ORDER [ENTITY], J.
1. These petitions are directed against the levy and collection of 5% cess-tax levied under [SECTION] of the [ACT] and 3A of the [ACT] as illegal, unconstitutional and void. The petitioner wants a refund of tax made over by the petitioner for the schedule vehicles in terms of the schedule from 1.4.1995 till First Quarter and under Act 4/ 02 effective from 15.4.2002.
2. The pleadings of the parties are as under:
The first respondent introduced an amendment to the [ACT]. By an amendment a new power to imposition of cess was statutorily introduced. The amendment by [ACT] inserted Sec.3A. Annexure 'A' is the notification. [SECTION] purported to levy and collect by way of cess - tax at the rate of 5% on the Motor Vehicle Tax levied under [SECTION] of the Act. The purpose of the cess was for the [ACT]. The said amendment was challenged in this Court in several petitions. Petitions were dismissed by this Court. Annexure 'D' is the order of the Division Bench Thereafter, the first respondent introduced an amendment by [ACT] by which the purpose of levy for [ACT] was sought to be changed to 'for a period of two years with effect from 1.4.1998 for equity investment in the Karnataka Infrastructure Development Finance Corporation. Annexure 'C' is the Notification. The petitioner states that there has been no such utilisation for the said purpose. Apart from the fact the Karnataka Infrastructure Development and Finance Corporation has nothing to do with either the maintenance, improvement or the creation of roads in terms of the [ACT]. Tax is illegal and without authority of law. By [ACT], the State Government introduced another amendment to [SECTION] By this there was a substitution of four years for two years. Annexure 'D' is the Notification. In view of the combined operation of [ACT] and [ACT], the authority to levy cess-tax of 5% on the Motor Vehicles Tax was to be upto 31.3.2002. By [ACT] there has been an amendment to [SECTION] by which it has been extended up to six years. Annexure 'E' is the notification. The petitioner says that there has been a [ACT]. The petitioner has filed the [ACT] in terms of Annexure 'F". According to the petitioner, the levy is illegal and the petitioner is entitled for refund. The petitioner says that the levy of cess can be justified only when it is compensatory. The levy and collection of tax for the purpose of [ACT] has turned out to be only a mirage. No such [ACT] was brought out as a physical fact in Bangalore. The petitioner also asserts that the change of purpose with effect from 1.4.1998 for the collection of cess-tax for "equity investment in the Karnataka Infrastructure Development and Finance Corporation" is unconstitutional. There is no nexus. The petitioner further states that there has been a total failure on the part of the first respondent to fulfill the [ACT]al obligation of imposition of tax with the authority of law and its utilisation for the proclaimed purpose. The collection of tax under [SECTION] is thus unconstitutional.
3. Respondents have entered appearance. Statement of Objection has been filed on 26.9.2002. In the objection statement, it is stated in para 2 that collection of cess-tax is for the purpose of Development of [ACT] and is now extended to the entire State. It is also stated that the argument of no nexus is not correct. The respondent further says that the Division Bench ruled that the levy of cess had been for a limited period as per the amended Act, is appropriate. In so far as repeal is concerned, the respondent justifies that whatever Acts have been repealed as on that date is incorporated in the original Act. With regard to utilisation, it is stated that the funds have been collected by the respondent by way of cess at the rate of 5% from the individuals is utilised in a proper and planned manner and the Development work is under progress at Bangalore City as well as in the entire State. The funds which have been collected is only a meager amount and- that will not be sufficient to the total works contract engaged by the State under the various Development Works and progress of the entire State work in the interest of public at large. The respondents further states in para 9 that the levy covers the entire State. In respect of the funds collected by way of cess-tax has been utilised for development of various project works in the State including Bangalore City Roads Maintenance, fly-over and highways maintenance and other various projects under taken by the Government of Karnataka. They justify their action.
4. The State Government filed an additional affidavit on 28.6.2004. In the said affidavit, it was stated that in order to maintain the developmental activities, the legislature has a right in taking to enactment to the principle Act. In fact [SECTION] of the [ACT] has been incorporated in the original Act and accordingly resorted to the principle Act and hence the original Act is in force. As such the subsequent amendment cannot take away the original or the principle Act.
5. One more objection was filed on 14.7.2004. In the said objection, it is stated in para 4 as under:
"In 1994, the State Government commissioned M/s. Infrastructure Leasing and Financial Services, Mumbai, to prepare Feasibility Study for the implementation of a Mass Rapid Transit System in Bangalore to alleviate the rapidly increasing problem to traffic congestion in Bangalore. In September 1994, the State Government established the Bangalore Mass Rapid Transit Limited (BMRTL) as a wholly State-owned company under the [ACT] specifically to implement an MRT system. IL & FS submitted to BMRTL, in October 1994, their Feasibility Study for implementing an [ACT] in Bangalore and in January 1995, the State Government took the momentous decision to establish the ELRTS.
