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CASE NO.: Appeal (civil)  1869-1880 of 2000

PETITIONER: The State of Tamil Nadu                          

RESPONDENT: M. Krishnappan & Another Etc.                    

DATE OF JUDGMENT: 18/03/2005

BENCH: S.N. VARIAVA,Dr. AR. LAKSHMANAN & S.H. KAPADIA

JUDGMENT: J U D G M E N T

KAPADIA, J.

       The question which arises for determination in these civil  appeals is \026 whether "life time tax" leviable in lump sum in  advance for the life time of a motor vehicle (four wheeler) on  the basis of the index of "weight-cum-value" ceases to be  compensatory in nature as held by the impugned judgment of  the Madras High Court dated 11.11.1999 in Writ Petition  Nos.11815, 15139 & others of 1999.         At the outset, it may be stated that the impugned  judgment covers twelve writ petitions filed in the Madras High  Court, all of them seeking to challenge section 4(1-A)(a) read  with Part-I Schedule-III to the Tamil Nadu Motor Vehicles  Taxation Act, 1974 (hereinafter referred to as "the 1974 Act"),  as amended.                    For the sake of convenience, we may mention the facts of  the case in writ petition no.15139 of 1998.

       M. Krishnappan, respondent herein challenged the  provisions of section 4(1-A)(a) imposing life time tax on motor  vehicles to be registered on and after 1.7.1998 being the date on  which the amending Act 27 of 1998 came into force.  By the  said amending Act, section 3A as also the aforestated section  4(1-A) (a)(b) came to be inserted in the said 1974 Act by which    a dichotomy was created between the vehicles registered prior  to 1.7.1998 (old vehicles) and the vehicles registered thereafter  (new vehicles).  In respect of the old vehicles, an option was  given either to pay one time tax or an annual tax, but in the case  of new vehicles no such option was provided for and  consequently, it became compulsory to pay one time tax on and  after 1.7.1998.  At this stage, it may be stated that the  respondent herein, M. Krishnappan, had purchased, on  23.9.1998, a passenger car "Tata Sumo", on payment of  Rs.5,25,451/-, the unladen weight of which was 1700 kg. on  which he was charged a one time tax of Rs.20,540/-.  

       The impost was accordingly challenged as  unconstitutional, discriminatory, arbitrary and violative of  article 14 of the Constitution, besides being inconsistent with  the scheme of the 1974 Act.  The main thrust of the challenge  was that the levy of motor vehicle tax was compensatory in  nature for the use of public road; that the wear and tear of such  roads maintained by the State had relevance to the unladen

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weight of the vehicles and not to the value of the vehicle  specified in part-I of the third schedule; that the value of the  vehicle cannot constitute the basis for fixing the life time tax  and that such value had no relevance with the maintenance of  the roads and consequently the levy was arbitrary and  unreasonable. The other incidental contentions were : that by  insertion of section 4(1-A)(a) read with Part-I of Schedule-III to  the Act, an inconsistency stood introduced in the said 1974 Act,  as the pre-amended Act was based on the laden weight of the  vehicle; that the said parameter continued to apply for vehicles  registered before 1.7.1998; that the new index of "weight-cum- value" was made applicable only to new vehicles; that the said  index had no relevance to the use and maintenance of the road;  that the differentia between old and new vehicles had no nexus  with the wear and tear of the roads; that there was no difference  between the two types of vehicles in terms of user of the roads;  and that, the State Legislature had committed a grave blunder in  introducing section 4(1-A)(a) making it compulsory for the  registered owners of the new motor vehicles to pay one time tax  resulting in an unwarranted and unjustified increase in the  payment of tax.   

       In the counter affidavit, filed on behalf of the State, the  levy was sought to be justified on the ground that w.e.f.  1.4.1989, two-wheelers (non-transport) vehicles were made to  pay "life time" tax at the time of its registration by inserting an  amendment to section 4 of the Act, as section 4(1-A).                  In view of the success of "life time tax" for two wheelers,  the Government decided to introduce life time tax, without  option, for four wheelers, like cars and jeeps. (See Statement of  Objects & Reasons of the Amending Act 27/98).  That, option  given to the said old vehicles was continued and the  classification between old and new cars in the payment of  "life  time tax" was based on an intelligible differentia, hence, there  was no violation of article 14 of the Constitution.

