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PETITIONER: A.   S. KARTHIKEYAN ETC.

       Vs.

RESPONDENT: STATE OF KERALA & ANR.

DATE OF JUDGMENT20/11/1973

BENCH: RAY, A.N. (CJ) BENCH: RAY, A.N. (CJ) MATHEW, KUTTYIL KURIEN CHANDRACHUD, Y.V. ALAGIRISWAMI, A. BHAGWATI, P.N.

CITATION:  1974 AIR  436            1974 SCR  (2) 321  1974 SCC  (1) 258

ACT: Kerala  Motor  Vehicles (Taxation of  Passengers  and  Goods Amendment Act (18 of 1971) and Motor Vehicles (Kerala  Third Amendment) Act 434 of 1971)-Validity of.

HEADNOTE: Section  43 of the Motor Vehicles Act, 1939, lays down  that the State Government may, from time to time issue directions to  the State Transport Authority regarding fixing of  fares and  freights for stage carriages and public carriages,  and s.  44(3)  requires the State Transport  Authority  to  give effect to such directions.  In exercise of these powers  the fare  structure  had been fixed for stage carriages  in  the respondent-State   from  time  to  time.   In   1963,   the. respondent  decided, to increase the motor vehicles tax,  to introduce  tax  on passengers and goods, and to  modify  the fare  structure suitably for stage  carriages.   Accordingly under the Kerala Motor Vehicles Taxation Act, 1963, the  new rate  of  tax  was fixed.  Section 3  of  the  Kerala  Motor Vehicles.  (Taxation  of Passengers and  Goods)  Act,  1963, provided that there shall be levied and paid to the  Govern- ment   a  tax  on  all  passengers,  luggage  etc  and   the composition fee Was fixed per seat per quarter.  Also, after hearing the representations and objections of the  operators and  the public, there was a revision, as from July 1,  1963 of the fare structure of stage carriages in the State.  Till July  1966,  the operators collected tax on  passengers  and goods and paid the taxes to the Government, But in 1966, the operators  agitated  for enhancement of fares and  look  the matter  to  Court.   In  Thomman  &  ors.  v.  The  Regional Transport Officer, Ernakulam & Anr.  I.L.R. [1968] 2  Kerala 153  the, High Court held that the tax under  the,  1963-Act (Taxation of Passengers and Goods) was v., tax on passengers and.  goods.,  and: not on the operators  as,  contended  by operators.  but held that the Act contained no  satisfactory provision for its collection, in that it was not clear  that the tax was payable,by the passengers to the operators. Thereafter,   the   Kerala  Motor  Vehicles   (Taxation   of Passengers and Goods.  Amendment) Act 18 of 1971 was  passed

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amending  the  1963-Act.   Two  new  sub-sections  to  s.  3 provided  that  the  tax  levied  shall  be  paid  by   the, passengers  and  consignors of the goods  to  the  operators along  with fares and freights and that the operators  shall be liable to pay the tax so levied to the Government.  There was  also  a  validating section in Act 18  of  1971,  which stated that taxes levied or collected shall be deemed to  be and  to have always been levied or collected  in  accordance with law as if s. 3 of the 1963-Act, as amended by Act 18 of 1971 was in force at all material times.  Another Act, Motor Vehicles (Kerala Third Amendment) Act 34 of 1971, effected 2 principal changes, namely,, (1) the addition of sub. s. (1A) to  s. 43 of the Motor Vehicles Act which provided that  any direction  regarding  the  fixing  of  fares  and   freights prospectively,  or retrospectively might provide  that  such fares and freights shall be inclusive   of  the tax  payable by passengers or consignors of goods; and (2) a  validate provision  validating  the  directions,  relating  to  fares issued on or  after March 1.     1963  to be inclusive  of the tax payable under the 1963-Act.With          effect from,October 15, 1971, the Government also revised the rates offare. The operators contended that : (1) The provisions of Acts 18 and 34 of 1971 amounted to a tax not on passengers and goods but  on the income of the operators, (2)  the  retrospective validation of levy an( collection amount to a tax on amounts collected  as  fare and therefore the tax was a new  tax  on fare, and (3) the retrospective validation was  unreasonable because the operators were made liable for a tax which  they did  not  in  fact collect during the period  July  1966  to October  14 1971, when they were agitating  for  enhancement of fa re. 322 Rejecting the contentions. the Court, HELD  :  (1)  The Provisions of the  1963-Act  (taxation  of passengers  and goods) indicate that the tax under that  Act is  a  tax on passengers and owners of goods  and  that  the operators  only  collected  the tax.   When  passengers  and owners  of  goods pay the tax, the  Government  requires  an agency to collect it and the operators are such agents.  The power  to enact such a measure is derived from entry  56  of the   State  List  If  of  the  Seventh  Schedule   to   the Constitution. [329B-C.  D-F] M/s  Sainik  Motors,  Jodhpur  &  Others  v.  The  State  of Rajasthan, [1962] 1 S.C.R. 517, followed. (2)  The   tax   recovered  retrospectively   as   well   as prospectively  is  the  same tax, a tax  on  passengers  and goods.  The tax is imposed by the 1963 Act and its character as well as incidence is determined by the 1963-Act.  No  tax is imposed or collected under Act 34 of 1971, nor was  there any alteration of the character of the tax which had already been  imposed.  The machinery for its collection  which  was implicit  in  the 1963-Act was made explicit by  Act  18  of 1971.   The State Government fixed the fare in July 1,  1963 after  taking into account the element of tax on  passengers and  goods  imposed  by  the  1963-Act.   The  operators  in collecting  fares from passengers in fact collected the  tax due  from  them  under the 1963-Act  along  with  the  fare. Section  43(A) of the Motor Vehicles Act only clarified  the factual basis.  It is competent to the State Legislature  to amend  the  Motor Vehicles Act by enacting  that  directions regarding  fares can be inclusive of tax.  The two  Acts  of 1971  were  only for the purpose of  dispelling  the  doubts expre ssed in Thomman Case.’ [333C-G] Rai  Ramkrishna  & Others v. The state of  Bihar,  [1964]  1

