TMI Blog2003 (4) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... lier, which have not been effectively denied on behalf of the State, there is hardly any scope for saying that the levy does not amount to restriction within the meaning of Article 301 of the Constitution of India. The levy could only have been saved, in case the restriction brought about by it purported to be in public interest, and that too, if the assent of the President had been obtained either by way of previous sanction or even by obtaining his assent to the Act subsequently to bring it within the four corners of Article 255. Admittedly, there is no sanction of the President at any stage. The High Court also directed that the amount deposited towards the tax be refunded in terms of interim orders. That judgment and order is challenged by the State of Himachal Pradesh by filing Civil Appeal Nos.3545/91 and others. It appears that being aggrieved by the said judgment and order and in order to avoid delay in recovering the road tax, apart from filing appeals, the State enacted the Himachal Pradesh Taxation (On Certain Goods carried by Road) Act, 1991 (Act No.10 of 1991) (hereinafter referred to as the 1991 Act ). The objects and reasons of the 1991 Act read thus: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in fact, a compensatory taxation measure. In the absence of effective reply the Hon'ble Court did not have the occasion to go to the compensatory character of this enactment. In the proposed Bill, the levy has been rationalized by making it chargeable on the slabs of mileage of roads actually used for carrying of goods within the State and the method or machinery of collection has also been suitably modified to remove the defects existing in the Himachal Pradesh Taxation (On Certain Goods Carried by Road) Act, 1976. 5. It is well known that the roads and bridges are life line in the hilly terrain of Himachal Pradesh and every year the State Government has to devote a sizeable chunk of its budget exclusively to the construction, development, repair, upkeep and maintenance of roads and bridges, without which any development is unthinkable. Besides loss of a recurring income of revenue of nearly ₹ 9 crores each year, to the State Exchequer, the impending refund of tax will drain out not less than ₹ 42 crores from the State exchequer, which will mean absolute halt to the construction, maintenance and development of roads and bridges for many years to come for want o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... developmental purposes. The said tax is by exercise of its power under Entry 56 of List 11 of Seventh Schedule to the Constitution. As against this, the learned counsel for the respondents submitted that in the Writ Petition No.58/78 etc., the State of Himachal Pradesh failed to contend and prove that the impugned tax was compensatory or regulatory and as the assent of the President was not obtained as contemplated under Article 304(b), the High Court rightly arrived at the conclusion that 'the 1991 Act' was invalid. It was contended that validation by the State Legislature without having assent of the President of India is also unconstitutional. FINDINGS: Before dealing with the contentions of the parties, we would first refer to the objects and reasons of 1991 Act wherein it has been specifically inter alia stated that: (a) the roads and bridges are the lifeline in the hilly terrain of Himachal Pradesh and the State is not connected by railway; (b) the State has to devote sizeable chunk of its budget exclusively to the construction, development, repair, upkeep and maintenance of roads and bridges without which any development is unthinkable. (c) in such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently, the levy is not compensatory in the sense stated by the learned Advocate General. It seeks to recover only a part of the expenses incurred in construction and maintenance of roads and bridges. This position has been, more or less, the same from the year 1976 onwards. In the context of these figures, it is submitted that the levy has been compensatory from 1976 and hence it is wrong to hold that it is directly affecting free flow of trade or commerce throughout the territory of India, as guaranteed under Article 301 of the Constitution. The aforesaid reason recorded by the High Court that as the State Government recovers only a part of the expenses incurred in construction and maintenance of roads and bridges, the levy is not compensatory is, on the face of it, erroneous and cannot be sustained. For levy to be compensatory, it is not required that entire amount of cost incurred should be recovered. The State can and may incur the cost of construction and maintenance of roads and bridges from other revenue but that would not justify in holding that levy of tax is not compensatory. It is also settled that there can be no bar to inter- mingling of the revenue realised from r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e left of the road while another may wish to drive on the right of the road. If they come from opposite directions, there will be an inevitable clash. Another class of examples relates to making a charge for the use of trading facilities, such as, roads, bridges and aerodromes etc. The collection of a toll or a tax for the use of a road or for the use of a bridge or for the use of an aerodrome is no barrier or burden or deterrent to traders who, in their absence, may have to take a longer or less convenient or more expensive route. Such compensatory taxes are no hindrance to anybody's freedom so long as they remain reasonable; but they could of course be converted into a hindrance to the freedom of trade. If the authorities concerned really wanted to hamper anybody's trade, they could easily raise the amount of tax or toll to an amount which would be prohibitive or deterrent or create other impediments which instead of facilitating trade and commerce would hamper them. It is here that the contrast, between 'freedom' (Art. 301) and 'restrictions' (Arts. 302 and 304) clearly appears: that which in reality facilitates trade and commerce is not a restriction, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fall under Article 304 (b). The aforesaid case is relied upon in State of Karnataka and another v. M/s Hansa Corporation [(1980) 4 SCC 697], wherein the Court observed thus: 27. On a conspectus of these decisions it appears well settled that if a tax is compensatory in character it would be immune from the challenge under Article 301. If on the other hand the tax is not shown to be compensatory in character it would be necessary for the party seeking to sustain the validity of the tax law to show that the requirements of Article 304 have been satisfied. The Court also observed: 30. The effect of Article 304(a) is to treat imported goods on the same basis as goods manufactured or produced in a State. This Article further enables the State to levy tax on such imported goods in the same manner and to the same extent as may be levied on the goods manufactured or produced inside the State. If a State tax law accords identical treatment in the matter of levy and collection of tax on the goods manufactured within the State and identical goods imported from outside the State, Article 304(a) would be complied with. There is an underlying assumption in Article 304(a) that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demand for tax from the traders in common with others is not a restriction on the right to carry on trade, commerce and intercourse. (b) Such tax would not come within the purview of the restrictions contemplated under Article 301 unless it is established that in reality, it hampers or burdens the trade and commerce. (c) So long as the tax remains compensatory or regulatory, it cannot operate as a hindrance. (d) If a State tax law accords identical treatment in the matter of levy and collection of tax on the goods manufactured within the State and identical goods imported from outside the State, Article 304(a) would be complied with. There is an underlying assumption in Article 304(a) that such a tax when levied within the constraints of Article 304(a) would not be violative of Article 301 and State legislature has the power to levy such tax. In the present case, after the judgment rendered by the High Court in Writ Petition No.58/1978, the State Legislature enacted the 1991 Act wherein in Preamble, it is specifically stated that it was incurring much more expenditure than the revenue from the road tax. Necessary affidavit stating the expenditure incurred for construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch a tax amounts to restriction of trade, commerce and intercourse among the States without considering its effect. The Court was required to determine whether the impugned provisions amounted to a restriction directly or indirectly on the movement of trade and commerce. Therefore, the said decision is also against the settled legal position and requires to be set aside. However, pending appeals before this Court as the State Legislature has passed 'the 1991 Act', 'the 1976 Act' would not survive. The 1991 Act as discussed above was held to be ultra vires mainly on the ground that the State Legislature was not competent to enact a law so as to overrule the decision rendered by the High Court. The State Legislature enacted a new law by specifically stating that levy of tax was compensatory and that the revenue recovered from the tax was much less than the expenditure incurred by it for construction, maintenance and repair of roads and bridges is a hilly area. By pointing out these facts, it cannot be said that the Legislature was overruling the decision rendered in M/s Yashpal Garg's case. This only makes it clear that levy of road tax was compensatory. Compet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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