In order to create a corpus of funds to meet its financial commitments to the Project, the State Government started levying a "BMRTS Cess" with effect from 1.4.1995 within the Bangalore Urban Agglomeration area on a variety of commercial transaction, which continued until 31.3.1998. From 1.4.1998, the BMRT Cess was merged into a new "Infrastructure Cess" which 'was and is continuing to be, levied across the whole State of Karnataka for the purpose of infrastructure development, including the Bangalore ELRTS Project. One-thirds of the cess collection is earmarked for the Bangalore ELRTS Project while the remaining two-thirds is for other infrastructure development projects. The cess collections meant for the ELRTS Project are being accumulated in a separate, "BMRTS Fund" and will be used only for the ELRTS or similar Mass Rapid Transit System Project."
6. In para 5, it is again stated as under:
"It is submitted that as BMRTL cess, the total amount collected was Rs. 142.59 crores which have been transferred to the Government fund and later the entire amount was released for the public purpose. Likewise, the infrastructure cess collected from 2002-03 was Rs. 857.39 crores and the same was transferred to Government fund. Out of which Rs. 25.36 crores were released during 2001-02 and Rs. 79-45 crores in 2002-03. The collection of cess for the year 2003-04 is awaited. However, a sum of Rs. 73.75 crores from the fund are released during the year 2003-04." (underlining is mine) In the subsequent paragraphs, the respondent has highlighted their expenses. On 28.7.2004, the respondent sought to delete para 12 of the additional statement.
Rival submissions:
7. Sri [ENTITY], learned Senior Counsel appears for the petitioners. He took me through the history of the case to contend that initially, the Act was challenged in this Court and the Division Bench of this Court in terms of Annexure 'B' has chosen to uphold the Act with certain observations. Thereafter, according to the learned Counsel, the Act was amended in terms of Annexure 'C' thereby introducing a period of 2 years in addition to equity investment in Karnataka Infrastructure Development and Finance Corporation. Learned Counsel further says that in terms of the [ACT], [SECTION] was amended providing for four years as against three years. It was again amended in terms of [ACT] for 6 years instead of 4 years. Learned Counsel while elaborating his contentions says that the entire levy does not have the [ACT]al approval in terms of the law governing the subject. He says that in the light of the Division Bench Judgment and the laws governing the subject, the respondent has to justify its imposition in such cases. Learned Counsel further says that the cess so collected cannot be diverted to the State Revenue. He reads to me the various averments in the objection statement to contend that the entire action requires to be noticed by the Court for the purpose of holding the cess as illegal. Learned Counsel says that the object of equity investment and the object of maintaining roads etc., would not support the cess, according to him. He also refers to the effect of repealing Act in terms of 2002 Act.
8. Per contra, learned Advocate General would justify the cess. Learned Advocate General vehemently argues before me that the petitioner has no legs to maintain these petitions. Learned Counsel says that the cess is being passed over to the customers and that therefore, the petitioner cannot be said to be "persons aggrieved" in the matter of levy of cess. He says that the petitions are not maintainable in the case on hand. In so far as justification is concerned, learned Advocate General refers to me the pleadings to contend that the Government has done the right thing and the cess is being utilised for the right purpose in the case on hand. He wants the petition to be dismissed.
9. Learned Counsel for the petitioner in reply disputes the submissions of the learned Advocate General.
Points for consideration:
10. After hearing the learned Counsel on either side, the following issues emerges for my consideration in terms of the rival arguments advanced before me.