       By the impugned judgment, the High Court held that the  impugned amending Act 27/98, which imposed the levy of life  time tax based on the value of the vehicle registered on and  after 1.7.1998 was inconsistent with the section 4(1-A)(b); that  prior to the amending Act 27/98, the tax was levied only on  laden weight and not on the value of the vehicle which had no  nexus with the use of the roads; that by introducing the "value"  as an index, the tax has ceased to be compensatory and  consequently, the levy fell outside entry 57 of list-II of the  seventh schedule to the Constitution, which in turn attracted  article 265 of the Constitution resulting in levy and collection  of tax without the authority of law.          Mr. A.K. Ganguly, learned senior advocate appearing on  behalf of the State submitted that the concept of collection of  one time tax incorporated in section 4(1-A)(a) read with  schedule-III (part-I) of the 1974 Act has been upheld.  In this  connection, reliance was placed on the judgment of this Court  in the case of State of Maharashtra & others v. Madhukar  Balkrishna Badiya & others reported in (AIR 1988 SC 2062).   It was urged that the index of "weight-cum-value" will not  make the levy loose its regulatory and compensatory character.   That, the mode of collection will not alter the nature of the levy  under section 3 of the said 1974 Act.  That, imposition of tax  depending on the status of the owner or the nature of the vehicle  will not alter the nature of the levy.  It was urged that  continuance of the option to pay the tax annually or on one time  basis did not violate article 14.  According to the learned  counsel, the State Legislature was competent to tax the

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vehicles, hence, the impugned impost fell under entry 57 list-II  of the seventh schedule to the Constitution.   

       Mr. M.G. Ramachandran, learned advocate for the  assessees submitted that collection of one time tax based on the  value of the vehicle in the garb of regulation had no nexus with  the use and maintenance of roads; that, "value" had no  connection with the costs or expenses of administration; that the  impugned levy based on the status of the owner or the nature of  the vehicle made the levy fall outside entry 57 list-II  and the  classification for the purposes of the said tax between the old  and the new vehicles made the levy arbitrary, discriminatory  and unreasonable under article 14 of the Constitution.  In the  circumstances, it was submitted that no interference was called  for with the impugned judgment.  

       Before proceeding to consider rival contentions, it is  essential to discuss the statutory provisions of the 1974 Act, as  amended.   Section 2 is the definition section wherein the  expressions "laden weight" and "life time tax" have been  defined.  Section 3(1) inter alia provides that the said tax shall  be levied on motor vehicles used in the State at the rates  specified in the first schedule or in the second schedule or in the  third schedule, as amended by Act 27/98.  Under section 3(2),  the Government is empowered by a notification to increase the  rate of tax specified in the schedules from time to time,  provided such increase, at a given, time shall not in the  aggregate exceed fifty percent of the rate specified in the  respective schedule, as the case may be.  

       Section 4, as amended by Act 27/98, reads as under:-  "4.    Payment of Tax

(1)     The tax levied under this Act shall subject to  the provision of sub-section (1-A), be paid in the  manner prescribed by the registered owner or by  any other person having possession or control of  the motor vehicle, at his choice, either quarterly,  half-yearly or annually, on a licence to be taken  out by him for that quarter, half-year or year, as the  case may be.

(1-A)   Notwithstanding anything contained in sub- section (1), -

(a)     in respect of the motor vehicles specified in  item (A) in Part-I of the Second Schedule and in  Part-I of the Third Schedule, at the time of its  registration, a life time tax shall be paid at the rates  specified in item (A) in Part-I of the Second  Schedule or in Part-I of the Third Schedule, as the  case may be, on a licence to be taken out for the  life time of such vehicles.

(b)     In respect of motor vehicles specified in  item (B) in Part-I of the Second Schedule and in  Part-II of the Third Schedule, the tax shall be paid  either annually at the rates specified in the First  Schedule or for the life time of such vehicles at the  rate specified in item (B) in Part-I of the Second  Schedule or in Part-II of the Third Schedule, as the  case may be, on a licence to be taken out for such  vehicles for that year or for the life time, as the

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case may be; and

(bb)    in respect of motor vehicles specified in  Part-II of the Second Schedule, a life time tax shall  be paid at the rate specified in Part-II of the  Second Schedule.

(c)     in respect of motor vehicles specified in  clauses 6 and 7 of the First Schedule, the tax shall  be paid annually at the rates specified therein on a  licence to be taken out for that year.

