. (1983) 3 SCC 237 (Para 21) Malwa Bus Service (Private) Limited & Ors. vs. State of Punjab and Ors.
Page 7 of 24HC-NIC Page 7 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT
5. (1984) 1 SCC 467 (Paras 12 to 16) Union of India and Ors. vs. Bombay Tyre International ltd. & Ors.
7. (2003) 9 SCC 92 (Paras 1 and 5 to 11) State of H.P. and Ors. vs. Yash Pal Garg (Dead) By LRs. & Ors.
8. (2004) 5 SCC 155 (Paras 5, 15 to 17, 21) State of Gujarat & Ors. vs. Akhil Gujarat Pravasi V.S. Mahamandal and Ors.
9. (2005) 4 SCC 53 (Paras 15 to 19 and 27) State of T.N. vs. M. Krishnappan and Anr.
10. AIR 2005 Madras 408 (Paras 2, 9, 12, 17 and 39) K.M. Vijayan vs. State of Tamil Nadu and Anr.
Making above submissions and relying upon above decisions it is requested to dismiss the present petitions.
[6.0] Heard learned Counsel appearing for respective parties at length.
At the outset it is required to be noted that in all these petitions the respective petitioners have challenged the constitutional validity of section 3(1A) of the Act, 1958 on the ground that they are ultra vires to Article 265 of the Constitution of India inasmuch as the levy of tax by the State on sale / transfer of the motor vehicle is illegal and unlawful and without authority under the law and that the State has no legislative competence to impose such a tax even under Entry 57 of List II in the 7 th Schedule of the Constitution of India.
[6.1] It is also the case on behalf of the respective petitioners that once the lump sum life time tax is paid on the vehicle as per section 3 of the Act, 1958, further levy of tax on further sale / transfer as per section Page 8 of 24 HC-NIC Page 8 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT 3(1A) of the Act, 1958 can be said to be double taxation and therefore, the same is bad in law.
[6.2] While considering the contitutional validity of section 3(1A) of the Act, 1958, section 3 is required to be referred to which reads as under:
"3.(1) Subject to the other provisions of this Act, on and from the 1st day of April 1958, there shall be levied and collected on all motor vehicle used or kept for use in the State, a tax at the rates fixed by the State Government, by notification in the Official Gazette, 12[but not exceeding the maximum rates specified in the 13[First, 14[Second and Third Schedules]]]:15
[Provided that in the case of any motor vehicle (irrespective of whether they are specified 16[in 17[* * * *] the First Schedule] or the 18[Second Schedule or Third Schedule] kept by a dealer in, or manufacturer of such vehicles, for the purpose of trade, there shall be levied and collected annually such amount of tax 19[not exceeding Rs.5000 as the State Government may, by notification in the Official Gazette specify on those motor vehicle only which are permitted to be used on the road in the manner prescribed by rules made under 20[the Motor Vehicle Act, 1988];
Provided further that, if the State Government, because of disparity in the rates of tax prevailing in certain areas of the State immediately before the commencement of this Act or for any other reason, is of opinion, that the levy and collection of tax on motor vehicles immediately at a uniform rate throughout the State, is likely to cause undue hardship to owners or persons having possession or control of such vehicle in those areas, or to affect adversely trade and commerce or the development or motor transport and other industries in such areas, the State Government may levy and collect the tax on motor vehicles, or any class thereof at different rates in those areas, so however that by increase or decrease of the rate, of tax annually in those areas, within a period of three years, a uniform rate of tax is levied throughout the State.
[(1A) 21 Notwithstanding anything contained in sub section (1), a tax in lump sum, in respect of a motor vehicle for which lump sum tax has been paid and ownership of such motor vehicle is transferred on sale, shall be payable at such rates as may be specified by the State Government by notification in the Official Gazette, but not exceeding twentyfive per cent. of the lump sum tax paid.
Explanation. For the purpose of this subsection, a motor vehicle registered in the other State and brought in the State for use permanently, lump sum tax shall be the tax which was payable at the Page 9 of 24 HC-NIC Page 9 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT time of registration of such motor vehicle in the State, as if it was a new vehicle.] (2) Except during any period for which the Taxation Authority has, in the prescribed manner certified that a motor vehicle was not used or kept for use in the State, the registered owner, or any person having possession or control, of a motor vehicle of which the certificate of registration is current, shall, for the purpose of this Act, be deemed to use or keep such vehicle for use in the State."
