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PETITIONER: B. A. JAYARAM AND OTHERS ETC.

       Vs.

RESPONDENT: UNION OF INDIA AND OTHERS.

DATE OF JUDGMENT12/08/1983

BENCH: REDDY, O. CHINNAPPA (J) BENCH: REDDY, O. CHINNAPPA (J) DESAI, D.A.

CITATION:  1983 AIR 1005            1983 SCR  (3) 624  1984 SCC  (1) 168        1983 SCALE  (2)118  CITATOR INFO :  RF         1991 SC1650  (5)

ACT:      Constitution of  India-Art.  301-Scope  of-Compensatory and regulatory taxes are outside the expanse of Art. 301.      Motor Vehicles  Act,  1939-Sec.  63(7)-  Introduced  by amending Act 56 of 1969-Does not affect State’s power either to impose or exempt tax on motor vehicles.      Karnataka Motor  Vehicles Taxation Act, 1957-A piece of regulatory and compensatory legislation-Read with Entries 56 and 57  of List  ll of Seventh Schedule to the Constitution- Taxes  levied   on  motor   vehicles  are   regulatory   and compensatory-Not  within  the  vista  of  Art.  301  of  the Constitution.

HEADNOTE:      In order  to promote  all India and inter-state tourist traffic, the Parliament amended the Motor Vehicles Act, 1939 by introducing  in it  sec. 63(7)  which enabled  the  State Transport Authority  of every State to grant permits - valid for the  whole or  any part  of India,  in respect  of  such number of  tourist vehicles  as  may  be  specified  by  the Central Government.  Later the  Central Government  notified that each State Transport Authority could issue 50 all India permits for  tourist omnibuses. As each State had the right, within its  territory, to  levy a tax on a motor vehicle, it was  found  that  unless  tourist  vehicles  with  all-India permits were  exempted from  tax by  other States than their home state  the object  of sec.  63(7) would  be frustrated. Therefore, the  Central Government  made a  request in  this behalf to  all the  State Governments.  In pursuance of that request  the   Government  of   Karnataka  exempted  tourist vehicles holding  permits under  sec. 63(7)  from payment of tax, provided  the tax  payable to  the State  in which  the vehicle was  registered had  already been  paid and provided further that  similar exemption  from  payment  of  tax  was granted in  respect of  similar vehicles  to  the  State  of Karnataka.   Many   transport   operators   from   big   and comparatively prosperous  States flocked  to some  small and comparatively  poor  and  less  advanced  States  and  after getting all-India  permits from  them started  plying  their vehicles in other States like Karnataka and Maharashtra more

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or less  as regular  stage carriages.  Having found that the transport operators  were misusing the all India permits and indulging  in   certain  malpractices,   the  Government  of Karnataka withdrew the exemption from payment of tax granted earlier.  The  petitioners,  who  were  transport  operators holding all-India  permits,  challenged  the  withdrawal  cf exemption  as   unconstitutional  and   bad  in   law.   The petitioners submitted  that sec. 63(7) of the Motor Vehicles Act was  designed  to  promote  all  India  and  inter-state tourist traffic and thus to advance trade, 625 commerce and  inter-course throughout  the  territory  .  Of India. By  withdrawing the  exemption, the  object  of  sec. 63(7) was defeated and therefore, freedom of trade. Commerce and  inter-course   throughout  the   territory  of   India, guaranteed by Art. 301 of the Constitution was impaired.      Dismissing the petitions, ^      HELD:  By   withdrawing  the   exemption  there  is  no impairment of the freedom under Art. 301. [637 B]      Taxes of  a compensatory  and regulatory  character are outside  the  expanse  of  Art.  301  of  the  Constitution. Regulatory measures and compensatory taxes far from impeding the free flow of trade and commerce, often promote such free flow of  trade and commerce by creating agreeable conditions and providing appropriate services. All that is necessary to uphold a  tax which  purports to  be or  is claimed  to be a compensatory  tax   is,  the   existence  of   a   specific, identifiable object  behind the  levy and  a  nexus  between subject and the object of a levy. Once the nexus between the levy and service is seen, the levy must be upheld unless the compensatory character  is shown  to be  wholly or  partly a mere mockery  and in  truth a design which is destructive of the freedom of inter-state trade, commerce and inter-course. [635 C-D, 636 A]      International Tourist  Corporation v. State of Haryana, [1981] 2 S.C.R. 364. referred to.      By virtue  of the  power given to them by Entries 56 or 57 of  List II every one of the States has the right to make its own  legislation to  compensate  it  for  the  services, benefits and  facilities provided  by it  for motor vehicles operating within the territory of the State. Taxes resulting from such  legislative activity  are by  their very nativity and nature,  cast and character, regulatory and compensatory and, are therefore, not within the vista of Art. 301, unless the tax  is a mere pretext designed to injure the freedom of inter-state trade,  commerce and  inter  course.  The  nexus between the levy and the service is so patent in the case of such taxes that one need say no more about it. The Karnataka Motor Vehicles  Taxation Act and the Motor Vehicles Taxation Acts of  other  States  are  without  doubt  regulatory  and compensatory legislation  outside the  range of  Art. 301 of the Constitution. [635 B-D]      ‘Taxes on  vehicles ..  suitable for use on roads’ is a State  legislative   subject  and   it  is   for  the  State Legislature to  impose a  levy and  to exempt from the levy. Entry 57  of the  State List  is subject  to Entry 35 of the Concurrent List  and, it is therefore open to the Parliament to lay  down the  principles on which taxes may be levied on mechanically propelled  vehicles. But  the Parliament  while enacting sec. 63(7) of the Motor Vehicles Act refrained from indicating any  such  principles,  either  expressly  or  by necessary implication.  The State’s  power  to  tax  and  to exempt  was  left  uninhibited.  It  may  be  that  a  State Legislation, plenary  or subordinate,  which  exempts  "non-