1. Locus standi of the petitioners
2. Validity of imposition and permissibility of diversion of the cess
3. Effect of repealing Act in terras of 2000 Act
4. Relief
1. Locus Standi:
Locus is pressed into service by the State. Admittedly, in the case on hand the operators are to pay the levy in terms of the Statute. It may be that they may pass on to their customers. Can it be said in the given circumstances that there is no locus at all to maintain the petition as effectively argued by the learned Advocate General? At the outset, this Court has to notice that on an earlier occasion in respect of this, very levy, the other operators filed petitions and the petitions were entertained at their instance and orders were passed by this Court. Even otherwise, law is fairly well settled with regard to locus in such cases. Let me refer to a few Judgments in this regard on the subject. In [PRECEDENT], the petitioner initiated proceedings challenging the auction proceedings in a Writ Petition. A Single Judge declined to grant relief. But the Division Bench allowed the petition. Matter was taken to the Supreme Court. Before the Supreme Court, the question of locus was raised and the Supreme Court has noticed the contention of locus in paras 12 and 14 in the case of [PRECEDENT]. The Supreme Court has referred to its earlier Judgments and thereafter, it ruled that "In the light of the expanded concept of the locus standi and also in view of the finding of the Division Bench of the High Court that the order of the Excise Commissioner was passed in violation of law, we do not wish to nip the motion out solely on the ground of locus standi. If the Excise Commissioner has no authority to permit a liquor shop owner to move out of the range (for which auction was held) and have his business in another range it would be improper to allow such an order to remain alive and operative on the sole ground that the person who filed the Writ Petition has strictly no locus standi. So we proceed to consider the contentions on merits."
11. In [PRECEDENT]., the Supreme Court again noticed the issue of locus in para 38 as under;
"There is no dispute regarding the legal proposition that the rights under [SECTION] of the [ACT] can be enforced only by an aggrieved person except in the case where the writ prayed for is for habeas corpus or quo warranto. Another exception in the general rule is the filing of a writ petition in public interest. The existence of the legal right of the petitioner which is alleged to have been violated is the foundation for invoking the jurisdiction of the High Court under the aforesaid article. The orthodox rule of interpretation regarding the locus standi of a person to reach the Court has undergone a sea change with the development of constitutional law in our country and the constitutional courts have been adopting a liberal approach in dealing with the cases or dislodging the claim of a litigant merely on hypertechnical grounds. If a person approaching the court can satisfy that the impugned action is likely to adversely affect his right which is shown to be having source in some statutory provision, the petition filed by such a person cannot be rejected on the ground of his not having the locus standi. In other words, if the person is found to be not merely a stranger having no right whatsoever to any post or property, he cannot be non-suited on the ground of his not having the locus standi." (Underlining is mine)
12. From these Judgments, what is clear to this Court is that the petition cannot be thrown on the sole ground of locus in the light of a proper concept of locus in Writ Petitions. If a right of a litigant is affected, he has every right to move a Writ Court under [SECTION] of the [ACT]. In the case on hand, the operators cannot be said to be foreigners or strangers in terms of the Apex Court rulings to the collection of cess in terms of the Statute in the case on hand. The collection and levy of cess has its own impact on the business of the operators. They have some connection with the cess in the given circumstances. In these circumstances, it cannot be said that they have no locus at all as argued by the learned Advocate General. The locus argument is therefore rejected.
2. Validity:
13. Before I take up the issue, this Court has to notice the history of [SECTION] of the [ACT]. [SECTION] was inserted by [ACT]. It was amended by [ACT] with effect from 1.4.1998 for a period of two years. It was extended to two more years by [ACT] with effect from 1.4.2000. It was further extended for two more years by [CASE NUMBER] with effect from 1.4.2002.
14. [SECTION] initially provides for a levy by wav of cess for the purpose of [ACT]. This cess shall be in addition to any tax, levied under [SECTION]. Explanation states that "for the purpose of this Section Bangalore City Planning Area means Bangalore City Planning Area as declared under [SECTION] of the [ACT]". This was amended in 1998 and the amendment provides for the words "for the purpose of [ACT]" the words "for a period of two years with effect from the first day of April 1998 for the purpose of equity investment in the Karnataka Infrastructure Development and Finance Corporation" shall be substituted and the words "within the limits of Bangalore City Planning Area" shall be omitted. (Underlining is mine)
15. In terms of 2000 amendment, "two years" was substituted by "four years". In terms of the 2002 amendment, "four years" is amended as "six years".
16. This very levy was challenged in a batch of petitions in this Court in [CASE NUMBER] dated 20.9.1995. This Court, after noticing the contentions and after noticing the Judgment of the Supreme Court in has ruled that no substance is found in the arguments. However, this Court noticed that cess is with reference to Mass Rapid Transit System for the purpose of elevated light rail transit system. This Court noticed that there is broad correlation between expenditure involved and the taxes that are collected under this head either arising under [SECTION] or under [SECTION] of the Act. This Court noticed the figures available in the case to demonstrate a correlation in those petitions. This Court also ruled that the tax collected is compensatory and regulatory in character. This Court also noticed 'whether any subsequent tax could be examined only when they are levied. One cannot predicate as to what cannot be taken thereon either by the petitioner or by this Court.' This Court was concerned only with regard to the initial levy in terms of [SECTION] of the [ACT] as amended in terms of the [ACT]. After 1995, the Government has removed the words "[ACT] and instead added the words "Karnataka Infrastructure Development Finance Corporation". Virtually, the Government wants the parties to pay a capital fund to the Infrastructure Development Finance Corporation. It was also for a period of two years. It became 4 years. Now it became 6 years. The petitioner asserts in the petition that money is not meant for general Revenue and even otherwise, the money collected is not spent for the purpose for which it is collected. The same is referred to in the objection statement. Several objections have been filed on several sittings, after some arguments.
