Holding

The motor‑vehicle tax is a compensatory levy and does not violate Articles 301, 304(b), 14 or 19(1)(g) of the Constitution.

Summary

The petitioners, owners of stage‑carriage motor vehicles in Punjab, challenged a 1981 amendment that raised the motor‑vehicle tax to Rs 500 per seat (maximum Rs 35,000) alleging it was expropriatory, violated Articles 14, 19(1)(g), 301 and 304(b) of the Constitution and was beyond the State’s legislative competence. The State argued that the levy was a compensatory charge to defray the cost of roads, bridges and related transport facilities. The Court examined the nature of the tax, the constitutional provisions on freedom of trade and discrimination, and the classification of stage‑carriages as a distinct class. It held that the tax is compensatory, does not contravene Articles 301 or 304(b), and the classification is reasonable; consequently, the levy does not amount to an unreasonable restriction on trade nor discriminatory. The petitions were dismissed.

Issues considered

The tax imposed by the 1981 amendment is expropriatory or compensatory in nature.
Whether the tax violates Article 301 and the restrictions under Article 304(b) on freedom of trade, commerce and intercourse.
Whether the tax infringes Article 14 of the Constitution by discriminatory classification.
Whether the tax contravenes Article 19(1)(g) – freedom to practice any profession, trade or business.
Whether the levy falls within the State’s legislative competence under Entries 56 and 57 of List II of the Seventh Schedule.

Legislation cited

Constitution of Indias. Article 14, s. Article 19(1)(g), s. Article 255, s. Article 301, s. Article 304(b)
Motor Vehicles Act, 1939
Punjab Motor Vehicles Taxation Act, 1924s. Section 3, s. Section 3A
Punjab Motor Vehicles Taxation (Amendment) Act, 1981
Punjab Passengers and Goods Taxation Act, 1952

Subjects

Motor vehicle taxCompensatory taxFreedom of tradeArticle 301Article 304(b)Article 14DiscriminationState taxationPunjabStage carriageConstitutional law

Judgment

1009

MALWA BUS SERVICE (P) LTD.
A
v.
STATEOF·PUNJAB & OTHERS

April 28, 1983
B
(A. P. SEN AND E. S. VENKATARAMIAH, JJ.]

Motor Vehicles Act-Punjab ,\-ftJtor Vehicles Taxation Act, 1924- (as
amended by the Amendment of 1981).

Section 3 and 3A.;.....Maxi1num lindt of tax payable on certain types of
motor vehicles raised from tin:e to time-Amendment Act of 1'981 raised'the
c
maximum limit to Rs. 35,000 in respect of stage carrioges-Tax-Whether expro-
pdatory-Whether Imposes an unreasonable restriQtion onfreedcnt nftrade, con1-
n1erce and intercoutse within tlte State.

7
By a notification issued under section 3A of the Punjab Motor Vehicles
and Taxation (Atµendment) Act, 1981 the State Government imposed on every D
stage carriage plying for hire and use for the transport of passengers a sun1 of
Rs. 500 per seat subject to a maximum of Rs. 35,000 irrespective of the distance
over which it operated daily.

The petitioners, in their petitions under Article 32 of the Constitqtion,

• contended that the tax was expropriatory and not compensatory in character
and was being collected by the State Governmc:nt for augmenting its general
reVenues which is forbidden by 'the Constitution, and that the levy was an
unreasonable restriction on the freedom of trade, co1nn1erce and intercourse
E

within the State.

Dismissing the petitions,
F
• HELD : The impugned tax is con1pensatory in nature and does not
contravene Articles 301 and 304(b) of the Constitution. [!023 H]

The mandate of Part XlII of the Constitution is not that trade, commerce
and intercourse should be absolutely free, i.e., subject to no law and no taxes
at all. Trade, commerce and intercourse should pay their way, that is, the price G
for the facilities provided by the State in the form of roads, bridges and many
other facilities. Therefore, there is nothing inconsistent with the conception of
freedom of trade and commerce if in truth what is collected by way of tax is a
pecuniary charge which is compensatory in character: What is essential is that
the bufden shou]d not disproportionately exceed the cost of faciiities provided
by the. State. It is not unreasonable to ask the owners of the motor vehicles H
to contribute towards the cost .of maintenance of roads as they happen to belong
10 a class having a special and direct benefit of the facilities provided. Court&
1010 SUPREME CoURT REPORTS (1983) 2 S.C.R.

- have the power to decide whether what is recovered, by way of tax is in truth
A 3.nd substance either a contribution to Hards· the construction and maintenance
of roads and bridges and other facilities necessary for smooth transport service
or an exaction in excess of what is needed for this purpose.· TheY cannot, '
--¥
· however, insist upon an exact correlation. between the tax recovered and the
cost so incui-red because such eiaCt correl3.tion is in the very nature of things
impossible to attain. In the case of fee if at· least a good and substantial
portion (two-thirds or three.fotirths) colle-cted . is shown _with reasonable
B certainly to have been spent for rendering services to those from whom fees
were co1lected~ the Courts have upheld the levy., In la\v, there cannot be much
difference between this principle applicable to fees and the principle that_ ought
to govern the levy of motor vehicles tax which is claimed to be of a compen-
satory character. [1020H. 1021 A-H, 1023 F-G] · · , __....

Kewal Krishan Puri & Anr. v. State of Punjab · &.. Ors., [1?79t 3 S.C.R.
1217; referred to.

