*THE HON'BLE THE ACTING CHIEFJUSTICE BILAL NAZKI AND * THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN + WRIT PETITION NOs. 21008, 21498, 21025, 21026, 21027, 21265, 21322, 21323, 21506, 21507, 21508, 21512, 21515, 21530, 21560, 21561, 21602, 21616, 21975, 21976, 21977, 21988, 21604, 21673, 21725, 22066, 22142, 22198, 22206, 22320, 22321, 22322, 22430, 22429, 22431, 22626, 22679, 23184, 23688, 24341, 24978, 25389, 26430, 26437 OF 2006, 132, 133, 311, 330, 436, 525, 1134, 1462, 1730, 2091, 1928, 3992, 4081, 3216, 2957, 4758, 6302, 7125, 8154, 8088, 11672, 12847, 10030, 13951, 14552, 15569, 15560, 17318, 17707, 18244 AND 19747 of 2007 COMMON ORDER: % DATE: 30-11-2007 W.P.No.21008 of 2006 # Sri K.Srinivas …. Petitioner Vs. $ The Government of A.P., rep., by its Principal Secretary, Transport Roads & Buildings Department, Secretariat, Hyderabad and two others. …. Respondents ! Counsel for the Petitioner: Sri B.Sivarama Krishnaiah ^ Counsel for the Respondents: Advocate General <GIST: > HEAD NOTE: ? Cases referred [1] 2004(2) ALD 225 2 AIR 1992 Rajasthan 181 3 (2004)1 SCC 320 4 AIR 1988 SC 240 5 (1996) 9 SCC 284 6 AIR 1975 SC 17 7 AIR 1961 SC 232 8 AIR 1962 SC 1406 9 2006(11) SCALE 28 10 2006(8) SCC 613 11AIR 1967 SC 1575 121984(1) SCC 168 13AIR 1996 SC 1627 14AIR 1976 SC 1031 15(1970) 1 SCC 749 16AIR 1965 SC 1387 171995 Suppl (2) SCC 187 18AIR 1980 SC 1547 19(2001) 3 SCC 654 20(2001) 3 SCC 654 21(1959 (1) AnW.R. 347 22(1992(3) SCC 336 23(1985) 2 SCC 732 24(1985) 1 SCC 591 25(2003) 7 SCC 66) 26AIR 1967 SC 389 27AIR 1977 SC 3471 28AIR 1963 SC 1083 29 (1989) 3 SCC 151 30 (2003(7) SCC 589 31(2004(2) SCC 657 32(2005(3) SCC 551 33(AIR 1961 SC 1596 34(1957) SCR 51 35(1955)2 SCR 483 361959 Supp (2) SCR 256 37(1946) AC 32 38 AIR 1966 SC 1172 39AIR 1998 SC 2230 40AIR 1989 SC 155 41(1966)1 SCR 367 42 (AIR 1944 PC 71) 43(2004) 5 SCC 209 442004(8) SCC 173 45(1999) 3 SCC 346 46(1999) 8 SCC 667 47(1999)4 SCC 192 482001(3) SCC 76 49AIR 1967 SC 135 50AIR 1961 SC 609 51AIR 1966 SC 1295 522001(6) ALD 402 (FB) 53AIR 1975 SC 596 54AIR 1991 SC 1117 55(1947) 15 ITR 302 561926 AC 37 57AIR 1998 SC 2291 58(AIR 1961 SC 552) 59(2001) 7 SCC 358 60 AIR 1965 SC 1321 THE HON'BLE THE ACTING CHIEFJUSTICE BILAL NAZKI AND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITION NOs. 21008, 21498, 21025, 21026, 21027, 21265, 21322, 21323, 21506, 21607, 21508, 21512, 21515, 21530, 21560, 21561, 21602, 21616, 21975, 21976, 21977, 21988, 21604, 21673, 21725, 22066, 22142, 22198, 22206, 22320, 22321, 22322, 22430, 22429, 22431, 22626, 22679, 23184, 23688, 24341, 24978, 25389, 26430, 26437 OF 2006, 132, 133, 311, 330, 436, 525, 1134, 1462, 1730, 2091, 1928, 3992, 4081, 3216, 2957, 4758, 6302, 7125, 8154, 8088, 11672, 12847, 10030, 13951, 14552, 15569, 15560, 17318, 17707, 18244 AND 19747 of 2007 COMMON ORDER: (per Hon’ble Sri Justice Ramesh Ranganathan) In these batch of writ petitions the petitioners, transport operators whose vehicles are covered by subsisting permits valid to ply as contract carriages in the State of Andhra Pradesh, have questioned the vires of Section 3-A of the Andhra Pradesh Motor Vehicles Taxation Act, as inserted by the Andhra Pradesh Motor Vehicles Taxation (Amendment) Act, 2006 (Act 33 of 2006), and the notification issued in G.O.Ms. No. 180, Transport, Roads & Buildings (Tr.I) Department dated 27.09.2006. The Government of Andhra Pradesh had, hitherto, issued G.O.Ms. No. 77 dated 01.06.2002 prescribing a new rate of tax of Rs. 3500/- per seat per quarter in respect of stage carriages plying a distance exceeding 1000 km a day. On a challenge thereto a Larger bench of this Court, in L. Royal Reddy Vs. Government of Andhra Pradesh[1], had held that, since the charging section under the A.P. Motor Vehicles Taxation Act did not authorize levy of additional tax in case of violation of the permit or its conditions, para 1(iii), para 3 and Explanation VI (iv) of para 5 of G.O.Ms. No. 77 dated 01.06.2002 was invalid. Consequent thereto, the Andhra Pradesh Motor Vehicles Taxation Act, 1963 (hereinafter referred to as the Act), was amended by insertion of Section 3-A and the notification in G.O.Ms. No. 180, Transport, Roads & Buildings (Tr.I) Department, dated 27.09.2006 was issued amending the notification in G.O.Ms. No. 68 dated 13.04.2006. Sri E. Manohar, Learned Senior Counsel, Sri Noushad Ali and Sri B. Sivaramakrishnaiah, Learned Counsel for the petitioners made elaborate submissions on the vires of Section 3-A of the Act and the notification in G.O.Ms.No.180 dated 27.9.2006. Learned