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CASE NO.: Appeal (civil)  8871 of 2003

PETITIONER: State of U.P. & Others                   

RESPONDENT: Sukhpal Singh Bal                                

DATE OF JUDGMENT: 02/09/2005

BENCH: B.P. SINGH & S.H. KAPADIA

JUDGMENT: J U D G M E N T WITH

CIVIL APPEAL NOs.8875, 8881 to 8883, 8885,  8887 to 8890, 8893, 8895, 8897, 8900, 8903,  9591 AND 9592 OF 2003.

KAPADIA, J.         These civil appeals by special leave are directed against  the judgment and order of the High Court of Allahabad,  declaring section 10(3) of the Uttar Pradesh Motor Vehicles  Taxation Act, 1997 (for short "the 1997 Act") as ultra vires  articles 14 and 19(1)(g) of the Constitution.         The facts lie within a narrow compass and they are as  follows:

       Sukhpal Singh is the owner of a tanker bearing  registration No.MP-24C-0377.  The said tanker is covered by  national permit granted by the Regional Transport Authority,  Durg. The national permit granted was for Chattisgarh,  Maharashtra, Uttar Pradesh and Andhra Pradesh. Sukhpal was  granted an authorization certificate on the basis of the national  permit valid up to 14.2.2003.   

       On 26.2.2002, while carrying goods from Bhilai Steel  Plant to Sonepat, the tanker in question entered the State of U.P  and after unloading the goods returned from Sonepat.  While  doing so, the tanker crossed the U.P. border at Masaura and  when it was about 8 kms. in the State of M.P., the vehicle was  seized by the Assistant Regional Transport Officer, Lalitpur on  4.3.2002.                  On 5.3.2002, Sukhpal made an application for release of  his vehicle on which the Assistant RTO passed an order  directing Sukhpal to pay Rs.5100/- as composite tax plus ten  times penalty under section 10(3) of the said 1997 Act, as  amended by U.P. Amending Act No.25 of 2001.

       The order of penalty was challenged by Sukhpal vide  writ petition in the High Court of Allahabad, in which the  validity of section 10(3) was put in issue.

       We have quoted the facts in the case of Sukhpal as a  representative matter in the group of similar matters.  

       Smt. Shobha Dixit, learned senior counsel appearing on  behalf of the appellant-State submitted that on account of huge  evasion of tax, the legislature had to enact section 10(3)

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providing for a deterrent penalty as the State of U.P. has a vast  boundary and the vehicles could enter from distant corners  without payment of statutory dues at the entry point.  Learned  counsel pointed out that drivers would carry demand drafts in  their pockets and they did not pay the taxes (including  additional tax) till they were apprehended and when  apprehended they made an excuse of paucity of collection  centres.  She contended that the aforestated defaults constituted  tax evasion and, therefore, the State Legislature incorporated  section 10(3) into existing section 10 by Amending Act No.25  of 2001 imposing ten times penalty. Learned counsel next  contended that the vehicle in question was "goods carriage"  operating under national permit granted under section 88(12) of  the Motor Vehicles Act, 1988 (for short "the M.V. Act, 1988")  and, therefore, it was liable to pay additional tax at the rate  applicable to such "goods carriage" under part ’B’ of the third  schedule [See: section 5(1)(b) of the 1997 Act].  Learned  counsel submitted that under section 5, additional tax has been  levied on goods carriage plying under permits granted by the  authorities within UP, goods carriage operating under national  permit granted under section 88(12) of the M.V. Act, 1988 and  goods carriage plying under permits granted by authorities  outside Uttar Pradesh for inter-State route partly lying in Uttar  Pradesh and, therefore, there was no discrimination to the levy  of additional tax.  Learned counsel further contended that under  section 9(1)(iii) of the 1997 Act, additional tax is payable on  goods carriage under section 5(1)(a) in advance on or before the  fifteenth day of January, April, July and October in each year.   Learned counsel urged that under section 9(3), in cases where  breach occurs in payment of additional tax within the period  specified under section 9(1), a penalty of twenty five per cent of  the due amount has been prescribed for goods carriage plying  under permits granted by authorities within UP, whereas a ten  times penalty is imposed for the same offence on transport  vehicles having national permit under section 10(3) as it was  found that in the former case, the authorities within the State of  UP had better control as compared to goods carriages registered  outside the State of UP plying under the national permit under  section 88(12) of the M.V. Act, 1988 and, therefore, there was  no discrimination between the two categories as alleged.