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home-state tourist vehicles" from tax would be advancing the object of sec. 63(71, but 626 the State  Legislature are  not obliged to fall in line line and to so arrange their tax laws as to advance the object of sec. 63(7),  be it  ever so  desirable. The State is obliged neither to grant an exemption nor to perpetuate an exemption once granted.  There is no question of impairing the freedom under Art.  301 by  refusing to  exempt or by withdrawing an exemption. [636 E-637 A]

JUDGMENT:      ORIGINAL  JURISDICTION:   Writ  Petitions   Nos.  1854- 60/81,2125, 2224,  2829, 3321, 3341, 3360, 3604, 4486, 3737, 3774, 4128,  4404, 4415, 4428, 4429, 4430, 4431, 4432, 4436, 4437, 6310,  7090-92, 7138, 7687, 9927, 8481-82, 6790-91182, 5356-64/83, 1868,  3929/81,  531-32,  533-534,  3957,  3975, 4574-4583, 8004, 8007-8008 and 8047/83, 5327, 5622-24, 7510- 11, 8075/83,  7490-92/82, 2008,  2328/81, 2858,  2859, 4920- 4923, 5616, 6065-73, 5818, 5193-5201/82, 8341-8343, 3149-50, 8381-8382, 9927/82,  377-378,  535/83,  8347-8348,  3560/83, 8003, 8005, 8006/83, 8787-8788/83 and 9011-13 of 1983.        Under Article 32 of the Constitution of India                             WITH      Special Leave Petition Nos. 11243-46 of 1983.      From the Judgment and order dated the 8th July, 1983 of the Karanataka  High Court  in Writ  Petition Nos.  11268 to 11271 of li: 1981,                For The Appearing Petitioners      Shanti Bhushan,  Y.S. Chitale,  K.K Venugopal KN. Bhat, V.K   Verma,   S.   Ravindra   Bhat,   N.   Ganpathy,   C.S. Vaidayanathan, N.  Nattar, R.B.  Datar,  A.V.  Rangam,  V.G. Gupta, T.V.S.N.  Chari A.T.M.  Sampath, Vineet  Knmar,  D.P. Singh, Miss  H. Wahi,  B.N. Tawakley,  S.  Srivinasan,  P.R. Ramashesh, P.N. Ramlingam, S.R. Srivastava and Rathin Das                For The Appearing Respondents      R.P. Bhatt,  V.S. Desai,  Harbans Lal,  Swaraj Kaushal, M.N., Shroff, G.V. Subba Rao, N.S. Das Bahl and R.N. Poddar      The Judgment of the Court was delivered by      CHINNAPPA REDDY,  J. Prior to 1969 there was no concept of what  may be  termed as ’An All India’ permit which would be valid 627 for the  whole of India and which would enable the holder of the permit  to ply  his contract  carriage throughout India. Section 63  (1) of  the Motor  Vehicles Act,  provides that, except as  may be  otherwise prescribed, a permit granted by the regional transport authority of any one region shall not be valid  in any  other region,  unless the  permit has been counter signed  by the  regional transport authority of that other region,  and a  permit granted  in any one state shall not be valid in any other state unless counter-signed by the State Transport  Authority of  that other  state or  by  the regional  transport   authority  concerned.   The  procedure prescribed  for   obtaining  the  counter-signature  of  the transport  authorities  of  other  regions  and  states  was cumbersome and  was not  conducive to the development of all India or inter-state tourist traffic. In order to remedy the situation and  promote all  India  and  inter-state  tourist traffic, the  Parliament amended  the Motor Vehicles Act and introduced sec.  63 (7) by amending Act 56 of 1969. This new provision enables  the State  Transport Authority  of  every state to  grant permits  valid for  the whole or any part of