Advocate General appeared on behalf of the respondents and, after putting forth extensive oral arguments, also filed his written submissions. SECTION 3-A: IS IT BEYOND THE LEGISLATIVE COMPETENCE OF THE STATE LEGISLATURE: The vires of Section 3-A of the Act is under challenge on the ground that motor vehicles tax can be levied only as a compensatory measure for use of the roads and not as a penalty, that Sections 53(1) (d), 66, 86(1)(a), and 192-A(1) of the Motor Vehicles Act, 1988 are penal provisions for violation of permit conditions and, as the field is occupied by the Motor Vehicles Act, 1988, (a law made by Parliament under Entry 35 of List III), the State Legislature is denuded of the power to make a law levying motor vehicles tax as a measure of penalty and Section 3-A, which enables the State Government to do so, is repugnant to the penal provisions of the Motor Vehicles Act, 1988 and, in the absence of assent of the President, is ultravires and illegal. Reliance is placed on Inder Kumar Goyal Vs. State of Rajasthan[2], M.P. AIT Permit Owners Association Vs. State of M.P.[3], L. Royal Reddy1, M. Narasimhaiah Vs. Deputy Commissioner for Transport, Bangalore[4], and State of Karnataka Vs. N. Madappa[5]. Learned Advocate General would submit that the Motor Vehicles Act, 1988, (enacted by Parliament under Entry 35 of List III), and the A.P. Motor Vehicles Taxation Act, 1963, (enacted by the State Legislature under Entry 56 and 57 of List II), operate in their own fields and that the State Act cannot be said to have encroached upon the Central Act as long as the State enactment is referable to tax on vehicles. Learned Advocate General would contend that the penal provisions under the Motor Vehicles Act, 1988 cannot bar the State from making provisions for levy and imposition of additional tax as the levy does not amount to a penalty. According to the learned Advocate General it is the duty of the State not only to collect tax for the use of roads but also to regulate use of vehicles in accordance with the permits issued. Learned Advocate General would submit that additional tax is also a tax and that Section 3-A, which enables levy of additional tax by the State authorities, is compensatory and regulatory and not penal in nature. He would rely on Bolani Ores Ltd. Vs. State of Orissa[6], Atiabari Tea Co., Ltd. Vs. State of Assam[7], Automobile Transport (Rajasthan) Ltd., etc Vs. State of Rajasthan[8], Prithipal Singh Vs. State of Punjab[9] and Hardev Motor Transport Vs. State of M.P.[10]. Under Entry 35 of List III, both Parliament and the State Legislatures are empowered to legislate in respect of mechanically propelled vehicles including the principles on which taxes on such vehicles are to be levied. Entry 57 of List II empowers the State Legislature to make a law in respect of 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. While Entry 57 of List II relates only to taxes on motor vehicles, Entry 35 of List III deals also with the principles on which taxes on such vehicles are to be levied. The two entries deal with two different matters though allied - one deals with taxes on vehicles and the other with the principles on which such taxes are to be levied. Taxes on vehicles, in their ordinary meaning, connote the liability to pay taxes at the rates at which taxes are to be levied. On the other hand, the expression ‘principles of taxation’ denotes rules of guidance in the matter of taxation. (State of Assam Vs. Labenya Probha Debi[11], M/s. Bolani Ores Ltd6 M.Narsimhaiah4, N. Madappa5). While Parliament may also lay down guidelines for levy of taxes on mechanically propelled vehicles, the right to levy such taxes vests solely in the State Legislature. (B.A. Jayaram Vs. Union of India[12]). Whenever a legislation is said to be beyond the legislative competence of a State Legislature, what one must do is to find out, by applying the rule of pith and substance, whether that legislation falls within any of the entries in List II. If it does, no further question arises; the attack upon the ground of legislative competence shall fail. It cannot be that even in such a case, Article 246(3) can be employed to invalidate the legislation on the ground of legislative incompetence of the State Legislature. If, on the other hand, the State legislation in question is relatable to an entry in List III applying the rule of pith and substance, then also the State legislation would be valid, subject to a Parliamentary enactment inconsistent with it, a situation dealt with by Article 254. (State of A.P. Vs. Mc.Dowell & Co[13]). It cannot, however, be lost sight of that Entry 57 of List II is itself made “subject to” Entry 35 of List III which would only mean that notwithstanding the general terms in Entry 57 of List II, the specific terms in Entry 35 of List III shall take effect. This is also on the principle that the “special” excludes the “general” and the general entry in Entry 57 of List II is subject to the special entry in Entry 35 of List III. (K.S.E. Board Vs. Indian Aluminium Co.