[6.3] Considering the aforesaid provisions it appears and it seems that the taxing event under Section 3(1) and section 3(1A) both are different. Not only that, even the person liable to pay the tax under Section 3(1) and under Section 3(1A) of the Act, 1958 shall be different. The taxing event to pay the tax under Section 3(1) would be, the moment the vehicle is brought within the State of Gujarat for the purpose of its use in the State then the liability to pay such a tax would be on the person who brings the motor vehicle within the State of Gujarat. However, as per section 3(1A) of the Act, 1958 the taxing event would be when subsequently the said motor vehicle is transferred on sale and the liability to pay the tax as per section 3(1A) of the Act, 1958 would be on the person who purchases such a motor vehicle. Therefore, as such it cannot be said that once the lump sum tax is paid on such motor vehicle as per section 3(1) of the Act, 1958, any further tax as per section 3(1A) of the Act, 1958 shall be double taxation as contended on behalf of the petitioners. As the persons liable to pay the tax under Section 3(1) and section 3(1A) of the Act, 1958 would be different persons, it cannot be said that the levy of tax under Section 3(1A) of the Act, 1958 would be double taxation. Under the circumstances, submissions on behalf of the petitioners that levy of tax under section 3(1A) of the Act, 1958 can be said to be double taxation, cannot be accepted and has no substance.
[6.4] Now, so far as the submission on behalf of the petitioners that levy Page 10 of 24 HC-NIC Page 10 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT of such tax under Section 3(1A) shall not fall within Entry 57 of List II of 7th Schedule of Constitution of India is concerned, the State is authorized to levy the taxes on vehicles, whether mechanically propelled or not, suitable for use on roads. However, the same shall be subject to provision of Entry 35 of List III - concurrent List. Therefore, considering Entry 57 of List II and Entry 35 of List III, if any tax is imposed by the Union, in that case only, the State cannot impose the tax on the same subject. Nothing has been pointed out that any tax has been imposed by the Union as imposed / levied under Section 3(1A) of the Act, 1958. Under the circumstances, considering Entry 57, the State is competent enough and/or authorized to levy the taxes on vehicles. Under the circumstances also, it cannot be said that the State has no legislative competence to levy the tax as levied under Section 3(1A) of the Act, 1958, considering Entry 57 of List II of the Constitution of India.
[6.5] Now, so far as the submission on behalf of the petitioners that once the life time tax is imposed / levied under Section 3 of the Act, 1958 on the motor vehicles, on such motor vehicles there cannot be a further levy of tax on further transfer by sale. However, while considering the aforesaid submissions the taxing events both under Section 3(1) and section 3(1A) of the Act, 1958 are required to be considered. As observed hereinabove the taxing events under Section 3(1) and section 3(1A) of the Act, 1958 would be different and even the person liable to pay the tax under Section 3(1) and section 3(1A) of the Act, 1958 would also be different.
[7.0] At this stage and while considering the constitutional validity of section 3(1A) of the Act, 1958, few decisions of the Hon'ble Supreme Court are required to be considered.
[7.1] In the case of Khyerbari Tea Co. Ltd. and Anr. (Supra) in para 45 Page 11 of 24 HC-NIC Page 11 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT the Hon'ble Supreme Court has observed and held as under:
"45. It is, of course, true that the validity of tax laws can be questioned in the light of the provisions of Arts. 14, 19; and Art. 301 if the said tax directly and immediately imposes a restriction on the freedom of trade; but the power conferred on this Court to strike down a taxing statute if it contravenes the provisions of Arts. 14, 19 or 301 has to be exercised with circumspection, bearing in mind that the power of the State to levy taxes for the purpose of governance and for carrying out its welfare activities is a necessary attribute of sovereignty and in that sense it is a power of paramount character. In what cases a taxing statute can be struck down as being unconstitutional is illustrated by the decision of this Court in K.T. Moopil Nair v. The State of Kerala 19613 SCR 77 : (AIR 1961 SC
552). In that case, a careful examination of the scheme of the relevant provisions of the TravancoreCochin Land Tax Act (No.15 of 1955) satisfied this Court that the said Act imposed unreasonable restrictions on the fundamental rights of the citizens, conferred unbridled power on the appropriate authorities, introduced unconstitutional discrimination and in consequence, amounted to a colourable exercise of legislative power. It is in regard to such a taxing statute which can properly be regarded as purely confiscatory that the power of the Court can be legitimately invoked and exercised. In our opinion, it would be idle to suggest that a tax imposed by the Act in the present case should be struck down because it has taxed only tea and jute."