Explanation:  The tax for a half-yearly licence  shall not exceed twice and the tax for an annual  licence shall, not exceed four times the tax for a  quarterly licence.  The Government may, by  notification, grant, subject to such condition as  may be specified, a suitable rebate in case of half- yearly, annual and life-time licences.

(1-B)   Notwithstanding anything contained in sub- section (1), in the case of motor vehicles specified  in class 5-A of the First Schedule, in respect of  which permits are granted under the Motor  Vehicles Act, 1988 (Central Act 59 of 1988) for a  period of five years, the tax shall be paid at the  rates specified in the First Schedule, for five years  at a time, at the time of issue of such permits:

       Provided that in respect of the motor  vehicles specified in class 5-A which are already  covered by permits, the tax shall be paid annually  till the renewal of such permits.

(1-C)   Notwithstanding anything contained in sub- section (1), in the case of motor vehicles specified  in class I of the First Schedule in respect of which  permits are granted under the Motor Vehicles Act,  1988 (Central Act 59 of 1988) for a period of five  years, the tax under this Act may be paid by the  registered owner or by any person having  possession or control of the motor vehicle, at his  option, at the rates specified in the First Schedule  for five years at a time, at the time of issue of suit  permit.

(2)     No motor vehicle shall be used or kept for  use in the State of Tamil Nadu at any time unless a  licence has been obtained.

(3)     Notwithstanding anything contained in sub- section (1), no person shall be liable to tax during  any period on account of any taxable motor  vehicle, if the tax due in respect of such vehicle for  the same period has already been paid by some  other person.

(4)     Where a life time tax has been paid in  respect of a motor vehicle referred to in the Second  Schedule or in the Third Schedule the registered  owner or any other person having possession or  control of such vehicle shall not be required to pay  any additional tax either by way of increase or  otherwise."

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       Similarly, by the amending Act 27/98, a new schedule  was added as the Third Schedule (Part-I), which reads as  under:-

"THIRD SCHEDULE

PART - I AT THE TIME OF REGISTRATION OF NEW MOTOR VEHICLES Item If the value of the  vehicle is not more  than Rs.5 lakhs If the value of the vehicle  is more than Rs.5 lakhs  but not more than Rs.10  lakhs If the value of the  vehicle is more than  Rs.10 lakhs.

Individual Others Individual Others Individual Others (1) (2) Rs. (3) Rs. (4) Rs. (5) Rs. (6) Rs. (7) Rs. (a) Weighing  not more than  700 kgs.  unladen.. 8,210 16,420 12,320 24,640 16,420 32,840 (b) Weighing  more than 700  kgs. but not  more than  1,500 kgs.  unladen.. 10,950 21,900 16,430 32,860 21,900 43,800 (c) Weighing

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more than  1,500 kgs. but  not more than  2,000 kgs.  unladen.. 13,290 27,380 20,540 41,080 27,380 54,760 (d) Weighing  more than  2,000 kgs. but  not more than  3,000 kgs.  unladen.. 15,060 30,120 22,590 45,180 30,120 60,240 (e) Weighing  more than  3,000 kgs.  unladen in  respect of  which private  transport  vehicles permit  is not required  under Motor  Vehicles Act.  17,110 34,220 25,670 51,340 34,220 68,440

       Explanation:  For the purpose of this Schedule, the word  "Individual" means a person known by his proper name."         A bare reading of the aforestated schedule shows the  introduction of "weight-cum-value" index as the basis for  payment of "life time tax"; that there is an in-built  rationalization of the rates according to the status of the holder  (paying capacity) and the nature of the vehicle (Indian and  imported cars).  Such a rationalization of rates conceptually has  been accepted by the Court in the case of Union of India &  others v. Bombay Tyre International Ltd. reported in AIR  1984 SC 420, in which it has been held that any standard which  maintains a nexus with the essential character of the levy can be  regarded as a valid basis for assessing the measure of the levy.   

       In the case of Automobile Transport (Rajasthan) Ltd.  etc. v. State of Rajasthan & others reported in [AIR 1962 SC  1406], there was a challenge to section 4 of Rajasthan Motor  Vehicles Taxation Act, 1951, under which the levy was charged  at the rates specified in the schedule.  Under schedule-II, taxes  were fixed on day-to-day basis in respect of certain goods  vehicles and in other cases, they were fixed on annual basis.   These provisions were challenged as ultra vires articles 301 and  19(1)(g) of the Constitution.           On examination of the provisions of the Act, this Court

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held that if the statute fixes a charge for a convenience or  service provided by the State and imposes it upon those who  choose to avail themselves of such services or convenience, the  imposition assumes the character of remuneration or  consideration charged in respect of an advantage sought and  received and, therefore, the tax was regulatory and  compensatory in nature and consequently did not attract article  301 of the Constitution.  

