Holding

Section 3(3) of the Haryana Passengers and Goods Taxation Act does not violate Article 301 and is a valid regulatory and compensatory tax within the State’s power under Entry 56 of List II.

Summary

The petitioners, transport operators, challenged the validity of Section 3(3) of the Haryana Passengers and Goods Taxation Act, 1952, which levied a tax on passengers and goods carried on routes partly within Haryana, arguing that it infringed the freedom of inter‑state trade under Article 301 and was not a permissible regulatory or compensatory tax. The Court examined the constitutional entries, holding that Entry 56 of List II authorises the State to impose such taxes and that the omission of national highways from other entries indicates that they fall within the State’s taxing power. It clarified that regulatory and compensatory taxes are outside the scope of Article 301 and need not be proportionate to actual expenditure, provided there is a nexus between the tax and the State’s services. The Court also rejected the contention that the tax violated Article 14, noting that the tax is based on the use of State‑maintained facilities. Consequently, Section 3(3) was held constitutional, and all the appeals, special leave petitions and writ petitions were dismissed with costs.

Issues considered

The constitutionality of Section 3(3) of the Haryana Passengers and Goods Taxation Act in light of Article 301 of the Constitution
Whether the tax is a regulatory/compensatory tax and thus outside the ambit of Article 301
The scope of Entry 56 of List II versus Entry 23/97 of List I concerning taxation on national highways
Whether the tax violates Article 14 on the ground of unequal treatment
The applicability of similar provisions in the Uttar Pradesh Motor Vehicles Taxation Act and the Bihar Taxation Act

Legislation cited

Bihar Taxation of Passengers and Goods (Carried by Public Service Motor Vehicles) Act, 1961s. 3(6)
Haryana Passengers and Goods Taxation Act, 1952s. 3(1), s. 3(3)
National Highways Act, 1956s. 2(1), s. 3, s. 4, s. 5, s. 6, s. 8
Uttar Pradesh Motor Gadi (Malkar) Adhiniyam, 1964s. 9
Uttar Pradesh Motor Vehicles Taxation Acts. 4, s. 5A, s. 9

Subjects

interstate tradeArticle 301regulatory taxcompensatory taxEntry 56 List IINational Highwaysfederalismconstitutional lawtaxation

Judgment

364 •
A INTERNATIONAL TOURIST CORPORATION ETC. ETC.
v.
STATE OF HARYANA & ORS.
B AND
MANMOHAN VIG & ORS.
v.
STATE OF HARYANA & ORS.
December 15, 1980/
c January 13, 1981
[R. S. SARKARIA AND 0. CHINNAPPA REDDY, JJ.]

Haryana Passengers and Goods Taxation Act, 1952-Whether section 3(3)
interferes with the freedom of Inter-state Trade, Commerce and Intercourse
and is therefore violative of Article 301 of the Constitution-Interpretation of
D Entri~s in the C'onstitution-Exclusive competence of Parliarnent, when can be
clain1ed-Levy of tax at 60% of fare, whether regulatory and compensatory in
nature-Entry 56, List II of Seventh Schedule to the Constitution, scope of.

[J.P. Motor Vehicles Taxation_ Act, scope of sections 4 and SA---..'iection 9
of the U.P. Motor Gadi (Malkar) Adhiniyam, 1964 is not violative of Article
14 of the Constitution.
E
Bihar Taxation of Passengers and Goods (Carried by Public Service Motor
Vehicles) Act, 1961, section 3(6), scope of.

-Dismissing the Appeals, S.L.Ps. and Writ Petitions the Court

HELD : ( 1) Where the competing entries arc an Entry in List II and Entry
97 in List I the Entry in the State list must be given a broad and plentiful inter·
F pretation. In a Federal Constitution like ours where there is a division of legis-
Ialivc subjects but the residuary power is vested in Parliament, such residuary
power cannot be so expansively interpreted as to whittle down the power of the
Slate legislature. That might affect and jeopardise the very federal principle.
The federal nature of the constitution demands that an interpretation which
\\·ouJd allow the exercise of legislative power by Parliament pursuant to the
residuary powers vested in it to trench upon State legislation and which '"ould
G thereby destroy or belittle state autonomy must be rejected. Before exclusive
legislative competence can be claimed for Parliament by resort to the residuary
power, the legislative incompetence of the State legislative must be clearly
established. Entry 97 itself is specific that a matter can be brought under that
entry only if it is not enumerated in List II or List m and in the case of a
tax if it is not mentioned in either of those lists. [372 A-D, 373C-D]
H •
The Haryana Passengers and Goods Taxation Act is a law made pursuant
to the power given to the State Legislature by Entry 56 of List II. The omis-
sion of reference to National Highways in Entry 30 and Entry 89 is of signifi-
INTERNATIONAL TOURIST CORPN. V. HARYANA 365

caitce and indicates that the subject of "passengers and goods" carrieo .in A
National High'\\nys is reserved for inclusion in the State List. A consideration
of Entries 22, 23, 24, 29, 39 and 89 of List I and Entry 56 of List II makes
it clear that taxes on passengers and goods carried on National Highways also
fall directly and squarely within and are included in Entry 56 of List II.
[373 D-G & 374 CJ

Attorney-rJeneral for Ontario v. Attorney-General for the 1>01ni11ion, 1896 B
A.C. 348 @ 360-361; A. L. S. P. L. Subrahmanyan Chettiar v. Mutlu.swami
Goundan, A.I.R. 1941 Federal Court 47 @ 55 and Manikkasundara Bhattar &
Ors. v. R. S. Nayudu & Ors., [1946] F.C.R. 67 @ 88, quoted with approval.
(2) The power exercisable under Entry 56 of List II is the power to im-
pose taxes which are in the nature of regulatory and compensatory measures.
The Court is not bound by any statement made by or on behalf of the Exe-
cutive Government on a question of the legislative intent or nature of an enact-
ment. What the legislature intended an enactment to be need not necessarily
be what the Government says it is. It is a matter of construction, in the light
• of several attendant circumstances including the source of the legislative power
under the Constitution to make the particular law. [374 B-C, n·-E]

Aliabari Yea Co. Ltd. v. State af Assam & Ors., [1961] 1 S.C.R. 809; The D
Automobile Ttansport (Rajasthan) Ltd. v. State of Rajasthan & Ors. [1963]
1 S.C.R. 491 and Boiani Ores Ltd. etc. v. State of Orissa etc., fl975] 2 SCR
138, followed.