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India, in  respect of such number of tourist vehicles as the Central Government  may, in respect of that state specify in that behalf.  Preference is to be given, to applications for permits from  the India  Tourism Development  Corporation, a State  Tourism  Development  Corporation,  a  State  Tourist Department and  such operators  and  tourist  cars  or  such travel agents  as may  be approved  in that  behalf  by  the Central Government.  This was  but .  the first  basic  step towards  encouraging   all  India   or  inter-state  tourist traffic. There  were other  hurdles to be cleared before any scheme for  grant of  all India permits could be effectively implemented. One  of the hurdles was this: Under Entry 57 of List II  of the  Seventh Schedule  to the  Constitution, the State Legislature  is empowered  to levy "Taxes on vehicles, whether mechanically  propelled or  not, suitable for use on roads, including tramcars subject to the provisions of entry 35 of  list III".  Entry 35 of list III reads: "Mechanically propelled vehicles  including the  principles on which taxes on such  vehicles are  to be  levied". A coherent reading of Entry 57  of list  II and  Entry 35  of list  III  makes  it abundantly clear  that the  power to  levy taxes on vehicles suitable  for  use  on  roads  vests  solely  in  the  State Legislature though  it may  be open to the Parliament to lay down  the  principles  on  which  taxes  may  be  levied  on mechanically  propelled   vehicles.  In   other  words   the Parliament may  lay down  the guide  lines for  the levy  of taxes on  mechanically propelled  vehicles but  the right to levy such taxes vests solely in the 628 State Legislature.  Now there are twenty two States and nine Union Territories  in India, specified in the first schedule to the  Constitution. Each  of the  States  has  the  right, within its  territory. to levy a tax on motor vehicles. If a tourist vehicle  holding an ’All India Permit’ under sec. 63 (7) of  the Motor Vehicles Act chooses to visit half a dozen states in  the course  of a round trip from, say, Delhi to . Kanyakumari or  Srinagar to  Hyderabad tax  will  ordinarily have to  be paid  in all  the half a dozen or so States. The burden will  surely be  intolerable and  the whole object of sec. 63  (7), namely  promotion of  all India or-inter-state tourist traffic  will be  frustrated. The Central Government was alive  to the  problem and  referred the  matter to  the Transport Development  Council for its advice. The Transport Development Council  is a  non-statutory body constituted by the Central  Government and  consists of the representatives of the Governments of all the States. The Transport Advisory Council advised  the Central Government that there should be a single-state  taxation on tourist vehicles holding permits under sec.  63 (7), that is, tax should be paid in the ’home state’ and  the vehicle  should be  exempted from payment of tax in  states other than the home state. This could be done by the  respective State  Governments issuing  notifications under their  taxation legislation exempting tourist vehicles registered in  other states  from payment of tax, if tax has already been paid in the home state. The Government of India accepted  the   E-  suggestion   and  requested   the  State Governments and  Union Administrations  to  issue  necessary notifications. The  suggestion ran  into trouble  right from the start.  While the  Governments of Andhra Pradesh, Bihar, Goa, Daman  and Diu, Maharashtra, Nagaland and Uttar Pradesh readily agreed  to issue  such notifications on the basis of reciprocity, there  was no  such ready  response  from  some other states.  The Government of Karnataka was in particular opposed to  the grant  of any  such exemption.  Finally, the Government of  Karnataka and the Governments of other states