       The short question which arises for consideration in the  present case is \026 whether the High Court was right in holding  that with the introduction of the concept of "value" as the basis  of the tax, the impugned levy fell outside entry 57 of list-II of  the seventh schedule to the Constitution.  

       It is well to remember that the State maintains old roads  and makes new ones. These roads are at the disposal of those  who use motor vehicles either for private purpose or for trade or  commerce.  India is a cost-push economy.  It has high rate of  inflation.  The costs of maintenance as well as the costs of  material used in the maintenance of the roads increases by the  day.  This naturally costs the State, which has to find funds for  making new roads and for maintenance of those that are in  existence.  The impugned tax 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.  However, as stated above, the limited question is :  whether the tax ceases to be compensatory and regulatory with  the introduction of "weight-cum-value" index and whether the  said index is contrary to the scheme of the said 1974 Act.

       At the outset, it may be noted that depreciation is a  function of time and maintenance.  In the present case, we are  concerned with the "life time tax" which is one time payment  spread over the economic life of the vehicle.  The said tax is  based on time, use and maintenance of the roads.  As stated in  the judgment of this Court in Bombay Tyre (supra), any  standard, which maintains a nexus with the essential character  of the levy can be regarded as a valid basis for assessing the  measure of the levy.  Applying the said test to the present case,  we hold that the index of "weight-cum-value" maintains the  nexus with the essential character of the levy in question and,  therefore, the High Court erred in holding that by introduction  of the value of the vehicle as a parameter, the levy ceases to be  regulatory and compensatory in nature.  It is important to bear  in mind that entry 57 of list-II of the seventh schedule to the  Constitution refers to taxes on vehicles suitable for use on  roads.  Under the said entry, a field is provided to the State  Legislature to impose the impugned tax in respect of every  aspect of a vehicle.  When the Constitution provides a field of  legislation, it has to be read in the broadest possible terms.   When the State is empowered to levy taxes on goods, it is  empowered to levy such taxes on every aspect of such goods.   Similarly, when the State is empowered to levy tax on the  vehicle, it is empowered to levy tax on every aspect of the  vehicle.  Throughout the Constitution, the legislative power  relating to taxes and the legislative power relating to general  subjects is treated separately and is not subsumed under a  general head.  Applying the above tests to the present case, we  are of the view that the High Court had erred in holding that on  account of introduction of "weight-cum-value" index in the  third schedule to the Act, the impugned tax had ceased to be  regulatory and compensatory and consequently, the said levy  fell outside entry 57 list-II.

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       In the case of Commissioner of Central Excise,  Lucknow, U.P.  v. Chhata Sugar Co. Ltd. reported in (2004) 3  SCC 466, this Court has held that a regulating measure may  also contain taxing provisions.

       In the case of State of W.B. v. Kesoram Industries Ltd.  & others  reported in (2004) 10 SCC 201, the Constitution  Bench of this Court has held that a power to tax may be  exercised for the purposes of regulating trade, industry,  commerce or any other activity; the purpose of levying such an  impost is the exercise of sovereign power to effectuate  regulation though incidentally the levy may contribute to the  revenue.   

       In the present case, we are satisfied that the levy in  question being one time tax continues to be a part of regulatory  measure.  For administrative reasons, in the matter of collection  of tax, one time payment of tax is administratively convenient  and at the same time, it is also beneficial to the users of the  vehicles who do not have to go to the office of the RTO every  year to pay the annual taxes.  It is also beneficial to the users of  the motor vehicles, as they do not have to pay taxes at the  increased rates from time to time over the economic life of  vehicle as contemplated by section 3(2) of the Act.  Moreover,  weight alone may not provide a sufficient parameter/basis for  imposition of "life time tax".  As an illustration, we may point  out that the weight of the Honda CRV Car is 1500 kg. as  against the weight of Tata Indigo GLX which weighs 1490 kg.  and yet the cost of Honda CRV is Rs.15,24,396 lacs whereas  the price of Tata Indigo is 5.08,651 lacs.  Hence, weight index  alone may not constitute the basis of "life time tax".   

