Holding

Clause (g) of Entry IV of the First Schedule of the Madhya Pradesh Motor Vehicle Taxation Act, 1991 (as amended) read with Explanation (7) is unconstitutional because tax cannot be imposed as a penalty and the explanation cannot enlarge the statutory provision.

Summary

Hardey Motor Transport, a holder of contract‑carriage permits, was alleged to be using its buses as stage‑carriage vehicles. The vehicles were detained and the State demanded duty as if the buses were being plied without any permit, even though the appellants had already paid tax at the higher rate applicable to contract‑carriage permits. The core issue was whether a penalty could be imposed by treating a permit‑holder as if he were operating without a permit and whether Clause (g) of Entry IV of the Madhya Pradesh Motor Vehicle Taxation Act, 1991 (as amended 2004) read with Explanation (7) was constitutionally valid. The Court held that the tax provision is regulatory, the explanation cannot create a new definition or enlarge the statute, and a tax cannot be levied as a penalty or as a condition of a licence. Consequently, Clause (g) was declared unconstitutional. The appeals were allowed and no costs were awarded.

Issues considered

Can a penalty be imposed by treating a vehicle owner with a valid permit as if he is plying without permit for alleged violation of permit conditions?
Is Clause (g) of Entry IV of the First Schedule of the Madhya Pradesh Motor Vehicle Taxation Act, 1991 (as amended) read with Explanation (7) constitutionally valid?
Does Explanation (7) create a new legal definition or enlarge the scope of the tax provision?
Can a tax rate not contemplated under Section 3 of the 1991 Act be imposed as a penalty?
Is it permissible to make tax a condition of a licence/permit?

Legislation cited

Central Motor Vehicle Rules, 1989s. 85, s. 85A
Constitution of Indias. Article 14, s. Article 254
Motor Vehicles Act, 1988s. 192A, s. 2(31), s. 2(40), s. 2(43), s. 2(7), s. 66, s. 74

Subjects

taxpenaltymotor vehiclecontract carriagestage carriageconstitutional validityexplanationregulatory taxpermitArticle 14Article 254

Judgment

A HARDEY MOTOR TRANSPORT
v.
STA TE OF M.P. AND ORS.

OCTOBER 19, 2006

B [S.B. SINHA AND DAL VEER BHANDARI, JJ.]

Madhya Pradesh Motoryan Karadhan Adhiniyam, 1991 (as amended
by Madhya Pradesh Motoryan Sanshodhan Adhiniyam, 2004): Entry JV
C Clause (g) of the First Schedule read with Explanation (7) of the First
Schedule.

Public service vehicle-Motor vehicle plying without permit-Rate of
tax-levy of penalty for non-payment of tax-Constitutional validity of-
Contract carriage permit holders allegedly used their vehicles as stage
D carriage permits-They were asked to pay duty as if the vehicles were being
plied without permit-They paid tax as specified for in permits granted in
their favour as a contract carriage-The rate of tax of a contract carriage
permit was more than that of the stage carriage permit-Held: For non-
payment of tax or for payment of tax for a wrong purpose, a penalty can be
imposed-But a different rate of tax which is not contemplated under Section
E 3 of the 1991 Act cannot be imposed by way of penalty-By taking recourse
to Explanation (7) no new definition could be introduced-Moreover, no
penalty can be levied by treating an owner having one kind of permit as
having no permit only for alleged violation of the conditions of permit-
Hence, Clause (g) of Entry IV of the First Schedule of the 1991 Act as
p amended by the 2004 Act read with Explanation (7) of the First Schedule
declared unconstitutional-Motor Vehicles Act, 1988-Central Motor Vehicles
Rules, 1989.

Interpretation of Statutes:

G Explanation-Role of-Held: The main provisions of the Act cannot be
defeated by inserting an Explanation-Even otherwise, the scope and effect
of a provision cannot be enlarged

Words & Phrases:

H 766
HARDEY MOTOR TRANSPORT v. STATE OF M.P. 767

"Plying without permit"-Meaning of-In the context of Entry IV Clause A
(g} of the First Schedule read with Explanation (7) of the First Schedule of
the Madhya Pradesh Motory1an Karadhan Adhiniyam, 1991 (as amended by
Madhya Pradesh Motoryan Sanshodhan Adhiniyam, 2004).

The appellants are holders of contract carriage permits. On allegations
that the appellants had been using their vehicles as stage carriage permits, B
the vehicles were detained. The appellants were asked to pay duty as if the
vehicles were being plied without any permit. The appellants had paid tax as
specified for in permits granted in their favour as a contract carriage. The
rate of tax of a contract carriage permit is more than that of the stage carriage
pe~ c
The constitutional validity of Clause (g) of Entry IV of the First Schedule
of the Madhya Pradesh Motoryan Karadhan Adhiniyam, 1991 as amended by
Madhya Pradesh Motoryan Sanshodhan Adhiniyam, 2004 read with
Explanation (7) of the First Schedule thereof is in question in these appeals.
D
The following question arose before the Court:-

Whether penalty could be levied by treating an owner having one kind
of permit as having no permit only for alleged violation of the conditions of
the permit?
E
Allowing the appea~ the Court

HELD: 1. Section 3 of the Madhya Pradesh Motoryan Karadhan
Adhiniyam, 1991 is the charging Section. It provides that the tax shall be
levied on· every motor vehicle used or kept for use in the State at the rates
specified in the First Schedule. The levy of tax, therefore, is on the motor F
vehicles. Its rate may vary keeping in view its use or the nature thereof.
However, the use of a motor vehicle so far as public service vehicles are
concerned would depend upon the nature of permit held by it. It is not in dispute
that the appellants have been granted permit for plying their buses as contract
carriage. Allegation against them is that they have been violating the terms
and conditions of the permit by plying their vehicles as stage carriage. It is, G
however, not in dispute that the rate of tax of a contract carriage permit is
more than that of the stage carriage permit. (782-D, E, F]

2.1. Explanation (7) of the First Schedule of the 1991 Act does not create
any legal fiction. It provides for an inclusive definition stating that the words H
768 SUPREME COURT REPORTS [2006] SUPP. 7 S.C.R.

