Case: State Of Tamil Nadu Vs. M. Krishnappan

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.23. 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.24. We also do not find the 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 vs. Jan Mohammed Usmanbhai and 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 or 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. 25. In the case of The State of Gujarat & another etc. vs. Shri Ambica Mills Ltd., Ahmedabad and another etc. reported in (1974) 4 SCC 656 , this Court held that where size is an index, discrimination between large the and small is permissible. Article 14 does not require that every regulatory statute should apply to each and everyone equally in the same business. 26. Similarly, in the case of State of Maharashtra vs. 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. 27. 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-a-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. vs. 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. 28. Before concluding, we may quote the observations of the Division Bench of the Kerala High Court in the case of Anas vs. 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 Article 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."

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]14. 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 (payment 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 vs. 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.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.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.23. 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.24. We also do not find the 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 vs. Jan Mohammed Usmanbhai and 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 or 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.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-a-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. vs. 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.