UDAYA MOTOR TRANSPORT v. STATE OF KARNATAKA — 1974 DIGILAW 228 (KAR)

VENKATRAMIAH, J. ( 1 ) THE petitioner in these Writ petitions are operators of motor vehicales in the State of Karnataka under permits issued by the concerned authorities under the provisions of the Motor Vehicles Act. Some of them are plying stage carriages,. some are owners of contract carriages and some are running public carriages. The petitioners originally had questioned in these writ petitions the validity of some of the provision of the Karnataka Motor. Vehicle (Taxation on Passengers and Goods) Act, 1961 (hereinafter referred to as the 'act'), as amended by the Karnataka Motor Vehicles (Taxation on Passangers and Goods)' (Amendment) Ordinance, 1974 (hereinafter referred to as the 'ordinance' ). During the; pendency of these writ petitions, the Ordinance was replaced by the Karnataka Motor vehicles (Taxation on Passengers arid Gopds) (Amendment) Act, 1974 (hereinafter referred to as the 'amending Act' ). On the, applications made by the petitioners we have permitted them to question the validity of the provision's of the Act as amended by the amending Act in these writ petitions. 2. Since common questions of law and facts arise for consideration in these cases, we dispose them of by this common, order. 3. In exercise of its powers under Entry 56 of List IX of the Seventh schedule ot the Constn, the State Legislature passed the Act in, thus year 1961, by which' the Legislature levied taxes on passengers and goods carried by stage carriage and public carriers. The expression 'stage Carriages' includes 'contract Carriages' also as per its definition in S. 2 (10) of the Act. S. 3 of the Act, immediatekly prior to the promulgation of the, ordinance, read as follows :"3. The expression 'stage Carriages' includes 'contract Carriages' also as per its definition in S. 2 (10) of the Act. S. 3 of the Act, immediatekly prior to the promulgation of the, ordinance, read as follows :"3. Levy of tax on passengers and good- (1) On and from the date of the Commencement of this Act, there shll be levied and paid to the State-Government a tax- (1) on all passengers, luggage and gopds carried by stage carnages, at such rate as would yreld an amount equal to fifteen percentum oi the amount of tares and freights payable to, the; operator of a s. age carriage; provided that if the operator levies and Collects from the passengers lares and Ireights inclusive, of the tax under this sub-section, the operator shall pay to the State Govt on account of the tax, one seventh ot the total amount of fares and freights inclusive of tax collected by him from the passengers; and (ii) on all goods transposed by public carrier vehicles at the rate of five naye, paise in the rupee on. the freights payable, to the operator of a public carrier vehicle; provided that if the operator levies and collects in respect of any goods transported freights, inclusive of the tax, under this sub-secuon, the operator shall pay to, the State Govt on account of the tax, 4. to percent; of the total amount of freights inclusive of tax collected by him;"the Legislature permitted the operator to compound his liability to pay the tax under S. 3 of the Act, mother manner prescribed by S 14 of me act read with the Schedule of the Act, on payment of a certain amount by way oi composition fee. S. 14 of the Act reads as follows :"14. Composition of tax.- (1) The, Tax Officer may on application by the, operator permit him in the first instancy ana under the conditions specified in the Schedule, to compound the, tax asstessable on him under this Act, by paying in lieu thereof a fee fixed in the manner specified in the Schedule;. (2) No operator who has beien permitted to pay a fee by way ot composition under sub-sec (1) shall collect any amount by way ojrtax during the period to which such composition applies. (2) No operator who has beien permitted to pay a fee by way ot composition under sub-sec (1) shall collect any amount by way ojrtax during the period to which such composition applies. (3) If any operator collects any amounts by way of tax in contravention of the provisions of sub-sec (2) or if any other operator collects in respect of passengers, luggage and goods carried oy any stage carriage or public carrier vehicle in excess of the amount of lax payable by him, the amounts so collected shall stand forferted to, the state Govt, and such operator shall within the prescribed period pay such amount into a Govt treasury and in default of such payment, the amount shall bq recovered as an arrear of land revenue,. (4) The permission granted u|sub-sec (l) shall be in force for the period for which it is granted and in resptect of that period the provisions of this Act regarding submission of returns, accounts or other documents, the asessment tp tax or any other matter incidental thereto shall not apply in relation to the grantee. "the Schedule of the Act immediately prior to the promulgation of the ordinance read as follows : " 1. The composition fee referred to in S. 14 shall be Calculated for the entire unexpired period of the currency of the permit or for a period of the currency of the permit or for a period of one mouth whichever is less, a,t the rate- (a) in the case of a stage carriage-one rupee per seat per year per mite of the total daily mileage permitted or at the option of the operator, of ten rupees and sixty-five paise per seat per month; and (b) in the case of a public carrier vehicle-fifty rupees per month. Explanation.