[7.2] In the case of Delhi Cloth & General Mills Co. Ltd. Delhi & Ors. (Supra), the Hon'ble Supreme Court has observed and held that the validity of tax cannot be questioned once the legislature concerned has been found to possess the requisite power to levy the tax. It is observed that motive for the imposition of tax in such circumstances would be immaterial and irrelevant. It is observed that even a wrong reason given for exercising the power would not detract from the validity of the tax. It is further observed that name given to a levy is not determinative of its nature and character. It is observed that challenge to competence or power and authority to impose a levy can be based only on the real nature and character of the levy in relation to the taxable event and incidence of the levy. While considering the aspect of double taxation it is observed that power to levy one or more taxes or rates of tax on same Page 12 of 24 HC-NIC Page 12 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT taxable event is possessed by the legislature unless expressly prohibited by the Constitution or any law prevents such levy. In the case before the Hon'ble Supreme Court the levy of "Dharmada" as it is called in the form of octroi of the Municipal Council Quota, in Rajasthan State was under
challenge on the ground that it is not really the octroi but the levy and demand of "Dharmada Tax" as such on the goods imported by the respective companies into the municipal limits of the quota. Upholding such a levy and holding that such a levy cannot be said to be ultra vires to Article 265 of the Constitution of India, the Hon'ble Supreme Court has observed in paras 16 to 23 as under:
"16. Whenever a challenge is made to the levy of tax, its validity may have to be mainly determined with reference to the legislative competence or power to levy the same and in adjudging this issue the nature and character of the tax has to be inevitably determined at the threshold. It is equally axiomatic that once the legislature concerned has been held to possess the power to levy the tax, the motive with which the tax is imposed become immaterial and irrelevant and the fact that a wrong reason for exercising the power has been given also would not in any manner derogate from the validity of the tax. In Jullundur Rubber Goods Manufacturers' Association v. Union of India this Court while dealing with a challenge to the levy of rubber cess under Section 12 (2) of the Rubber Act, 1947 as amended in 1960 observed that the tax in the nature of excise duty does not cease to be one such merely because the stage of levy and collection has been as a matter of legislative policy shifted by actually providing for its levy and collection from the users of rubber, so long as the character of the duty as excise duty is not lost and the incidence of tax remained to be on the production or manufacture of goods. Likewise, once the legislature is found to possess the required legislative competence to enact the law imposing the tax, the limits of that competence cannot be judged further by the form or manner in which that power is exercised. In (Morris) Leventhal and Others v. David Jones Ltd. the question arose as to the power of the legislature to impose 'Bridge Tax', when the power to legislate was really in respect of 'tax on land'. It was held therein as follows:
"The appellants' contention that though directly imposed by the legislature, the bridge tax is not a land tax, was supported by argument founded in particular on two manifest facts. The bridge tax does not extend to land generally throughout New South Wales, but to a limited area comprising the City of Page 13 of 24 HC-NIC Page 13 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT Sydney and certain specified shires, and the purpose of the tax is not that of providing the public revenue for the common purposes of the State but of providing funds for a particular scheme of betterment. No authority was vouched for the proposition that an impost laid by statute upon property within a defined area, or upon specified classes of property, or upon specified classes of persons, is not within the true significance of the term a tax. Nor so far as appears has it ever been successfully contended that revenue raised by statutory imposts for specific purposes is not taxation."
