Case: Malwa Bus Service (P) Ltd Vs. State Of Punjab &amp; Others

The petitioners are owners of motor vehicles and are carrying on the business of running stage carriages in the State of Punjab. While the operation of the stage carriage services in by the petitioners is controlled by the provision of the Motor Vehicles Act, 1939, which is Central Act, they are liable to pay taxes on the motor vehicles owned by them under the Act. The Act is a pre-constitutional one. After the Constitution came into force, the power to levy taxes on goods and passengers carried by road or on inland waterways and the power to levy 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 of the Seventh Schedule to the Constitution are assigned to the States respectively by Entries 56 and 57 of List II of the Seventh Schedule to the Constitution. While the Act is traceable to entry 57, the Punjab Passengers and Goods Taxation Act, 1952 is enacted by the State Legislature in exercise of its legislative power granted under Entry 56. Before the commencement of the Constitution, s. 3(1) of the Act which is the charging section reads as followsA tax shall be leviable on every motor vehicle sin equal instalments for quarterly periods commencing on the first day of April, first day of July, first day of October and the first day of January at the rate specified in the schedule to thisabove provision was amended in 1954 by providing that the rate of tax levied under the Act were these specified by the State Government in a Notification to be issued by it, subject however, to the maximum limit fixed by the Act, instead of the rates of tax specified by the State legislature itself in the Schedule to the Act. After that amendment s. 3(1) reads thusA tax shall be leviable on every motor vehicle in equal instalments for quarterly period commencing on the first day of April, first day of July, first day of October and the first day of January at such rates not exceeding Rs. 2, 200 per vehicle for a period of one year as the State Government may by notificationMaximum limit of Rs. 2, 200 mentioned in s. 3(1) was increased by successive legislative amendments to Rs. 2, 750 in 1963, to Rs. 4, 200 in 1965, to Rs. 10, 000 in 1970 and to Rs. 20, 000 in 1978. In exercise of the power conferred on it, the State Government fixed the rate of tax in the case of stage carriages at Rs. 75 per seat in 1965 at Rs. 100 per seat in 1970 and at Rs. 200 per seat in 1974, subject to the maximum prescribed by the Act. On 31st March, 1978, the State Government issued a Notification providing that on and after 1st April, 1978, every stage carriage plying in the State of Punjab should pay tax at Rs. 275 per seat where it operated upto 125 kilometres a day and Rs. 300 per seat where it operated for more than 125 kilometres subject to a maximum of Rs. 20, 000 per year in both the cases. Then came the Amending Act in 1981 by which the maximum limit prescribed in s. 3(1) of the Act was raised to Rs. 35, 000 retrospectively w.e.f. 1st October, 1980. Sec. 3 of the Amending Act inserted a new section in the Act being s. 3A of the Act which authorised the State Government to issue a Notification under s. 3(1) raising the rates of tax retrospectively w.e.f. 1st October, 1980. After the amendment in 1981, s. 3(1) of the Act reads thusA tax shall be leviable on every motor vehicle in equal instalment for quarterly periods commencing on the fist day of April, first day of July, first day of October and the first day of January at such rates not exceeding Rs. 35, 000 per vehicle for a period of one year, as the State Government may by notificationto the above section as amended in 1981, and the newly inserted s. 3A of the Act which conferred power on it to raise the rates of tax under the Act w.e.f. 1st October, 1980 the State Government issued the following Notification on 19th March, 1981 :"Department of Transport Notification The 19th March, 1981No. S.O.15/P.A.4/24/S.3/Amd/81 - In exercise of the powers conferred by sub-s. (1) of s. 3 r/w s. 3A of the Punjab Motor Vehicles Taxation Act, 1924 (Punjab Act No. 4 of 1924) and all other powers enabling him in this behalf, the Governor of Punjab is pleased to make the following amendment in the schedule appended to the Punjab Government, Transport Department Notification No. S.O./50/P.A./4/24/S.3/71 dt. the 10th November, 1971 with effect from the 1st October, 1980, namely :AMENDMENTIn the said schedule against serial No. 5 for item (i) and entries relating thereto, the following item and entries shall be substituted, namely :|---------------------------------------|-----------------------------| | (1) State carriages for hire and | Rs. 500 per seat subject | | used for the transport of passengers, | to a maximum of Rs. 35, 000" | | excluding the driver and conductor. | | |---------------------------------------|-----------------------------|SADA NANDSecretary to Government,PunjabDepartment of Transport"The final position that emerged after the above Notification was that every stage carriage plying for hire and used for the transport of passengers (excluding the driver and conductor) had to pay per year Rs. 500 per seat subject to a maximum of Rs. 35, 000 irrespective of the distance over which it operated daily.The petitioners have challenged in these petitions the amendment made in 1981 increasing the maximum limit of the tax to Rs. 35, 000 per year and the Notification dt. 19th March, 1981 raising the tax to Rs. 500 per seat on various grounds. The petitioners inter alia contend that the levy of tax of Rs. 500 per seat imposed by the impugned Notification is violative of Art. 14 Art. 19(1)(g) and Art. 304(b) of the Constitution. They have also pleaded that the tax now levied is outside the scope of entries 56 and 57 of List II of the Seventh Schedule to the Constitution. The principal point urged by them is that the tax now levied is exproprietory and not compensatory in character and is being collected by the State Government for the purpose of augmenting its general revenues which is forbidden by the Constitution. In support of their case the petitioners have furnished the following figures contained in the budget presented to the State legislature in the year 1981-82 :|-----------------------------------------------------------| | Receipts | |-------------------------------------|---------------------|. | Taxes on vehicles | Rs. 13, 86, 00, 000 | |-------------------------------------|---------------------| | Taxes on goods and passengers | Rs. 35, 45, 00, 000 | |-------------------------------------|---------------------| | Total | Rs. 49, 31, 00, 000 | |-------------------------------------|---------------------| | Expenditure | | |-------------------------------------|---------------------|. | On roads and bridges | Rs. 34, 03, 00, 000 | |-------------------------------------|---------------------| | Excess of receipts over expenditure | Rs. 14, 28, 00, 000 | |-------------------------------------|---------------------| | Total | Rs. 49, 31, 00, 000 | |-------------------------------------|---------------------|It is contended by the petitioner that in view of the above figures furnished by the State Government itself, there was no justification for increasing the rate of tax by the impugned Notification. The petitioners have further pleaded that the impugned levy imposes an unreasonable restriction on the freedom of trade, commerce and intercourse within the State of Punjab.