A 'plying without permit' in Clause (g) shall include plying of a public service
vehicle on an authorized route or making a trip not authorized by a permit
granted under the Motor Vehicles Act, 1988. [782-F, G[

2.2. The role of an explanation of a statute is well known. By inserting
an Explanation in the Schedule of the Act, the main provisions of the Act cannot
B be defeated. By reason of an explanation, even otherwise, the scope and effect
of a provision cannot be enlarged. [782-G; 783-A[

S. Sundaram Pillai v. R. Pattabiraman, AIR (1985) SC 582 and Swedish
Match AB v. Securities & Exchange Board ofIndia, [2004] 11 SCC 641, relied
C on.

3.1. Tax imposed on motor vehicles in terms of the provisions of the
1991 Act is a regulatory one. [777-G]

Boiani Ores Ltd. v. State of Orissa, [1974] 2 SCC 777, relied on.

D 3.2. Even if a vehicle is roadworthy and can be plied on a road, a tax may
be imposed, but if a vehicle is not capable of being plied on the road, no tax
would be leviable.

4.1. Compensatory tax cannot be progressive. Imposition of tax cannot
E be a term or condition of a licence. If a permit has been granted, the holder of
a permit is liable to comply with the conditions of permit. If he violates the
terms and conditions of permit, law will take its own course. A permit is
granted under the 1988 Act. If there is violation of the terms of permit, the
consequences, therefore, shall ensue as contained in Section 192A of the 1988
Act. A distinction must be borne in mind that a tax cannot be imposed by way
F of penalty although penalty can be imposed for non-payment of tax or evasion
of tax. The State may make suitable legislations in this behalf. But the same
would not mean that while specifying a rate of tax, the executive Government
of the State can indirectly levy a penalty which it cannot do directly.
[783-E, F, G]
G
Jindal Stainless Ltd. v. State of Haryana, JT (2006) 4 SC 611, followed.

Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan, [1963] I

-
SCR 491, MP. All Permit Owners' Assn. v. State of MP., [2004] I SCC 320,
G.K. Krishnan v. State of Tamil Nadu, [1975] 1 SCC 375 and Vijayalakshmi
H Rice Mill v. Commercial Tax Officer, [2006[ 6 SCC 763, referred to.
HARD EV MOTOR TRANSPORT v. STATE OF M.P. 769
4.2. Before a penalty can be imposed, mens rea on the part of the defaulter A
is required to be established. A statute may provide for a fixed penalty or a
minimum penalty. But the penalty cannot be imposed without giving an
opportunity of hearing to the defaulter or without satisfying the other
conditions laid down therefor. (784-D, El

State of T.N. v. M Krishnappan, (2005J 4 sec 53, relied on. B
State of UP. v. Sukhpal Singh Bal. (2005( 7 SCC 615, referred to.

5.1. The transport authorities of the State indisputably have a power to
check a vehicle so as to ascertain whether payment of tax is being evaded.
They have been conferred with the power to detain a vehicle. They can release C
the vehicle only when tax as demanded is paid. Even the power of the court to
release the vehicle has been taken away unless tax is paid and the court can
satisfy itself as to whether a tax is paid or not only on the receipt of the
certificate issued by the transport authorities of the State. The power of the
transport authorities, therefore, is very wide. However, it does not mean that D
only because a wide power has been conferred the same by itself would lead to
a presumption that the same is capable of misuse or on that count alone the
provisions of Article 14 of the Constitution of India would be attracted. But,
when a statute confe,·s a wide power upon a statutory authority, a closer
scrutiny would be required. (784-E, F, GI
E
5.2. The 1991 Act also does not make any provision for compliance of
the principles of natural justice or for determination of a question as to
whether the conditions of permit have been violated by an independent authority.
(784-H; 785-AJ

6. The appellants have paid tax. They have paid tax as specified for in F
permits granted in their favour as a contract carriage. The rate of tax payable
by a contract carriage is higher than the rate of tax imposed on a stage
carriage. For non-payment of tax or for payment of tax for a wrong purpose,
a penalty can be imposed but it is difficult to conceive that a different rate of
tax which is not contemplated under Section 3 of the 1991 Act can be imposed G
by way of penalty. (785-/, BJ

7. The interpretation clauses contained in the 1988 Act are incorporated
in the 1991 Act by reference. The interpretation of the expressions "permit",
"contract carriage" and "stage carriage" must, thus, be understood on the
~ premise that the said expressions carry the same interpretations. (785-B, C( H
770 SUPREME COURT REPORTS [2006] SUPP. 7 S.C.R.

A State ofA.P. v. B. Noorulla Khan, (2004( 6 sec 194, referred to.