[14]). The State legislation levying tax on motor vehicles must not only conform to the principles of taxation laid down in the law made by Parliament under Entry 35 of the concurrent list, it must also not run contrary to the provisions of such a law relating to mechanically propelled vehicles. To find out whether a piece of legislation falls within a particular Entry, its true nature and character must be in respect of such an Entry. The Entries must receive a liberal interpretation as the few words of the Entry are intended to confer vast and plenary powers. (Second Gift Tax Officer Vs. D.H. Nazareth[15]). The Court, in determining the scope of the area covered by a particular Entry, must interpret the relevant words in the Entry in a natural way and give the said words the widest interpretation. (Banarasi Dass Vs. Wealth Tax Officer[16]). It must also borne in mind that when the vires of an enactment is impugned, there is an initial presumption of its constitutionality. If there exists any difficulty in ascertaining the limits of the legislative power it must be resolved, as far as possible, in favour of the legislature, putting the most liberal construction on the legislative entry so that it is intra vires. (P.N. Krishna Lal Vs. Govt. of Kerala[17]). Entry 57 of List II enables the State Government to levy a tax on all motor vehicles suitable for use on roads. (Travancore Tea Co Ltd Vs. State of Kerala[18]). Such taxes are in the nature of regulatory and compensatory measures and are levied for the purpose of raising revenue to meet the expenditure for making roads, maintaining them and to facilitate the movement and regulation of traffic. (M/s. Bolani Ores Ltd.6). The regulatory and compensatory nature of the tax requires the power to impose taxes to be exercised on such motor vehicles which use the roads in the State or are kept for use thereon either throughout the whole area or parts thereof and are sufficient to make and maintain such roads. (Automobile Transport (Rajasthan) Ltd.8, M/s. Bolani Ores Ltd.6). A law, enabling imposition of taxes on motor vehicles, can be validly made under Entry 57 of List II to regulate the manner in which roads are to be used by such motor vehicles. A law providing for levy of motor vehicles tax as a penalty can, however, be made only under Entry 35 List III, and not under Entry 57 of List II, since the words “suitable for use on roads” used therein would limit the power to impose taxes on motor vehicles only as a regulatory or a compensatory measure and not as a penalty. Penal provisions relating to motor vehicles can be imposed only by a law made under Entry 35 of List III and not Entry 57 of List II. The Motor Vehicles Act, 1988, a law made by Parliament under Entry 35 of List III, contains penal provisions for use of motor vehicles without a permit or for violation of the conditions of the permit. Section 53 relates to suspension of registration and, under sub-section (1) thereof, if the registering authority has reason to believe that any motor vehicle has been, or is being, used for hire or reward without a valid permit for being used as such, he may, after giving the owner an opportunity of making a representation, and for reasons to be recorded, suspend the certificate of registration of the vehicle. Chapter V relates to control of transport vehicles and, under Section 66(1), no owner of a motor vehicle shall use or permit the use of the vehicle as a transport vehicle in any public place whether or not such vehicle is actually carrying passengers or goods save in accordance with the conditions of a permit granted or countersigned by a Regional or State Transport Authority or any prescribed authority authorizing him the use of the vehicle in that place and in the manner in which the vehicle is to be used. Section 86 relates to cancellation and suspension of permits and, under sub-section (1), the transport authority which granted a permit may cancel the permit or may suspend it for such period as it thinks fit (a) on