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too were  persuaded to agree to issue such notifications. In the meanwhile  the Government  of India,  in exercise of its power under  sec. 63  (7) of  the Motor Vehicles Act, issued notifications specifying  the number  and class  of  tourist vehicles in  respect of  which each  of the  State Transport authorities of the States could grant All India permits. The last  of   the  notifications   specified  that  each  State Transport authority  could  issue  50  permits  for  tourist omnibuses.      Pursuant to  the request  of the  Central Government to which   all    the   State   Governments   finally   agreed, notifications were issued 629 exempting tourist vehicles holding permits under sec. 63 (7) from payment of tax, if tax had been paid in the home state. We are  particularly  concerned  in  these  cases  with  the notifications issued  from time to time by the Government of Karnataka, since  that is  where the  trouble  started.  The first of  the notifications  issued  by  the  Government  of Karnataka was  on September  18, 1972  and it exempted, from payment of  taxes payable under the Karnataka Motor Vehicles Taxation Act  1957, tourist motor Cabs and tourist omnibuses registered in  the States  other than the State of Karnataka and plying  in the  State of  Karnataka under  permits which were  valid  without  counter  signature  in  the  state  of Karnataka, provided  that the tax payable in respect of such vehicles had  been paid  to the  State in which the vehicles were registered  and provided  further that  the said  State granted similar  exemption to tourist motor cabs and tourist omnibuses whose  permits  were  endorsed  in  the  State  of Karnataka under  Rule 123-A  of the Karnataka Motor Vehicles Rules. On  July IS, 1976, the Government of Karnataka issued a notification  reducing the  tax payable  under  the  Motor Vehicles Taxation  Act, 1957, in respect of tourist vehicles for which  permits had  been issued  under sec.  63  (7)  or endorsement granted  under Rule 123-A of the Karnataka Motor Vehicles Rules. On December 20, 1976, a further notification was  issued   in  partial   modification  of   the   earlier notification  dated   September  18,  1972.  Exemption  from payment of  tax was  given to tourist motor cabs and tourist omnibuses registered  in States  other  than  the  State  of Karnataka and  plying in  the State  of Karnataka  under the authority of  a permit  granted under  sec. 63 (7), provided that the  tax payable in respect of the vehicle to the State in which  it  was  registered  had  already  been  paid  and provided further  that similar exemption from payment of tax was granted  in respect  of similar vehicles of the State of Karnataka. This scheme for the grant of ’All India Permits’, designed as  it was  to promote  all India  and  inter-state tourist traffic.  soon fell  into  abuse  at  the  hands  of scheming transport  operators. Within  the scheme itself lay the seeds  for abuse. The scheme enabled the State Transport Authority of  each State,  to issue fifty all India permits, uniformly, irrespective  of  the  size  of  the  State,  its resources,  its   accessibility,  its   communications,  its facilities,  the  availability  of  transport  services  and operators  in   the  State  with  the  necessary  expertise, experience and finance to operate all-India tourist services and a  host of such other factors. Apparently it was thought undesirable to make a distinction between State and State on what  were  perhaps  thought  to  be  elusive  criteria  and possibly the scheme 630 was expected  to give  a boost  to the transport business in the smaller and less advanced States. And, of course, it was