(3) To say that the nature of a tax is of a compensatory and regulatory
nature is not to say that the measure of the tax should be proportionate to the
expenditure incurred on the regulation provided and the services rendered. If
the tax were to be proportionate to the expenditure on regulation and service it
E
would not be a tax but a fee. While in the case of a fee it may be possible
to precisely identify and measure the benefits received from the Government
and levy the fee according to the benefits received and the expenditure in-
curred, in the case of a regulatory and compensatory tax it would ordinarily
be well nigh impossible to identify and measure, with any exactitude, the bene-
fits received and the expenditure lncurred and levy the tax according to the
benefits received and the expenditure incurred. What is necessary to uphold a F
~-- regulatory and compensatory tax is the existence of a specific, identifiable ob-
' ject behind the levy and a nexus between the subject and the object of the
levy. If the object behind the levy is identifiable and if there is sufficient nexus
• ;. between the subject and the object of the levy, it is not necessary that the
money realised by the levy should be put into a separate fund or that the levy
should be proportionate to the expenditure. There can be no bar to an inter-
mlngling of the revenue realised from regulatory and compensatory taxes and G
~ from other taxes of a general nature nor can there be any objection to more
or less expenditure being incurred on the object behind the compensatory and
regulatory levy than the realisation from the levy. [374 F-H, 375 A-C]

The maintenance of highways other than the National Highways is ex-
• clusively the responsibility of the State Government. In view of the provisions H
of the Na!i~~al ~ighways Act, the State Government is not altogether devoid
of respons1b1Itty 1n the matter of development and maintenance of a National
Highway, though the primary responsibility is that of the Union Government.
'
366 SUPREME COURT REPORTS [1981] 2 S.C.R. •
A It is under a statutory obligation to obey the directions given by the Central
.
·Government with respect to the development and maintenance of National
High\vays and may enter into an agreement .to share the expenditure. In
developing and maintaining that part of the Highway wbic~ is \\'ithin a muni-
cipal area State Government is surely facilitating the flow of passengers and
goods along the national highway. Apart from this, other facilities provided
by the State Government along all highways including national highways such
B
as lighting, traffic control, amenities for passengers, halting places for buses
and trucks are available for use by everyone including those travelling along
the national highway. [376 A, C-F1

The State ,Government does confer benefits and renders service in connec-
tion with traffic moving along national highway. Therefore, there is sufficient
nexus between the tax and passengers and goods carried on national highways
c to justify the imposition. (376 G-H]

(4) It is now settled that regulatory and compensatory taxes are outside
th~ purview of Article 301 of the Constitution. In the instant cases, the tax
is limited to the fare and freight for the distance- within the State of Haryana.
Therefore, section 3(3) of the Haryana Passengen; and Goods Taxation Act is
not violative of Article 301 of the Constitution. (377 A, 378 Bl
D
Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan, (1963] I
S.C.R. 491 and Mis. Sainik Motors Jodhpur & Ors. v. The State of Ra;asthan,
(1962] I S.C.R. 517 @ 526; applied.

(5) Under sections 4 and SA of the Uttar Pradesh Motor Vehicles Taxa-
tion Act, tax is levied on the basis of their user in the State of Uttar Pradesh
E and not because they are "kept" in the State of Uttar Pradesh. [378 G-H]

State of Mysore & Ors. v. S. Sundaram Motors P. Ltd. A.I.R. 198G S.C.
148, distinguished.

(6) The levy made on vehicles passing through IJ'ttar Pradesh from a
place outside Uttar Pradesh is not violative of Article 14 of the Constitution.
The taix is payable because of the user of the roads \Vhile the, question of pick·
,
Ulg up and ~etting down passengers and goods at wayside stations enroute is
dependant on the conditions of the permit and the reciprocal agreements bet- -
,,.,._
ween the States. One has nothing to do with the other. (379 B-C]

(7) Entry 56 of List II cannot be read in conjunction with Entry 26. The
taxing power of the State Legislature in regard to passengers and goods
G carried by roads or inland waterways is to be found in Entry 56. Therefore,
such taxing power is not controlled by another Entry in List 11 which is un-
related to taxing power. The taxable event is the carrying of goods and
passengers on roads within the State thereby making use of the facilities pro-
vided by the State. [379 F-G]

H
(8) Section 9 of the Uttar Pradesh Motor Gadi (Malkar) Adhiniyam.
1964 is not violative of Article 14 of the Constitution. The rate of lumpeum
•
tax is re1ataoble to the freight carried or the period of the journey or to both.
[380 A, F-GJ . '"':'•
• INTERNATIONAL TOURIST CORPN. V. HARYANA 367

(9) Under section 3(6) of the Bihar Taxation of Passengers and Goods A
(Carried by Pnblic Service Motor Vehicles) Act, 1961, tax can be leriecl
where passengers or goods are carried from any place outside
the State to any place outside the State because the vehicle passes
through the State of Bihar. A journey from a place outside the State to
another place outside the State, but through the StU1te, involves a
journey from a place outside the State to a place inside the State and a journey
from a place inside the State to a place outside the State.. [380 G-H, 381 F-G] B
Pritpal Singh v. State of U.P., (1973) U.P. Tax Cases 376, partly over-
ruled on this question only.

CML APPELLATE JurusmcnoN : Civil Appeal Nos. 638, 656,
786 and 2632 of 1979. c
Appeals by Special Leave from the Judgment and Order dated
9-1-1979 of the Pnnjab & Haryana High Court in Civil Writ Nos.
• 3870/77, 1564/77, 4080/77 and 3631/77 .
WITH
SPECIAL LEAVE PETITION (CIVIL) Nos. 8961-62/79. D
From the Judgment and Order dated 7.. 10-1980 of the Allahabad
High Court in Civil Writ Petition No. Nil.
AND
WRIT PETITION Nos. : 183 of 1977, 3967 of 1978, 5116 to 5143,
E
5151-5159 of 1980, 657, 910-913, 922-23, 1039-40, 1192, 1344,
1347 of 1979, 324, 421, 451, 820, 880, 881, 1152, 1153, 1154, 1207,
1404, 1426, 1541, 1542, 1561, 1563, 1650, 1651, 1714, 1715, 1716,
1717, 1730, 1731, 1732, 1855, 1948-49, 2032-34, 2162, 2164, 2165,
2415, 2416, 2418, 2419, 2420, 2421, 2626, 2627, 2628, 2629, 2630
2631, 2632, 2636, 2638, 2639-2640, 2641, 3015-30, 3043-3044, 3054, p
3055-3056, 3456-3457, 3703, 3704, 3705-3708, 3712-3715, 3716,
3803, 3823, 4326, 4333, 4334, 4335, 4336, 4337-38, 4532, 4534,
4682, 4683, 4684, 4685, 4708, 4709-4711, 5500, 5506, 5507, 5495-