breach of any condition specified in Section 84 or of any condition contained in the permit or (b) if the holder of the permit uses or causes or allows a vehicle to be used in any manner not authorized by the permit. Section 192-A relates to using a vehicle without a permit and, under sub-section (1), whoever drives a motor vehicle or causes or allows a motor vehicle to be used in contravention of the provisions of Section 66(1) or of any condition of a permit relating to the route on which or the area in which or the purpose for which the vehicle may be used, shall be liable to be punished. What is required to be determined is whether Section 3-A of the Act is regulatory and compensatory or is it in the nature of a penalty. If it is the former, then the State Legislature must be held to have the legislative competence to make such a law under Entry 57 of List II. However, if it falls in the latter category then, penal provisions having already been prescribed under the Motor Vehicles Act, 1988 an additional penal provision in the A.P. Motor Vehicles Taxation Act, 1963, in the absence of the assent of the President thereto, would fall foul of and be repugnant to the Motor Vehicles Act, 1988. When offences under the law made by Parliament and the State Legislature respectively are substantially identical, but additional penalties are imposed for the contravention by the provisions of the State law, it would be inconsistent with the law made by the Parliament and, therefore, invalid. (M.P. AIT Permit Owners Assn.3). In adjudging whether a tax is regulatory/compensatory or it is penal in nature, the true character of the tax has to be determined. (Municipal Council, Kota, Rajasthan Vs. Delhi Cloth & General Mills Co. Ltd.[19]). It is not the nomenclature used or chosen to christen the levy that is relevant or determinative of the real character or the nature of the levy. What has to be examined is the pith and substance of the levy which has to be adjudged, with reference to the charge, viz., the taxable event and the incidence of the levy. (Municipal Council, Kota, Rajasthan Vs. Delhi Cloth & General Mills Co. Ltd.,[20]). To ascertain the essential character of the tax, the charging section has to be examined as the identification of the subject-matter of the tax is only to be found therein. (T. Aswathanarayana Vs. The State of Andhra by the Secretary, dealing with Commercial Taxes, Government of Andhra, Kurnool, (now Andhra Pradesh, Hyderabad)[21]). Section 3 of the Act enables the State Government, by notification, to direct that a tax shall be levied on every motor vehicle used or kept for use in a public place in the State. The notification is required to specify the class of motor vehicles of which and the rates at which taxes shall be levied. Power is conferred on the State Government, under Section 3(2), to prescribe different rates of taxes for different classes of motor vehicles. It is evident that Section 3(1), which enables the Government to levy a tax on motor vehicles used or kept for use in a public place, is regulatory and compensatory. Section 3-A, as inserted by A.P. Amendment Act 33 of 2006 and which is deemed to have come into force with effect from 1st June, 2002, reads thus: “3-A(1) Notwithstanding anything contained in Section 3, it shall be competent for the Government to provide for levying an additional tax in respect of a motor vehicle specified in one category or class notified under section 3, if misused or used not in accordance with the purpose for which the vehicle was registered, or the permit was granted, attracting higher rate of tax as a vehicle falling in another category or class: Provided that the additional tax so levied shall be a sum equal to the difference of amount between the tax already levied and collected and the tax which shall be leviable in respect of such vehicle falling in another category. (2) The registered owner or the person who is in possession or control of such vehicle misused or used not in accordance with the purpose for which the vehicle was registered or the permit was granted, shall pay the additional tax so levied under sub-section(1).” Section 3-A enables the Government to levy additional tax in cases where a motor vehicle specified in one category or class is misused as a vehicle falling under another category or class. It is only in cases where the vehicle is misused, or is not used in accordance with the purpose for which it was registered or the permit granted, is the Government empowered to levy an