[Emphasis supplied]
17. A Division Bench of the Allahabad High Court, in a decision, reported in Raza Buland Sugar Co, Ltd., Rampur v. Municipal Board, Rampur had an occasion to consider the nature and character of an impost levied by the name, 'water tax', when the power was to levy 'tax on buildings'. The Division Bench, while applying the ratio in Leventhal v. Jones had held as hereunder:
"5. 'Tax' means burden of charges imposed by the legislative power of a State on person or property to raise money for public purposes. The expression 'fee' connotes recompense for services rendered. There is an element of quid pro quo in the case of fee. It is not so in the case of a tax. The learned counsel for the petitioner pointed out that cl.(b) of Sec.129 provides that water tax is to be imposed solely with the object of defraying the expenses connected with construction, main tenance, extension or improvement of municipal water works and that all moneys derived therefrom shall be expended on the aforesaid object. He argued that the fact that the money raised from water tax is to be spent only on the supply of water, introduces an element of quid pro quo. The argument docs not appear to be tenable. Sec.129 (B) mentions the object of the tax. As the maintenance of regular supply of water and extending the supplies is one of the most beneficial public purposes, the Section lays down that the money realised from this impost is to be spent on the construction, maintenance and extension of water works so that the purpose may not suffer on account of paucity of funds. In (Morris) Leventhal v. David Jones Ltd., their Lordships of the Judicial Committee held that there was no authority for the proposition that revenue raised by statutory imposts for specific purposes is not taxation.
XX XX XX
10. It is obvious that the subjectmatter of water tax is not water. Though it is called water tax, it is not levied on its production. As explained by their Lordships of the Judicial Committee in Governor General in Council v. Province of Page 14 of 24 HC-NIC Page 14 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT Madras, AIR (1945) P. C 98, it is not the mime of the lax but its real nature, its 'pith and substance' as it has sometimes been said, which must determine into what category it falls."
[Emphasis supplied]
18. We affirm the statement of law thus made above to be correct and in our view it is not the nomenclature used or chosen to christen the levy that is really relevant or determinative of the real character or the nature of the levy, for the purposing of adjudging a challenge to the competency or the power and 'authority to legislate or impose a levy. What really has to be seen is the pith and substance or the real nature and character of the levy which has to be adjudged, with reference to the charge viz., the taxable event and the incidence of the levy. We are convinced on the indisputable facts on record that the levy sought to be imposed and recovered as 'Dharmada' being only on the goods brought within the municipal limits of Kota for consumption, use or sale therein the same in truth, reality and substance is only an 'octroi' for the purpose of carrying out the several public charitable objects statutorily enjoined upon the Municipal Board and enumerated in Sections 98 and 99 and those undertaken pursuant to the stipulations contained in Sections 101 and 102 of the Act. The mere fact that it is called by a different name (all the more so when the word 'octroi' itself is not found used in Entry 52 of ListII of the Seventh Schedule) for historical reason and administrative needs or exigencies by the draftsmen of the notification does not in any manner either undermine the nature and character of the levy or render it any the less a levy envisaged under Entry 52 of ListII of the Seventh Schedule. The various charitable objects and ameliorative schemes and projects for which the taxes realised under the classified head of Dharmada are claimed to be spent cannot as the provisions of the Act stand enacted be said to be either unauthorised or without the sanction of law. That, apart, the irregularity or illegality, if any involved in spending the sum after collection cannot have any impact on or adversely affect the otherwise competency of the Authority concerned to impose a levy, well within its legislative competence and further not shown to be violative of any provisions of the Constitution of India. Neither the High Court has gone into any such question of illegality in the matter of spending the tax realised nor are there any materials on record placed before us to substantiate any such claim by the respondentcompanies in this regard.