17. In the first statement of objection, it was stated in para 2 that collection of cess is for the purpose of development of [ACT] now extended to the entire State. In the very same statement, it is stated that the funds which have been collected is only a meager amount. That may not be sufficient to the total works contract engaged by the State under various development works. It is further stated that in respect of the funds collected by way of cess tax has been utilised for various development works in the State including Bangalore City Roads Maintenance, fly-over and etc.
18. In the additional affidavit filed, it is stated in para 5 that the total amount of Rs. 142.59 crores was collected and it was transferred to the Government fund and the amount was released for the public purpose. Infrastructures collected from 2002-03 was Rs. 857.39 crores. Out of which Rs. 25.36 crores were released during 2001-02 and Rs. 79.45 crores in 2002-03. The collection of cess for the year 2003-04 is awaited. Details were given and they are as under:
Item 2003-04 2002-03 2001-02
1. Bangalore Unt'l Airport Project (BIAP) 1.1 State Support/ Payment to Hochtief 4.38 2.75 3.06 1.2 Alternate Roads 8.55 0.00 0.00 1.3 Power Supply 5.25 0.00 1.30 1.4 Equity 1.35 2.48 0.00
2.1 [CASE NUMBER] 6.00 0.00 2.2 SGGCP 3.00 10.00 0.00 2.3 cost-Sharing Projects 8.00 4.00 0.00 2.4 ROBI /RUB 0.04 5.00 0.00 2.5 K- RIDE 0.00 1.27 0.00
18.04 26.27 0.00
3. iDeCK 3.1 Investments 5.00 16.00 0.00
4. Others 4.1 Minor Airports 0.00 1.00 0.00 4.2 Minor Seaports 0.00 0.70 0.00 4.3 BIAP Cell 0.00 2.70 0.00
42.57 50.20 4.36
5. KSIIDC-Debt Servicing of HUDCO Loan 29.00 29.00 21.00 71.57 79.20 25.36
6. BMRTL 2.00 2.25 -
From the details, it is seen that the cess is used for State Support. Alternate Roads. Power supply, equity etc. Virtually the entire cess meant for the equity capital is used for all other purposes not available in terms of the Statute. Equity is shown as only 1.35 crores for 2003-04 and for 2002-03, it is shown as 2.48.
19. Apart from spending as megre portion of sum for equity and the said cess was used for various other purposes not available in terms of the Statute. Law is well settled that any collection by way of cess has to have some nexus with regard to the collection. Collection by way of cess for equity capital or for [ACT] cannot be pooled into general fund for general expenditure and it cannot spent for HMGCP, SGGCP, Cost-Sharing Projects, ROB/RUB, K-RIDE, iDeCK, Investments, Minor Airports, Minor Seaports, BIAP Cell, KSIIDC-Debt Servicing of HUDCO Loan etc. A particular purpose oriented cess collected has to be done for that purpose and not for other purpose, not permitted under the Statute. Any such utilisation of such purposeful cess would be illegal. Such a course is impermissible in law. Let me see the case laws on the subject.
20. Recently, the Supreme Court considered the [ACT] as amended by Act 9/2002 in the case of [PRECEDENT]., The Supreme Court noticed the nature and distinguishing feature of tax and fee in terms of [SECTION] of the [ACT]. The Supreme Court also noticed the tax on vehicles suitable for use on roads in terms of the [ACT] entries in [SECTION] of the [ACT]. The Supreme Court ruled that tax can be levied even when vehicle is not actually using the road and the tax is compensatory in nature and must have nexus with the vehicle using the public roads of the State. In para 13, the Court ruled as under;
"The tax is compensatory in nature and, therefore, must have some nexus with the vehicles using the public roads of the State. The words "suitable for use" signify the kind of vehicles meaning thereby that the vehicles should be such type which are normally capable of running on the road. The entry does not indicate in any manner that tax would be leviable only for the period when the vehicle is actually using the road and not otherwise and, therefore, it has no correlation with the actual period of use. Naturally the State has to maintain the roads and to keep them in proper condition for all those who own vehicles suitable for use on roads. This is irrespective of the fact whether they use it or not or use it occasionally or for short duration only. It being a tax and not a fee, the actual use of the public roads of the State cannot be insisted upon for incurring the liability."