8. As a logical corollary the mode and manner in which the permits are
granted must necessarily be considered to be a part of the provisions of the
1991 Act. Article 254(2) of the Constitution of India as such may not be
attracted but it is a trite law that the executive while fixing a rate of duty
B cannot be permitted to usurp the legislative power and make a provision which
would be inconsistent with the substantive provision of the statute. In other
words, the provisions contained in the Schedule must be in consonance with
the substantive provisions in the main Act. It must be in conformity with the
charging Section. As in terms of Section 3 of the 1991 Act, the legislature
C directed that the tax can be levied on motor vehicles subject to the rates fixed;
by taking recourse to Explanation (7), firstly, no new definition could be
introduced and, secondly, an owner of a vehicle having one kind of permit could
not have been treated as having no permit at all only because the transport -
authorities have reasons to believe that the conditions of permit have been
violated. (786-A, B, C)
D
State of Kera/a v. Maharashtra Distilleries ltd., (2005) 11 SCC 1,
followed.

9. Clause (g) of Entry IV of the First Schedule of the Madhya Pradesh
Motoryan Karadhan Adhiniyam, 1991 as amended by Madhya Pradesh
E Motoryan Sanshodhan Adhiniyam, 2004 read with Explanation (7) of the First
Schedule is declared unconstitutional.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4557 of2006.

From the Judgm'ent and Final Order dated 28.6.2005 of the High Court
F of Madhya Pradesh at Jabalpur in W.P. No. 4747/2005.

WITH
Civil Appeal No. 4558 of2006.

Rani Chhabra for the Appellant.
G S.K. Dubey, B.S. Banthia and Naveen Sharma for the Respondents.

The Judgment of the Court was delivered by

S.B. SINHA, J. Leave granted.

H
HARDEY MOTOR TRANSPORTv. STATE OF M.P. [S.B. SINHA, J.] 771
Constitutional validity of Clause (g) of Entry IV of the First Schedule A
of the Madhya Pradesh Motoryan Karadhan Adhiniyam, 1991 (for short "the
1991 Act") as amended by Madhya Pradesh Motoryan Sanshodhan Adhiniyam,
2004 read with Explanation (7) of the First Schedule thereof is in question
in these appeals which arise out of a judgment and order dated 28.06.2005
passed by a Division Bench of the High Court of Madhya Pradesh at Jabalpur. B

Appellants herein are holders of contract carriage pennits. On allegations
that they have been using their vehicles as stage carriage pennits, the vehicles
were detained. They were asked to pay duty as if the vehicles were being
plied without any pennit.

The Parliament enacted Motor Vehicles Act, 1988 (for short "the 1988 C
Act") to consolidate and amend the law relating to motor vehicles in exercise
of its legislature power under Entry 35, List III of the Seventh Schedule of
the Constitution of India. The said Act is a self-contained code.

"Permit" has been defined in Section 2(31) to mean "a pennit issued by D
a State or Regional Transport Authority or an authority prescribed in this
behalf under this Act authorizing the use of a motor vehicle as a transport
vehicle".

"Stage carriage", "contract carriage" and "tourist vehicle" have been
defined under Section 2(40), 2(7) and 2(43) of the 1988 Act as under: E
"2(40) "stage carriage" means a motor vehicle constructed or adapted
to carry more than six passengers excluding the driver for hire or
reward at separate fares paid by or for individual passengers, either
for the whole journey or for stages of the journey;
F
2(7) "contract carriage" means a motor vehicle which carries a passenger
or passengers for hire or reward and is engaged under a contract,
whether expressed or implied, for the use of such vehicle as a whole
for the carriage of passengers mentioned therein and entered into by
a person with a holder of a permit in relation to such vehicle or any
person authorised by him in this behalf on a fixed or an agreed rate G
or sum

(a) on a time basis, whether or not with reference to any route or
distance; or

(b) from one point to another, H
772 SUPREME COURT REPORTS (2006] SUPP. 7 S.C.R.

A and in either case, without stopping to pick up or set down passengers
not included in the contract anywhere during the journey, and includes-

(i) a maxicab; and

(ii) a motorcar notwithstanding the separate fares are charged for its
B passengers;

2(43) "tourist vehicle" means a contract carriage, constructed or
adapted and equipped and maintained in accordance with such
specifications as may be prescribed in this behalf;"

Section 66 of the 1988 Act deals with grant of permit. Section 72 of the
C 1988 Act provides for grant of stage carriage permit. In terms of Sub-section
( 1) thereof, a stage carriage permit may be granted or refused to be granted
in accordance with the application but subject to the provisions of Section
71 and with such modification as it deems fit. Sub-section (2) of Section 72
provides for the conditions as enumerated therein for grant of such permit.
D Section 74 of the 1988 Act provides for grant of contract carriage permit on
almost similar terms. Sub-section (2) of Section 74 provides for grant of such
permits on one or more of the conditions enumerated therein including:

(i) use of the vehicle in a specified area or on a specified route or
routes;
E (ii) specified rates of hiring should not exceed specified maximum
rates; and
(iii) number of passengers.
•
Clause (ix) of Sub-section (2) of Section 74 of the 1988 Act empowers
F the Regional Transport Authority to vary the conditions of permit or attach
to the permit further conditions. Clause (xii) of Sub-section (2) of Section 74
reads as under:

"(xii) that, except in the circumstances of exceptional nature, the piying
of the vehicle or carrying of the passengers shall not be refused;"
G
Sub-section (3) of Section 74 reads as under:

"(3)(a) The State Government shall, if so directed by the Central
Government, having regard to the number of vehicles, road conditions
and other relevant matters, by notification in the Official Gazette,
H direct a State Transport Authority and a Regional Transport Authority
HARDEY MOTOR TRANSPORT v. STATE OF M.P. [S.B. SINHA. J.] 773

to limit the number of contract carriages generally or of any specified A
type, as may be fixed and specified in the notification, operating on
city routes in towns with a population of not less than five lakhs.