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S.C.R. 897, explained ;and followed. S.   Srikantiah  & Ors v. The Regional Transport  Authority, Anantapur & Ors., [1971] Supp.  S.C.R. 816, followed. (3)  The correspondence and representations by the operators and  notes  of  hearing  prepared  by  the  Secretariat   in connection  with  the  revision of  fares,  show,  that  the incidence of the increase in the motor vehicles tax and  the increase  in tax liability on account of tax  on  passengers and  goods were all taken into consideration in  fixing  the fare  with effect from July 1, 1973.  Since the tax  was  an element  included in the fare structure,  the  retrospective validation cannot be said to be unjust. especially  because the  operators  had collected the  entire  amount.  [332B-C; 334C-D]

JUDGMENT: ORIGINAL  JURISDICTION: Writ Petition No. 326 of 1972 &  203 of 1973. Under  Article  32  of the Constitution  of  India  for  the enforcement of fundamental rights. Civil Appeal No. 1875 of 1972. Appeal  by Special Leave from the Judgment and  Order  dated the 15th March, 1972 of the Kerala High Court at Emakulam in O. P No. 23 of 1971. Civil Appeal No. 1765 of 1972. From the Judgment and Order dated the 16th March,1972 of the Keral a High Court Ernakulam in O.P. No. 3034 of 1971. Civil Appeal No. 27 of 1973. From  the Judgment and Order dated the 13th March,  1972  of the kerala High Court in O.P. No. 2320 of 1971. Civil Appeal No. 361 of 1973. 323 From  the Judgment and Order dated the 15th March. 1972  "of the Kerala High Court in O.P. No. 2453 of 1971. V.   M.  Tarkunde,  C. K. Viswanatha Iyer,  K.  jayaram  and R.Chandrasekharan for the petitioners (in W. P. No. 326/72). C.   K.  Viswanatha Iyer, K. Jayram and R.  Chandrasekharan. for the petitioners, (in W. P. No. 203/73). M.   M.  Abdul Khader, V. A. Syed Mohammed,  K.  Paripoornam and P.    C.  Chandi,  for  respondent No. 1  (in  W.P.  No. 203/73). S.   V. Gupte, V. Sivaraman Nair,, C. J. Balakrishnan and A. Sreedhar Nambiar. for the appellant (in C. A. No. 1875/72). V.   Sivaraman  Nair, C. J. Balakrishnan and  A.  Sreedharan Nambiar, for the appellants, (in C. A. No. 1765/72). V.   Bhaskaran  Nambiar and A. Sreedharan Nambiar,  for  the appellant (in C. A. No. 27/73). K.   T.  Harindranath  and A. Sreedharan  Nambiar,  for  the appellants, (in C. A. No. 361/73) and for Intervener No. 5. S.   V. Gupte and A. Sreedharan Nambiar, for Intervener  No. 1. A.   Sreedharan Nambiar, for Intervener Nos. 2, 3 and 6. The Judgment of the Court was delivered by RAY  C.J. These matters raise questions on the  validity  of legislative  measures  of  levy and  collection  of  tax  on passengers  and goods carried by stage carriages and  public carrier  vehicles.   Stage carriages  carry  passengers  and public  carriers  carry goods.  The validity of  the  Kerala Motor Vehicles (Taxation of Passengers and Goods  Amendment) Act,  1970 for the sake of brevity called Act 18 of 1971  as well  as  the Motor Vehicles (Kerala Third  Amendment)  Act, 1971  for  the  sake of brevity called Act  34  of  1971  is challenged.