       In the circumstances, we reiterate that introduction of  "weight-cum-value" index will not make the levy non- regulatory/non-compensatory.  Further, under the unamended  1974 Act, weight was the basis of the impugned levy as an  annual tax.  But with the introduction of a "life time tax", the  entire future projection spread over the economic life of the  vehicle had to be taken into account along with other factors  like fall in the value of the rupee, inflation, rising costs of the  material, cross subsidy etc. and consequently, it was necessary  to introduce the new index of "weight-cum-value" and factors  like paying capacity of the owner.  In our view, these factors  have nexus with the use of the roads over a period of time and  hence, the impugned levy fell within entry 57 list-II of the  seventh schedule to the Constitution.

       We also do not find the impugned levy to be  discriminatory, arbitrary or unreasonable so as to violate article  14 of the Constitution as held by the High Court.       In the case  of Municipal Corporation of the City of Ahmedabad & others   v. Jan Mohammed Usmanbhai & another reported in [(1986)  3 SCC 20], this Court held that article 14 forbids class  legislation and not reasonable classification and in order to pass  the test of reasonable classification, the classification must be  founded on an intelligible differentia which distinguishes  persons or class of persons that are grouped together from the  others left out of that group and that such differentia must have  a rational relation to the object sought to be achieved by the  statute in question.

       In the case of The State of Gujarat & another etc. v.  Shri Ambica Mills Ltd., Ahmedabad & another etc. reported in  (1974) 4 SCC 656, this Court held that where size is an index,  discrimination between large and small is permissible.   Article

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14 does not require that every regulatory statute should apply to  each and everyone equally in the same business.

       Similarly, in the case of Sate of Maharashtra v.  Madhukar Balkrishna Badiya (supra), this Court has held that  taxing of a company owned vehicle at three times the rate  payable by an individual owner did not make the enactment  violative of article 14 as the Legislature had the power to  distribute the tax burden in a flexible manner and the Court  would not interfere with the same.

       There is no merit in the contention advanced on behalf of  the respondent herein that there is violation of article 14 of the  Constitution by imposing higher burden of tax on vehicles  owned by "others" vis-‘-vis the vehicles owned by the  "individuals" in part-I of the third schedule.  We do not find  merit in this argument.  Firstly, as held by this Court in the case  of Bombay Tyre (supra), levy is a constitutional concept,  whereas collection of a tax as well as incidence of tax comes  within the statutory measure.  The mode of collection or the  incidence of tax cannot be the conclusive test to decide the  nature of the levy.  The nature of the levy is a concept different  from the mode of collection of tax.  Levy is a constitutional  concept whereas mode of collection of tax is a statutory  concept.  They stand on different footings.  Secondly, it is  important to remember the words of Lord Wilberforce, quoted  with approval by House of Lords in the case of Barclays  Mercantile Business Finance Ltd. v. Mawson (Inspector of  Taxes) reported in (2005) 1 All ER 97 stating that "a tax is  generally imposed by reference to economic activities or  transactions which exist in the real world".  When an economic  activity is to be valued, it is open to the law maker to take into  account various factors including the paying capacity of the  user, the value of the vehicle, the economic life of the vehicle  etc.  Lastly, in the present case, for the vehicles registered  before 1.7.1998 the option between annual and one time tax is  retained.        

       Before concluding, we may quote the observations of the  Division Bench of the Kerala High Court in the case of Anas v.  State of Kerala reported in 1999 (3) KLT 147 [to which one of  us, Dr. AR. Lakshmanan, J., was a party], which state as  under:-         "A taxing statute can be held to contravene  Art. 14 of the Constitution only if it purports to  impose on the same class of property similarly  situated an incidence of taxation which leads to  obvious inequality.  It is for the Legislature to  decide on what objects to levy what rate of tax and  it is not for the Courts to consider whether some  other objects should have been taxed or whether a  different rate should have been prescribed for the  tax.  It is also to be noted that the Legislature is  competent to classify persons or properties into  different categories and tax them differently, and if  the classification thus made is rational, the taxing  statute cannot be challenged merely because  different rates of taxation are prescribed for  different categories of persons or objects."     

       For the aforestated reasons, there is no violation of article  14 of the Constitution.  As stated above, the impugned levy of  life time tax is based on rational and reasonable classification  founded on an intelligible differentia having a rational relation  to the object of the impugned levy.

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