The Himachal Pradesh tax on goods carried by road is a compensatory tax in the shape of a fee for carrying the goods by road, and there is no provision for exemption under the Act.

JUDGMENT :

Kurian Joseph, C.J.

The complexity of compensatory tax has been the subject matter of several litigations, mainly in the constitutional context of Articles 301 and 304 of the Constitution of India. Its subtle nicety in contradistinction to tax has been dealt with in the celebrated decision in Jindal Stainleess Ltd. (2) and another v. State of Haryana and others, reported in (2006) 7 SCC 241. It has been held that in the case of tax, it is the principle of ability which is the guiding and relevant factor whereas in the case of compensatory tax, it is the principle of equivalence. In tax where there is no identification of a specified benefit and even if there is such identification, the same is not capable of direct measurement and the benefit if any is only incidental to the States action. But, in the case of compensatory tax, the quantifiable benefit is represented by the cost incurred in availing the facility or service and that cost in turn becomes the basis of the recompense for the service provided. Tax is for revenue whereas in compensatory tax, it is only the reimbursement or recompense to the service provider, a tax on recompense and thus it is in the shape of a fee for any particular service. Still further, it has been held that the guiding principle in compensatory tax is pay for the value and it is a sub class of a fee; it is a charge for offering trading facilities and adds to the value of trade and commerce which is not available and which is an irrelevant factor as far as the tax is concerned. It will be profitable to refer to the relevant paragraphs at 40, 41 & 42, which read as follows:

"40. Tax is levied as a part of common burden. The basis of a tax is the ability or the capacity of the tax payer to pay. The principle behind the levy of a tax is the principle of ability or capacity. In the case of a tax, there is no identification of a specific benefit and even if such identification is there, it is not capable of direct measurement. In the case of a tax, a particular advantage, if it exists at all, is incidental to the States action. It is assessed on certain elements of business, such as, manufacture, purchase, sale, consumption, use, capital, etc. but its payment is not a condition precedent. It is not a term or condition of a licence. A fee is generally a term of a licence. A tax is a payment where the special benefit, if any, is converted into common burden.

41. On the other hand, a fee is based on the "principle of equivalence". This principle is the converse of the "principle of ability" to pay. In the case of a fee or compensatory tax, the "principle of equivalence" applies. The basis of a fee or a compensatory tax is the same. The main basis of a fee or a compensatory tax is the quantifiable and measurable benefit. In the case of a tax, even if there is any benefit, the same is incidental to the government action and even if such benefit results from the government action, the same is not measurable. Under the principle of equivalence, as applicable to a fee or a compensatory tax, there is an indication of a quantifiable data, namely, a benefit which is measurable.

42. A tax can be progressive. However, a fee or a compensatory tax has to be broadly proportional and not progressive. In the principle of equivalence, which is the foundation of a compensatory tax as well as a fee, the value of the quantifiable benefit is represented by the costs incurred in procuring the facility/services, which costs in turn become the basis of reimbursement/recompense for the provider of the services/facilities. Compensatory tax is based on the principle of "pay for the value". It is a sub-class of "a fee". From the point of view of the Government, a compensatory tax is a charge for offering trading facilities. It adds to the value of trade and commerce which does not happen in the case of a tax as such. A tax may be progressive or proportional to income, property, expenditure or any other test of ability or cap