-Where stage carriage is permitted to carry standing passengers, one-third of the fee per seat referred to in Cl (a) shall also he pavable in respect of each of the standing passengers aforesaid as if seating accommodation had been provided for them. Explanation.-Where stage carriage is permitted to carry standing passengers, one-third of the fee per seat referred to in Cl (a) shall also he pavable in respect of each of the standing passengers aforesaid as if seating accommodation had been provided for them. ( 2 ) AN application for the grant or renewal of permission to pay the composition fee mentioned above, shall be made not less than fifteen days before the commencement of the neriod for which the tax is intended to be compounded, provided that the Tax Officer may, in any case, for reasons to be recorded by him in writing, permit the application to be made not later than fifteen days from such commencement and the application shall be accompanied by a receipt evidencing the payment into a Govt treasury of the composition fee. " by the Ordinance, S 3 and the Schedule of the Act were amended by substituting the words 'twenty per centum' in place of 'fifteen per centum in s. 3 (1) (i) of the Act, and one sixth' in the proviso to S 3 (1) (i) of the act. S. 3 (1) (ii) was amended by substituting the words 'ten paise' in place of 'five nave paise'. The first proviso tosub-sec. (ii) of S. 3 (1) was amended by substituting 9 5 percent in place of 4 75 percent. After the amendment, para 1 of 1he Schedule to the Act, reads as follows:"1. The composition foe referred to in S. 14 shall be calculated for the entire unexpired period of the currencey of the permit or for a period of the current of the permit or for a period of one month whichever is less, at the rate- (a) in the case of a stage carriage-Twenty rupees per seat per month; (b) in the case of a public carrier vehicle-Seven rupees per month per tonne or part thereof of registered laden weight or, at the option of the owner, ten rupees per month per tonne or part thereof of the pay load, that is. registered laden weight minus the unladen weight of the vehicle. " ( 3 ) ALTHOUGH the Ordinance was passed on 31st July 1974, it was given retrospective effect from 1-4-1974. registered laden weight minus the unladen weight of the vehicle. " ( 3 ) ALTHOUGH the Ordinance was passed on 31st July 1974, it was given retrospective effect from 1-4-1974. As already mentioned, the Ordinance was replaced by the Amending Act (Karnataka Act No. 30 of 1974) without any material change in the provisions of the Ordinance except to the extent of re-enacting the Explanation to Para 1 of the Schedule which had been emitted by the Ordinance. The resulting position is that persons who are operating stage carriages have to pay twenty per cent of the fanes collected by them by way of tax and persons operating public carriers have to pay ten per cent of the freights collected by them by way of tax. If the operators instead ot charging the passengers and the owners of goods separately, collected the tax including it in the fares or freights levied by them, the operators of stage carriages have to pay one-sixth of the total fare collected by them and the operators of the, public carriers have pay 9. 5 per cent of the freights collectd by them. Wherever the operates choose to compound their liability under the provisions of Sec. 14 of the Act, the operators of stage carriages have to pay Rs. 20 per seat per month and the operators of public carriers have to pay seven-rupees per month per tonne or part thereof of registered laden weight or, at the option of the -owner, ten rupees per month per tonne or part thereof of the pay- load that is, registered laden weight minus the unladen weight of the vehicle. It should be mentioned here that in the case of operators of staga carriages, whereever they chose to compound their liability under S. 14 of the Act before the Ordinance was passed, they had two alternative: methods of composition, namely, that they could have either paid at the rate of. one rupee, per seat per year per mile or Rs. 10-65 per seat permonth. After the passing of the Ordinance the only method in which the operators of stage carriages can compound their liability is by payment of Rs. 20 per seat per month. one rupee, per seat per year per mile or Rs. 10-65 per seat