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necessary to obtain the agreement and cooperation of all the States. But,  the result  was that transport operators from, big and  comparatively prosperous  and advanced States, well versed in  the intricacies  of the  transport business  very soon flocked  to  small  and  comparatively  poor  and  less advanced States  like Manipur  and Nagaland to apply for and obtain  all-India   permits   from   the   State   Transport Authorities of these States. It is conceded before us that a large number  of persons holding all-India permits from some of these  small States do not belong to these States at all, but are  transport operators  coming from  far  off  States. Another factor which appears to have influenced the flocking of transport  operators from  other States  to  States  like Nagaland and  Manipur is  the  nationalization  of  contract carriage service  in States like Karnataka. Once the permits were obtained  and the vehicles were registered, these small States saw  the last  of the  operators. Having obtained the permits, the  operators with  their vehicles flocked back to the parent  State of  the operators (not of the vehicles) or to a  State like  Karnataka  where  all  contract  carriages having been  nationalized no  private contract  carriage was available and there was therefore a great opportunity to ply the vehicles as contract carriages within the State.      States like  Karnataka were swamped by tourist vehicles from all over the country, registered in other States. These tourist vehicles  practically ’colonised’ Karnataka and like States and started operating more or less as stage carriages within the  particular State,  never  and  rarely  if  ever, moving out of the State. There was no thought or Question of undertaking all  India or interstate tours, and out went the worthy object  of sec.  63(7). Quick and easy money with the least trouble  and in the shortest time, by whatever method, was the  only object.  In  the  counter-affidavit  filed  on behalf of  the State  of  Karnataka  in  some  of  the  Writ Petitions, it is stated.           "Though the  vehicles were registered outside      the State of Karnataka, they have been permanently      stationed  in   the   State   of   Karnataka   and      particularly at  Bangalore, and  the vehicles were      all being  plied as  Stage Carriages.  Though  All      India  Tourist   Permits  were   obtained  by  the      residents of  other states,  the permits were used      by taking  the vehicles  and keeping  them in  the      State of Karnataka. The   operators    run   their      tourist buses at fixed timings 631      from particular  place like  the  Stage  carriages      operated by  the Karnataka  State  Road  Transport      Corporation (hereinafter  called  the  K.S.R.T.C.)      and other  private state  carriage/ operators.  On      checking of  the vehicles  and verification of the      passengers, it was found that the passengers found      in the  vehicle were  not genuine tourists and the      drivers or  the persons  incharge of  the vehicles      were not  in a position to produce the trip sheet,      name list with whom they entered into contract. It      was also  found that  the passengers  found in the      vehicles had  boarded the  buses  from  one  point      without any contract or otherwise and without they      being  tourists.   The  passengers  found  in  the      tourist buses  are regular  passengers going  from      one place  to  another  for  purposes  other  than      tourism. These vehicles were found catering to the      needs of  general travellers  who can  make use of      the Stage Carriages operated by the K.S.R.T.C., or

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    other  private   stage  carriage   operators.  The      respondent   produces   herewith   statements   as      ANNEXURF.S  1   to  9   showing  the   clandestine      operation of  the vehicles  covered by  All  India      Tourist Permits,  the remarks  and  irregularities      noticed by  the Motor  Vehicles  Inspectors  while      checking the vehicles covered by All India Tourist      permit, the  frequent detection  of these vehicles      running   as   Stage   Carriages   by   collecting      individual fares  and picking  passengers from one      point and  setting down  them at another point and      bringing  different   passengers  in   the  return      journey. From the statements enclosed, it is clear      that the operators of the tourist buses covered by      All India Tourist permits have misused the Tourist      Buses by  running them as regular stage carriages,      competing with  the KSRTC  buses and other private      stage carriages  within the State.. As a result of      indiscriminate misue  of  the  Vehicles  as  Stage      Carriages even  though the  permits were  obtained      under Section  63  (7)  of  the  Central  Act  for      Tourism,  the   State  Government   has   suffered      considerable loss in Revenue. These buses actually      made  use  of  the  passengers  which  would  have      normally gone to the KSRTC buses and other private      carriages. The  very object  of obtaining  permits      under section  63(7) of  the  Central  Act,  which      intended to  promote tourism  has been  misued  by      these operators  of the  Tourists buses  by plying      their vehicles  regularly as stage carriages. Most      of the 632      permits obtained  under  Section  63  (7)  of  the      Central Act  in the States other than the State of      Karnataka are made use of for the purported use of      running the tourist buses but actually the permits      were misused  to run the tourist vehicle either as      stage carriages or as contract carriages". A survey  made by  the Transport Commissioner of Maharashtra revealed  a   similar  state   of  affairs.   The  Transport Commissioner  submitted   a  report  to  the  Government  of Maharashtra, a  copy of which has been made available to us. It is stated in the report,           "Our estimate  is  that  out  of  these  1300      permits anything  between 300  to  400  buses  are      operating in  Maharashtra with  Bombay as the main      centre. Most  of these  buses  for  all  practical      purposes  operate   as  stage   carriage  services      masquerading as contract carriages. In Maharashtra      the  ordinary   passenger   transport   by   stage      carriages  and   contract   carriages   has   been      completely nationalised.  The  All  India  Tourist      Buses  on   the  other  hand  are  exploiting  the      loopholes available  in the  law and operate point      to point  passenger services  on routes  where the      volume of traffic is heavy viz. routes like Bombay      Kolhapur,  Bombay  Mangalore  (Mangalore),  Bombay      Panaji,   Bombay-Belgaum,   Bombay-Ahmedabad   and      Bombay-Indore ....................................      ............................................... ".      "On 9/10th  April 1983, the Transport Commissioner      had personally  visited  the  Charoti  Check  Naka      which is  our border  check post bordering Gujarat      on the  Bombay Ahmedabad road. From the records of      the check  post he  found that  as many as 115 All

