Case: State Of Tamil Nadu Vs. M. Krishnappan

3. For the sake of convenience, we may mention the facts of the case in writ petition no. 15139 of 1998.4. 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/-.5. 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 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.6. 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).7. 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.8. 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.

Court's reasoning:
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.