permonth. After the passing of the Ordinance the only method in which the operators of stage carriages can compound their liability is by payment of Rs. 20 per seat per month. ( 4 ) AGGRIEVED by the imposition of the higher rate of tax under S. 3 of the Act and the prescription of a higher composition fete under S. 14 read with the Schedule of the Act, the petitioners have filed these petitions. ( 5 ) ALTHOUGH several contentions were raised in these petitions, at the hearing only the following two contentions were urged before us (1) that the enhancement of ithe rate of tax under 's 3 of the Act and the amount of composition fee prescribed' by the Schedule Is violative of Arts. 19 (l) (g) and 301 of the Constn; and (2) to, the extent the Ordinance and the Amending Act have given retrospective effect to the provisions amending the Schedule, they are violative of the provisions of Art. 19 (1) (g) and Art. 265 of the Constn. ( 6 ) ALHOUGH it was sought to be contended on behalf of the petitioners that the tax in question was a tax on the operators of the stage carriages or the public carriers as the case may be, the learned Counsel for the petitioners, after going through the provisions of S. 3 of the Act, submited that the Legislatore had actually levied the tax on passengers and goods and not on the operators themselves. In view of the above statement, the question whether any restriction has been placed Oft the operators in the matter of their business would not arise at all for consideration. It is clear from the provisions of S 3 and other provisions of the Act, that it is open to the operators to collect whatever tax is payable by them under the Act either from the passengers who travel in their stage carriages or from the owners of the goods who transport their goods in their public carriers and pass on the amounts collected by them by way of tax to the State Govt. The only other question which arises for cosideration under Point No. l raised by the petitioners is whether the levy is violative of Art, 301 of the Constn Art, 301 provides that subject to the other provisions of Part XIII, trade', commerce and intercourse throughout the territory of India shall be free. Clause (b) of Art. 304 provides that notwithstanding anything in Art 301 or Art. 303, the Legislature of a State may by law, impose such reasonable restrictions on th freedom of trade, commerce or intercourse with or within that State as may be required in the public interest. 7. On behalf of the State Govt, it is urged that th levy of tax on passengers and goods is protected by provisions of Cl (b) of Art. 304 of the Constn. In support of its contention, reliance is placed on the decision of the Supreme Court in Nazeeria Motor Service v. State of AP. In that case, the Supreme Court was concerned with the validity of the tax levied by the Andhra Pradesh Legislature on passengers and goods. In that case, the State Govt contended that the tax levied was justifiable under Clb) of Art. 304 of the Constn. The said contention was upheld by the Supreme Court in the following way : "6. It has not been contended on behalf of the State that the impugned Validating Act imposes a tax which is by way of a regulatory or compensatory measure. It has, therefore, to be seen whether the restrictions imposed are reasonable and in public interest within the meaning of Art. 304 (b) Before the High Court an attempt wag made on behalf of the appellants to show that by raising the rate, of tax the burden had been increased to such an extent that the business of the appellants had been virtually annihilated. According to some of the affidavits filed on behalf of the writ petitioners, profits derived in recent years did not exceed an average of Rs. 2,000 per stage carriage even without the additional burden which had been imposed and the transporters would suffer heavy losses if the tax as increased by the impugned legislation were to be realized. According to some of the affidavits filed on behalf of the writ petitioners, profits derived in recent years did not exceed an average of Rs. 2,000 per stage carriage even without the additional burden which had been imposed and the transporters would suffer heavy losses if the tax as increased by the impugned legislation were to be realized. The High Court referred to the computation of the income by the income tax dept of some of the transporters in whose assessments the income in regard to each bus had been calculated at a figure of Rs. 7,000 annually, which showed that the profits were much higher than Rs 2,000. It was not disputed before the High Court that the transporters had been permitted to enhance the fares. If the fares could be enhanced it was obvious that the burden would not fall on the transporters. It was urged that owing to competition from the railways and from operators whose vehicles had been registered in the Madras State and who could charge lower rates the appellants