19. There is no warrant or justification in law for the High Court proceeding on an assumption that permitting the levy even as 'octroi' twice over would suffer the vice of double taxation and therefore bad in law, unmindful of the well settled position of law in this regard, also. A Constitution Bench of this Court in the decision reported in Jain Bros. v. Union of India in unmistakable terms declared the position to be as hereunder:
Page 15 of 24HC-NIC Page 15 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT "It is not disputed that there can be double taxation if the legislature has distinctly enacted it. It is only when there are general words of taxation and they have to be interpreted they cannot be so interpreted as to tax the subject twice over to the same tax (vide Channell, J., in Stevens v. DurbanRoddepoort Gold Mining Co. Ltd.). The Constitution does not contain any prohibition against double taxation even if it be assumed that such a taxation is involved in the case of a firm and its partners after the amendment of Section 23 (5) by the Act of 1956. Nor is there any other enactment which interdicts such taxation. It is true that Sec.3 is the general charging section. Even if Section 23(5) provides for the machinery for collection and recovery of the tax, once the legislature has, in clear terms, indicated that the income of the firm can be taxed in accordance with the Finance Act of 1956 as also the income in the hands of the partners, the distinction between a charging and a machinery section is of no consequence. Both the sections have to be read together and construed harmoniously. It is significant that similar provisions have also been enacted in the Act of 1961. Sections 182 and 183 correspond substantially to Section 23 (5) except that the old section did not have a provision similar to subsection (4) of Section 182. After 1956, therefore, so far as registered firms are concerned the tax payable by the firm itself has to be assessed and the share of each partner in the income of the firm has to be included in his total income and assessed to tax accordingly. If any double taxation is involved the legislature itself has, in express words, sanctioned it. It is not open to any one thereafter to involve the general principles that the subject cannot be taxed twice over,"
20. In Arvinder Singh v. State of Punjab this Court has once again held as follows:
"A feeble plea that the tax is bad because of the vice of double taxation and is unreasonable because there are heavy prior levies was also voiced. Some of these contentions hardly merit consideration, but have been mentioned out of courtesy to counsel. The last one, for instance, deserves the least attention. There is nothing in Art.265 of the Constitution from which one can spin out the constitutional vice called double taxation. (Bad economics may be good law and vice versa). Dealing with a somewhat similar argument, the Bombay High Court gave short shrift to it in Western India Theatres. Some undeserving contentions die hard, rather survive alter death. The only epitaph we may inscribe is: Rest in peace and don't be reborn! If on the same subjectmatter the legislature Page 16 of 24 HC-NIC Page 16 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT chooses to levy tax twice over there is no inherent invalidity in the fiscal adventure save where other prohibitions exist."
21. In Sri Krishna Das v. Town Area Committee, Chirgaon and Radhakishan Rathi v. Addl. Collector, Durg the same position is found reiterated.
22. Though taxation of the same thing under different names is nonetheless 'double taxation' in popular sense, the expertise exposition of the topic seem to also lean in favour of the revenue, in that the legislature has been considered to possess the power to levy one or more tax or rates of tax on the same taxable event and since in these areas large latitude and wide discretion has always been allowed to the State to choose its own method or kind of tax or mode and purpose of levy and recovery, unless there is any prohibition in the Constitution or the very law enacted by the legislature itself prevents such a thing happening no infirmity can be said to vitiate such a levy. Wherever the taxes are imposed by different legislatures or authorities or where one of the two alone is a tax or where it is for altogether different purposes or when it is indirect rather than direct, there is no scope even for making any grievance of double taxation, at all. In the absence of any impediment specifically created in the Constitution of a country or the legislative enactment itself, the desirability or need otherwise to avoid such levies has been held to pertain to areas of political wisdom of policy making and adjusting of public finances of the State, and not for the Law Courts, though Courts would unless there is clear and specific mandate of law in favour of such multiple levies more man once, in construing general statutory provisions lean in favour of an interpretation to avoid double taxation. So much are the principles or statement of law governing a challenge to any levy on the ground of Double Taxation.