-' 5497, 5505, 5508-9, 5426, 5416-20, 5427, 5415, 5526-27, 5536,
5333, 3289, 4347, 4348, 4753, 5629-33/80, 364, 337 /72, 3822,
2160, 2164, 636, 1429, 1782-83, 2163 and 2124/80. G
(Under Article 32 of the Constitution).
Soli J. Sorabji, B. R. Kapoor and R. A. Gupta for the Appellant
in CA 639/79.
Y. S. Chitale (Dr.) and lndm Makwana for the Appellant in CA
656/79. H
Indra Makwana and Sushi! Kumar Jain for the Appellant in CA
786/79.
368 SUPREME COURT REPOl!.TS (1981] 2 S.C.R. •
A P. R. Mridul, B. R. Kapoor, Miss Re11u Gupta, R. Salish Vig and
N. !:Ii. Sharma for the Appellant in CA 2632 and Petitioners in SLP
Nos. 8961-8962/80.
K. G. Bhagat, D. Goburdhan, M. N. Shroff, Miss A. Subhashini,
M. Vecrappa, S. K. Gambhir, Gijay Hansonia, R. K. Mehta, B. D.
B SharmJJ, N. Hansonia and S. Markandeya for the Respondent (State)
in all the matters.
L. N. Sinha Att. Genl. and S. Markandeya for the Respondent
(State of Uttar Pradesh) .
B. R. Kapoor, Renu Gupta, S. R. Srivastava, N. N. Sharma, U. S.
c Prasad, Mrs. M. Qamruddin, S. Markandeya and M. P. !ha for th~
Petitioners.

The Judgment of the Court was delivered by
CHINNAPPA REDDY, J. Civil Appeals Nos. 638, 656, 786 and
2632 of 1979 may be dealt with first as the principal submissions were
D made in these cases. The appellants are transport operators plying
stage carriages and contract carriages between Delhi and Jammu and
other places in the State of J ammu and Kashmir. Their carriage~
follow National Highways 1 and 1-A. They operate directly between
Delhi and the other terminus in the State of Jammu and Kashmir, that
is to say, they do not pick up or set down passengers or goods enroute.
E
In the course of the journey it is necessary for them to travel through
the State of Haryana as part of National Highway No. l passes through
that State. The State of Haryana levies a tax on passengers and
goods carried by motor vehicles, which we may call, for brevity's sake,
'passengers and goods tax'. The levy is made under the provisions of
F the Haryana Passengers and Goods Taxation Act 1952. Sec. 3(1)
of the Act empowers the levy of a tax. to be paid to the State Govern-
ment, at such rates not excee<ling ~)% of the vnlue of the fare or
freight as the case may be, on all passengers and goods carried by a
motor vehicle other than a private carrier. In the case of contract
carriages and stage carriages the State Goverurnent is authorised to
.-
G accept a lumpsum in lieu of the tax chargeable ori passengers and
goods respectively, in the manner prescribed. Sec. 3 (3) deals with
situations where a route lies partly within and partly outside the State
•
of Haryana. It reads, as follows :
"S. 3 ( 3). When passengers and goods are carried by
H a motor vehicle on a 'joint route', the tax shall be payable in •
respect of fare or freight for the distance covered within the
State at the rate laid down in this section.
... INTERNATIONAL TOURIST CORPN. V. HARYANA
(Chinnappa Reddy, J.)
369

Explanation : For the purpose of this sub-section, 'jornt A
route' shall mean a route which lies partly in the State of
Haryana and partly in some other State, or Union Territory."
The appellants question the vires of Sec. 3 ( 3) of the Haryana Passen-
gers and Goods Taxation Act in so far as it permits the levy of tax on
passengers and goods carried by their carriages plying entirely along B
the National Highways. The Writ Petitions filed by them in the High
Conrt of Punjab & Haryana were dismissed, the High Court upholding
the vires of Sec. 3 ( 3). Hence these appeals.
Shri Soli Sorabji and Dr. Chitale who appeared for the appellants
.... -
submitted that it was incompetent for the State Legislature to levy the
~ passengers and goods tax on passengers and goods carried on National c
Highways. It was said : that Parliament alone had exclusivei jurisdic-
tion under Entry 23 read with Entry 97 of List I of the Seventh Sche-
• . dule to the Constitution to legislate in respect of National Highways,
including levy of taxes on goods and passengers carried on National
Highways. ,ft was further argued that ;Entry 56 of List II of Seventh D
Schedule to the Constitution which empowered the levy of taxes on goods
and passengers carried by road merely authorised the levy of taxes which
were of regulatory and compensatory nature. Consequently the taxing
... power of the State Legislature could only be exercised in respect of
passengers and goods carried on roads maintained by the State Govern-
ment and not on roads maintained by the Union Government. Under E
no circumstances, it was emphasised, could it be said that the levy of a
tax which was as much as 60% of the fare was regulatory and com-
pensatory in its nature. It was also submitted that Sec. 3 ( 3) of the
Haryana Act interfered with the freedom of Inter-state Trade, Com-
merce and Intercourse and was, therefore, violative of Art. 301 of the
Constitution. It was not saved by Art. 304(b) as its provisions F
could not be described as reasonable restrictions within the meaning of
"~Art. 304(b).
The constitutional and statutory provisions which require to be
' considered may now be set out. Entry 23 and Entry 97 of List I of
the Seventh Schedule to the Constitution are as follows : G
"23. Highways declared by or under law made by Par-
liament to be national highways."
"97 Any other matter not enumerated in List II or List
III including any tax not mentioned in either of those
Lists."
H
Entries 22, 24, 25, 29, 30 and 89 of List I also throw light, as we
will preuently show and they are as follows :
370 SUPREME COURT REPORTS [1981] 2 S.C.R.