were not in a position to collect extra fares which they had been permitted to do. This argument also cannot hold and was rightly repelled by the High Court on the ground that if the operators were not prepared to charge higher rates as a matter of policy or for the purpose of business companion that could not impinge on the reasonableness of the restriction. Apart from a faint attempt to. repeat some of the arguments which were addressed before the High. Court on this point nothing new has been brought to our notice which would justify the view that the tax which has been imposed exceeds the limits of permissible reasonableness. As regards public interst we are unable to find nor has any attempt been made to satisfy us that the provisions of the impugned Validating Act with regard to imposition of tax are not in public interest. ( 7 ) THIS is sufficient to dispose of the challenge under Art. 19 (1), (g) as well. We mav in this connection refer briefly to the conclusion of the High Court which was reached on a consideration of the affidavits filed before it. ( 7 ) THIS is sufficient to dispose of the challenge under Art. 19 (1), (g) as well. We mav in this connection refer briefly to the conclusion of the High Court which was reached on a consideration of the affidavits filed before it. It has been found that there, is no material which would warrant the conclusion that the increase in the surcharge of the fares and freight contemplated by the imougned Validating Act would constitute an impediment to the trade. The utmost that could be said was that it would result in the diminution of profits. Even on the assumption that the profits would be diminished or greatly reduced it cannot be held that there is any infringement of Art. 19 (1) (g ). " it may be observed here that the Supreme Court solely depended upon art. 304 (b) of the Constn in upholding the contenrtion of the, State Govt, it did not consider the question whether the tax was compensatory in character, because it was unnecessary to do, so in the, circumstances of the case. In the present cases, we-are not satisfied from the materials placed before us by the petitioners that enhancement of the tax by the impugned act would result in the annihilation of the business of the petitioners. Sri M. Rangaswamy, learned Counsel for petitioner, however made a feeble attempt to justify his contention in one of the petitions depending upon the balance-sheet of the petitioner therein in respect of the previous years. No such material is available in other cases. We cannot depending upon that one stray instance even granting for purposes of argument that the balance sheet on which the said petitioner relied, represented the true state of affairs that the enhancement of tax contemplated by the Amending Act would destroy the business of the petitioners and other operators in the State. The question whether a certain rate of taxation is in public interest or not, is a matter which is pre-eminently within the knowledge of the Legislature which passes the law. We have to bear in mind while dealing with the contention in the form in which the petitioners have raised it, that the statute carries with it the, presumption of Constitutionality. We have to bear in mind while dealing with the contention in the form in which the petitioners have raised it, that the statute carries with it the, presumption of Constitutionality. Since, as already mentioned, the material placed before the, court is not sufficient to hold that it imposes an unreasonable restriction on the freedom of trade, commerce and intercourse throughout the; territory of India guaranteed under Art. 301 of the Constn, it cannot be said that the impugned provisions are not protected by Art. 304 (b) of the constn. , When once we reach that conclusion, the argument that they are opposed to Art. 301 of the Constitution fails. ( 8 ) WE shall now advert to the next contention urged on behalf of the petitioners that the retrospective operation of the Schedule as amended by the amending Act from 1-4-1974 was invalid. The question that the State Legislature has the; competence to levy the tax on passengers and goods with retrospective effect is no longer in doubt (See Rai Ramakrishna v. State of Bihar , AIR. 1963 SC. 1667. . But, even then any fiscal measure which levies a tax retrospectively is open to scrutiny at the hands of the Court when it is challenged on the ground that it imposes an unreasonable, restriction on. the freedom of trade or business guaranteed under Art. 19 (1) (g) of the Constn. ( 9 ) MAJORITY of the petitioners before us are those who had compounded their liability under 3. 