       Learned counsel further contended that under section 10  of the 1997 Act, no transport vehicle under temporary permit  granted under section 87 of the M.V. Act, 1988 or under  national permit granted under section 88(12) of the M.V. Act,  1988 or under permit by section 88(9) of the said M.V. Act,  1988 can ply in U.P. without payment of tax at the specified  rate for each of the three categories.  According to the learned  counsel in the present case, we are concerned with section  10(1)(b) of the 1997 Act, as the offending vehicle was a  transport vehicle under national permit granted under section  88(12) of the M.V. Act, 1988 by a authority in State of M.P.  and, therefore, it was liable to pay additional tax under section 5  at the rate mentioned in clause ’B’ of the third schedule to the  1997 Act.

       Learned counsel submitted that since the offending  vehicle was found plying in the State of U.P. without payment  of additional tax, it became liable to ten times penalty.  Learned  counsel further pointed out that section 12 of the 1997 Act  provides for refund and in cases where refund is refused, the  aggrieved person is entitled to move the appellate authority and,  therefore, determination and adjudication is also provided for in  the Act.  Learned counsel, therefore, urged that the High Court  had erred in striking down section 10(3) of the 1997 Act as

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oppressive, coercive and unreasonable and, therefore, violative  of articles 14 and 19(1)(g) of the Constitution.

       On behalf of the respondent, it was urged that there was  paucity of collection centres in UP and in most cases these  centres were located 50 to 60 kms. from the entry point and  consequently, the drivers were required to carry demand  drafts/cash to pay composite tax in these centres and in the  process if apprehended, they are fined under section 10(3) of  the Act.  It was further submitted that the imposition of ten  times penalty in any event was harsh, unreasonable,  unconscionable and confiscatory in nature.  In this connection,  it was urged that on the composite tax of Rs.5100/-, ten times  penalty would come to Rs.51000/-, which was unreasonable  and, therefore, violative of article 19(1)(g) of the Constitution.   It was urged that penalty up to ten times could have been  imposed so that in genuine cases, the respondents could be  made liable for lesser penalty in cases of mistakes in non- payment of tax.  However, in the present case, under section  10(3), ten times penalty at a fixed rate on composite tax was  harsh, arbitrary and unreasonable as no opportunity is provided  to the alleged offending vehicle to explain its case and to get the  penalty reduced.  It was urged that in imposition of ten times  penalty, there was no adjudication and determination of the  quantum.  It was urged that to impose ten times penalty without  determination violated the rights of the respondent under  articles 14 and 19(1)(g) of the Constitution.  It was next  contended that the imposition of ten times penalty was  discriminatory and irrational as for the same offence in respect  of vehicles failing under section 9(3), penalty does not exceed  twenty five per cent of the due amount, whereas transport  vehicle plying in UP under national permit on default is liable  to ten times penalty and, therefore, the said levy was  unreasonable, irrational and discriminatory and consequently,  violative of article 14 of the Constitution.  It was further urged  that vehicles registered in UP had to pay Rs.550/- as composite  tax and ten times penalty for such vehicles came to Rs.5500/-  whereas transport vehicles plying under national permit have to  pay composite tax of Rs.5100/- and on default, they are liable to  penalty of Rs.51000/-, which according to the respondent was  unreasonable, discriminatory and violative of their rights under  article 14 of the Constitution.