A "22. Railways."
"24. Shipping and navigation on inland waterways, '
declared by Parliament by law to be national watern-ays, as
regards mechanically propelled vessels; the rule of the road
on such waterways."
B "25. Maritime shipping and navigation, including ship-
ping and navigation on tidal waters; provision of education
and training for the mercantile marine and regulation of such
education and training provided by State and other agencies."
"29. Airways; aircraft and air navigation; provision o:f
c aerodromes; regulation and organisation of air traffic and of
aerodromes; provision for aoronautical education and train-
ing and regulation of such education and training provided
by States and other agencies."
"30. Carriage of passengers and goods by railway, sea
'
or air, or by national waterways in machanically propelled
D vessels."
"89. Terminal taxes on goods or passengers, carried by
railway, sea or air, taxes on railway fares and freights."
•
Entry 13, Entry 56 and Entry 57 of List II are as follows :
E "13. Communications, that is to say, roads, bridges,
ferries, and other means of communication not specified in
List I; municipal tramways; ropeways; inland waterways and
traffic thereon subject to the provisions of List I and List ill
with regard to such waterways; vehicles other tharli mecha<
nically propelled vehicles."
F
"56. Taxes on goods and passengers carried by road or
on inland waterways."
"57. Taxes on vehicles, whether mechanically propelled
or not, suitable for use on roads, including tramcars subject
to the provisions of entry 35 of List III."
G
The National Highways Act 1956 provides for the declaration of
certain highways to be National Highways. Sec. 2 ( 1) of the Act •
declares the Highways specified in the Schedule 'except such parts
thereol as are situated within any municipal area' to be National High-
ways. Sec. 3 defines 'municipal area' as meaning "any municipal area
H with a population of 20,000 or more, the control or management of •
which is entrusted to a Municipal Committee, a Town Area Committee,
a Town Committee or any other authority". Sec. 4 vests all National
INTERNATIONAL TOURIST CORPN. V. HARYANA 371
(Chinnappa Reddy, J.)
Highways in the Union. Sec. 5 makes it the responsibility of the Cen- A
tral Government "to develop and maintain in proper repair all National
Highways", but empowers the Central Government to direct that any
function in relation to the development or maintenance of any national
highway shall, subject to such conditions as may be speci-
fied, also be exercisable by the concerned State Government.
Section 6 further empowers the Central Government to give directions B
to the Government of any State as to the carrying out in the State of
any of the provisions of the Act or of any rule, notification or order
made thereunder. Sec. 8 authorises the, Central Government to enter
into an agreement with the Government of any State or with any
municipal authority in relation to the development or maintenance of
the whole or any part of a National Highway situated within the State
c
or within a municipal area, and any such agreement it i~ said, may
provide for the sharing of expenditure by the respective parties there-
• to.
We have already extracted Sec. 3(3) of the Haryana Passengers
and Goods Taxation Act 1952. It is not necessary to refer to the D
other provisions of the Act.
The submission of Shri Sorabji relying on Union of India v. H. S.
Dhillon(') and Satpal & Co. etc. v. Lt. Governor of Delhi & Ors.( 2 ),
was that there was nothing in the Constitution to prevent Parliament
from combining its power to legislate with respect ta any matters E
enumerated in Entries, 1 to 96 of Llst I with its power to legislate under
Entry 97 of List I and, so, if Entries 23 and 97 were read together,
the power to legislate with respect to taxes on passengers and goods
carried on National Highways was within the exclusive legislative com-
petence of Parliament. The observation in Union of India v. H. S.
Dhillon(I) on which reliance was placed by the learned counsel was : F
"However, assnming that the Wealth Tax Act, as origi-
nally enacted, is held to be legislation under entry 86 List I,
there is nothing in the Constitution to prevent Parliament
from combining its powers under entry 86 List I with its
powers under entry 97. There is no principle that we know
G
of which debars Parliament from relying on the powers
under specified entries 1 to 96, List I, and supplement them
with the powers under entry 97 List I and art. 248, and for
that matter powers under entries in the Concurrent List."
The observation in Dhil/on's case was quoted with approval in Satpal
& Co. etc. v. U. Govenwr of Delhi & Ors.(2)., and a criticism that H
(I) [1972] 2 SCR 33 @74
(2) [1979] 3 SCR 651
372 SUPREME COURT REPORTS (1981] 2 S.C.R.

A. Dhillon's case was no longer good law in the 1 ight of His Holiness
Kesavananda Bharathi Sripadagalavaru v. State of Kera/a('), based on ,
the commentary of Mr. Seeravai was repelled.
There is a patent fallacy in the submission of Shri Sorabji. Before
exclusive legislative competence can be claimed for Parliament by
B resort to the residuary power, the legislative incompetence of the Staie
legislative must be clearly established. Entry 97 itself is specific that a
matter can be brought under that entry only if it is not enumerated in
List II or List III and in the case of a tax if it is not mentioned in
either of those lists. In a Federal Constitution like ours where there
is a division of legislative subjects but the residuary power is vested in
Parliament, such residuary power cannot be so expansively interpreted
as to whittle down the power of the State legislature. That might
affect and jeopardise the very federal principle. The federal nature of
the constitution demands that an interpretation which would allow the •
exercise of legislative power by Parliament pursuant to the residuary
powers vested in it to trench upon State legislation and which would
D thereby destroy or belittle state autonomy must be rejected. Jn
Attorney-General for Ontario v. A ttomey·General for the Dominion l '),
it was observed by House of Lords at p. 360-361 :
" .... the exercise of legislative power by the Parliament '
of Canada, in regard to all matters not enumerated in s. 91,
E ought to be strictly confined to such matters as are unques-
tionably of Canadian interest and importance, and ought
not to trench upon provincial legislation with respect to
any of the classes of subjects enumerated in s. 92. To
attach any other construction to the general power which,
in supplement of its enumerated powers, is conferred upon
the Parliament of Canada by s. 91, would, in their
Lordships' opinion, not only be contrary to the intendment
of the Act, but would practically destroy the autonomy of
the provinces".
In A. L. S. P. P. L. Subrahmanyan Chettiar v. Muttuswami Gowi-
·G dan( 8 ) the Federal Court said at (p. 55) :
"But resort to that residual power should be the very •
last refuge. It is only when all the categories in the three
Lists are absolutely exhausted that one can think of falling
back npon a nondescript."
(1) (19731 Supp]. SCR p. 1.
(2) [1896] AC. 348 @ 360-361 .
(3) AIR 1941FC47@ 55.
INTERNATIONAL TOURIST CORPN. V. HARYANA 373
(Chinnappa Reddy, J.)
Again in Manikkasumiara Bhattar & Ors. v. R. S. Nayudu & Ors.,(') A
, the Federal Court observed (at p. 88) :
"In the Indian Constitution Act, s. 104 has been
inserted for the very purpose of enabling legislation to be
enacted in respect of subjects omitted from the three Lists
in the Seventh Schedule. There is not therefore the same B
ne=sity for Courts in India to find that a subject must be
comprised within the entries in the Lists. But when there is
a choice between two possible constructions of an entry or
entries, one of which will result in legislative power being
conferred by some entry or entries in the Lis'ts and the
1 other in a finding of no existing power, but if legislation is c
required that recourse must be had to s. 104, the first
construction should on principles analogous to those applied
to the Canadian Constitution be preferred" .
•
It is, therefore, but proper that where the competing entries arean
entry in List II and entry 97 of List I, the entry in the State list D
must be given a broad and plentiful interpretation.