23. Now coming to the facts and circumstances of the cases before us, we find that the levy is specific, definite and positive in terms, with a definitely disclosed object leaving no room for any doubt or any exercise to clear such assumed doubts. We have carefully gone through the original Notification in vernacular published in the Gazette dated 13.5.1968, noticed supra, and we find that the rates of the levy under challenge have been notified as part and parcel of one and the same Schedule to the said Notification and not by any different or more than one Schedule and that too by means of a simultaneous exercise of powers under Section 104(2) of the Act and not on different occasion or time. Though it is seen that some of the classified items or commodities enumerated in various Entries overlap those found in the other Entries under different captions including Dharmada, they are not mere mechanical repetitions in toto, viewed either from their classification, enu meration or determination of the rates as well as the measure or Page 17 of 24 HC-NIC Page 17 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT quantity with reference to which the actual levy is to be made and collected. Therefore, the mere stipulation of plurality of rates in respect of some or the other of the commodities/goods under different classified groups for different purposes by itself will not render it to be dubbed or castigated as 'Double Taxation' for spearheading a challenge on them. The Notification under consideration cannot, in our view, be said to involve the imposition of any double tax and the High court has gone wrong in proceeding upon such an erroneous assumption and declaring thereby the levy for Dharmada purposes to be bad and illegal."
[7.3] In the case of HingirRampur Coal Co. Ltd. (Supra), the validity of the Orissa Mining Areas Development Fund Act, 1952 was challenged. It was contended on behalf of the petitioners that the impugned Act and the Rules made thereunder are ultra vires the powers of the legislature of State of Orissa or in any event they are repugnant to the provisions of an existing law. According to the petitioners the cess levied under the said Act was not a fee but in reality and in substance a levy in the nature of a duty of excise on the coal produced at the first petitioner's Rampur colliery, and as such is beyond the legislative competence of the Orissa Legislature. Alternatively it was urged that even if the levy imposed by the said Act was a fee relatable to Entries 23 and 66 in List II of the 7th Schedule, it would nevertheless be ultra vires having regard to the provisions of Entry 54 in List I read with Central Act 53 of 1948. Negativing the challenge, the Hon'ble Supreme Court has observed in paras 20 to 23 as under:
"20. It is, however, urged that the cess levied by s.4(2) is in substance and reality a duty of excise. As we have already noticed s.4(2) provides that the rate of such levy shall not exceed 5 per centum of the valuation of the minerals at the pit's mouth; in other words it is the value of the minerals produced which is the basis for calculating the cess payable by mineowners, and that precisely is the nature in which duty of excise is levied under Entry 84 in List I. The said Entry empowers Parliament to impose duties of excise, inter alia, on goods manufactured or produced in India. When minerals are produced from mines and a duty of excise is intended to be imposed on them it would be normally imposed at the pit's mouth, and that is precisely what the impugned Act purports to do. It is also contended that the rate prescribed by s.4(2) indicates that it operates not as a mere fee but as a duty of excise. This argument must be carefully Page 18 of 24 HC-NIC Page 18 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT examined before the character of the cess is finally determined. It is not disputed that under Entry 23 in List II read with Entry 66 in the said List the State Legislature can levy a fee in respect of mines and mineral development. Entry 23 reads thus: "Regu lation of Mines and mineral development subject to 555 the provisions of List I with respect to regulation and development under the control of the Union". We will deal with the condition imposed by the latter part of this Entry later. For the present it is enough to state that regulation of mines and mineral development is within the competence of the State Legislature. Entry 66 provides that fees in respect of any of the matters in the said List can be imposed by the State Legislature subject of course to the exception of fees taken in any Court. The argument is that though the State Legislature is competent to levy a fee in respect of mines and mineral development, if the statute passed by a State Legislature in substance and in effect imposes a duty of excise it is travelling outside its jurisdiction and is trespassing on the legislative powers of Parliament.
21. This argument is based on two considerations. The first relates to the form in which the levy is imposed, and the second relates to the extent of the levy authorised. The extent of the levy authorised would always depend upon the nature of the services intended to be rendered and the financial obligations incurred thereby. If the services intended to be rendered to the notified mineral areas require that a fairly large cess should be collected and co relation can be definitely established between the proposed services and the impost levied, then it would be unreasonable to suggest that because the rate of the levy is high it is not a fee but a duty of excise. In the present case, if the development of the mining areas involves con siderable expenditure which necessitates the levy of the prescribed rate it only means that the services being rendered to the mining areas are very valuable and the rate payer in substance is compensating the State for the services rendered by it to him. It is significant that the petitioners do not seriously suggest that the services intended to be rendered are a cloak and not genuine, or that the taxes levied have no relation to the said services, or that they are unreasonable and excessive. Therefore, in our opinion, the extent of the rate allowed to be imposed by s.4(2) cannot by itself alter the character of the levy from a 556 fee into that of a duty of excise. If the corelation between the levy and the services was not genuine or real, or if the levy was disproportionately higher than the requirements of the services intended to be rendered it would have been another matter.