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The petitioners in the writ petitions and the appellants  in Civil Appeals are operators of stage carriages in the, State of Kerala. The questions which fall for consideration in these  matters are  these.   First,,  does Act 18 of 1971  levy  a  tax  on passengers or does it levy a tax on the income of  operators ?  Second,  is  the retrospective  validation  of  levy  and collection of taxes by Act 18 of 1971 legal- ?  Third, is it competent  to  the legislature to amend section  43  of  the Motor  Vehicles Act, 1939 called the 1939 Act by Act  34  of 1971 to include retrospectively tax within fare ?, Section  43  of  the  1939 Act  lays  down  that  the  State Government  may,  from time to time by notification  in  the Official  Gazette, issue directions to the  State  Transport Authority  regarding fixing of fares and freights for  stage carriages, contract carriages and public carriages.  Section 44(3) of the 1939 Act requires the State Transport Authority to give effect to such directions issued ’by the Government. It  is in exercise of these powers that the  fare  structure for stage carriages is fixed from time to time. 324 The  State of Kerala came into existence with effect from  1 November  1956 by the, Reorganisation of  States  comprising the  Malabar  area  of  the  former  Madras  State  and  the Travancore-Cochin area.  The fare structure in force in  the Malabar area as on 1 November, 1956 was 3.90 nP per mile and the minimum fare was 31 nP for distances less than 8  miles. The  fare  structure in Travancore-Cochin area  prior  to  1 November,  1956 was 3.90 nP per mile and the minimum was  19 nP.   There was difference only in the minimum fare  between Malabar and Travancore-Cochin areas. In  1958 the difference between the minimum fare of the  two was  eliminated.  The, Kerala Government on 15  April,  1958 increased the rate of fare to 4 nP per mile and the  minimum fare was 16 nP. Prior to 1 July, 1963 there was no provision for the levy of tax  on passengers and goods in the Travancore-Cochin  area. In the Malabar ,area the Madras Motor Vehicles (Taxation  of Passengers  and Goods) Act 1952 was in force over and  above the Madras Motor Vehicles Taxation Act.  In the  Travancore- Cochlea  area there was only the  Travancore-Cohin  Vehicles Taxation  Act  14 of 1950.  The incidence ,of tax  on  stage carriages and public goods carriages was the same after  the formation of the Kerala State in 1956.  In the Malabar  area a tax of Rs. 25/- per seat per quarter was levied under  the Motor  ’Vehicles Taxation Act and a compounded rate. of  Rs. 12.50  per  seat  ’per  quarter  under  the  Motor  Vehicles (Taxation  of Passengers and Goods) Act.  The  aggregate  of the  two taxes in the Malabar area was ,Rs. 37.50  per  seat per  quarter  in  respect  of  stage  carriages.   In   the, Travancore--Cochin  area the rate of vehicles tax under  the Vehicles  Taxation Act was, Rs. 37-50 per seat  per  quarter equal to the total incidence of tax in the Malabar area  for stage carriages. The  fare structure throughout the Kerala State  after  1958 was  4 nP per mile and the minimum was 16 nP.  In  1961  the Government  of Kerala continued the fare at 4 nP.  per  mile but reduced the minimum from 16 nP to 10 nP. In   this   background,   the  Government   of   Kerala   on consideration   of proposals  made   by   the   Transport Commissioner  decided in the month ,of February, 1963  first to  increase the motor vehicles tax throughout  the,  State; second, to introduce tax on passengers and goods through-out the  State;  and,  third  to  increase  the  fare  structure suitably for stage carriages.  The incidence of tax at’  Rs.

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37.50 per seat per quarter prevalent in the Kerala State was low  Compared to. the incidence of vehicle tax in the  three neighboring States of Madras, Mysore and Andhra Pradesh.  In Madras,  the  total incidence of vehicle tax  per  seat  per quarter  was Rs. 40/- and composition fee under Taxation  of at  Passengers  and Goods Act was Rs. 25/-  aggregating  Rs. 65/-  in 1962.  In Mysore, the rate was Rs. 57.50  per  seat per  quarter compose vehicle tax and composition  fee  under Taxation of Passengers and Goods Act. in Andhra Pradesh, the total comprising the taxation of passengers and vehicle  tax was Rs. 670 in 1963. In  1963 the, Kerala Motor Vehicles (Taxation of  Passengers and  Goods Act, 1963 for the sake brevity called Act  25  of 1963  was  ,enacted.  Section 3 of Art 25 of  1963  provided that "there shall be 325 levied, and paid to the Government a tax on all  passengers, luggage  and  goods carried by stage carriages  and  on  all goods transported by public carrier vehicles at the rate  of 10 nP in the rupee on the fares and freights payable to  the operators of such stage carriages and at the rate of 5 nP in the  rupee on the freights payable to the operators of  such public  carrier vehicles." The Act 25 of 1963 was  published on  15 April, 1963 in the Kerala Gazette  Extraordinary  and was brought into force with effect from 1 July,. 1963.   The Act 25 of 1963 contained these provisions.  The operator  is permitted   to  compound  the  tax  assessable  on  him   in circumstances   and  conditions  mentioned   therein.    The operator is required to submit returns in prescribed  forms. The  operator  is to  pay  tax  every  month.   There  are provisions for assessment, penalty, production of accounts. The   State   Government  of  Kerala   published   a   draft notification  on  4  March,  1963  for  revising  the   fare structure.  After hearing the representations and objections of the operators and the public, the final notification  was issued on 13 June, 1963 and was published in the Gazette  on 18 June, 1963.  By this notification, the fare was fixed  at 3 nP per kilometre and the minimum fare was fixed at 20 nP. The  rate  of tax under the Kerala Motor  Vehicles  Taxation Act,  1963  was fixed at Rs. 35/- per seat  per  quarter  in respect of vehicles where the total distance permitted to be operated  did  not  exceed 200 kilometers and  Rs.  401-  in respect of vehicles where the total distance permitted to be operated  per day exceeded 200 kilometres.  The  composition fee  payable under Act 25 of 1963 was fixed at Rs. 25/-  per seat per quarter.  Therefore, the total incidence of the two taxes under Motor Vehicles Taxation Act and the Taxation  of Passengers  and Goods Act was Rs. 60/- per seat per  quarter for  vehicles not ,operating in excess of 200  kilometres  a day and Rs. 65/- per seat per quarter in respect of vehicles operating in I excess of 200 kilometres a day. As  a  result  of Act 25 of 1963, the  fate  structure  with effect  from  1 July, 1963 was 3 nP per  kilometre  and  the minimum was 20 nP.  Prior to 1 July, 1963, the rate of  fare was 2.5 nP per kilometre and the minimum was 10 nP. After  the fixation of fare structure on 1 July, 1963  there were repeated representations from operators to increase the fare  and representations from the public for  reduction  of the minimum of 20 nP. A transport High level Committee  %+as constituted with Shri C. M. Mathew a retired District  Judge as  the Chairman.  The Committee recommended that there  was no  need  to raise the fare structure but it  recommended  a reduction  of  the  minimum  fare from  20  Ps.  to  10  Ps. Presumably  pursuant to the recommendation,  a  notification was issued on 24 April, 1964 reducing the minimum from 20 Ps

