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2013 DIGILAW 471 (KAR)

Ramesh Tours and Travels v. State of Karnataka

2013-04-05

B.MANOHAR, N.KUMAR

body2013
JUDGMENT : N. Kumar, J. 1. These appeals are preferred against the common order passed by the learned Single Judge in Mrs. Bhagyalakshmi Radhakrishna Holla and Others v State of Karnataka and Others, 2013(1) Kar. LJ. 619 upholding the amendment to the Karnataka Motor Vehicles Taxation Act, 1957 (Act Nos. 14 and 29 of 2012). The appeals are taken up for consideration together. 2. The appellants are in the business of renting the motor cabs on daily basis to various companies as well as individuals. In case of renting cabs to individuals, bills are drawn on the basis of number of kilometers run by the motor cabs whereas in respect of the companies or firms the invoices are raised on the basis of the number of hours hired and the fixed number of kilometers. They were paying the annual tax in respect of their motor cabs and were getting their permits renewed. They also used to get fitness certificates every year at the time of payment of taxes. The appellants were subjected to tax under Section 3(1) of the Karnataka Motor Vehicles Taxation Act, 1957 (hereinafter referred to as "Act') as per item 4(1)(b) of Part "A' to the Schedule thereto at the rate of Rs. 100/- for every passenger permitted to be carried in the cab per quarter, irrespective of the age of vehicles. The appellants owned motor cabs manufactured by various companies and age of the vehicles possessed also varies. 3. It is submitted that while presiding over the 34th meeting of Transport Development Council organised by the Ministry of Road Transport and Highways on 13-2-2012, Dr. C.P. Joshi, the Union Minister for Road Transport and Highway urged all the State Governments to rationalise motor vehicle taxes and harmonise the rates to facilitate easy movement of vehicles across the country. In the said meeting, there was consensus on bringing of floor rate of motor vehicle tax in respect of cars, LMV at 6% lifetime tax using the sale price as the base rate. It was suggested to reduce barriers on inter-State movement of vehicles for both goods and passengers by rationalisation of motors vehicle taxes. The State of Karnataka, in this background, introduced the levy of lifetime in respect of motor cabs having capacity of 5 + 1 passengers and above. 4. It was suggested to reduce barriers on inter-State movement of vehicles for both goods and passengers by rationalisation of motors vehicle taxes. The State of Karnataka, in this background, introduced the levy of lifetime in respect of motor cabs having capacity of 5 + 1 passengers and above. 4. The Act was amended with effect from 1-4-2012 by KMVT (amended Act of 2012) (Karnataka Act No. 14 of 2012). By the said amendment, for the first time, lifetime tax for motor cabs came to be introduced. Such tax is imposed for the motor cabs whose cost exceeds Rs. 10 lakhs at the rate of 15% of the total value of the vehicle in respect of new vehicles during the registration. For the purpose of imposing of lifetime tax on motor cabs, the total value of which consists the excise duty, sales tax, VAT, surcharge the cess. Entry tax payable in the State of Karnataka. The said imposition of tax is only in respect of motor cabs. The value is more than Rs. 10 lakhs. Subsequently, the Act came to be amended with effect from 1-4-2012 by Act No. 29 of 2012. The effect of the second amendment is for the purpose of levy of lifetime for motor cabs, the total value is more than Rs. 15 lakhs, as against Rs. 10 lakhs which was previously fixed. In respect of the new vehicles, the tax of 15% is calculated on the basis of total value of the vehicle and in respect of vehicles, which are already registered, its age is calculated from the month of the registration as on 13-2-2012. Irrespective of the market value of the vehicle, the value is fixed by deducting about 5% - 6% of the value every year and such value has been considered for the purpose of levy of tax. 5. It is the case of the appellants that by introducing such lifetime tax, the objective of inter-State movement of vehicles has not been achieved. On the contrary, huge unforeseen and arbitrary burden on the cab owners is fixed. Section 32 of Income-tax Act, 1961 prescribes rates of depreciation. Considering the fact that the vehicles which at are used in a business of running them as motor cabs, the depreciation is fixed at 30% when compared to the one used for own business or profession at 15%. Section 32 of Income-tax Act, 1961 prescribes rates of depreciation. Considering the fact that the vehicles which at are used in a business of running them as motor cabs, the depreciation is fixed at 30% when compared to the one used for own business or profession at 15%. Further, the depreciation allowance is granted on the written down value. However, in the instant case, tax is sought to be levied on the total value i.e. purchase price of the vehicle as per the invoice in addition to the excise duty, VAT, entry tax, cess and all other State taxes payable thereon of the vehicle. A small percentage of deduction is allowed on account of wear and tear. In reality, the value of the vehicle depreciates rapidly in the case of usage as a cab/taxi, the said aspect has not been considered. On the contrary, tax for the lifetime of the vehicle is sought to be levied based on the total value of the vehicle. Therefore, the total value of the vehicle being considered for the purpose of taxation is irrational and arbitrary. 