21. [PRECEDENT]., is a leading case on the subject. In the said case, the Supreme Court noticed the compensatory character of tax in the Judgment. The Supreme Court in para 17 has noticed the compensatory tax and the extent of the use in the said Judgment. In the very same Judgment, the Court noticed the averments made in the counter affidavit in support of its findings.
22. In [PRECEDENT]., the Supreme Court again noticed as to whether the tax imposed on motor vehicle is compensatory or not. The Supreme Court in paras 28, 29 and 30 notices as under:
"It has to be noted that in Automobile case as quoted above, it was held that it is the reality or substance of the matter that has to be determined. It is not possible a priori to draw a dividing line between that which would really be a charge for a facility provided and that which would really be a deterrent to a trade; but the distinction, if it has to be drawn, is real and clear. For the tax to become a prohibited tax it has to be a direct tax the effect of which I to hinder the movement part of trade. So long as a tax remains compensatory it cannot operate as a hindrance. A [ACT] Bench of this Court considered an identical question in [PRECEDENT], Observations in [ENTITY] case to the following effect do not appear to have kept the said aspect in view when it was observed as follows: (SCC pp. 176-77, para 8) "8. Taxes of a compensatory and regulatory character are outside the expanse of [SECTION] of the [ACT]. 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 the subject and the object of the levy.' A mere claim that tax is compensatory would not suffice. To that extent the observations in [ENTITY] case do not reflect the correct position in law. Whether a tax is compensatory or not cannot be made to depend on the preamble of the statute imposing it. A tax cannot also be said not to be compensatory because the precise or specific amount collected is not actually used to providing any facilities."
23. This Court on an earlier occasion noticed the material on record to hold that if tax collected is compensatory and regulatory in character, we do not think that any argument of double taxation can be put forth or accepted. This Court noticed in earlier litigation, the appropriate correlation in the region of about 65% between expenditure involved and collection made thereof for upholding the levy.
24. From all these Judgments, what is clear to this Court is that there should be existence of a specific, identifiable object behind the levy and a nexus between the subject and the object of the levy. It is also clear from these Judgments that the State has to justify in the matter of tax. A mere preamble is not sufficient. I have earlier ruled that in terms of the affidavits in this Court, the State Government has failed to justify its collection in terms of the material facts available on record.
25. An additional affidavit is filed and in the additional affidavit, the Government has given the details with regard to expenditure. The expenditure includes towards State Support/payment to Hochtief, Alternate roads, Power supply etc. The Government has transferred the tax to the Government fund and it is being released for public purpose. The equity paid is hardly negligible in terms of the affidavit made by the Government. The Government has failed on facts not only to prove the nexus but also the justification in terms of the rulings as referred to above. In the given circumstances, the petitioner is right in his submission with regard to impermissibility/unsustainable cess in this case. This Court cannot but observe that if only the cess is spent for the purpose for which it is meant by the State, probably, the cry of "poor/bad or no road" of the travelling public would not be there.
Repeal:
26. In the light of my findings on point No.2, no findings are necessary on point No.3.
Relief:
27. The petitioner has sought for refund of all the amount of cess collected from him for the schedule vehicles in terms of prayer 4 made in the petition. In the Writ Petition, the petitioner, nowhere says that he has not passed on the cess to its consumers while collecting the bus fare for travel in the impugned vehicles. The petition is silent. The Court can presume in the light of 'no specific statement' of 'no passing off of the cess on the consumer' that the petitioner ought to have passed on the same to the travelling public. The learned Advocate General is therefore right that the petitioners ought to have passed on the cess to the travelling public. In these circumstances, it is not possible for this Court to order refund to the petitioner in the given circumstances in terms of the averments made in the petition. Therefore, the prayer for refund is rejected.
28. In these circumstances, accepting the arguments of the petitioner, I deem it proper to issue a declaration declaring the levy and collection of 5% cess tax in terms of [SECTION] of the [ACT] and 3A of the [ACT] as illegal and unconstitutional and a direction by way of prohibition is issued to the respondent from levying and collecting any cess tax of 5% on the motor vehicles under [SECTION] of the [ACT] as amended by [ACT] and [ACT] in view of the [ACT].
29. In the result, these petitions are allowed in the above manner. Parties are to bear their respective costs.