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to 10 Ps. From  the  year  1963 to 1966, the  operators  paid  to  the Government  taxes  under  Act 25  of  1963.   The  operators collected tax on passengers and goods. But in 1966 the operators agitated for enhancement of  fare. Eventually the operators went before the Kerala High  Court. The 326 operators challenged Act 25 of 1963.  The main contention of the operators was that Act 25 of 1963 imposed the tax not on the  passengers  or  consignors  of the  goods  but  on  the operators  who  carry  the passengers  or  the  goods.   The decision  of-the Kerala High Court in Thomman & Ors  v.  The Regional Transport Officer, Ernakulam(1) reported in  I.L.R. (1968)  2 Kerala 153 was on 4 March, 1968.  The  High  Court held that the tax is a tax on the passengers and goods.  The High Court expressed the view that there was no satisfactory provision  for  the collection of the tax.  The  High  Court observed  that provision must be made for the collection  of the  tax  from the passenger as tax specifying  the  quantum calculated and computed on the basis of the provision of the Act.  Soon  after the decision in Thomman case (supra) the  State Government  issued a notification dated 29 April,  1968  and published  it on 30 April, 1968.  This notification  was  to the  effect not the fare with effect from 1 July,  1963  was inclusive  of the tax leviable under Act 25 of 1963.   There was  also  a draft amendment to the  Kerala  motor  Vehicles (Taxation of Passengers and Goods) Rules, 1963.  A new  rule numbered  rule 3(2) was inserted.  That new rule was to  the following effect :-               "The  fares  and freights collected  from  the               passengers or consignors of goods as the  case               may be, may include in it, such proportion  of               the  tax as is payable under section 3 of  the               Act and the prescribed authority while  making               the   assessment  under  sub-rule  (i)   shall               calculate the tax due to the Government  under               the act from the fares and freights  collected               on the same Proportion". The  purpose  of  the 1968 notification was  that  the  fare already fixed and which was effective from 1 July, 1963  was inclusive  of the tax and that such tax was being  collected from the passengers and the consignors of the goods. The 1968 notification was also challenged in the Kerala High Court.   The  Government represented that no  tax  would  be collected  without complying with the directions in  Thomman case (supra) On this representation of the State, the Kerala High Court dismissed the writ petitions. Thereafter  a bill was introduced in the Assembly  to  amend Act  25 of 1963.  The Bill was published in the  Gazette  on 11,  Aught,  1969.   The  Bill  was  to  have  come  up   or consideration  on 9 January. 1970. it was not taken  up  for consideration on that day.  Instead an Ordinance  (ordinance No.   1  of  1970)  was  promulgated  on  4  January,   1970 introducing  amendment  s  to Act 25  of  1963.   This  1970 Ordinance  was challenged in the Kerala.High Court.   On  19 January, 1970 the High Court passed an order that collection of  tax  under Act 25 of 1963 as amended by Ordinance  1  of 1970  is  stayed  in  respect of the  period  prior  to  its publication in the Karela Gazette on 5 January, 1970 to  the extent  the operator has not collected the same  during  the said  Period" The operators resolved to collect 10 per  cent extra over the fare from the month of January, 327

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1970.   The transport Commissioner asked them not to do  so. On  2 February, 1970 a conference was held by  the  Minister for Transport.  The operators agreed that no enlaced  amount would  be  collected  by them pending the  decision  of  the Kerala High Court.  The Government issued instructions on 24 February, 1970 that until further orders from the Government "the  operators shall not be required to pay the  tax  under Act  25  of  1963 for the period from  5  January,  1970  in rendering services in respect of the concerned vehicle  such as issue and renewal of permits etc." The impugned Act 18 of 1971 was passed by the Legislature on 28 February, 1970 and received the assent of the Governor on 1 June, 1971.  Act 18 of 1971 introduced two sub-sections to section 3 of the Act 25 of 1963.  Act 18 of 1971 was enacted to  clarify  the  position  with  regard  to  levy  of   and collection of taxes from passengers and consignors of  goods in  accordance  with  the observations of  the  Kerala  High Court,in  Thomman case (supra).  The High Court observed  in that  case that provision should be made for the  collection of the tax from the passenger as tax specifying the  quantum calculated  and  computed on the basis of provision  in  the Act.   The  High Court also observed that the tax  would  be payable  to the operator who was liable to pay the  same  to the State.  It is in this background that Act 25 of 1963 was amended  by Act 19 of 1971.  Act 25 of 1963 contained  inter alia the provisions that "there shall be levied and paid  to the Government a tax on all passengers, luggage and  goods". The provision was amended by Act 18 of 1971 by  substituting the  words  "there shall be levied a tax" in  place  of  the words  "there shall be levied and paid to the  Government  a tax".  The result of the amendment was that "there shall  be levied  a  tax on all passengers, luggage and  goods".   The former wording of section 3 that "there shall be levied  and paid. to the Government a tax on all passengers, luggage and goods"  was,  said by the High Court to raise doubts  as  to whether the provision clearly said-that the tax was  payable by the passengers to the operators. The  two new sub-sections introduced to section 3 by Act  18 of  1971 are first that the tax levied under subsection  (1) shall  be  paid by the passengers or the consignors  of  the goods  as  the case may be to the operators along  with  the fares  or  freights payable to the operators  of  the  stage carriages or the goods vehicles.  The second introduction is that  the  operator shall be liable to pay thee  tax  levied under  sub-section (1) on all passengers, luggage  or  goods carried by stage carriages and on all goods carried by goods vehicles  of which he is the operator to the  Government  in the manner provided in this Act. The other provision in Act 18 of 1971, is validating section which is as follows :-               "Notwithstanding any judgment, decree or order               of any court, all taxes levied or collected or               purposed  to  have been  levied  or  collected               under  the  Principal Act before the  date  of               commencement  of this section shall be  deemed               to  be  and  to have  always  been  levied  or               collected in accordance with law as if section               3 of the principal Act as amended by this  Act               was  in force at all material times when  such               tax was               9-522sup.  CI/74               328               levied  or  collected,  and no  such  levy  or               collection shall be called in question on  the               ground  that it was without authority of  law,