       Before dealing with the aforestated contentions, we may  analyse the provisions of the U.P. Motor Vehicles Taxation  Act, 1997. The Act was enacted to provide for imposition of  tax in the State on motor vehicles. The Act was also enacted to  provide for imposition of additional tax on motor vehicles  engaged in the transport of passengers and goods for hire.  Section 2(a) defines "additional tax" to mean a tax imposed  under section 5 or section 6 in addition to the tax imposed  under section 4.  Section 2(d) defines "goods carriage" to mean  any motor vehicle constructed or adapted wholly or partly for  use for the carriage of goods, or any motor vehicle not so  constructed or adapted when actually used for the carriage of  goods, and includes a trailer.  Section 2(h) defines "owner" in  respect of a motor vehicle to mean the person whose name is  entered in the certificate of registration issued in respect of such  vehicle. Section 2(n) defines "transport vehicle" to mean a  goods carriage or a public service vehicle. Section 4 imposes  tax on motor vehicles other than transport vehicles used in any  public place in U.P.  Section 4(1) inter alia states that no motor  vehicle, other than a transport vehicle, shall be used unless a  one-time tax at the rate applicable and as specified in part ’B’  of the first schedule is paid.  Section 4(2), inter alia, states that

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no transport vehicle shall be used in any public place in U.P.  unless a tax at the rate prescribed in part ’D’ of the first  schedule has been paid.  Section 5 deals with levy of additional  tax on goods carriages. It states, inter alia, that no goods  carriage shall be operated in any public place in U.P., unless  there has been paid, in addition to the tax payable under section  4, an additional tax at the rate applicable to goods carriage  specified in the third schedule.  The third schedule is again in  two parts.  In the case of goods carriage plying under permits  granted by the State authorities, the tax payable is different  from the goods carriage operated under national permits  granted under section 88(12) of the 1988 Act.  In the latter case,  additional tax is payable at the rate prescribed by part ’B’ of the  third schedule.  Therefore, sections 5(1)(a) and 5(1)(b) show a  dichotomy in the matter of levy of additional tax between  goods carriages plying under permits granted by authorities  within the State of U.P. and goods carriages plying under  national permits. Section 9 deals with payment of tax and  penalties. Under section 9(1)(ii), the tax payable under section  4(2) is payable in advance for each quarter at the time of  registration of the vehicle. Under section 9(1)(iii), the  additional tax payable under section 5(1)(a) is required to be  paid in advance on or before the 15th day of January, April, July  and October in each year.  Under section 9(3), it is stated, that,  where the tax or additional tax in respect of a motor vehicle is  not paid within the period specified in sub-section (1), a penalty  at the rate not exceeding twenty five per cent of the due  amount, shall be payable, for which the owner and the operator  shall be jointly and severally liable. Section 10 deals with  transport vehicles which ply in U.P. It begins with the non  obstante clause. It states that notwithstanding anything  contained in section 9, no transport vehicle shall ply in the State  under a temporary permit granted under the 1988 Act unless the  vehicle has paid a tax under section 4 calculated at the  appropriate rate specified in the first schedule, as also  additional tax under section 5 calculated at the appropriate rate  specified in the sixth schedule.  Under section 10(1)(b), no  transport vehicle shall ply in U.P. under a national permit  granted under section 88(12) of the M.V. Act, 1988 by an  authority having jurisdiction outside U.P. unless the vehicle has  paid additional tax under section 5 at the rate specified in  clause ’B’ of the third schedule.

       The main question in these civil appeals is whether  section 10(3) inserted by Amending Act No.25 of 2001  imposing ten times penalty is void for infringement of  respondent’s rights under articles 14 and 19(1)(g) of the  Constitution as held by the impugned judgment.  Therefore, we  are concerned with the validity of the said section which reads  as follows: "10.  Vehicles not to be used in Uttar Pradesh  without payment of tax.\027 (3) If such transport  vehicle is found plying in Uttar Pradesh without  payment of the tax or additional tax payable under  this Act such tax or additional tax along with a  penalty, equivalent to ten times of the due tax or  additional tax shall be payable."