Entry 56 of List II refers to taxes and goods on passengers carried
by road or on inland waterways. It does not except National High-
ways and National Waterways, so declared by law made
pursuant to Entry 23 and Entry 24 of List I. While it is to
E
be noticed that Entries 22, 23, 24, 25 and 29 specify Railways,
National Highways., National Waterways and Maritime Shipping,
Navigation and Airways respectively, Entry 30 which refers to
carriage of passengers and goods specifies Railways, Sea, Air and
National Waterways only but not National Highways. Again entry
89 which refers to Terminal Taxes on goods or passengers specifies F
Railways, Sea or Air but not National Highways. The omission of
reference to National Highways in Entry 30 and entry 89 is of signi-
ficance and indicates that the subject of 'passengers and goods'
carried on National Highways is reserved for inclusion in the State
List. A consideration of these several entries appears to us to make
it clear that taxes on passengers and goods carried on National High- G
ways also fall directly and squarely within and are included in entry
• 56 of List II.

We proceed to the next submission of the learned counsel for the
appellants that the legislative power to impose taxes under entry 56
• of List II was of a regulatory and compensatory nature and conse- II
quently the taxing power of the State Legislature could only be
(I) [1946] PCR 67 @88.
• 8-57SCl/81
374 SUPREME COURT REPORTS (1981] 2 S.C.R. ,
A exercised with respect to goods and passengers carried on roads.
maintained by the State Government and not on National Highways
which were maintained by the Union Government. In the counter '
affidavit filed by Shri Rajender Singh, Taxation Commissioner, on
behalf of the State of Haryana, it was claimed that the tax was not
of a regulatory and compensatory nature but that it was a general
B revenue measure. This position was abandoned during the course of
argument and Shri Bhagat learned counsel for the State of Haryana
conceded that the tax was of a regulatory and compensatory nature.
Nor, of course, is the Court bound by any statement made by or on
behalf of the Executive Government O'l1 a question of the legislative
intent or nature of an enactment, what the legislature intended an
c enactment to be need not necessarily be what the Government says it
is. It is a matter of wnstruction, in the light of several attendant
circumstances including the source of the legislative power under the
Coostitution to make the particular law. We have held that the
Haryana Passengers and Goods Taxation Act is a law made pursuant
0 to the power given to the State Legislature by entry 56 of List II.
Having regard to Atiabari Tea Co. Ltd., v. State of Assam & Ors.,(')
The Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan &
Ors.,( 2 ) and Boiani Ores Ltd. etc. v. State of Orissa etc.,(•) it has
to be held that the power exercisable under entry 56 of list II is the
power to impose taxes which are in the nature of regulatory and
E compensatory measures. In the last of the cases mentioned it was said
by the Court, "Entry 57 of List II empowers legislation in respect of
taxes on vehicles ...... suitable for use on roads ...... the power
exercisable under Entry 57 is the power to impose taxes which are in
the nature of compensatory and regulatory measures". What was said
about entry 57 is true of entry 56 too. But to say that the nature of
a tax is of a compensatory and regulatory nature is not to say that the
measure of the tax should be proportionate to the expenditure
incurred on the regulation provided and the services rendered. If the
tax were to be proportionate to the expenditure on regulation and

G
service it would not be a tax but a fee.