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             and  all taxes so levied or purported to  have               been levied but not collected may be collected               in  accordance  with  the  provisions  of  the               principal Act as amended by this Act :               Provided that nothing in this Act shall render               any  person  liable  to be  convicted  of  any               offence  in  respect  of anything  done   or               omitted  to be done by him before the 5th  day               of  January, 1970 if such act or omission  was                             not an offence under the principal Act   before               the  aforesaid date but for the provisions  of               this Act." The  validating section in Act 18 of 1971 stated that  taxes levied or collected shall be deemed to be and to have always been  levied  or  collected in accordance  with  law  as  if section 3 of Act 25 of 1963 as amended by act 18 of 1971 was in  force  at. all material times.  The  validating  section became  necessary  to  render levy  as  well  as  collection lawful. Act  18  of 1971 received the assent of the  Governor  on  1 June,  1971.  On the same day Ordinance No. 15 of  1971  was passed.  This Ordinance was replaced by Act 34 of 1971.  Act 34  of  1971  effected two  principal  changes.   First,  it amended section 43 of the Motor Vehicles Act, 1939 by adding sub-section  (1A)  to section 43 of that Act.   The  amended sub-section   (1A)  stated principally  that  any  direction regarding the fixing of fares and freights prospectively  or pectively might provide that such of ares and  frights"shall be inclusive the tax payable by passengers or consignors  of goods" The other  change effected by Act 34 of 1971 is  that it  validated  into alia the directions relation   to  fares issued  on  or  after  1 March, 1963  or  thereafter  to  be inclusive of the tax payable under Act 25 of 1963. The challenge by the operators to the validating sections in Act 18 of 1971 and Act 34 of 1971 is primarily based on  the ground that the operators did not and could not collect  tax from the passengers because  the fare fixed with effect from 1  July, 1963 did not include the tax imposed by Act  25  of 1963.  The other challenge is that the directions issued  by the  State  Government before the amendment  of   directions section  43  of the 1939 Act about fixing of  fare  did  not include tax and therefore, retrospective validation of  fare to be inclusive of tax was to levy tax on fare. The  three principal contentions on behalf of the  operators with  regard to the legality of Acts 18 and 34 of  1971  are these.  First, the impugned provisions amount to a tax  :dot on  passengers  and goods but on the  income  of  operators. Second   the   impugned  provisions  as   to   retrospective validation of levy and collection are a tax on amounts which are collected as fare and, therefore retrospectively it is a tax  on  fare  and  fare  alone.   Third  the  retrospective validation   is  unreasonable  because  the  operators   are retrospectively   tax  which they did not in  fact  collect. All these contentions turn on the question as to Whether tax was  included  as  an  element in  the  fare,  which  became effective from 1 July, 1963. 329 The question whether the statutes, viz., Act 25 of 1963  and Act  18  of 1971 impose a tax on passengers  and  owners  of goods  or  is  a tax on the income  of  operators  has  been rightly  held  by  the Kerala High  Court  in  Thomman  case (supra)  and this case to be a tax on passengers and  goods. This  Court  in M/s Sainik Motors, Jodhpur & Others  v’  The State  of  Rajasthan  [1962]  1  S.C.R.  517  construed  the

