ACT:

Madras Motor Vehicles Taxation Act (3 of 1931)-Tax on

contract Carriages enhanced by notification-If violative of
Art. 301-Motive for enhancing tax, if relevant-If
discriminatory as compared to stage carriages and violative
of Art. 14.

HEADNOTE:
The enhancement of motor vehicles tax on omnibuses imposed
by the State Government, by notification dated September 20,
1971, from Rs. 30/per seat per quarter to Rs. 100 per seat
per quarter was challenged on the following grounds :-
(1) The notification was not a measure of taxation but a
device to eliminate the competition of omnibus" with stage
carriages run by the Government;
(2) Since the tax operates as a restriction on the freedom
of trade, commerce and intercourse within the State, it
could be imposed only by a law which had obtained the
previous sanction of the President under Art. 304. and as
the notification was issued by the government in the exer-
cise of its delegate power, it was not a law made by the
legislature, nor could the previous sanction of the
President be obtained for it; and
(3)The distinction made between contract carriages and stage
carriages. in the matter of levy of vehicle tax offends Art.
14.
Rejecting the contentions.
HELD :
1. The tax was imposed by the Government in the exercise
of its power under S. 4 of the Madras Motor
Vehicles Taxation Act, 1931. As the State Legislature was
competent to pass the Act and as the Government is
authorised under s. 4 to levy the tax, the question of the
motive with which the tax was imposed is immaterial. There
can be no plea of a colourable exercise of power to tax if
the Government had power to impose the tax and the fact that
the imposition of the tax was for the purpose of eliminating
competition would not detract from its validity. [720A-B]