While in the case of a fee it may be possible to precisely identify
-
and measure the benefits received from the Government and levy the
fee according to the benefits received and the expenditure incurred,
in the case of a regulatory and compensatory tax it would ordinarily
be well nigh impossible to identify and measure, with any exactitude,
H the benefits received and the expenditure incurred and levy the tax
(1) [1961] l SCR 809.
•
(2) [1963] l SCR 491.
(3) [1975] 2 SCR 138.
•
INTERNATIONAL TOURIST CORPN. V. HARYANA 375
(Chinnappa Reddy, J.)
according to the benefits received and the expenditure incurred. What A
is necessary to uphold a regulatory and compensatory tax is the
' existence of a specific, identifiable object behind the levy and a nexus
between the subject and the object of the levy. If the object behind
the levy is identifiable and if there is sufficient nexus between the sub-
ject and the object of the levy, it is not necessary that the money
realised by the levy should be put into a separate fund or that the B
levy should be proportionate to the expenditure. There can be no bar
to an inter-mingling of the revenue realised from regulatory and
compensatory taxes and from ther taxes of a general nature nor can
t· there be any objection to more or less expenditure being incurred on
the object behind the compensatory and regulatory levy than the
• realisation from the levy. In the Automobile Transport (Rajasthan) c
Ltd, v. State of Rajasthan & Ors., (Supra) this Court observed (at
p.536-537) : " lt
"Whether a tax is compensatory or not cannot be made
to depend on the preamble of the statute imposing it. Nor
do we think that it would be right to say that a tax is not 0
compensatory because the precise or specific amount
collected is not actually used to providing any facilities .
. . . . . . . . actual user would often be unknown to tradesmen
and such user may at some time be compensatory and at
others not so. It seems to us that a working test for deciding
whether a tax is compensatory or not is to enquire whether E
the trades people are having the use of certain facilities for
the better conduct of their business and paying not 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 that
cannot be done. Nor do we think that it will make any cllifo- F
~ rence that the money collected from the tax is not put into
, a separate fund so long as facilities for the trades people who
pay the tax are provided and the expenses incurred in pro-
viding them are borne by the State out of whatever source it
may be .......... We were addressed at some length on
the distinction between a tax a fee and an excise duty. It G
• was also pointed out to us that the taxes raised under the
Act were not specially ear-marked for the building or
maintenance of roads. We do not think that the~ considera-
tions necessarily detennine whether the taxes are compen-
' satory taxes or no!. We must consider the substance of the
matter". H
There crumot be the slightest doubt that the State of Haryana incurs
• considerable expenditure for the maintenance of roads and providing
376 SUPREME COURT REPORTS [1981] 2 S.C.R. •
faci1ities for the transport of goods and passengers within the State of
Haryana. The maintenance of highways other than the National
Highways is exclusively the responsibility of the State Government. '
While the maintenance of National Highways is the responsibility of
the Union Government, under Sec. 5 of the National Highways Act,
that very provision empowers the Central Government to direct that
B any function in relation to the development and maintenance of a
National Highway shall also be exercisable by the concerned State
Government. Sec. 6 further empowers the Central Government to
give directions to the State Government as to the carrying out of the
provisions of the Act and Sec. 8 authorises the Central Government to
enter into an agreement with the. State Government in relation to the
c development and maintenance of the whole or part of a National
Highway situated within the State including a provision for the shar-
ing of expenditure. Therefore, the State Government is not altogether
devoid of responsibility in the matter of development and mainte- '
nance of a national highway, though the primary responsibility is
that of the Union Government. It is under a statutory obligation to
D obey the directions given by the Central Government with respect to
the development and maintenance of national highways and may
enter into an agreement to share the expenditure. That part of the
highway which is within a municipal area is excluded from the defini-
tion of a national highway and therefore, the responsibility for the
development and maintenance of that part of the highway is certainly
E on the State Government and the Municipal Comtnittee concerned.
Since the development and maintenance of that part of the highway
which is within a municipal area is equally important for the smooth
flow of passengers and goods along the national highway it has to be
said that in developing and maintaining the highway which is within
F a municipal area, the State Government is surely facilitating the flow
of passengers and goods along the national highway. Apart from this,
other facilities provided by the State Government along all highways
including national highways, such as lightiog, traffic control, amenities
for passengers, halting places for buses and trncks are available for
G nse by everyone inclndiog those travelling along the national high-
ways. It cannot therefore, be said that the State Government confers
no benefits and renders no service io connection with tra.flic moving
along national highways and is, therefore, not entitled to levy a •
compensatory and regnlatory tax on passengers and goods carried on
national highways. We are satisfied that there is snfficient nexus
B between the tax and passengers and goods carried on national high-
t
ways to justify the imposition.
The last of the submissions was that the levy of tax on passenirers
and goods passing through the State of Haryana from a place outside
• INTERNATIONAL TOURIST CORPN. V. HARYANA 377
(Chinnappa Reddy, J.)
the State to a place outside th·o State interfered with the A
freedom of trade, commerce and intercourse throughout the territory
of India and so Sec. 3(3) of the Haryana Act was violative of Art.
301 of the Constitution. We are unable to accept tbis submission. It
is now well settled that regulatory and compensatory taxes are outside
the purview of Art 301 of the Constitution. In Automobile Transport
(Rajasthan) Ltd. v. State of Rajasthan & Ors., (Supra) the question B
arose whether the provisiou of the Rajasthan Motor Vehicles Taxa-
tion which authorised the levy of tax even on stage carriages which
ran for the most part on a route within the State of Ajmer but had
necessarily to pass through a small strip of territory in the St-ite of
Rajasthan could be said to contravene Art. 301 of the Constitution.
The Court. by a majority, upheld the validity of the Rajasthan Statu-
c
tory provision and observed :
"Regulatory measures or measures imposing compensa-
tory taxes for the use of trading facilities do not come within
the purview of the restrictions contemplated by Art. 301 and
such measures need not comply with the requirements of the D
proviso to Art. 304 (b) of the Constitution".
.
The identical question was considered in Mis. Sainik Motors, Jodhpur
& Ors. v. The State of Rajasthan('), in connection with a similar
provision in the Rajasthan Passengers and Goods Taxation Act which
provided that where passengers and goods were carried by motor E
vehicle from any place outside the State to any place within the
State or from any place within the State to any place outside the
State, tax was leviable on the fare or freight at a rate proportionate to
the distance covered in the State when compared with the total dis-
tance of the journey. The Constitution Bench of the Court holding
that there was no violation of Art. 301, observed : (at p. 526) F
"We are also of opinion that no inter-State trade, com-
merce or intercourse is affected. The tax is for purposes of
State, and falls upon passengers and goods carried by motor
' ' vehicles within the State. No doubt, it falls upon passengers
and goods proceeding to or from an extra-State point but it
G
is limited only to the fare and freight proportionate to the
• route within the State. For this purpose, there is an elaborate
scheme in R. 8-A to avoid a charge of tax on that portion of
the route which lies outside the State. There is thus no tax on
fares and freights al:tnbutable to routes outside the State
' except in one instance which is contemplated by the proviso H
to sub-s. (3) of s. 3 and to which reference will be made
(1) (1962] 1SCR517@526.
378 SUPREME COURT REPORTS (1981] 2 S.C.R. •
A separately. In our opinion, the levy of tax cannot be said to
offend Arts. 301 and 304 of the Constitution". '
As in the case of Mis. Sainik Motors, Jodhpur & Ors. v. The State of
Rajasthan, (supra) in the cases before us also the tax is limited to the
fare and freight for the distance within the State of Haryana. We,
B
therefore, hold that S. 3(3) of the Haryana Passengers and Goods
Taxation Act is not violative of Art. 301 of the Constitution. As a
result of our discussion Civil Appeals Nos. 638, 6S6, 786 and 2632
of 1979 are dismissed with costs.