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    India Tourist  Buses are regularly playing on this      route. After  making an  analysis of these 115 All      India Tourist Buses,’ he found that 41 permits had      been issued  by the  State Transport  Authority of      Manipur. 17  had been  issued by  State  Transport      Authority Nagar  Haveli, 8  by the State Transport      Authority, Meghalaya  and 5 by the State Transport      Authority Nagaland.  A large  number of  All India      Tourist Buses  operating with their base in Bombay      appear to have been issued by Manipur Nagaland and      the Union Territory of Dadra Nagar Haveli". 633 The petitioners,  who are  transport operators  holding all- India permits,  deny that  any of  them was  guilty  of  any malpractice or  misuse of  the permits  held by  them.  But, notwithstanding the  petitioners’ denial  we do not have the slightest  doubt   that  the   allegations  of   misuse  and malpractice made  in the  counter-affidavit, filed on behalf of the Karnataka Government, are generally and substantially correct. Complaints  about the abuse of the scheme appear to have been  made to  the Central Government and the Transport Advisory Council also. We are also told that the question of meeting the challenge posed by these abuses is receiving the attention of the Central Government.      The  Government  of  Karnataka,  apparently  the  worst sufferer, reacted  sharply.  The  concession  given  to  the holders of  all India  permits by  way of  exempting the all India tourist  Vehicles, registered  in other  States,  from payment of  the Karnataka  Tax, if tax had already been paid in the home State was withdrawn by a notification dated 31st March, 81.  It is  this notification and the consequences of the notification  that are in question in these several Writ Petitions. We  are informed that the State of Andhra Pradesh has also  issued a notification similar to that of the State of Karnataka  withdrawing the exemption which it had granted earlier to  vehicles operating  on permits issued under sec. 63 (7) and registered in other States. Other states have not withdrawn  the  exemption  previously  granted  by  them  to vehicles registered in other states and operating on permits issued under  sec. 63(7).  But as  the exemption  granted by most of  them is  on a  reciprocal basis,  the withdrawal of exemption by  the States of Karnataka and Andhra Pradesh has the effect  of making  vehicles registered  in Karnataka and Andhra Pradesh,  immediately subject  to payment  of tax  in every one  of those  States through  which  they  pass.  The collection of  tax by  the other  States is also resisted in these writ  petitions. The power of the State Legislature to levy the  particular tax,  the power of the State Government to grant  exemption from  payment of tax under the authority delegated to  it by the Legislature and the implied power of the State  Government to withdraw an exemption granted by it are conceded.  Yet a  number of  ingenious and platitudinous submissions have  been though  we must  confess that many of them have  only to  be stated  to be  rejected. Some of them served no  better purpose than occupy the time of the Court, time which  has become  dear and  precious  because  of  the mountainous arrears  of cases  awaiting the decision of this Court. We do wish it is remembered that the Supreme Court is the highest  Court in  the land  and its  time is  not to be frittered away in 634 listening to  hopeless arguments  advanced just for the sake of argument.  The time  has come  for judges  and lawyers to make a determined effort to chop certain arguments and prone certain others-judgments  following suit. In fairness to the