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Rajasthan  Passengers and Goods Taxation Act, 1959 and  held that the incidence of the tax was upon passengers and  goods and not upon the-income of the operators of stage  carriages though ’the measure of the tax is furnished by the amount of fare  and  freight  charged".   The  power  to  enact   such legislative  measure is derived from Entry 56 of  the  State List.   The  Entry provides "taxes on goods  and  passengers carried  by road or on inland waterways". In  Sainik  Motors case  (supra)  section 3 provided "there shall  be  levied,. charged and paid to the State Government a tax on all  fares and  freights  in respect of passengers  carried  and  goods transported  by  motor  vehicles at  such  rates  which  are thereafter  set  out".   Section 4  in  Sainik  Motors  case (supra)  provided that the "tax should be collected  by  the owner of the motor vehicles and paid to the State Government in  the prescribed manner".  Though there is  no  comparable provision in the present case of section 4 in Sainik  Motors case  (supra) as to method of collection of tax the  various provisions like levy and payment before amendment of section 3  and levy and collection after amendment of that  section, composition  of  tax in section 4, submission of  return  in section 5, procedure where no payment is made in section  7, fares and freights escaping assessment in section 8, penalty for non-payment of tax in section 9 indicate that the tax is on passengers and’ owners of goods and the operators collect the  tax.  It is obvious that *hen passengers and owners  of goods  pay  the  tax the Government requires  an  agency  to collect  such  tax because these taxes are  payable  to  the Government.   The  operators of stage carriages  and  public carriers  are  agents  of the Government  to  collect  these taxes.  The composition of tax which is allowed to operators also  shows  that it is a tax on passengers  and  owners  of goods and the composition is a convenient mode of payment by operators who collect the tax. The  agitation of the operators for increase of  fare  which had  been going on particularly since the year 1966  led  to the formation of two committees for investigation into  that question.  One of the committees was with Shri K.  Sankaran, a retired Chief Justice of Kerala High Court as Chairman and the  other committee was with the Minister for  Revenue  and Labour as Chairman.  The Government on consideration of  the recommendations  of  these committees revised the  rates  of fare  with effect from 15 October, 1971.  The rate of  fare, was raised from 3 Ps per kilometer fixed on 1 July, 1963  to 3.3 Ps With effect from 15 October, 1971 per kilometer.  The minimum  fare which had been fixed on 1 July, 1963 at 20  Ps and  reduced to 10 Ps on 24 April, 1964 was raised to 20  Ps with  effect  from 15 October, 1971.   The  Government  con- sidered revision of fare on account of several factors. The  operators  paid to Government taxes on  passengers  and goods  from 1 July, 1963 upto the month of July, 1966.   The operators  have also been paving to the Government taxes  on passengers and goods 330 from  15 October, 1971.  The entire controversy between  the operators on the one hand and the State on the other is  for the period July, 1966 to 14 October, 1971. The  heart of the matter is whether tax was included in  the fare and, therefore, paid by passengers particularly in  the disputed period between July, 1966 and October, 1971.  If no tax  has in fact been paid by passengers or owners of  goods the  retrospective validation by Acts 18 and 34 of  1971  of levy  and collection of tax and retrospective  inclusion  of tax  within fare could be contended to be unreasonable,  un- workable and unconscionable according to the operators.

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when the operators challenged Act 25 of 1963 in Thomman case (supra)  the  High Court said that the Court was  not  in  a position to say whether the liability imposed by the Act had or had no been absorbed by the increase of fare with  effect from  1 July 1963.  The provision in the Act is  that  there shall  be  a tax at the rate of 10 np in the rupee  on  the fares  and  freights-  payable to  the  operators  of  stage carriages  and  at  the rate of 5 nP in  the  rupee  on  the freights  payable to operators of public  carrier  vehicles. The  machinery for the collection of the tax is the same  as for the collection of the fare.  The provision of tax at the rate  of 10 Ps in the rupee as also 5 Ps in the rupee  shows that  the  tax  is payable along with  fares  and  freights. There  is no difficulty in ascertaining or  quantifying  the tax  payable because the rates are specified to be  "in  the rupee".  Tax is collected by the operator with the fare from the  passengers.   To  illustrate if the fare  paid  is  110 praise  the,  tax  levied  is 10  paise.   The  fare  to  be appropriated by the operators is 100 paise and the tax of 10 paise  is  collected  by  the  operator  and  paid  to   the Government. The  contemporaneous  evidence on the question  whether  the State  Authorities  at the time of fixing the  fare  in  the month  of July, 1963 included the tax imposed under Act,  25 of  1963  within the fare fixed is furnished  first  by  the letter  of  the  actor of Transport  dated  2  April,  1963, second,  by  the  representation of the  operators  dated  3 April,  1963 and third by the notes of hearing  prepared  by the  Secretariat  under the heading  "Motor  Vehicles  Stage Carriages Fare Revision File. The  Director of Transport in his aforementioned letter  set out in paragraphs 2,3 and 4 thereof as follows               "2. At the existing rate of fares, the earning               per  mile  (E.P.M.), worked out for  the  year               1962-63 comes to 123 nP.  The present proposal               to  increase the basic rate as 3 nP  per  head               per kilometer will result in about 20  percent               increase  in  the  rate of  fares.   From  the               actual  figures  of the  previous  years,  the               Department could expect only about 8 per  cent               in  the  E.P.M.  from  the  services  it   the               proposed rate- of fares.  Thus 133 nP seems to               be  a fail- estimate of the E.P.M.  which  the               department  could expect to get for  the  year               1963-64 after the fair increase,.               3.    As  against the increased E.P.M. of  133               nP the expenditure worked out will come to 130               nP  per mile, This increased operational  cost               is estimated by the Department taking               331               into account the enhanced rate of vehicle tax,               the new imposition of passenger tax under  the               T.P.G. Act and such other duties.   Consequent               to  the  proposed levy of  tax  on  passenger,               there  will be more than 60 per cent  increase               in  the  rate  of  tax  to  be  paid  by   the               department.  All these factors were taken into               consideration  in estimating  the  operational               cost.               4.    No doubt the increased rate of tax,  the               levy  of passenger tax and such  other  duties               would reduce the profit-margin and the  return               on  capital out lay to a considerable  extent.               Despite  the incidence of higher rate of  tax,               levy of passenger tax and other duties, I feel