In the remaining cases, apart from the principal points which we
c have discussed above some other points also were raised which we
shall now proceed to consider. One of the submissions of Shri Mridul
who appeared in the Special Leave Petitions was that Sections 4 and
SA of the Utlar Pradesh Motor Vehicles Taxation Act stipulated two
cumulative taxable events both of which had to be satisfied before
D tax could be levied on a vehicle plYing under a permit granted by an
authority having jurisdiction outside Uttar Pradesh. The two taxable
events according to Shri Mridul were (1 ) user within the territories
of Uttar PradeSh and (2) user in any public place in Uttar Pradesh.
The argument was that since the vehicles did not pick up or set down
pa<;Sengers or goods at any place within the State of Uttar Pradesh
E there was no user as contemplated by Sections 4 and SA and there-
fore, the taxable events had not taken place. Reliance was placed by
the learned counsel on our decision in State of Mysore, & Ors. v.
S. Sundaram Motors P. Ltd.(') We do not think that the case relied
on by Shri Mridul is of any assistance to him. The question there was
whether a motor vehicle passing through the territory of the State of
F Mysore and making short halts for rest, food etc. during transit on
the way from Bombay to its destination in Tamil :Nadu was a motor
vehicle 'kept' in the State of Mysore. Our answer depended on the
meaning to be given to the word 'kept', since under the Mysore
Motor Vehicles Taxation Act motor vehicles had to be 'kept in the
State of Mysore' if tax was to be levied. We held that the vehicles
G which merely passed through the State of Mysore were not "kept in the
State of Mysore". The language of Sections 4 and 5A of the Uttar
Pradesh Motor Vehicles Taxation Act is entirely different from the
language of the Mysore Act. The Uttar Pradesh tax is levied on the
vehicles on the basis of their user in the State of U.P. and not because
they are 'kept' in the State of Uttar Pradesh. There is no force in this
H
submission of Shri Mridul.
(1) AIR 1980 SC 148.
' INTERNATIONAL TOURIST CORPN. V. HARYANA 379
(Chinnappa Reddy, J.)
Shri Mridul's second snbmission was that the levy made on A
• vehicles passing through Uttar Pradesh from a place outside, to a
place outside Ultar Pradesh was violative of Art. 14 since these
vehicles were not allowed to pick up or set down passengers or goods
at any place within Uttar Pradesh, unlike vehicles holding permits
granted by authorities having jurisdiction within Uttar Pradesh which
were permitted to pick up and set down passengers, notwithstanding B
the fact that the tax payable by all of them was the same. Thus it
was said unequals were treated alike for the purpose of payment of
tax. We see no force in this submission. The tax is payable because
of the user of the roads while the question of picking up and setting
• down passengers and goods at wayside stations enroute is dependant
on the conditions of the permit and the reciprocal agreements bet-
c
ween the States. The one has nothing to do with the other and we are
unable to see any violation of Art. 14.

Shri Kapoor appearing for the petitioners in a large majority of
Writ Petitions raised a number of contentions. One of the submissions
D
was that entry 56 of List pursuant to which the various passengers
and Goods Taxation Acts were made should not be read in isolation
but should be read alongside other entries in List II particularly along
with entry 26 which was "trade and commerce within the State sub-
ject to the provisions of entry 33 of List III". Shri Kapoor also sug-
gested that entry 23 of Lis! I should be read with entry 42 of List I E
which was: "Inter-state trade and commerce". The submiBsion of
Shri Kapoor wa.s that if entries 26 and 56 of List II were read together
and if entries 23 and 42 were similarly read together separately, it
would atonce become clear that the power to levy tax on passengers
and goods under entry 56 was to be confined to passengers and goods
carried within the State. We do not agree with the submission. There F
is no justification for reading entry 56 of List II in conjunction with
entry 26. The taxing power of the State legislature in regard to
passengers and goods carried by roads or on inland waterways is to
• be found in entrs 56 and there is no warrant for holding that such
taxing power is controlled by another entry in List II which is
unrelated to taxing power. Shri Kapoor suggested that no G
• taxable event occurred within the State when goods were merely
transported through the State in the course of inte-state trade and
commerce. The obvious answer is that the taxable event is the carry-
ing of goods and passengers on roads within the State thereby making
• use of the facilities provided by the State .
H
One of the submissions of Shri Kapoor was that Sec. 9 of the
Uttar Pradesh Motor Gadi (Mal-Kar) Adhiniyam 1964 which
SUPREME COURT REPORTS [1981] 2 S.C.lt.

A provided for the payment of a lumpsum in lieu of the amount of tax
that might be payable was hit by Art. 14 of the Constitution. He relied •
on a full bench decision of the High Court of Himachal Pradesh in
Ml s. Gainda Mal Charanji Lal v. The State of Himachal Pradesh &
Ors.(') That was a case where the Act provided for the payme~t of
a flat lumpsum of Rs. 15001- per annum in lieu of tax, irresp.:ctive of
8
the freight carried or the period during which the vehicle was operated
within the State. The lumpsum levy was held to be violative of Art.
14. We are not concerned with such a situation under tl:ie Uttar
Pradesh Motor Gadi Mal-Kar Adhiniyam. Under Sec. 9 of the Uttar ~
Pradesh Adhiniyam the State Government is empowered to accept f
c a lumpsum in lieu of the amount of tax that may be payable for such
period as may be agreed upon by the operator. Rnle 5 of the Uttar
Pradesh Motor Gadi Mal-Kar Rules 1964 provides that the lump-
sum in lieu of tax shall be determined in accordance with the rates •
specified in the third schedule. The second item of the third schedule
prescribes the rate of lumpsum tax for 'public goods vehicles', the
D permits in respect of which have been granted by a Regio:'l.al or State
Transport authority of the State including vehicles of other States
authorised to ply under counter-signatures granted by a Regional or
State Transport Authority of the State for any of the Hill roads, as
Rs. 3.50 per month per quintal of authorised carrying capacity of the
vehicles in respect of agricultural produce, minerals and petroleum
E goods, and Rs. 5 .60 per month per quintal of the authorised carrying
capacity of the vehicle in the case of other goods. The third item of
third schedule deals with goods vehicles of other States authmised
to ply under temporary permits granted by a Regional or State Tram-
port authority of another State for an inter-state route partly lying in
the State for a period not exceeding 15 days. The lumpsum to paid
F in the case of public goods vehicles is Rs. 4 per day for the number of ,
days covered by the journeys to be performed within the State in , _
respect of agricultural produce, minerals and petroleum goods an':!
Rs. 6.40 per day in respect of other goods. The rate of lull'psum !ax
is thus seen to be relateable to the freight carried or the period of the
journey or to both. There is no violation of Art. 14.
G
In the Bihar cases Shri Kapoor learned counsel for the petitioners
raised the contention that on the terms of Sec. 3(6) of tl1e Bihar
Taxation of Passangers and Goods (Carried by Public Service Motor
Vehicles) Act 1961, no tax was leviable on passengers or goods
carried by a public vehicle from any place outside the Stale of Bihar •
H to any place outside the State merely because the vehicle happened