3 of the. Act by paying a composition fee, following the procedure prescribed under S. 14 of the, Act. S. 14 of the, Act provides that the. Tax Officer may, on an application of the, operator, permit him in the first instance, and under the conditions specified in the Schedule to compound the tax assessable on him under the Act, by paying in lieu thereof a fee fixed in the manner specified in the Schedule. On a fair construction of the, above provision, we are of the opinion that on the operator exercising his option to comply with the requirements of S. 14 and to pay a composition fee, the Tax Officer is under a duty to allow composition. On a fair construction of the, above provision, we are of the opinion that on the operator exercising his option to comply with the requirements of S. 14 and to pay a composition fee, the Tax Officer is under a duty to allow composition. It is no doubt true, the expression 'may is used in sub-sec (1) of S. 14, but we are of the view that the word 'may appearing in the context in which it appears has to be construed as 'shall', because the power conferred on the Tax Officer under S. 14 (l) of the Act is a power coupled with the duty which he owes to the operator. In State of U. P. v. Jogendra Singh,air. 1963 SC. 1618. dealing with a similar case in which the, expression 'may' had been used, the Supreme Court observed as follows :"there is no doubt that the, word 'may' generally does not mean 'must' or 'shall'. But it is well setted that the word 'may' is capable of meaning 'must' or 'shall' in the light of the context. It is also clear that where a discretion is conferred upon a public authority coupled with an obligation, the word 'may' which denotes discretion should be construed to mean a command. "it is therefore clear that when once an operator has exercised his option to compound his liability under S. 14 by making a proper application and has paid the necessary fee alopg with the application, the Tax Officer is under a duty to allow composition and issue, a certificate in Form No. 11 prescribed under the Rules made under the Act. Sub-sec (4) of S. 14 of the act provides that the permission granted under sub-sec (1) shall be in force for the period for which it is granted and in respect of that period the provisions regarding submission of returns, accounts or other documents the assessment to tax or any other matter incidental thereto shall not apply in relation to the grantee. It is further to, be seen that sub- sec (2) of S. 14 prohibits an operator from collecting any amount by way of (tax during the period to which such composition applies and if in contravention of sub-section (2), all operator collects any amount by way of tax the amount so collection would Stand forfeited to the State Government in addition to the, operator being exposed to a prosecution under S. 15 (l), (d) for wilfully acting in contravention of the provisions of the Act. Some of the petitioners have questioned in these writ petitions, the notices issued by some of the Tax Officers calling upon them to pay the, difference between the amounts already paid by them by way of composition fee for the period between 1-4-1974 and 31-7-1974 and the- amounts payable by then by way of composition fee in accordance with the amended Schedule. On a true interpretation Of Section 14, we are of the view that when once an operator exercises his option and compounds his liability, he would be out of the reach of the other provisions of the Act in respect of the period in respect of which such composition applies. Even if there is any under-charge while receiving the composition fee, there is no provision in the Act, authorising the Tax Officer to revise his earlier order and to insist on payment off the amount which is found to be deficient. It is well known that every taxation measure should contain provisions relating to the levy, assessment and collection of the taxes. Whereas, so far as the tax levied under S. 3 is concerned, there are provisions for assessment, re-assessment, levy of penalty and collection in Ss. 5 to 9 of the, Act, in so far as the composition fee, is concerned, we do not have similar provisions, because in the case of composition payment precedes the issue of the composition certificate. We are of the view that in the absence of provisions enabling the, authority concerned to make a re-assessment of the liability off an operator who has compounded his liability under Section 14 and provision for recovery of deficient fee in the, Act, the Tax Officers concerned cannot issue the notices of demand asking an operator to pay the deficient fee. The learned Govt Advocate and the Addl Govt Advocate, however tried to support the notices of demand contending that the Tax Officer with whom the operators had entered into a contract under Sec. 14 was entitled to issue. notice calling upon the operator to made, good the, deficiency on the basis of the amended Schedule,. We) do, not think that in these cases such a course is either permissible or practicable. There may be a case where a person who had compounded his liability has lost his permit on Account of an order passed by the Regional Transport Authority excelling it before the Ordinance was