Important Point
Once the vehicle becomes liable for payment of tax the extent and quantity of use by the vehicle is not a decisive factor for the purpose of levy of tax.

Headnote:Kerala Motor Vehicles Taxation Act, 1976-Section 4(1)(f) as amended by Section 4 of the Kerala Finance Act, 1994-Constitution of India-Article 14-Contract carriage - Inter-State and intra-State contract carriage-Higher tax in respect of inter-State contract carriage while reducing tax on intra-State contract carriage-Legality of -Vehicles covered by two different permits form separate and distinct class-Classification made for purpose of granting exemption u/s 22 -Classification neither unreasonable nor it lacks nexus to object-Not violative of Article 14-Extent and quantity of use by vehicle is not a decisive factor for purpose of levy of tax.
       Held : In the matter of power of the State in legislating taxation law, the court should bear in mind that the State has a wide discretion in selecting the persons or objects it will tax and thus a Statute is not open to attack on the ground that it taxes some persons or the objects and not others. It is also well-settled that a very wide latitude is available to the Legislature in the matter of classification of objects, persons and things for the purpose of taxation. While considering the challenge and nature that is involved in these cases, the courts will have to bear in mind the principles laid down by this Court in the case of M/s. Murthy Match Works etc. etc. v. The Asstt. Collector of Central Excise, AIR 1974 SC 497. (Para 6)
       It is settled position in law that the actual user of the road by the vehicles which are covered by the requisite permits is not always a relevant factor since the taxable event under Section 3(1) of the Act occurs when the vehicle is used or is kept for use in the State. Therefore, once the vehicle becomes liable for payment of tax the extent and quantity of use by the vehicle is not a decisive factor for the purpose of levy of tax. (Para 6)
       Certain hypothetical examples in regard to the usage of roads by these vehicles have been cited by the petitioners-respondents which found favour with the Division Bench in the impugned judgment. It is stated that an intra-State contract carriage can travel from the North-most part to the South-most part of Kerala using the roads in Kerala more than an inter-State contract carriage which may be travelling outside the State of Kerala within a point very close to the boundary of Kerala State. Therefore, it is contended that the burden of road usage could be more in the case of intra-State permit holders and the tax in question being compensatory in nature, there is no justification for reducing the tax rate in favour of the intra-State contract carriages. We think this argument of long or short usage of road is purely hypothetical and would not be a sole guideline to test the validity of a taxing Statute; even if such Statute is a compensatory/regulatory taxation. The tax levied under the legislative power found in Entry 56 or 57 of List II of the 7th Schedule is primarily a tax, though it may be compensatory and/or regulatory in nature and, therefore, while testing the constitutional validity of a taxing Statute it may not be safe to rely upon the hypothetical factors as against the wisdom of the legislature. In regard to measure of road user both the sides can give contrary arguments which may look convincing. Hence the examples of this nature would not carry the argument to any logical conclusion. Having noticed the fact that the area of judicial review is considerably limited in testing the validity of a taxing Statute and considering the impugned classification in its factual background, it seems the two permits are different from very nature of their operation: while one allows operation within the State only the other allows operation beyond the boundaries of the State. Even though in generic terms both are contract carriages, there are individual restrictions and advantages attached to each of these permits which could be exclusive to themselves. As argued on behalf of the respondents, even the types of vehicles used by the holders of these permits, in most cases, if not in all cases, are different. The carrying capacity of the vehicles concerned covered by these two permits is different. Thus in many factual ways these vehicles covered by two different permits do form separate and distinct class. So long as this classification is not arbitrary or unreasonable, the courts will not interfere with this classification which is the prerogative of the legislature. Now coming to the nexus of the classification with object of taxation, it should be noted that in the present cases the classification is made for the purpose of granting exemption under Section 22 of the Act. Grant of exemption/reduction under this Section is in “Public interest”, therefore, nexus of this classification will have to be traced to “Public interest” which is again within the realm of legislative wisdom unless tainted by perversity or absurdity. (Para 9)
       Once we hold that the contract carriages covered by intra-State permits and inter-State permits can form two distinct and separate classes within the larger class of contract carriages, we find it difficult to hold that this classification is either unreasonable or it lacks nexus to the object or is violative of Article 14. The opinion as to public interest contemplated under Section 22 of the Act will have to be formed by the State after taking into consideration the various factors which affect the public at large. Definitely, in the absence of a challenge to this decision-making process on facts, it will not be open to us to substitute our views in this matter to that of the opinion formed by the State. For the reasons stated above, with respect, we are unable to concur with the judgment of the appellate Bench of the Kerala High Court which is impugned before us and the same is set aside. (Para 10)