6. The appellants are getting the permits renewed. On that basis, fitness certificates were issued and by paying the motor vehicle tax, they are plying the vehicle. Now in clear terms, the appellants are informed that its permits and fitness certificates would stand terminated as on 30-9-2012 if the lifetime tax is not paid by them. Therefore, the appellants preferred writ petitions challenging the vires of the Amendment Act. 7. The learned Single Judge relying on the judgments of the Apex Court in the case of Mohan Das N. Hegde (dead) through L.Rs v State of Karnataka and Another, 2005(4) Kar. L.J. 213 (SC): (2005)4 SCC 64 : AIR 2005 SC 2178 : 2005 AIR SCW 1728 and also in the case of State of Tamil Nadu v M. Krishnappan and Others, AIR 2005 SC 2168 : (2005) 4 SCC 53 : 2005 AIR SCW 1718, held that the rate of scaling down of lifetime tax payable on old motor cabs cannot be said to be arbitrary or irrational. The Legislature in its wisdom, has given appropriate deduction relating to the rate of tax in respect of old motor cabs. Even assuming that the impugned tax is a little excessive on old motor cabs, its no ground for interference by this Court. The Legislature in its wisdom, has given appropriate deduction relating to the rate of tax in respect of old motor cabs. Even assuming that the impugned tax is a little excessive on old motor cabs, its no ground for interference by this Court. Unless a tax is confiscatory in nature, it cannot be interfered with as violative of Article 19(1)(g) of the Constitution of India. As could be seen from Part "A8' of the Schedule, it cannot be said that the rate of tax imposed is confiscatory or unreasonable. The levy is based on a rational and reasonable classification founded on the intelligible differentia having a rational relation to the object of the enactment. The provision in the Income-tax Act, 1961 has no relevance to examine the validity of the provision of the Motor Vehicles Act, 1988. No retrospective liability is created under the Act and therefore he held that the Amendment Acts cannot be said to be discriminatory, arbitrary or unreasonable offending Article 14 or 19(1)(g) of the Constitution of India. On concession made by the learned Additional Advocate General, he permitted the petitioners/appellants to pay tax in two instalments i.e. first instalment on or before 31st December, 2012 and the second instalment to be paid on or before 31st March, 2013. He also extended the said benefit to all the owners of old motor cabs falling within the scope of the amending Acts notwithstanding that they have not filed any writ petitions. Aggrieved by the said order, the present appeals are filed. 8. Sri Amit Deshpande, learned Counsel appearing for the appellant assailing the impugned order contended that the imposition of lifetime tax is confiscatory in nature and therefore the amended Act is to be struck down. Secondly he contended that a slab on the basis of which, depreciation is to be calculated is not based on any scientific evaluation and therefore it is arbitrary, when compared to the similar provision in the IT Act as well as in the Insurance Act, 1938. The lifetime tax is based on price of vehicle and several other tax components such as excise duty, VAT etc. and therefore, it is a case of double taxation. Similarly it has been given retrospective effect, which is again oppressive in the nature of violative of Article 21 of the Constitution and on that score, the amendment is liable to be struck down. 9. and therefore, it is a case of double taxation. Similarly it has been given retrospective effect, which is again oppressive in the nature of violative of Article 21 of the Constitution and on that score, the amendment is liable to be struck down. 9. Sri R.P. Somashekaraiah, learned Counsel appearing for the appellant in addition to the aforesaid submissions, contended that the imposition of lifetime tax on motor cabs, which are worth more than Rs. 15 lakhs or Rs. 10 lakhs is discriminatory in nature and as such the tax is not imposed on motor cabs which are less in value. Therefore, he submits that the amendment Act is to be struck down. 10. Per contra, the learned Additional Government Advocate supporting the impugned order contended that the imposition of tax is regulatory in nature and not confiscatory. It is not arbitrary as contended. The depreciation value is fixed on the rational basis. Even if there is a slight amount of difference, it is not for this Court to interfere with the imposition on that ground. In economic matters, there should be certain amount of freedom or play in the joints. The Government should have the discretion on the Authorities. It is neither a case of double taxation nor it is discriminatory in nature. 11. In the light of the aforesaid facts and rival contentions, the point that arises for reconsideration in these appeals is: "Whether the impugned amendments are legal and valid and the order of the learned Single Judge calls for any interference?" 12. The Apex Court had an occasion to consider the validity of the amendments brought to the Tamil Nadu Vehicles Taxation Act when the State of Tamil Nadu introduced similar provisions and sought to impose levy of tax on the basis of weight-cum-value index in the case of M. Krishnappan. There also identical argument was canvassed. Referring to such contentions, the Apex Court held as under: "16. 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. 