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counsel who  appeared -  in the cases before us, we must say that everyone was brief and none over stated his case.      It was submitted that see. 63 (7) of the Motor Vehicles Act was  designed  to  promote  All  India  and  inter-state tourist traffic  and thus  to advance  trade,  Commerce  and inter-course throughout  the  territory  of  India.  It  was implicit in sec. 63 (7) that the States would exercise their power of  taxation in  such  a  way  as  not  to  impose  an additional burden  on tourist  Vehicles registered  in other states and  plying on  permits issued under sec. 63(7), over and above the tax paid in the home State. In other words, it was implicit  that all the States would exempt from taxation tourist vehicles  registered in  other States  and plying on permits  issued  under  sec.  67  (7)  was  withdrawing  the exemption, the  object of  sec.  63  (7)  was  defeated  and therefore,  freedom  of  trade,  Commerce  and  inter-course throughout the territory of India, guaranteed by Art. 301 of the Constitution  was impaired.  The withdrawal of exemption was,  therefore,   unconstitutional  and  bad  in  law.  The transport operators  of Karnataka  who were not directly hit by the  withdrawal of  the exemption  by the  Government  of Karnataka advanced  a subtler  argument and  suggested  that they were  in fact  the worst  hit. The  argument  was  that though despite  the withdrawal  of the  exemption, they were paying no  more tax to the State of Karnataka than they were paying hitherto, the withdrawal of the exemption had created a situation  which denied  them  the  benefit  of  exemption granted by the Governments of all others States, since those exemptions  were  reciprocal  in  condition.  The  situation indirectly created  by  the  action  of  the  Government  of Karnataka  imposed   an  intolerable   burden  on   them  by compelling them  to pay  taxes in  every  State  other  than Karnataka through  which  their  vehicles  passed  and  thus virtually denied  to them the freedom of trade, Commerce and inter-course throughout the territory of India guaranteed by Art. 301 of the Constitution.      We  are  wholly  unable  to  see  any  force  in  these submissions, The  learned counsel  for the parties on either side invited our atten- 635 tion to  the Automobile  Transport (Rajasthan)  Ltd. v.  The State of  Rajasthan &  Ors Bolani  Ores  Ltd.  v.  State  of Orissa(2),  G.K.   Krishnan  v.   State  of   Tamil  Nadu(9) International Tourist Corporation v. State of Haryana(4) and Malwa Bus Service Pvt. Ltd. v. State of Punjab(5) to explain the extent  and the limits of the freedom of trade, commerce and intercourse throughout the territory of India proclaimed by Art.  301 of the Constitution. We do not propose to refer to any  of these  cases since  the law  appears to  us to be well-settled:      Taxes of  a compensatory  and regulatory  character are outside  the  expanse  of  Art.  301  of  the  Constitution. Regulatory measures and compensatory taxes far from impeding the free flow of trade and commerce, often promote such free flow of  trade and commerce by creating agreeable conditions and providing appropriate services. All that is necessary to uphold a  tax which  purports to  be or  is claimed  to be a compensatory  tax   is  "the   existence  of   a   specific, identifiable object  behind the  levy and  a  nexus  between subject and  the object of a levy".(’) "If the object behind the levy  is identifiable  and if  there is sufficient nexus between the  subject and  the object  of the levy, it is not necessary that  the money realised by the levy should be put into  a   separate  fund   or  that   the  levy   should  be proportionate to  the expenditure. There can be no bar to an