passed, 'there may be a case where the operator might have died leaving his legal representatives. There may be a, case where a firm which was the owner of the vehicles in question might have been dissolved. In all those cases; the question would arise, whether on the cancellation of the permit, on the death of the operator or on the dissolution of the firm, it would be open to the Tax Officer to issue a notice of demand and collect the deficient composition fee. Unless the tax Officer is authorised to exercise, the power to decide those questions and to make an order of reassessment, he cannot make any demand. ( 10 ) IT was argued on behalf of the petitioners that the expression 1 vied or collected' used in Art. 265 of the Constn includes all the processes commencing with the, imposition of the, charge, and ending with the stage at which the money of the, tax-payer will get into, the exchequer, and- that, in the absence, of the appropriate machinery provisions, the demand made by the Tax Officers would be, contrary to Art. 265 of the conain. In reply to the above contention, Sri M. P. Chandrakantharaj Urs, learned: Govt Advocate, drew our attention to thei decision of this Court in kempelinge Gowda v. Commr for Transport , (1967) 1 Myslj. 607 in which it has been held that the composition fee payable under S. 14 of the Act cannot be regarded as tax payable in pursuance of the provisions of the Act and hence, Art. 265 would not be attracted. It is unnecessary to decide in these cases whether art. 607 in which it has been held that the composition fee payable under S. 14 of the Act cannot be regarded as tax payable in pursuance of the provisions of the Act and hence, Art. 265 would not be attracted. It is unnecessary to decide in these cases whether art. 265 of the Consn is violated or not, because in any event, the Tax officer could not issue the impugned notices compelling the petitioners to pay the difference in the composition fee in accordance with the Amending act for the period prior to, 31-7-1974 as he is not authorised expressly to do so. Apart from the non-existence of machinery provisions in the act, we feel that the recovery of any such difference, from the operators would not be otherwise permissible. Before the Act was amended by the amending Act, a person operating a stage carriage could compound his liability either by paying one rupee per seat per mile per year or by paying Rs. 10-65p seat per month. By virtue of the amendment, an operator can compound his liability in only one way, namely, by paying rs. 20 per seat per month. The Act does not say as to how the liability of a person who has paid the composition fee, on the basis of one, rupee per seat per year per mile should be calculated. Secondly, we, are of the view that by virtue of sub-sec (4) of S. 14 of the Act, the operators who had compounded their liability had acquired an immunity against any levy tax under the Act, by paying the composition fee and by submitting themselves to the prohibition contained in sub-sec (2) of S. 14 of the Act, which prohibited an operator who had compounded his liability to collect any amount by way of tax. Hence, we feel that the insistency of the authorities that the operators who have compounded their liability should pay the difference in the composition fee would amount to an imposition of' an unreasonable restriction on the operator's right to carry on business because the extra amount which he would have to pay will have to come out off the pocket of the operator only. Further such a levy in the, context of S. 14 would alsp partake of the character of a direct tax on thq operator which would be outside Entry 56 of List II It is quite probable that if the operators had the knowledge that on a future date, the, Legislature will step in and would enhance the composition fee with rqtrospecuve, effect, they would not have, exercised their option under S. 14 of the Act, at all. Viewed from any angle, we are of the opinion that the authorities under the Act are not entitled to demand from any of the. operators who have compounded their liabilities under S. 14, the difference between the composition fee already paid by them and the composition fee, payable by them under the Amended Act, in respect of the period prior to 31-7-1974. In other respects, all the contentions urged by the petitioners are negatived. ( 11 ) IN the, result, those, petitions are allowed in part. A writ in the nature of mandamus shall issue to the respondents in each of the petitions to lorbear from collecting any amount from such of those; petitioners who have compounded their liability under S. 14 of the Act by way of composition fee in excess of what they had to pay before, the Ordinance was promulgated for the period between 1-4-1974 and 31-7-1974. The petitions are; dismissed in other respects. Since the petitioners have succeeded" in part only, there will be np order as to costs. --- *** --- .