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 taxis 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. 17. At the outset, it may be noted that depreciation is a function of time and maintenance. In the present case, we are concerned with the "lifetime tax" which is one time payment spread over the economic life of the vehicle. The said tax is based on time, use and maintenance of the roads. As stated in the judgment of this Court in Union of India and Others v Bombay Tyre International Limited, AIR 1984 SC 420 , any standard, which maintains a nexus with a essential character of the levy can be regard as a valid basis for assessing the measure of the levy. Applying the said text to the present case, we hold that the index of "weight-cum-value" maintains the nexus with the essential character of the levy in question and, therefore, the High Court erred in holding that by introduction of the value of the vehicle as a parameter, the levy ceases to be regulatory and compensatory in nature. It is important to bear in mind that Entry 57 of List II of the Seventh Schedule to the Constitution refers to taxes on vehicles suitable for use on roads. Under the said entry, a field is provided to the State Legislature to impose the impugned tax in respect of every aspect of a vehicle. When the Constitution provides a field of legislation, it has to be read in the broadest possible terms. Under the said entry, a field is provided to the State Legislature to impose the impugned tax in respect of every aspect of a vehicle. When the Constitution provides a field of legislation, it has to be read in the broadest possible terms. When the State is empowered to levy taxes on goods, it is empowered to levy such taxes on every aspect of such goods. Similarly, when the State is empowered to levy tax on the vehicle, it is empowered to levy tax on every aspect of the vehicle. Throughout the Constitution, the legislative power relating to taxes and the legislative power relating to general subjects is treated separately and is not subsumed under a general head. Applying the above tests to the present case, we are of the view that the High Court had erred in holding that on account of introduction of "weight-cum-value" index in the Third Schedule to the Act, the impugned tax had ceased to be regulatory and compensatory and consequently, the said levy fell outside Entry 57, List II. .... 20. 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 "lifetime tax"." 13. Dealing with the question of arbitrariness, the Apex Court held at para 22 as under: "We also do not find the impugned levy to be discriminatory, arbitrary or unreasonable so as to violate Article 14 of the Constitution as held by the High Court. Moreover, weight alone may not provide a sufficient parameter/basis for imposition of "lifetime tax"." 13. Dealing with the question of arbitrariness, the Apex Court held at para 22 as under: "We also do not find 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 and Others v Jan Mohammed Usmanbhai and Another, AIR 1986 SC 1205 , 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 of 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." Further the Apex Court held at para 25 as under: "25. 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-à-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, 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 name 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 Limited v Mawson (Inspector of Taxes), (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". 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 Limited v Mawson (Inspector of Taxes), (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." 14. Thereafter the Apex Court has quoted the judgment of the Division Bench of the Kerala High Court in the case of Anas v State of Kerala 1999 (3) Ker. LT 147: "A taxing statute can be held to contravene Article 14 of the Constitution only if it purports to impose on the same class of property similarly situated an incidence of taxation which leads to obvious inequality. It is for the Legislature to decide on what objects to levy what rate of tax and it is not for the Court to consider whether some other objects should have been taxed or whether a different rate should have been prescribed for the tax. It is also to be noted that the Legislature is competent to classify persons or properties into different categories and tax them differently, and if the classification thus made is rational, the taxing statute cannot be challenged merely because different rates of taxation or prescribed for different categories of persons or objects." 15. The said judgment would be complete answer to all the contentions raised by the appellants. 16. In fact, the levy of lifetime tax on the value of the car exceeding 1500 CC was challenged before this Court and constitutional validity of the Karnataka Motor Vehicles Taxation (Amendment) Act, 1997 (8 of 1997) on the ground that it was arbitrary, discriminatory and hit by Article 14 of the Constitution. In the case of Mohan Das N. Hegde (dead) through L.Rs, the Apex Court has held as under: "6. We do not find any merit in the above arguments. In the case of Mohan Das N. Hegde (dead) through L.Rs, the Apex Court has held as under: "6. We do not find any merit in the above arguments. The above classification indicates a measure or a rate of tax applied differently on different vehicles depending upon various circumstances and so long as there is competence to levy and collect the tax under Entry 57, List II of the Seventh Schedule to the Constitution, the levy cannot be struck down only on the ground that the incidence of the tax falls differently on different categories of the vehicles. The burden to be distributed on different classes of vehicles or on different persons who owned the vehicles. How equitable such tax could fall on different persons is not for the Court to decide." 