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             that  the department could still  operate  its               services  profitably  at  the  rate  of  fares               contained in the draft notification  published               by   the   Government.    Since   by   careful               operational economics the expenditure per mile               could  be reduced, by 2 to 3 nP per  mile  and               the  earnings increased by rationalisation  of               services.   So further enhancement of fare  is               unnecessary." These statements in the letter of the Director of  Transport indicate  that the increased operational cost was  estimated and  considered by the Department after taking into  account the enhanced rate of vehicles tax, the new imposition of the passenger tax and other duties. The  representation of the operators was in answer to  draft directions  contained  in notification dated 4  March,  1963 containing  proposals to revise the fare rates.   The  draft notification  proposed maximum fare at the rate of  3.75  nP per  head per kilometer for fast passenger services  in  the case  of  Ghat  roads and 3nP per head per  kilometre  as  a maximum  fare  for ordinary services in the  case  of  other roads.   The  operators set out the wide  disparity  between increase  in  operational  cost  on the  one  hand  and  the inadequacy  of  the proposed fare rates on the  other.   The operators  estimated  their  daily  expenses  under  several heads.   One  of the heads estimated by  the  operators  was "increase in tax at the revised rate, as envisaged by  State budget".  That is referable to tax on passengers and  goods. The operators stated that the maximum fare should be  raised to 3.5 nP per kilometre.  This was after taking into account the tax element. The  representation of the operators shows that the  tax  on passengers  and  goods was one of the elements in  the  fare structure.   This becomes apparent in the hearing  notes  of the Carriage Fare Revision File prepared by the Secretariat. It was calculated hat the proposal to increase from the then existing fare of 2.5 nP per kilometre to 3 nP per  kilometre would  bring an additional income of Rs. 40 per day  for  an ordinary  bus of 40 seats operating 200 kilometres per  day. The  occupation  ratio work out between 60 to 80  per  cent. Leaving   out  margin  for  occupation  ratio  the   average additional income worked at Rs. 30 per vehicle of 40  seats. The existing motor vehicles tax per seat per quarter at  the time  of  the fixation of fare was Rs. 37.50  per  seat  per quarter.  The then proposed enhanced tax on vehicles was ;it Rs.  60 per seat per quarter.  The existing  motor  vehicles tax worked at 41.6 nP per day.  The enhanced tax worked  out at 66.6 nP per day.  The increase in motor vehicles tax 332 would impose an additional tax burden of 25 nP per seat  per day.  The increase in motor vehicles tax would be at Rs.  10 per bus of 40 seats a day.  The additional cost of operation on account of increase in cost of fuel, spare parts came  to 12 nP per mile or 8 nP per kilometre.  The operational  cost of  a  bus of 40 seats came to Rs. 16 per  day.   The  total additional  cost per day of 40 seats on account of  vehicles tax  and cost of fuel and spare ports came to Rs.  26.   The additional  income as already indicated came to Rs.  30  per day.   Therefore, the operator was not hit by  the  proposal for  taxation  which  was  taken  into  Consideration.   The operators  and  the Chairman of the  State  Transport  Board demanded  further increase in the rate of fare.  The  entire evidence at the time of the fixation of fare is ample  proof of  the  fact that the. incidence of the increase  in  motor vehicles  tax, the increase in tax liability on  account  of

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tax  on  passengers  and  goods,  and  additional  cost   of operation  on account of increase in cost of fuel and  spare parts  were all taken into consideration in fixing the  fare with effect from 1 July, 1963. Counsel on behalf of the operators contended that Act 34  of 1971  imposed  a  new levy for these  reasons.   Fares  were formerly  exclusive of tax.  As a result of Act 34 of  1971, fares were made inclusive of tax.  The character of the fare was  altered  by  retrospective  piece  of  legislation.   A deeming   provision  subjected  the  amount   collected   by operators  as  fare  to a deduction of  tax.   Reliance  was placed  on  the decision of this Court in Rai  Ramkrishna  & Others v. The State of Bihar, [1964] 1 SCR 897 in support of the contention that the character of the tax was, altered by its retrospective operation. In  Rai Ramkrishna case (supra) the Bihar Finance  Act  1950 levied  tax on passengers and goods carried by public  motor service  in Bihar.  The owners of motor vehicles  challenged the  validity of the Act.  The Act was struck down  by  this Court.   The  State  thereafter issued  an  Ordinance.   The provisions  of  the Act which had been struck down  by  this Court were validated and brought into force  retrospectively by  the  Ordinance from the date when the  earlier  Act  had purported  to  come  into  force.   The  provisions  of  the Ordinance   were  thereafter  incorporated  in   the   Bihar Taxation-on Passengers and Goods Act, 1961.  The validity of the  Act  of 1961 was challenged.  The  owners  of  vehicles contended  there  that  retrospective  operation  completely altered   the   character  of  the  tax   proposed   to   be retrospectively recovered. The  contentions  in Rai Ramkrishna case (supra)  were  two- fold.    First,  retrospective  recoveries  did   not   have legislative  competence.   Second,  the  owners  could   not recover tax from passengers carried by them between 1 April, 1950  and the date’ of the retrospective validation  of  the Act in 1961.  Therefore, the tax was unreasonable.  It  may be stated here that future recoveries were not challenged in that  case.  As a matter, of fact, the right to make  future recoveries   was  conceded.   In  the  present   case,   the prospective future recoveries are also not challenged.   The challenge is confined to retrospective validation only, This Court said in that case "If the scheme of section 3 for the levy and recovery of the tax is valid under entry 56  of list II so far as future recoveries are concerned, it is not easy to see how it can be said that the character of the tax is radically changed in the present circumstances, 333 because  it would be very difficult, if not impossible,  for the  owners to recover the tax from the passengers  whom  he has carried in the past.  The tax recovered  retrospectively like  the  one which will be recovered  prospectively  still continues to be a tax on passengers and it, adopts the  same machinery for the recovery of the tax both as to the past as well as to the future". The decision in Rai Ramkrishna case (supra) does not support the contention of the operators.  The decision on the  other hand  shows  that tax recovered retrospectively as  well  as recovered prospectively is the same tax.  The character  of the  tax is not altered.  The position is identical  in  the present case. The  contention  of the operators is  fallacious  for  these reasons.   No  tax is imposed or collected under Act  34  of 1971.  The tax is imposed by Act 25 of 1963.  The  character as  well as incidence of the tax is determined by Act 25  of 1963.   The  machinery for collection of the tax  which  was