(b) Where the number of contract carriages are fixed under clause (a),
the Regional Transport Authority shall, in considering an application
for the grant of permit in respect of any such contract carriage, have B
regard to the following matters, namely:

(i) financial stability of the applicant;

(ii) satisfactory performance as a contract carriage operator including
payment of tax if the applicant is or has been an operator of contract C
carriages; and

- (iii) such other matters as may be prescribed uy the State Government"

Section 192A of the 1988 Act provides for a penal clause stating:

"(I) Whoever drives a motor vehicle or causes or allows a motor D
vehicle to be used in contravention of the provisions of sub-section
(I) of section 66 or in contravention of any condition of a permit
relating to the route on which or the area in which or the purpose for
which the vehicle may be used, shall be punishable for the first
offence with a fine which may extend to five thousand rupees but E
shall not be less than two thousand rupees and for any subsequent
offence with imprisonment which may extend to one year but shall not
be less than three months or with fine which may extend to ten
thousand rupees but shall not be less than five thousand rupees or
with both:
F
Provided that the court may for reasons to be recorded, impose a
lesser punishment.

(2) Nothing in this section shall apply to the use of a motor vehicle
in an emergency for the conveyance of persons suffering from sickness
or injury or for the transport of materials for repair or for the transport G
of food or materials to relieve distress or of medical supplies for a like
,. purpose:

Provided that the person using the vehicle reports about the same to
the Regional Transport Authority within seven days from the date of
such use. H
774 SUPREME COURT REPORTS [2006] SUPP. 7 S.C.R.

A (3) The court to which an appeal lies from any conviction in respect
of an offence of the nature specified in sub-section (I), may set aside
or vary any order made by the court below, notwithstanding that no
appeal lies against the conviction in connection with which such
order was made."

B The 1988 Act, thus, contains penal prov1s1on for violation of the
provisions of the said Act and/ or violating the terms and conditions of the
permit. A penalty can be imposed by a court. An order of penalty is an
appellable one. The Central Government in exercise of its power conferred
upon it made rules known as the Central Motor Vehicle Rules, 1989. Rules 85
C and 85A of the Rules provide for additional conditions of tourist _permit.

The 1988 Act and the Rules made thereunder provide for a complete
code. The matter relating to the imposition of tax, however, is provided for
under the statutes enacted by each State. The State of Madhya Pradesh for
the said purpose enacted the 1991 Act. Section 2(c) of the 1991 Act defines
...
D 'tax' to mean a tax leviable under the Act. Section 3 provides that a tax shall
be leviable on every motor vehicle used or kept for use in the State at the
rates specified in the First Schedule. Section 16 provides for power of entry,
seizure and detention of motor vehicles in case of non-payment of tax. Sub-
sections (1) to (5) of Section 16 of the 1991 Act read as under:

E "16. Power of entry, seizure and detention of Motor Vehicles in case
of non-payment of tax : (1) The Taxation Authority or any other
officer, authorised by the State Government in this behalf, may at all
reasonable time enter into and inspect any motor vehicle or premises
where he has reason to believe that a motor vehicle is kept for the
purpose of verifying whether the provisions of this Act or any rules
F made thereunder are being complied with:

Provided that no officer shall be authorised under this sub-section
with respect to motor cycles and motor cars :

(2) Any person driving a motor vehicle in any public place shall, on
G being so required by the Taxation Authority or any officer authorised
in this behalf by the State Government, produce-

(a) the certificate of registration;

(b) the token in evidence of the payment of tax; and
H
HARDEV MOTOR TRANSPORT v. STA TE OF M.P. [S.B. SINHA, J.] 775
(c) the certificate of insurance relating to the use of the vehicle and A
shall keep such vehicle stationary for such time as may be required
by such authority or officer to satisfy himself that the tax in respect
of such motor vehicle has been paid :

Provided that in the case of a motor vehicle other than a transport
vehicle; the certificates so required shall be produced for inspection B
within such period and in such manner as may be prescribed under
Sub-section (4) of Section 130 of the Motor Vehicles Act, 1988.

(3) The Taxation Authority or any officer authorised by the State
Government in this behalf may ifhe has reason to believe that a motor
vehicle has been or is being used without payment of tax, penalty or C
interest due, seize and detain such motor vehicle and for this purpose
take or cause to be taken any step as may be considered proper for
the temporary safe custody of such motor vehicle and for the
realisation of tax due.

(4) Where a motor vehicle has been seized and detained under Sub- D
section (3), the owner or the person incharge of such vehicle may
apply to the Taxation Authority or any officer authorised in this
behalf by the State Government together with the relevant documents
for the release of the vehicle and if such authority or officer after
verification of such documents, is satisfied that no amount of tax is E
due in respect of that vehicle, may by an order in writing release such
vehicle.