additional tax. As noted above, Entry 57 empowers legislation in respect of vehicles suitable for “use on the roads”. All that is necessary to uphold a tax which purports to be or is claimed to be a regulatory or 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. (B.A. Jayaram12). By virtue of Entries 56 and 57 of List II, the State Legislature has the power to make a law to compensate for the services, benefits and facilities provided by it for motor vehicles operating on roads within the territory of the State. The State Legislature has also the power to levy a tax to regulate the manner in which the motor vehicles use the roads and to prevent them from misusing the roads contrary to the purpose for which it was registered and the conditions subject to which the permit was granted. Taxes resulting from such legislative activity are, by their very nature, regulatory and compensatory. The nexus between the levy and its object is patent in the case of such taxes. (B.A. Jayaram12). The words “suitable for use on the roads” in Entry 57 when liberally construed and given a wide interpretation would include within its ambit prevention of misuse of motor vehicles on the roads and the power to levy tax for misuse of the conditions of permit, which is but a step in the process of preventing misuse of motor vehicles on the roads, is only a regulatory measure under Entry 57 of List II and not a penalty under Entry 35 List III. The levy under Section 3-A is to regulate motor vehicles and ensure that they are used on the roads in accordance with the purpose for which they were registered and the conditions subject which the permit was granted. As Section 3-A is regulatory and is not in the nature of a penalty, it is a law referable to Entry 57 of List II and is well within the legislative competence of the State legislature. Challenge to the vires of section 3-A on the ground of lack of legislative competence must, therefore, fail. Reliance is placed on behalf of the petitioners on a division bench judgment of the Rajasthan High Court, in Inder Kumar Goyal2, to contend that a provision, identical to Section 3-A of the Act, in the Rajasthan Motor Vehicles Taxation Act was struck down on the ground that it was in the nature of a penalty. It is, therefore, necessary to examine the said judgment in some detail. Section 4B(3) of the Rajasthan Motor Vehicles Taxation Act, the vires of which was under challenge in Inder Kumar Goyal2, reads thus: “Where a transport vehicle is used without a valid permit or in any manner not authorised by the permit, there shall be levied and paid to the State Government further special road tax in addition to the tax payable under sub-sec. (1) on such vehicle at the rate fixed by notification not exceeding the maximum rate specified in this behalf in Schedule A". The division bench of the Rajasthan High Court, in holding it to be ultra-vires on the ground of lack of legislative` competence, observed:- ……….Power to impose tax, which are in the nature of regulatory and compensatory measure vest with the State Legislature under Entry 56 of List II of Seventh Schedule. Entry 57 of List II empowers the Legislatures in respect of tax on vehicles suitable for use on roads. The powers exercisable under Entry 57 is also a power to impose tax, which are in the nature of regulatory and compensatory measures. In Automobile Transport Rajasthan Ltd. v. State of Rajasthan, (1963) 1 SCR 491, it was held by their Lordships of the Supreme Court that the tax on motor vehicles is a compensatory tax levied for the use of vehicles and it is not a tax on trade. The object of the act is achieved by charging to tax motor vehicles suitable for use on roads kept in the State…. ………A perusal of Ss. 4 (1) and 4 (2) shows that the tax is levied on motor vehicles used or kept for use in the State. Surcharge is levied at the rate of 10% of the tax imposed…… S. 4b (3) provides for imposition of further special road tax, which is in addition to the tax payable under S. 4b (1 ). There are two situations under which tax under S. 4b (3) can be levied. First is, where a transport vehicle is used without valid permit and the second is, that where a transport vehicle is used in any manner not authorised by permit. Thus, ordinarily, a transport or non-transport vehicle is liable to pay tax, surcharge and special road tax under Ss. 4, 4a and 4b (1 ). However, those transport vehicles which are used without a valid permit or in any manner not authorised by permit, an additional special road tax has to