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inter-mingling of  the revenue  realised from regulatory and compensatory taxes  and from  the taxes  of a general nature nor can  there be  any objection to more or less expenditure being incurred  on the  object behind  the compensatory  and regulatory levy  than the  realisation from the levy".(6) It should be  patent that  "it would  ordinarily  be  well-nigh impossible to  identify and  measure with any exactitude the benefits received  and the expenditure incurred and levy the tax according  to the  benefits received and the expenditure incurred". Nor  is the court to interpose itself by assuming the role  of  a  cost  accountant  and  attempt  to  balance meticulously  the   cost  of   the  services,  benefits  and facilities against  the realisation  from the  levy. And, if the levy  as a  whole is justified by the need generally, it does not  have to  be separately justified with reference to every group of persons claiming 636 to require  and receive  less service  than others. Once the nexus between the levy and service is seen, the levy must be upheld unless  the compensatory  character is  shown  to  be wholly or partly, a mere mockery and in truth a design which is destructive of the freedom of inter-state trade, commerce and inter-course.      By virtue  of the power given to them by Entries 56 and 57 of  List II every one of the States has the right to make its own  legislation to  compensate  it  for  the  services, benefits and  facilities provided  by it  for motor vehicles operating within the territory of the State. Taxes resulting from such  legislative activity  are by  their very nativity and nature,  cast and character, regulatory and compensatory and, are  therefore, not  within  the  vista  of  Art.  301, unless, as  we said,  the tax  is a mere pretext designed to injure  the   freedom  of  interstate  trade,  commerce  and intercourse. The  nexus between  the levy and the service is so patent in the case of such taxes that we need say no more about it.  The Karnataka Motor Vehicles Taxation Act and the Motor Vehicles  Taxation Acts  of other  States are  without doubt regulatory  and compensatory  legislations outside the range of Art. 301 of the Constitution.      It is  true that  the object of enacting sec. 63 (7) by the Parliament  was to  promote  all-India  and  inter-state tourist traffic.  But ’taxes on vehicles .. suitable for use on roads’  is a  State legislative subject and it is for the State Legislature  to impose  a levy  and to exempt from the levy. True  again, Entry  57 of the State List is subject to Entry 35  of the  Concurrent List and, as explained by us at the outset,  it is  therefore open  to the Parliament to lay down the  17 principles  on which  taxes may  be  levied  on mechanically propelled  vehicles. But  the Parliament  while enacting S.  63 (7) of the Motor Vehicles Act refrained from indicating any  such  principles,  either  expressly  or  by necessary implication.  The State’s  power  to  tax  and  to exempt was  left uninhibited.  It may  be  that  a  a  State legislation, plenary  or subordinate,  which  exempts  "non- home-state tourist vehicles" from tax would be advancing the object of  sec.  63  (7)  of  the  Motor  Vehicles  Act  and accelerating inter-state  trade, commerce  and  intercourse. But merely  by Parliament legislating sec. 63 (7), the State Legislatures are  not obliged  to fall  in line  and  to  so arrange their  tax laws  as to advance the object of sec. 63 (7), be  it ever  so desirable. The State is obliged neither to grant  an exemption  nor to  perpetuate an exemption once granted. There is no question of impairing the freedom under Art. 301 by refusing to 637

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exempt or  by withdrawing  an exemption.  Not to  pat on the back is  not to  stab in the back. True, straw by straw, the burden of  taxation on  tourist vehicles  increases as  each State adds  its bit  of straw,  but,  then,  each  State  is concerned with its coffers and has the right to tax vehicles using its  roads; and,  the  contribution  which  a  tourist carriage is required to make to its treasury is no more than what other  contract carriages  are required to make. We are firmly of  the view  that there  is  no  impairment  of  the freedom under  Art. 301. The special submission on behalf of the  ’Karnataka   operators’  that  the  withdrawal  by  the Karnataka Government of the exemption granted to ’outsiders’ has resulted in the Karnataka operators having to pay tax in every State  in the  country and,  therefore, the withdrawal has impaired  the freedom  under Art.  301 is  but the  same general sub-  mission, seen  through glasses  of a different tint. It does not even have the merit that the withdrawal of the  Karnataka   exemption  affects   them   directly.   The submission is rejected.      One of the submissions made to us was that if there was a misuse  of the all-India permits, the remedy was to punish the wrong  doers by  taking appropriate  action against  the wrong-doers by  cancelling the permit, if necessary, but not to withdraw the benefit of the exemption altogether, even in the case  of honest  operators. That  is a  matter  for  the Legislature and  its delegate  to decide  but  not  for  the court. If the situation had become so malignant that drastic action was called for, it is not for the court to substitute its judgment  to say  that the  object could perhaps be well achieved by adopting a less drastic procedure.      It was submitted that all-India tourist vehicles do not use the roads of the State as much as the contract carriages operating in the State and therefore, the State was wrong in treating them  alike. It was said that treatment of unequals as equals  had resulted in an infringement of Art. 14 of the Constitution. It  was also  submitted that  vehicles holding inter-State permits  under inter-state agreements were still exempt from  tax and this was also a violation of Art. 14 of the Constitution.  Another contention  raised was that there was some  sort of  promissory estoppel  which prevented  the State Government from withdrawing the exemption. Yet another argument was  that  the  withdrawal  of  the  exemption  was arbitrary and  therefore,  judicial  review  was  necessary. These and  other like  submissions which  were made to us in our opinion, fall in the category of arguments which. 638 we mentioned earlier, have only to be stated to be rejected. The answers  are self-evident.,  The submissions are totally without merit and we see no justification for increasing the length of our judgment by further futile discussion. All the Writ petitions  are dismissed  with costs  and  the  interim orders are vacated. H.S.K.                                  Petitions dismissed. 639