22. Then as to the form in which the impost is levied, it is difficult to appreciate how the method adopted by the Legislature in recovering the impost can alter its character. The character of the levy must be determined in the light of the tests to which we have already referred. The method in which the fee is recovered is a matter of convenience, and by itself it cannot fix upon the levy the character of Page 19 of 24 HC-NIC Page 19 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT the duty of excise. This question has often been considered in the past, and it has always been held that though the method in which an impost is levied may be relevant in determining its character its significance and effect cannot be exaggerated. In Balla Ram v. The Province of East Punjab (1) the Federal Court had to consider the character of the tax levied by s. 3 of the Punjab Urban Immoveable Property 'tax Act XVII of 1940. Section 3 provided as follows: "There shall be charged, levied and paid an annual to tax on buildings and lands situated in the rating areas shown in the schedule to this Act at such rate not exceeding twenty per centum of the annual value of such buildings and lands as the Provincial Government may by notification in official gazette direct in respect of each such rating area". The argument urged before the Federal Court was that the tax imposed by the said section was in reality a tax on income within the meaning of Item 54 in List I of the Seventh Schedule to the Constitution Act of 1935, and as such it was not covered by Item 42 in List II of the said Schedule. This argument was rejected on the ground that the tax levied by the Act was in pith and substance a tax on lands and buildings covered by Item 42. It would be noticed that the basis of the tax was the annual value of the building which is the basis used in the Indian IncomeTax Act for determining income from property; and so, the attack against the section was based on the ground that it had adopted the same basis for leaving the impost as the Incometax Act and the said basis determined its character whatever may be the appearance in which the impost was purported to be levied. In repelling this argument Fazl Ali, J. observed that the crucial question to be answered was whether merely because the Incometax Act has adopted the annual value as the standard for determining the income it must necessarily follow that if the same standard is employed as a measure for any other tax that tax becomes a tax on income. The learned judge then proceeded to add that if the answer to this question is to be given in the affirmative then certain taxes which cannot possibly be described as incometax must be held to be so. In other words, the effect of this decision is that the adoption of the standard used in Incometax Act for getting at the income by any other act for levying the tax authorised by it would not be enough to convert the said. tax into an incometax. During the course of this judgment Fazl Ali, J. also noticed with approval a similar view taken by the Bombay High Court in Sir Byramjee Jeejeebhoy v. The Province of Bombay.
23. This decision has been expressly approved by the Privy Council in GovernorGeneral in Council v. Province of Madras (2). Consistently with the decision of the Federal Court their Lordships expressed the opinion that "a duty of excise is primarily a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced. It is a tax on goods and not on sales or the proceeds of the sale of goods. The two taxes, the one levied on the manufacturer in respect of his goods and the other on the vendor Page 20 of 24 HC-NIC Page 20 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT in respect of his sales may in one sense overlap, but in law there is no overlapping; the taxes are separate and distinct imposts. If in, fact they overlap that may be because the taxing authority imposing a duty of excise finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time on the occasion of its sale". In that case the question was whether the tax authorised by the Madras General Sales Tax Act, 1939, was a tax on the sale of goods or was a duty of excise, and the Privy Council held it was the former and not the latter. Therefore, in our opinion, the mere fact that the levy imposed by the impugned Act has adopted the method of determining the rate of the levy by reference to the minerals produced by the mines would not by itself make the levy a duty of excise. The method thus adopted may be relevant in considering the character of the impost but its effect must be weighed along with and in the light of the other relevant circumstances. In this connection it is always necessary to bear in mind that where an impugned statute passed by a State Legislature is relatable to an Entry in List II it is not permissible to challenge its vires only on the ground that the method adopted by it for the recovery of the impost can be and is generally adopted in levying a duty of excise. Thus considered the conclusion is inevitable that the cess levied by the impugned Act is neither a tax nor a duty of excise but is a fee."