17. This Court had an occasion to consider whether the penalties specified in Section 72(1) of the Karnataka Value Added Tax Act, 2003 was arbitrary and confiscatory in nature and violative of Articles 14 and 19(1)(g) of the Constitution. After referring to various judgments of the Apex Court on the point it was held in the case of The Assistant Commissioner of Commercial Taxes, LVO-020, Bangalore and Others v Pink City, Bangalore, 2011(71) Kar. L.J. 609 (HC) (DB) : ILR 2012 Kar. 348 (DB) as under: "21. Therefore what follows from the aforesaid judgments is that while considering the scope of an economic legislation as well as a tax legislation, the Courts must bear in mind that unless the provision is manifestly unjust or glaringly unconstitutional, the Courts must show judicial restraint in interfering with its applicability. Merely because a statute comes up for examination and some arguable point is raised, the legislative Will should not be put under a cloud. Every legislation, particularly in economic matters, is essentially empiric and is based on experimentation. There may be possibilities of abuse, but on that account alone it cannot be struck down as invalid. These can be set right by the Legislature by passing amendments. The Court must, therefore, adjudge the constitutionality of such a legislation by the generality of its provisions. The Laws relating to economic activities should be viewed with greater latitude than the laws touching civil rights such as freedom of speech, religion, etc. These can be set right by the Legislature by passing amendments. The Court must, therefore, adjudge the constitutionality of such a legislation by the generality of its provisions. The Laws relating to economic activities should be viewed with greater latitude than the laws touching civil rights such as freedom of speech, religion, etc. The Legislature understands and correctly appreciates the needs of its people and its laws are directed to problems manifest by experience and its discretion is based on adequate grounds. 22. It is true that taxation law cannot claim immunity from the equality clause of the Constitution. The taxation statute shall also not be arbitrary and oppressive. But at the same time the Court cannot, for obvious reasons, meticulously scrutinise the impact of its burden on different persons or interests. But these advantages or disadvantages to individual assessees are accidental and inevitable and are inherent in every taxing statute as it has to somewhere draw a line and in some cases it necessarily falls on the other side of the line. 23. The question of great importance behind such transactions as a whole which has a far-reaching effect on the economy of the country cannot be ignored, purely restricting it to individual transactions. Therefore, wherever public interest to a large extent is involved and it may become necessary to achieve an object which serves the public purposes, individual rights may have to give way. Public interest has always been considered to be above the private interest. Interest of an individual may, to some extent, be affected but it cannot have the potential of taking over the public interest having an impact on the socio economic drive of the country. The two aspects are intertwined which are difficult to separate." The Apex Court in the case of M.A. Rahman and Others v State of Andhra Pradesh and Others, (1950-2004) 2 SCST 2057 : AIR 1961 SC 1471 : (1961) 12 STC 392 (SC) dealing with the financial burden which may result on a dealer being unable to carry on the business held that the State has therefore armed itself with one more coercive method in order to realise the tax in such cases. It is true that cancellation of registration may result in a dealer being unable to carry on the business, but the same result may even follow from the application of other coercive processes for realisation of dues from a trader, for his assets may be sold off to pay the arrears of tax and he may thereafter be not in a position to carry on the business at all. Therefore the provision for cancellation of registration for failure to pay the tax or for fraudulently evading the payment of it is an additional coercive process which is expected to be immediately effective and enables the State to realise its revenues which are necessary for carrying on the administration in the interest of the general public. The fact that in some cases restrictions may result in the extinction of the business of a dealer would not by itself make the provision as to cancellation of registration on unreasonable restriction on the fundamental right guaranteed by Article 19(1)(g). In the light of the declaration of law as aforesaid, we do not find any substance in any of the contentions urged on behalf of the appellants. Therefore, the learned Single Judge was justified in following judgments of the Apex Court and applying the law to the facts of the case and dismissing the writ petition. In that view of the matter, we do not see any merit in the writ appeals. Accordingly, the writ appeals are dismissed.