       In the case of State of Madras v. V. G. Row reported in  AIR 1952 SC 196 at p. 200, this Court observed as follows:- "It is important in this context to bear in mind that  the test of reasonableness, wherever prescribed,  should be applied to each individual statute  impugned, and no abstract standard, or general

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pattern of reasonableness can be laid down as  applicable to all cases. The nature of the right  alleged to have been infringed, the underlying  purpose of the restrictions imposed, the extent and  urgency of the evil sought to be remedied thereby,  the disproportion of the imposition, the prevailing  conditions at the  time, should all enter into the  judicial verdict."

       In the case of Bhavesh D. Parish & Others v. Union of  India & Another reported in (2000) 5 SCC 471, this Court laid  down that while considering the scope of economic legislation  as well as tax legislation, the courts must bear in mind that  unless the provision is manifestly unjust or glaringly  unconstitutional, the courts must show judicial restraint in  interfering with its applicability. Merely because a statute  comes up for examination and some arguable point is raised,  the legislative will should not be put under a cloud. It is now  well-settled that there is always a presumption in favour of the  constitutional validity of any legislation unless the same is set  aside for breach of the provisions of the Constitution. The  system of checks and balances has to be utilized in a balanced  manner with the primary objective of accelerating economic  growth rather than suspending its growth by doubting its  constitutional efficacy at the threshold itself.

       In the case of R.K. Garg etc. v. Union of India & Others  reported in (1981) 4 SCC 675, this Court held that every  legislation, particularly in economic matters, is essentially  empiric and it is based on experimentation. There may be  possibilities of abuse but on that account alone it cannot be  struck down as invalid. These can be set right by the legislature  by passing amendments. The Court must, therefore, adjudge the  constitutionality of such legislation by the generality of its  provisions. Laws relating to economic activities should be  viewed with greater latitude than laws touching civil rights  such as freedom of speech, religion etc. Moreover, there is a  presumption in favour of the constitutionality of a statute and  the burden is upon him who attacks it to show that there has  been a clear transgression of the constitutional principles. The  legislature understands and correctly appreciates the needs of  its own people, its laws are directed to problems made manifest  by experience and its discrimination are based on adequate  grounds. There may be cases where the legislation can be  condemned as arbitrary or irrational, hence, violative of article  14.  But the test in every case would be whether the provisions  of the Act are arbitrary and irrational having regard to all the  facts and circumstances of the case. Immorality, by itself,  cannot be a constitutional challenge as morality is essentially a  subjective value. The terms "reasonable, just and fair" derive  their significance from the existing social conditions.

       In the light of the above judgments as applicable to the  provisions of the said 1997 Act, we are of the view that the  High Court had erred in striking down section 10(3) as ultra  vires articles 14 and 19(1)(g) of the Constitution.  "Penalty" is a  slippery word and it has to be understood in the context in  which it is used in a given statute. A penalty may be the  subject-matter of a breach of statutory duty or it may be the  subject-matter of a complaint. In ordinary parlance, the  proceedings may cover penalties for avoidance of civil  liabilities which do not constitute offences against the State.  This distinction is responsible for any enactment intended to  protect public revenue. Thus, all penalties do not flow from an

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offence as is commonly understood but all offences lead to a  penalty. Whereas the former is a penalty which flows from a  disregard of statutory provisions, the latter is entailed where  there is mens rea and is made the subject-matter of  adjudication. In our view, penalty under section 10(3) of the  Act is compensatory. It is levied for breach of a statutory duty  for non-payment of tax under the Act.  Section 10(3) is enacted  to protect public revenue. It is enacted as a deterrent for tax  evasion. If the statutory dues of the State are paid, there is no  question of imposition of heavy penalty. Everything which is  incidental to the main purpose of a power is contained within  the power itself. The power to impose penalty is for the purpose  of vindicating the main power which is conferred by the statute  in question. Deterrence is the main theme of object behind that  imposition of penalty under section 10(3).