(5) Where a motor vehicle has been seized and detained under Sub-
• section (3), the Court taking cognizance of the offence shall not
release such vehicle." F
Section 23 of the 1991 Act empowers the State to amend the Schedule
in regard to the rates of tax by not more than fifty per cent of the rates
specified therein. As noticed hereinbefore, the rate of tax is specified in the
First Schedule appended to the said Act. Entry IV of the First Schedule
provides for public service vehicle. The relevant portions of Clauses (d), (t) G
and (g) of Entry IV of the First Schedule read as under:

"Class of Motor Vehicle Rate of Quarterly tax for Motor Vehicles

IV. PUBLIC SERVICE VEHICLE
H
776 SUPREME COURT REPORTS (2006] SUPP. 7 S.C.R.

A ******
(d) Vehicles pennitted to carry more than six passengers plying as
stage carriage on routes other than city routes

***
B (2) In respect of vehicles pennitted to ply as ordinary service for every
passenger which the vehicle is pennitted to carry and where the total
distance pennitted to be covered by a vehicle in a day

(i) does not exceed 100 kms.

C (ii) thereafter for each 10 kms.

***
Rs. 160 per seat per month

Rs. I0 per seat per month.
D
(t) Contract carriage

***
(3) Vehicle pennitted to carry more than six passengers and plying as
contract carriage covered by all India Tourist permit issued by other
E
State under sub-section (9) of Section 88 of the Motor Vehicles Act,
1988 for each seat (excluding driver) which the vehicle is permitted to
carry.

***
F (5) Vehicles permitted to carry more than six passengers and plying
as contract carriage on special permit granted under sub-section (8)
of Section 88 of the Motor Vehicle Act, 1988 by the other State for
each seat (other than the driver) which the vehicle· is permitted to
carry
G Rs. 40.00 per seat per day for the entire period vehicle remains in
Madhya Pradesh

50 paise for ordinary bus and Re. I for deluxe/ air-conditioned bus per
seat per I0 kms ..or part thereof for the entire distance to be covered
in accordance with the conditions of the pennit, in addition to tax paid
H
HARDEY MOTOR TRANSPORT v. STATE OF M.P. [S.B. SINHA, J.] 777
under clause (c), (d), (e) or (t)(2) as the case may be. A
(g) Motor Vehicle plying without permit (a) Vehicle permitted to carry
exceeding 3 but not exceeding 29 passengers (excluding driver)

(b) Vehicle permitted to carry exceeding 29 passengers (excluding
driver) · B
Rs. 600 per seat per month in accordance with entire registered seating
capacity; Rs. I000.00 per seat per month in accordance with entire
registered seating capacity."

Explanation (7) of the First Schedule reads as under:
c
"Explanation (7) - The words "plying without permit" in Clause (g)
shall include plying of a public service vehicle on an authorised route
or making a trip not authorised by a permit granted under the Motor
Vehicles Act, 1988 but shall not include the plying of a public service
vehicle under circumstances laid down in Sub-section (3) of Section D
66 of the Motor Vehicles Act, 1988."

Sub-clause (3) of Clause (t) and Clause (g) of Entry IV of the First
Schedule were amended in the following terms:

"(3) Vehicle permitted to carry more than six passengers and plying E
as contract carriage covered by all India Tourist permit issued by
other State under sub-section (9) of Section 88 of the Motor Vehicles
Act, 1988 for each seat (other than the driver) which the vehicle is
permitted to carry - Rs. 200.00 per seat per week or part thereof till the
vehicle remains in Madhya Pradesh."

"(g) Motor vehicle plying without permit;
F

A. Vehicle permitted to carry upto 12 passengers (excluding driver)
Rs. I000.00 per seat per month in accordance with the entire registered
seating capacity.

B. Vehicle permitted to carry more than 12 passengers (excluding G
driver)- Rs. 1500.00 per seat per month in accordance with the entire
registered seating capacity."

Tax imposed on motor vehicles in terms of the provisions of the 1991
Act is a regulatory one. It was so held in Boiani Ores Ltd. v. State of Orissa,
[1974] 2 sec 111 stating: H
778 SUPREME COURT REPORTS [2006] SUPP. 7 S.C.R.

A "... If the vehicles do not use the roads, notwithstanding that they are
registered under the Act, they cannot be taxed ...."

We may, however, hasten to add that even if a vehicle is roadworthy
and can be plied on a road, a tax may be imposed, but if a vehicle is not
capable of being plied on the road, no tax would be leviable.
B
In Automobile Transport (Rajasthan) Ltd etc. v. The State of Rajasthan
and Ors., (1963] l SCR 491, it is stated:

"We were addressed at some length on the distinction between a tax,
a fee and an excise duty. It was also pointed out to us that the taxes
C raised under the Act were not specially ear-marked for the building or
maintenance of roads. We do not think that these considerations
necessarily determine whether the taxes are compensatory taxes or
not. We must consider the substance of the matter and so considered,
there can be no doubt that the taxes imposed are no hindrance to the
freedom of trade, commerce and intercourse. If a statute fixes a charge
D for a convenience or service provided by the State or an agency of
the State, and imposes it upon those who choose to avail themselves
of the service or convenience, the freedom of trade and commerce may
well be considered unimpaired. In such a case the imposition assumes
the character of remuneration or consideration charged in respect of
E an advantage sought and received."