[7.4] In the case of M. Krishnappan and Anr. (Supra), while dealing with Entry 57 of List II of the 7th Schedule it is observed by the Hon'ble Supreme Court that Entry 57 of List II of 7th Schedule to the Constitution refers to the taxes on vehicle suitable for use on roads. It is further observed that under the said Entry, a field is provided to the State legislature to impose the tax in respect of every aspect of a vehicle. It is further observed that when the Constitution provides a field of legislation it is to be read in a broadest possible terms. It is further observed that when the State is empowered to levy taxes on goods it is empowered to levy tax on every aspect of such goods. It is observed that therefore, similarly, when the State is empowered to levy tax on vehicle, it is empowered to levy tax on every aspect of the vehicle.
[7.5] In the case of R.K. Garg (Supra), in para 8 the Hon'ble Supreme Court has observed and held as under:
Page 21 of 24HC-NIC Page 21 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT "8. Another rule of equal importance is that laws relating to economic activies should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrine or straight jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislature judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Dond where Frankfurter, J.
said in his inimitable style:
In the utilities, tax and economic regulation cases, there are good reasons for judicial selfrestraint if not judicial difference 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 eventsselflimitation can be seen to be the path to judicial wisdom and institutional prestige and stability. The court must always remember that "legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry" that exact wisdom and nice adoption of remedy are not always possible and that "judgment is largely a prophecy based on meagre and uninterpreted experience". Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There, may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot, as pointed out by the United States Supreme Court in Secretary of Agriculture v. Central Reig Refining Company, be converted into tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care Page 22 of 24 HC-NIC Page 22 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues."
[7.6] In the case of Malwa Bus Service Pvt. Ltd. (Supra), the Hon'ble Supreme Court has observed that the Courts lean more rightly in favour of upholding the constitutionality of a taxing law in view of the complexities involved in socioeconomic life of the community. It is observed that it is one of the duties of modern legislature to utilize the measures of taxation introduced by it for the purpose of achieving maximum social good and one has to trust the wisdom of the legislature in this regard.
[7.7] In the case before Madras High Court in the case of K.M. Vijayan (Supra), constitutional validity of section 3A of the Tamil Nadu Motor Vehicles Taxation Act which provides levy of green tax was under
challenge. It was the case on behalf of the petitioners that as on the vehicle life time tax was already paid / payable, the additional tax called "green tax" was violative of Article 14 of the Constitution and beyond the competence of the State legislature. Upholding the validity of levy of green tax under Section 3A of the Act, the Madras High Court has observed and held that the same is permissible under Entry 57 of List II. It is further observed that Entry 57 of List II does not specify any base for taxation and therefore, if more than one could be a basis, the legislature has the discretion and the latitude to choose any one of the permissible/available basis.Page 23 of 24
HC-NIC Page 23 of 24 Created On Tue Aug 15 20:41:15 IST 2017 C/SCA/5651/2011 CAV JUDGMENT [8.0] Considering the law laid down by the Hon'ble Supreme Court in the aforesaid decisions and the decision of the Madras High Court referred to hereinabove, it can safely be concluded that the impugned levy of tax under Section 3(1A) of the Act, 1958 cannot be said to be beyond the legislative competence of the State Government. It can safely be concluded that considering Entry 57 of List II, the State is authorized to levy tax on vehicles and there can be different eventualities / events and different aspects to levy the tax. Therefore, the State has the legislative competence to levy the impugned tax under Section 3(1A) of the Act, 1958 and therefore, the same cannot be said to be without authority under law and therefore, the same cannot be said to be ultra vires to Article 265 of the Constitution of India as alleged.
[9.0] In view of the above and for the reasons stated above, challenge to section 3(1A) of the Bombay Motor Vehicles Tax Act, 1958 fails and consequently all these special civil applications deserve to be dismissed and are, accordingly, dismissed.
Sd/ (M.R. SHAH, J.) Sd/ (B.N. KARIA, J.) Ajay Page 24 of 24 HC-NIC Page 24 of 24 Created On Tue Aug 15 20:41:15 IST 2017