       In the case of State of Tamil Nadu v. M Krishnappan &  Another reported in (2005) 4 SCC 53, this Court has held that  entry 57 of list II of the seventh schedule to the Constitution  provides a field to the State legislature to impose tax in respect  of every aspect of a vehicle. The State has to find funds for  making new roads and for maintenance of existing roads. The  Motor Vehicles Act is regulatory and compensatory in nature in  the sense that it is imposed to meet the increasing costs of  maintenance and upkeep and to that extent it is not plenary. In  the said judgment, it has been held that imposition of higher  burden of tax on vehicles based on intelligible reasoning and  differentia will not make the impugned levy discriminatory,  arbitrary or unreasonable so as to violate article 14 of the  Constitution.

       Lastly, we may point out that under section 12, the  drivers/operators are entitled to claim refund of tax. Similarly,  under section 18, any person aggrieved by the order of the Tax  Officer under section 12 is entitled to move the appellate  authority within 30 days.  Learned counsel for the State stated  before us and we record her statement that cases of this type  would come under section 18.  Learned counsel for the State  also pointed out that in appropriate cases where the transport  vehicle carries perishable goods, the vehicle is released on the  driver depositing the relevant documents with the Tax Officer  so that payment could be made within a stipulated period.  Although section 18 refer to appellate authority, in our view, on  an examination of the scheme of the Act, we find from the  provisions of section 18 that the authority deciding appeals  against orders passed by Tax Officer under section 12 is really  exercising initial jurisdiction and that under the Act, there are  sufficient safeguards and conditions which are not onerous and  which provide a forum for the aggrieved party to get redressal  and, therefore, the High Court had erred in striking down  section 10(3) of the Act.

       In the case of Rahimbhai Karimbhai Nagriwala v. B.B.  Patel & Others reported in (1974) 97 ITR 660, penalty under  section 271(1)(c) of the IT Act, as it stood at the relevant time,  was levied on the assessee at Rs.13,854/-, equal to 100 per cent  of the alleged concealed income.  The assessee challenged the  constitutional validity of section 271(1)(c) on the ground that  the provision was violative of article 14 of the Constitution  inasmuch there was no classification at all though there was a  difference between various types of tax evasions.  It was urged  that such a severe penalty of concealment of income was  confiscatory in nature.  It was urged that under section  271(1)(a)(i) of IT Act, the penalty for not filing a return was  correlated to the amount of the tax evaded as against the

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correlation of penalty to concealed income under the impugned  provisions of section 271(1)(c)(iii) was totally arbitrary because  so far as concealed income was concerned, the penalty for  concealed income proceeded on a different footing from  penalty for omission to file a return in time.  It was also  contended that the impugned penalty was disproportionate as  there was no nexus between penalty imposed and the tax  evaded and under the circumstances, it was urged that section  271(1)(c)(iii) was violative of articles 14 and 19(1)(g) of the  Constitution.  This challenge was rejected by the Gujarat High  Court observing that everything which is incidental to the main  purpose of a power is contained within the power itself so that  it extends to matters which are necessary for the reasonable  fulfilment of the legislative power over the subject matter and,  therefore, the power to impose penalty is for the purpose of  vindicating the main power, which is conferred by the Act. The  object of the legislature in levying such penalty is to provide  deterrent against tax evasion and to put a stop to a practice  which the legislature considers to be against the public interest.   It has been further observed that while article 14 forbids class  legislation, it does not forbid reasonable classification for the  purposes of legislation.  The Supreme Court has permitted a  very wide latitude in classification for taxation.  The object of  the legislature in enacting the impugned provision is not to  provide for confiscation but to provide a penalty for  concealment of income and that too by providing a deterrent  penalty.

       In our view, the judgment of the Gujarat High Court in  the case of Rahimbhai Karimbhai Nagriwala (supra), is  squarely applicable to the present case.  Deterrence is the main  theme or object behind the imposition of penalty and, therefore,  it is not possible to say that in the instant case the provision of  section 10(3) infringes articles 14 and 19(1)(g) of the  Constitution, as held in the impugned judgment.

       Accordingly, the appeals filed by the State succeed and  are hereby allowed, the impugned judgment and order of the  High Court is set aside, with no order as to costs.