2. (a) Article 301 imposes a general limitation on all

legislative power in order to secure that trade, commerce
and intercourse throughout the territory of India shall be
free. The word 'free' does not mean freedom from regula-
tion. There is a distinction between laws interfering with
freedom to carry out the activities constituting trade and
law imposing on those engaged therein rules of proper
conduct or other restraints directed to the due and orderly
manner of carrying out the activities. This distinction is
described as regulation. The true solution in any given
case could be found by distinguishing between features of
the transaction or activity in virtue of which it fell
within the category of trade, commerce and intercourse and
those features which, though invariably found to occur in
some form or another in the transaction or action are not
essential to the conception. what is relevant is the
contrast between the essential attributes of trade and
commerce and the incidents of the transaction which do not
give it necessarily the character of trade and commerce.
Laws for government of such incidents, ,regulate'. If a tax
is compensatory or regulatory, it cannot operate as a
restriction on the freedom of trade or commerce.
A compensatory tax is based on the nature and the extent of
the use made of the roads. if the proceeds are devoted to
the repair, upkeep, maintenance of relevant roads and the
collection of the exaction involves no substantial
interference with the movement. What is essential for the
purpose of securing freedom of movement by road is that no
pecuniary burden should be placed upon. It 716 which goes beyond
a proper recompense to the state for the actual use made of
the physical facilities provided in the shape of a road.
Motor vehicles require, for their safe, efficient and
economical use, roads of considerable width, hardness and
durability. and the maintenance of such roads will cost the
government money. But, because the users of vehicles
generally and of public motor vehicles in particular,
stand in a special and direct relation to such roads, and
may be said to derive a special and direct benefit from
them. it is not unreasonable that they should be called upon
to make a special contribution to their maintenance over and
above their general contribution as tax payers of the State.
[721C-H; 722B-F]
(b) In the counter affidavit filed on behalf of the State,
the averment in that Government has incurred an expenditure
of Rs. 19.51 crores in the year 1970-71 on the maintenance
and construction of roads while the receipts from out of the
vehicle tax was only Rs. 16.38 crores. It would not be
right to say that a tax is not compensatory because the
precise or specific amount collected is not actuallyused
for providing any facilities, and a working test for
deciding whether a tax is compensatory or not is to enquire
whether the trades people are having the use of certain
facilities for the better conduct of their business and not
paying patently much more than what is required for
providing the facilities. It would be impossible to judge
the compensatory nature of a tax by a meticulous test and,
in the nature of things, it could not be done. It is always
difficult to evolve a formula which will in all cases ensure
exact compensation for the use of the road by vehicles
having regard to their type, weight and mileage. Rough
approximation, rather than mathematical accuracy is all that
is required.
[722G; 723A-D]
Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan
[1963] 1 S.C.R. 491 followed.
(c) If the tax is attacked on the ground that it is
excessive, the burden ,of proof is upon the one attacking
its validity. The amount of the charges and the method of
collection are primarily for determination by the State
itself, although they must be reasonable and fixed according
to some uniform, fair and practical standard. Although any
method of taxation which has a direct bearing upon or
connection with the use of the highways is apparently valid,
a tax which has no such apparent bearing and is not shown to
be compensatory, but is rather a tax on the privilege of
engaging in trade and commerce, is beyond the power of the
State. It is also not necessary that there should be a
separate fund or expenses allocation of money for
the maintenance of roads to prove the compensatory purpose when
such purpose is proved by alternative evidence. [723G-724B]
(d) It could not be said that vehicle tax can be levied
only for the the of the road in existence and that the levy
is not compensatory because government, has included
the cost of the construction of new roads also in their 'road
costs' because. [724B-C]
(i) Even if the cost of construction of new roads is
excluded, the receipts would not be sufficient to meet the
expenses incurred for maintenance of old roads and
therefore. it is difficult to say that in actual fact,
capital expenditure for construction of new roads was taken
into account in the levy of vehicle tax. [724E-F]
(ii) This court approved in the Automobile case the reason
given by the High Court that the State was charging far the
cost incurred in maintaining and making roads. [724G-725A]
(iii) The State may impose even upon motor vehicles as
compensation 'for the use of the public highways a charge)
which is a fair contribution to the cost of (constructing
and maintaining roads and "for regulating traffic thereon.
[725B-C]
Artmstrong and Ors. v. The State of Victoria and Ors. 99
Commonwealth 'Law Reports 28; Commonwealth Freighters P.
Ltd. v. Sneeddon 102 Commonwealth Law Reports 280;
Interstate Transit Inc. v. Lindsey 283 U.S. 183, at 185 and
Capital Greyhound Lines v. Brice 339 U.S. 542 referred to.
717
Therefore, the tax imposed by the notification is
compensatory in character and could not therefore restrict
the freedom of trade and commerce. [726C-D]
(e) There is no material to show that the tax is cofiscatory
or excessive and operates as an unreasonable restriction
upon the appellants right to carry on the trade. A tax
which is compensatory cannot operate as an unreasonable
restriction upon the fundamental right of the appellants to
carry on the business, for, the very idea of a compensatory
tax is service more or less commensurate with the
tax levied. No citizen has a right to engage in trade or
business without paying for the special services he receives
from the State. because, that is part of the cost of
carrying on the business. [726E-F]
3. (a) The reasons for enhancing the vehicle tax on
contract carriages are, (a) that contract carriages run
more miles, (b) carry more load, and (c) stage carriages pay
surcharge on the fare collected; while owners of contract
carriage are not liable to pay the surcharge. It cannot be
said that a classification made on the basis of the capacity
of the contract carriage to run more miles is unreasonable,
because, these carriages will be using the road more than
the stage carriages which have got time schedules. specified
routes and maximum and minimum number of trips. [727D-728C]
(b) There is always a presumption that a classification is
valid, especially in a taxing statute and a person
who
challenges a classification as unreasonable has the burden
of proving it. Classification depends to a great extent
upon an assessment of the local conditions under which these
carriages are being run which the legislature or
the administrative body alone is competent to make. The
Act in its II Schedule classifies contract carriages and
stage carriages separately for tax purposes. Therefore, when
the Government, in the exercise of its power to tax, made a
classification between stage carriages on the one hand
and contract carriage on the other hand and fixed a higher rate
of tax on the latter, the presumption is that Government
made that classification on the basis of its information
that contract carriages are using the roads more than the
stage carriages because they are running more miles;
and this Court has to assume, in the absence of any materials
placed by the owners of contract carriages, that
the classification is reasonable. Hence, the levy of
an enhanced rate of vehicle tax on contract carriages is
not hit by Art. 14.