Court's reasoning:
The next submission urged on behalf of the petitioner is based on Art. 14 of the Constitution. It is contended by the petitioners that the Act by levying Rs. 35, 000 as the annual tax on a motor vehicle used as a state carriage but only Rs. 1, 500 per year on a motor vehicle used as a goods carrier suffers from the vice of hostile discrimination and is, therefore, liable to be struck down. There is no dispute that even a fiscal legislation is subject to Art. 14 of the Constitution. But it is well settled that a legislature in order to tax some need not tax all. It can adopt a reasonable classification of person and things in imposing tax liabilities. A law of taxation cannot be termed as being discriminatory because different rates of taxation are prescribed in respect of different items, provided it is possible to hold that the said items belong to distinct and separate groups and that there is a reasonable nexus between the classification and the object to be achieved by the imposition of different rates of taxation. The mere fact that a tax falls more heavily on certain goods or persons may not result in its invalidity.As observed by this Court in Khandige Sham Bhat & Ors. vs. The Agrl. ITO 1963 3 SCR 809     in respect of taxation laws, the power of legislature to classify goods, thing or persons are necessarily wide and flexible so as to enable it to adjust its system of taxation in all proper and reasonable ways. The Courts lean more readily in favour of upholding the constitutionality of a taxing law in view of the complexities involved in the social and economic life of the community. It is one of the duties of a modern legislature to utilise the measures of taxation introduced by it for the purpose of achieving maximum social good and one has to trust the wisdom of the legislature in this regard. Unless the fiscal law in question is manifestly discriminatory the Court should refrain from striking it down on the ground of discrimination. These are some of the broad principles laid down by this Court in several of its decisions add it is unnecessary to burden this judgment with citations. Applying these principles it is seen that stage carriages which travel on an average about 260 kilometres every day on a specified route or routes with an almost assured quantum of traffic which invariably in overcrowded belong to a class distinct and separate from public carriers which carry goods on undefined rout. Moreover the public carriers may not be operating every day in the State. There are also other economic considerations which distinguish stage carriages and public carriers from each other. The amount of wear and tear caused to the roads by any class of motor vehicles may not always be a determining factor in classifying motor vehicles for purposes of taxation. The reasons given by this Court in G. K. Krishnans case (supra) for upholding the classification made between stage carriages and contract carriages both of which are engaged in carrying passengers are not relevant to the case of a classification made between stage carriages which carry passengers and public carriers which transport goods. The petitioner have not placed before the Court sufficient material to hold that the impugned levy suffers from the vice of discrimination on the above ground.It was lastly urged that the levy is almost confiscatory in character and the petitioners would have to close down their business as stage carriage operators. It is stated that the passenger fares were permitted to be raised by about 43 per cent just before the levy was increased in this case and it is even now open to the operators to move the State Government to increase the rates if they fell that there is a case for doing so. But on the facts and in the circumstances of the case, we feel that it is not possible to hold that the impugned levy imposes an unreasonable restriction on the freedom of the petitioners to carry on business. The considerations similar to those which weighed with this Court in upholding the Mustard Oil Price Control Order, 1977 in Prag Ice & Oil Mills & Anr. Etc. vs. Union of India 1978 3 SCR 293     ought to be applied in this case also. Though patent injustice to the operators of stage carriages in fixing lower returns on the tickets issued to passengers should not be encouraged, a reasonable return on investment or a reasonable rate of profit cannot be the sine qua non of the validity of the order of the Government fixing the maximum fares which the operators may collect from their passengers. It cannot also be said that merely because a business becomes uneconomical as a consequence of a new levy the new levy would amount to an unreasonable restriction on the fundamental right to carry on the said business. It is, however, open to the State Government to make any modifications in the fares if its feels that there is a need to do so. But the impugned levy cannot be stuck down on the ground that the operation of stage carriages has become uneconomical after the introduction of the impugned levy. Moreover the material placed by the petitioners is not also sufficient to decide whether the business has really become uneconomical or not.