(1) AIR 1978HP17.
INTERNATIONAL TOURIST CORPN. V. HARYANA 381
(Chinnappa Reddy. !.)
to pass through Bihar in the course of its jonrney. S. 3(6) reads as A
follows:
"Where passengers or goods are carried by a public
service motor vehicle from any place outside the State to any
place within the State, or from any place within th•! State
to any place eutside the State, the tax shall be payable in B
respect of the distance covere-J within the State at the rnte
provided in sub-section (I) ........ "

The learned counsel contrasted the language of Sec. 3 ( 6) of the
Bibar Act with the language of the Explanation to Sec. 3 ( 1) of the
Uttar Pradesh Motor Gadi (Mal-Kar) A<lhiniyam, 1964, which is as c
fo1iows:
"Explanation I-Where goods are carried by a public
goods vehicle--
(a) from any place outside the State to any pla.;;e ou!side
D
the State; or
(b) from any place within the State to any place outside
the State; or
(c) from any place outside the State to any place within
the State; an amount bearing the same proper- E
tion ................ ".

The omission of a clause similar to clause (a) of Explanation I to
Sec. 3(1) of the Uttar Pradesh Motor Gadi (Mal-Kar) Adhiniyam,
1964, according to the learned counsel, made it clear that, tax was not
leviable where passengers or goods were carried from any place out- F
side the State to any place outside the State merely because the
vehicle passed through the State of Bihar. Reliance was placed by the
;
learned counsel on a decision of the Allahabad High Court in Pritpal
Singh v. State of U.P.(') We do not agree with the submission. A
journey from a place outside the State to another piace outside the
State, but through the State, involves a journey from e. phce outside G
the State to a place inside the State and a journey from a place inside
the State to a place outside the Sjate. Clauses (b) and (c) of Expla-
nation I to Sec. 3 (1) of the Uttar Pradesh Act together, cover, of
their own force, the situation contemplated by clause (a) also. Gause
• (a) however, appears to have been added by way uf caution and
'because of the decision of the Allahabad High Court in the case on H

(!) 1973 U. P. Tax Cases 376.
382 SUPREME COURT REPORTS (1981] 2 S.C.R. •
A which the learned counsel relied. The Allahabad High Court was
dealing with a provision which at that time was analogous to the
present Bihar provision. We do not agree with the view expressed '
by the Allahabad High Court in that case, on this question qnly.
Based on our judgment in State of Mysore & 015. v. Sundaram
B Motors P. Ltd. (supra), it was argued in some of the cases that where
the motor vehicle merely passed through the State, no taxable event
occurred and therefore, tax could not be levied: fn tile Motor Vehicle
Taxation Acts of several States the charging section generally rnns as
follows : "There shall be levied and collected on all motor vehicles

C
used or kept for use in the State a tax at the rate fixed by th!l State
Governments ........ ". In these cases the taxabfo event is 'keeping i
for use' and alternately user within the State. Once the motor vehicle
is used within the State the taxable event occurs and the tax is attract-
ed. The decision in State of Mysore & Ors. v. Sundaram Motors p.
Ltd., (supra) has no application to such cases as already uointed out
by us while dealing with a similar submission of Shri Mridul in the
D Uttar Pradesh cases.
In some States, the Motor Vehicles Taxation Acts provide for pay-
ment of tax in the event only of vehicles being "kept for use in the
State" and provide for no other alternative taxable event. In such
cases the principle of our decision in State of iVlysore & Ors. v.
E Swzdaram Motors P. Ltd., (supra) may be attracted. It will depend
on an interpretation of the provisions of the relevant statutes. But we
do not propose to say anything more about such cases as we cannot
give any relief, even if we agree with the petitioners, in applications
under Art. 32 of the Constitution.
F In the other cases from the States of Gujarat, Maharashtra, West
Bengal, Punjab, Haryana, Karnataka. Bihar, Madhya Pradesh, Raja•-
than, Orissa, no other points were rai~~d but the relevant provisions
of the ~1otor Vehicles Taxation Acts and the Taxation on Passengers
and Goods Acts in force in the several States were brought to our
ncticc and similar submissions as those discussed by us =re made.
G In the result all the Civil Appeals, Special Ixave Petitians and Writ
Petitions are dismissed with costs. In some of the Writ Petitions pro-
per Court fee has not been paid. However, we are not dismissing
the Wrii Petitions on that ground.
The Order of the Court in W.P. No. 5845 of 1980 was delivered
on 13th January, 1981 by •
H
CHTNNAPPA REDDY, J. This Writ Petition is really covered by the
judgment pronounced by us on December 15, 1980, in M/s. Inter-
• MANMOHAN VIG V. HARYANA 383
(Chinnappa Reddy, J.)
national Tourist Corporation etc. etc. v. The State of Haryana & A·
, Ors.(') Shri S. N. Kacker, learned counsel, however, urged that there
was no material before us in that case to justify a conclusioh that the
State Government incurred any expenditure in connection with the
National Highways to justify imposition of a tu of a compensatory
and regulatory nature. He invited our attentioh to the budget of the
B
Haryana Government to show (hat no expendilme was incurred in
connection with the deve:opment, construction, improvement and
maihtenan~ of National Highways in the State of Haryana. There is
no substance in the submission. We have pointed out in our judgment
that the State Government incms expendi!W"e m connection with
National Highways not by directly constructing or maihtaining National c
• Highways but by facilitating the transport of goods and passengers
along the National Highways in various other ways such as lighting,
traffic control, amenities for passengers, halting places for buses and
trucks etc. etc.
And not by eastern windows only,
D
When daylight comes, comes in the light;
In front tl!e sun climbs slow, how slowly !
But westward, look, the land is bright !
The petition is therefore, dismissed.
E
S.R. Appeals & Petitions dismissed .

•

'

(l) C.As. Nos. 638, 656, 786 & 2632/79 etc. etc. decided on 15-12-198().