The power of the State of Madhya Pradesh to seize a vehicle in terms
of Section 16(6) of the 1991 Act came up for consideration before this Court
in MP. AIT Permit Owners Assn. and Anr. v. State ofM.P., [2004] 1 SCC 320.
The questfon which arose for consideration therein was that having regard
F to the fact that the Parliamentary Act provides for a lesser penalty as specified
in Section 192A thereof, can the State by reason of the taxing statute impose
a higher penalty? It was held:

"Section 192-A of the MV Act provides that if a motor vehicle is
driven in contravention of Section 66(1 ), that is, if a vehicle is driven
G or caused to be driven as a transport vehicle without permit, or in /

contravention of any condition thereof relating to the route on which
or the area in which or the purpose for which the vehicle may be used,
the user is punishable with fine for the first offence and imprisonment
for the subsequent offence but this section does not provide for
H confiscation of the vehicle. Section 16(6) of the Act provides that
HARD EV MOTOR TRANSPORT v. STATE OF M.P. [S.B. SINHA, J.] 779
subject to the provisions of sub-section (8), where upon receipt of A
report about the seizure of the vehicle under sub-section (3), the
taxation authority is satisfied that the owner has committed offence
under Section 66 read with Section 192-A of the MV Act of plying
vehicle without permit and he may by order in writing and for reasons
to be recorded confiscate the vehicle seized under the said provision. B
Under Section 16(3) of the Act, a vehicle seized for non-payment of
tax or other dues is liable to be returned on showing that tax has been
paid. Thus, if tax with regard to the seized vehicle is paid that vehicle
has got to be released. So far as the link that is sought to be established
with taxation procedures is concerned, it snaps the moment tax is paid
and vehicle is released. Jn such an event also motor vehicle can be C
confiscated on a report that such vehicle has been seized. The cause
or basis for confiscation of motor vehicle is driving such vehicle
contrary to Section 66 of the MV Act read with Section 192-A of the
MV Act and a report of seizure under Section 16(3) of the Act."

The said decision, however, was rendered on the premise that the State D
Act is repugnant to the Central Act.

It is, however, not in dispute that the 1991 Act has received the assent
of the President of India. While considering the question of constitutionality
of the provisions of the 1991 Act, therefore, Article 254(2) of the Constitution
of India may not have any role to play. E
We may at this juncture notice that the concepts of tax, compensatory
tax and fees having regard to diverse decisions rendered by this Court over
a number of years were referred to a Constitution Bef!ch. The decision of the
Constitution Bench of this Court is since reported in Jindal Stainless Ltd & F
Anr. v. State of Haryana & Ors., JT (2006) 4 SC 611. The Constitution Bench
of this Court made a deep analysis of the nature of tax, principles of imposition
of tax, compensatory tax and levy of fee and stated the law, thus:

"Tax is levied as a part of common burden. The basis of a tax is the
ability or the capacity of the taxpayer to pay. The principle behind the G
levy of a tax is the principle of ability or capacity. In the case of a tax,

I 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,
H
780 SUPREME COURT REPORTS (2006] SUPP. 7 S.C.R.

A 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."

B In regard to compensatory tax, it was opined:

"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
c 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
D 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 capacity (principle of ability). Taxes may be progressive
rather than proportional. Compensatory taxes, like fees, are always
proportional to benefits. They are based on the principle of equivalence.
E However, a com.pensatory tax is levied on an individual as a member
of a class, whereas a fee is levied on an individual as such. If one
keeps in mind the "principle of ability" vis-a-vis the "principle of
equivalence", then the difference between a tax on one hand and a
fee or a compensatory tax on the other hand can be easily spelt out.
p Ability or capacity to pay is measurable by property or rental value.
Local rates are often charged according to ability to pay. Reimbursement
or recompense are the closest equivalence to the cost incurred by the
provider of the services/facilities. The theory of compensatory tax is
that it rests upon the principle that ifthe Government by some positive
action confers upon individual(s), a particular measurable advantage,
G it is only fair to the community at large that the beneficiary shall pay
for it. The basic difference between a tax on one hand and a fee/
compensatory tax on the other hand is that the former is based on the
concept of burden whereas compensatory tax/fee is based on the
concept ofrecompense/reimbursement. For a tax to be compensatory,
there must be some link between the quantum of tax and the facility/
H
HARDEY MOTOR TRANSPORT v. STATE OF M.P. [S.B. SINHA. J.] 781

services. Every benefit is measured in terms of cost which has to be A
reimbursed by compensatory tax or in 1he form of compensato1J tax. 1

In other words, compensato1y tax is a recompense/reimbursement.

Opining that compensatory tax being a judicially evolved concept, it
was observed that the scope and effect thereof must be construed within the
said parameters. B
In G.K. Krishnan and Ors. v. State of Tamil Nadu and Ors., [1975] l SCC
375, Mathew, J. stated the law, thus:

"Strictly speaking, a compensatory tax is based on the nature and
the extent of the use made of the roads, as, for example, a mileage or C
ton-mileage charge or the like, and if the proceeds are devoted to the
repair, upkeep, maintenance and depreciation of relevant roads and
the collection of the exaction involves no substantial interference with
the movement. The expression "reasonable compensation" is
convenient but vague. The standard of reasonableness can only lie D
in the severity with which it bears on traffic and such evidence of
extravagance in its assessment as come from general considerations.
What is essential for the purpose of securing freedom of movement
by road is that no pecuniary burden should be placed upon it 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. The difficulties E
are very great in defining this conception. But the conception appears
to be based on a real distinction between remuneration for the provision
of a specific physical service of which particular use is made and a
burden placed upon transportation in aid of the general expenditure
of the State. It is clear that the motor vehicles require, for their safe, F
efficient and economical use, roads of considerable width, hardness
and durability; the maintenance of such roads will cost the Fovemment
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 seems not unreasonable that they should be called upon to G
make a special contribution to their maintenance over and above their
general contribution as taxpayers of the State. If, however, a charge
is imposed, not for the purpose of obtaining a proper contribution to
the maintenance and upkeep of the road, but for the purpose of
adversely affecting trade or commerce, then it would be a restriction
H
782 SUPREME COURT REPORTS [2006] SUPP. 7 S.C.R.