Judgment

Santosh Hegde, J.-The State of Kerala has preferred these appeals against the judgment of a Division Bench of the High Court of Kerala dated 11.12.1995 in W.A. No. 1180/1995 and other connected appeals whereby the appellate Bench of the Kerala High Court reversed the judgment of a learned Single Judge of the said High Court dated 28.9.1995 in a batch of writ petitions being O.P. Nos. 12240/1994-F and connected matters.

2. The original writ petitioners, who are respondents in the various appeals before us, filed writ petitions before the High Court of Kerala, challenging the constitutional validity of the provisions contained in Item 4(1)(f) of the Schedule to the Kerala Motor Vehicles Taxation Act, 1976, as amended by Section 4 of the Kerala Finance Act, 1994 (hereinafter referred to as ‘the Act’) whereby the State had enhanced the rate of quarterly tax in respect of the contract carriage vehicles operating inter-State. They also sought certain other incidental reliefs. The primary contention of the petitioners in these petitions was that the reduction of tax liability in favour of the vehicles covered by intra-State contract carriage permit without granting the same benefit to inter-State contract carriages amounted to an arbitrary discrimination between the vehicles of persons similarly situated, hence, the same is violative of Article 14 of the Constitution of India. The learned Single Judge who heard the batch of writ petitions by an elaborate judgment came to the conclusion that the contract carriages covered by intra-State permit formed a different class for the purpose of levying motor vehicles tax as compared to contract carriages which are covered by inter-State permits. After discussing the various case-laws on the subject, he held that the legislature has under Entry 56 or 57 of List II of the 7th Schedule a power to impose taxes which are compensatory and/or regulatory in nature, and by virtue of the power vested in the State under Section 22 of the Act, the State has the power to reduce the tax with reference to a particular type of vehicle in public interest which power had been exercised by the State rightly by reducing the levy of tax in favour of contract carriages covered by intra-State permits. He negatived the contention of the respondent-writ petitioners that this reduction of tax in favour of contract carriages covered by intra-State permits only violated Article 14 of the Constitution. He upheld the contention of the State that the contract carriages covered by inter-State permits did form a different class of contract carriages as compared to contract carriages which are covered by inter-State permits. He also held that this classification within the class of contract carriages was a reasonable classification for the purpose of levy of tax. Having come to the said conclusion, he proceeded to dismiss the writ petitions.

3. In appeal, the Division Bench of the said High Court took a contrary view and held that the above classification within the class of contract carriages based on the nature of permits covering these vehicles would be arbitrary and violative of Article 14 of the Constitution since the said classification had no nexus with the object of taxation. It also held that the motor vehicles taxation being a compensatory and regulatory tax, there could be no two-tier tax measure based on the nature of permit held by these contract carriages and if there was any justification for the State to reduce the tax burden on the class of contract carriages covered by intra-State permits to lessen the hardship to its operators, the same would equally apply to the operators of the contract carriages covered by inter-State permits also.

4. In these appeals on behalf of the State, it is contended by Mr. C.S. Vaidyanathan, learned Additional Solicitor General, that impugned classification is based on well defined, intelligible differentia which is reasonable and would not offend Article 14 of the

Click Here to Read the rest of this document

1999 Supreme(SC) 829

Important PointOnce the vehicle becomes liable for payment of tax the extent and quantity of use by the vehicle is not a decisive factor for the purpose of levy of tax.

Cases Referred (2)

Important Point
Once the vehicle becomes liable for payment of tax the extent and quantity of use by the vehicle is not a decisive factor for the purpose of levy of tax.