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implicit  in Act 25 of 1963 was made explicit by Act  18  of 1971.   The State Government under chapter IV of  the  Motor Vehicles   Act,  1939  having  regard  to  various   factors mentioned in section 43(1) of the 1939 Act issues directions to  the State Transport Authority relating to the fixing  of fares  and  freights including the maximum  and  minimum  in respect thereof for stage carriages, contract carriages  and public carriers.  The provisions of Act 34 of 1971 are  that while-  fixing  the  fares, the  Government  may  take  into account the tax, if any, imposed on the passengers and  that such fares may be inclusive of the tax payable consignors of goods  to the operators under any matter.  Under section  44 of the 1939 Act, the  by the passengers or law dealing  with the  State  Transport  Authority shall give  effect  to  the directions  issued by the State Government under section  43 of  the  Act.   Fare  could be  fixed  either  exclusive  or inclusive of tax.  The State Government fixed the fare on  1 July,  1963 after taking into account the element of tax  on passengers  and  goods  imposed  by Act  25  of  1963.   The operators  in  collecting  fare  from  passengers  in   fact collected  the tax due from passengers under Act 25 of  1963 along  with the fare.  Section 43(1A) of the Motor  Vehicles Act,  1939  was, therefore,  introduced  with  retrospective effect  to  clarify the factual basis.   There  was  neither imposition  of any new tax by Act 34 of 1971 nor  was  there any alteration of the character of the tax which had already been imposed.  In the present case, the principle Act 25  of 1963  levied the tax.. Acts 18 and ’34 of 1971 were for  the purpose  of dispelling the doubts expressed in Thomman  case (supra). In  the  recent  decision in S. Srikantiah  &  Ors.  v;  The Regional Transport AuthoritY.  Anantapur & Ors. [1971] Suppl S.C.R.   816  this  Court  considered  the  validity  of   a notification  under  section 43 of the Motor  vehicles  Act, 1939.   The  Madras  Vehicles (Taxation  of  Passengers  and Goods)  Act, 1952 became applicable to Andhra  Pradesh.   In 1959  the  Andhra  Pradesh  legislature  enacted  the  Motor Vehicles  (Taxation of Passengers and Goods) Andhra  Pradesh (Amendment) Act.  By that amendment, the rates were  increa- sed.  The state Authority was directed by the Government  to fix 334 maximum  fares inclusive of the leviable tax under  the  Act for  the stage carriages.  The Andhra Pradesh Amendment  Act was  challenged.  The Andhra Pradesh High Court struck  down the  Act  as unconstitutional.  The  Legislature  thereafter passed  a  validating  Act in  1961.   The  operators  again questioned the Amendment Act on the ground that they had not collected  the  fare  on  the enhanced  rate  fixed  by  the Transport  Authority.  The contention in that case was  that the enhanced surcharge which became operative on coming into force  of 1961 Act could not be sustained  without  amending the conditions of the permit dealing with the fares leviable by  the  operators.  This Court held that  the  notification under  the  Motor  Vehicles Act in that  case  issued  under section  43 of the Act fixing the maximum fare inclusive  of the tax has the effect of incorporating the maximum fare  as notified  including the tax leviable as a condition  of  the permit.   Therefore, it is competent to the  Legislature  to amend  the  Motor Vehicles Act by enacting  that  directions regarding fares can be inclusive of tax. The  arguments advanced on behalf of the operators  fail  in view  of the cardinal fact that tax was an element  included in the fare structure.   The retrospective validation cannot be  said  to be unjust because the operators  collected  the

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entire  amount.  The tax has always been paid by  passengers and  owners of goods.  The tax is not on the income  of  the operators.   There  was  and is no  lack  of  machinery  for collection of taxes.  The operators collected tax as Well as fare.   The directions regarding fare were validated by  Act 34 of 1971 by reason of the litigation between the operators and the State. For  these reasons, the contentions of the  operators  fail. The  petitions,and appeals are dismissed.  The  decision  of the  Kerala High Court in Civil appeal No. 1875 of 1972  and other appeals is upheld.  In view of the fact that the  High Court  directed the parties to bear their respective  costs, parties will bear their own costs in these matters. V.P.S.              Petitions and appeals dismissed. 33 5