A on the freedom of trade, commerce or intercourse."

We are not oblivious of a recent decision of this Court in Vijaya/ashmi
Rice Mill and Ors. v. Commercial Tax Officers, Pa/aka/ and Ors., [2006] 6
SCC 763, although we are not strictly concerned therewith, but we notice that
herein the application of Jindal Stainless ltd. (supra) was kept limited stating:
B
"It may be noted that the decision in Jindal Stainless was given in
connection with Article 30 I of the Constitution, and it was not
regarding the nature of a fee. Hence, it cannot be regarded as an
authority explaining the nature of a fee."

C We, however, feel that this Bench is bound by the Constitution Bench
decision of this Court.

The issue which arises for our consideration in the light of the
aforementioned authoritative pronouncement, as noticed hereinbefore, is
whether the impugned provision specifies the test laid down by the Constitution
D Bench.
,'
Section •3 of the 1991 Act is the charging section. It provides that the
tax shall be levied on every motor vehicle used or kept for use in the State
at the rates specified in the First Schedule. The levy of tax, therefore, is on
the motor vehicles. Its rate may vary keeping in view its use or the nature
E thereof. However, the use of a motor vehicle so far as public service vehicles
are concerned would depend upon the nature of permit held by it. It is not
in dispute that Appellants herein have been granted permit for plying their
buses as contract carriage. Allegation against this is that they have been
violating the terms and conditions of the permit by plying their vehicles as
F stage carriage. It is, however, not in dispute that the rate of tax of a contract
carriage permit is more than the stage carriage. Clause (g) of Entry IV specifies
the rate of tax of motor vehicle plying without permit at the rate of Rs. 1500/
- per seat per month.

Explanation (7) of the First Schedule of the 1991 Act does not create
G any legal fiction. It provides for a inclusive definition stating that the words
"plying without permit" in Clause (g) shall include plying of a public service
vehicle on an authorized route or making a trip not authorized by a permit
granted under the 1988 Act.

The role of an explanation of a statute is well-known. By inserting an
H
HARD EV MOTOR TRANSPORT v. STATE OF M.P. [S.B. SINHA, J.] 783
Explanation in the Schedule of the Act, the main provisions of the Act A
cannot be defeated. By reason of an explanation, even otherwise, the scope
and effect of a provision cannot be enlarged. It was so held in S. Sundaram
Pillai, etc. v. R. Pattabiraman, AIR (1985) SC 582: (1985] I SCC 591 in the
following terms:

"Thus, from a conspectus of the authorities referred to above, it is B
manifest that the object of an Explanation to a statutory provision is

"(a) to explain the meaning and intendment of the Act itself,

(b) where there is any obscurity or vagueness in the main enactment,
to clarify the same so as to make it consistent with the dominant C
object which it seems to subserve,

- (c) to provide an additional support to the dominant object of the Act
in order to make it meaningful and purposeful,

(d) an Explanation cannot in any way interfere with or change the D
enactment or any part thereof but where some gap is left which is
relevant for the purpose of the Explanation, in order to suppress the
mischief and advance the object of the Act it can help or assist the
Court in interpreting the true purport and intendment of the
enactment.. ... "
E
[See also Swedish Match AB and Anr. v. Securities & Exchange Board
oflndiaandAnr., [2004] lI SCC641]

We have noticed that the Constitution Bench categorically states that
compensatory tax cannot be progressive. We have furthermore noticed that,
according to the Constitution Bench, imposition of tax cannot be a term or F i

condition of a licence. If a permit has been granted, the holder of a permit is
liable to comply with the conditions of permit. If he violates the terms and
conditions of permit, law will take its own course. A permit is granted under
the 1988 Act. If there is violation of the terms of permit, the consequences,
therefor, shall ensue as contained in Section 192A of the 1988 Act. A distinction
must be borne in mind that a tax cannot be imposed by way of penalty G
... although penalty can be imposed for non-payment of tax or evasion of tax .
The State may make suitable legislations in this behalf. But the same would
not mean that while specifying a rate of tax, the executive Government of the
State can indirectly levy a penalty which it cannot do directly.
H
784 SUPREME COURT REPORTS [2006] SUPP. 7 S.C.R.

A Our attention has been drawn to a decision of this Court in State of U.P.
and Ors. v. Sukhpal Singh Bal, [2005] 7 SCC 615 and in particular the
following passage:

In the case of State of Madras v. V.G. Row (AIR at p. 200, para 15)
this Court observed as follows: (SCR p. 607)
B
"It is important in this context to bear in mind that the test of
reasonableness, wherever prescribed, should be applied to each
individual statute impugned, and no abstract standard, or general
pattern of reasonableness can be laid down as applicable to all cases.
The nature of the right alleged to have been infringed, the underlying
c purpose of the restrictions imposed, the extent and urgency of the evil
sought to be remedied thereby, the disproportion of the imposition,
the prevailing conditions at the time, should all enter into the judicial
verdict."

Kapadia, J. in that case was dealing with the constitutionality of a penal
D provision. It was stated that before a penalty can be imposed, mens rea on
the part of the defaulter is required to be established. The said decision is
merely an authority for the proposition that a statute may provide for a fixed
penalty or minimum penalty. But it was not laid down therein that penalty can
be imposed without giving an opportunity of hearing to the defaulter or
E without satisfying the other conditions laid down therefor. [See also State of
T.N. v. M. Krishnappan and Anr., [2005] 4 SCC 53].

The transport authorities of the State indisputably have a power to
check a vehicle so as to ascertain whether payment of tax is being evaded.
They have been conferred with the power to detain a vehicle. They can
F release the vehicle only when tax as demanded is paid. Even the power of the
court to release the vehicle has been taken away unless tax is paid and the
court can satisfy itself as to whether a tax is paid or not only on the receipt
of the certificate issued by the transport authorities of the State. The power
of the transport authorities, therefore, is very wide. We, however, do not mean
G to suggest that only because a wide power has been conferred the same by
itself would lead to a presumption that the same is capable of misuse or on
that count alone the provisions of Article 14 of the Constitution of India
would be attracted. But, when a statue confers a wide power upon a statutory
authority, a closer scrutiny would be required.

H The 1991 Act also does not make any provision for compliance of the ....
HARD EV MOTOR TRANSPORT v. STA TE OF M.P. [S.B. SINHA, J.) 785

principles of natural justice or for detennination of a question as to whether A
the conditions of permit have been violated by an independent authority.

Appellants have paid tax. They have paid tax as specified for in permits
granted in their favour as a contract carriage. The rate of tax payable by a
contract carriage is higher than the rate of tax imposed on a stage carriage.
For non-payment of tax or for payment of tax for a wrong purpose, a penalty B
can be imposed but it is difficult to conceive that a different rate of tax which
is not contemplated under Section 3 of the 1991 Act can be imposed by way
of penalty.

The interpretation clauses contained in the 1988 Act are incorporated
in the 1991 Act by reference. The interpretation of the expressions "permit'', C
"contract carriage" and "stage carriage" must, thus, be understood on the
premise that the said expressions carry the same interpretation as contained
in the 1988 Act.

A distinction between "contract carriage" and "stage carriage" has D
been noticed by this Court in State of A.P. and Ors. v. B. Noorulla Khan and
Anr., (2004] 6 SCC 194 stating:

"The distinction between a stage carriage permit or a contract
carriage permit as envisaged by the legislature has to be maintained
as the two types of permits are intended to meet different requirements. E
The contract carriages are for those who want to hire the vehicle
collectively or individually for a group or a party for their transport
to a destination/destinations. The vehicle has to be hired as a whole
for the carriage of passengers mentioned in the contract. There has
to be only one contract for carrying the passengers mentioned in the
contract from one destination to another. An agent or a group of F
persons/individuals cannot hire a public service vehicle for going
from one place to another with passengers having different purposes.
If such a construction is put then there would be no distinction
between stage carriage or contract carriage permits. If contract carriage
permit-holder is permitted to pick up an individual or a few of them G
.
, from the starting point of the journey and drop them at the last
terminus of the route it would virtually be a stage carriage with
corridor restriction. Stage carriage is intended to meet the requirements
of the general public travelling from one destination to another having
different purposes whereas a contract carriage is meant for those who
want to hire a public service vehicle as a whole collectively for their H
786 SUPREME COURT REPORTS [2006) SUPP. 7 S.C.R.

A transport from one destination to another having the same purpose ... "

As a logical corollary the mode and manner in which the permits are
granted must necessarily be considered to be part of the provisions of the
1991 Act. Article 254(2) of the Constitution of India as such may not be
attracted but it is a trite law that the executive while fixing a rate of duty
B cannot be permitted to usurp the legislative power and make a provision
which would be inconsistent with the substantive provision of the statute.
In other words, the provisions contained in the Schedule must be in
consonance with the substantive provisions in the main Act. It must be in

C
conformity with the charging Section. As in terms of Section 3 of the 1991
Act, the legislature directed that the tax can be levied on motor vehicles
--
subject to the rates fixed; by taking recourse to Explanation (7), firstly, no new
definition could be introduced and, secondly, an owner of a vehicle having
one kind of permit could not have been treated as having no permit at all only
because the transport authorities have reasons to believe that the conditions
of permit have been violated. By way of example we may notice that recently
D a Constitution Bench of this Court in State of Kera/a and Ors. v. Maharashtra
Distilleries Ltd. and Ors., [2005] 11 SCC I has laid down guidelines for
reading of the entries in the Schedule vis-a-vis the provisions of the Act.

For the reasons aforementioned, Clause (g) of Entry IV of the First
Schedule of the Madhya Pradesh Motoryan Karadhan Adhiniyam, 1991 (for
E short "the 1991 Act") as amended by Madhya Pradesh Motoryan Sanshodhan
Adhiniyam, 2004 read with Explanation (7) of the First Schedule is declared
unconstitutional. The appeals are allowed. No costs.

v.s.s. Appeal allowed.