The petitioners have riot plaCed before the Court sufficient material to
hold that the ievy· suffered from the vice of discrimination. It _is well settled
that a legislature, in order to ta~ some need not tax all. It can adopt a
D . ·reasonable qualification of persons and things in iniposing tax liabilities.
Unless a fiscal law is manifes~ly discriminatory the Cot.irt 'should refrain from
striking it down· on the groun~ of discrimination. ,, [1025 B, 1024 E-F]

In the instant case stage carriages which travel on ai:i aver3.ge about
260 Km every day ~ith an 'almost assuri::d quantum of traffic, beiong to a class
distinct and separate from public carriers which carry ·goods on undefined
-E routes. The amount-of wear 3.nd tear caused to the roads by any class of
motor vehicles may not always be a ·determining factor in classifying motor
. vehicles for the purposes of taxation. [1024 G-H, 1025 A] ,

Merel:Y because a business becomes uneconomical p.s a cO~quen.ce ~fa
new levy~ it cannot be said that it would amount to an· unreasonable restriction
on the fundamental right to carry on the business. [1025 H, 1026 A] '
;-

ORIGINAL JURISDICTION:-. Writ Petitions Nos. 2617, 3837,
3973~3981, 3982-3998, 3962- 3972, 40II-4015, 4016-4019, 4054-4058,
4136-4143, 4148, 4216, 4217, 4219-4226, 4287-4291, 4317-4321,
4408, 4542, 3518-3529, 3739•42; 4365-81, 8997'9017 and 9639-50
of 1982.

(Under article 32 of the Constitution of India)

H Mohan Pandey for the Petit;oners in· WP. Nos. 3974;8i, 3062- . . ->.
72, 40II-15, 4016-19, .4136-43, 4287-91 1 436S:8J,-·9639-501 3518·29 .
a11d ~739-42(1982, . · ; .· . · ·· .· . ·. _ . _·
. ' . . . . ' , ' - .-
,.
.MALWA BUS v. PUNJAB (Venkataramiah, J.) 1011

... Sha11ti Bhushan, Baldev Kapoor and Mohan Pandey with him
A
for the Petitioner in W. P. No. 3973 of 1982 ..

Baldev Kapoor and ·Mohan Pandey for the Petitioner in WP.·
No. 3982-98 of 1982.

Y. S. Chitale and Mohan Pandey for the Petitioner in W.P. B
No. 2617 of 1982.

A. K. Goel for the Petitioner in W. P. No. 3837/82.

Arvind Minocha for the Petitioner in W.P. No. 4054-58/82. C
S. K. Bagga for the Petitionet in W.P. No. 3148/82.

Vimal Dave for the Petitioner in W.P. No. 4216 & 4217 /82.

Sarva Mitter for the Pet tioner in W.P. 4219-26 & 4317-21/83. D
R. C. Kohli for the Petitioner in W.P. 4408/82.

L: N. Sinha, Attorney General, D. D. Sharma and P. P. Singh
with him for the Respondents in all W.Ps.
E
The Judgment of the Court was delivered by

VENKATARAMIAH, J. In these writ petitions filed under Article
32 of the Constitution, the petitioners have challenged the 1:onstitu-
tional validity of section 3 of the Punjab Motor Vehicles Taxation
Act, 1924 (Act No. 4 of~l924) (hereinafter referred to as 'the Act') F
as amended by the Punjab Motor Vehicles Taxation (Amendment)
• Act, 1981 (Punjab'l\ct No. 13 of 1981) and the Notification dated
March 19, 1981 issued by the Government of the State of Punjab
under section 3(1) of the Act.
G
The petitionersare owners of motor vehicles and are carrying
on the business of running stage carriages in the State of Punjab.
While the operation of the stage carriage services run by the peti-
tioners is controlled by the provisions of the Motor Vehicles Act, H
1939, which is a Central Act, they are liable to pay taxes on the
motor vehicles owned by them under the Act. The Act is a pre-
Constitutional one. After the Constitution came into force, · thii°
1012 &Ul'REMB COURT REPORTS - - - - - - (1983] 2 s.c.'.R.

power to levy taxes on goods and passengers carried by road or on
A inland waterways and the power· to levy taxes on vehicles, whether
mechanically propelled or not suitable for use on -roads including
--r-. :
· tramcars, subject to the provisions of Entry 35 of List_ III of the
Seventh Schedule to .the Constitution are assigned to the States
respectively by Entries 56 and 57 of List II of the Seventh Schedule
to the Constitution. _While the Act is· traceable to Entry. 57, the
Punjab Passengers and Goods -Taxation- Act, 1952 ls enacted by the
State Legislature in exercise of its _legislative power - granted under
Entry 56. Before the commencement of the _Constitution, section
3(1) of the Act which is the charging sectio;;. re~d as follows : - --:-Z_

c _ "3. co A tax shall be leviable o;,_ every mot~r vehicle
in equal instalments for _quarterly periods commencing
on the first day of April,· first day of· July,. first day of
_October and the first day of January at the rate.specified·
in tiie schedule to this Act." -
' . '· , - - ·. . .
D ·The above provision was. amended in 1954 by providing that
the rates of tax levied under the Act were -- those specified by the State
_ Government in a-Notification to be issued by ii, subject however to
the maximum limit fixed- by the Act, instead of the rates of tax
specified by the State Legislature itself in the Schedule to the Aci.
After that amendment, section 3(4) read thus : ·

"3. (I-) A tax shall be leviable on every motor ·vehicle
-in equal instalments for quarterly periods commencing on-
the first day of. April, first day of July, first -day of
F- October, and the first day of -January at sur:h rates not.
exceeding Rs. 2200 per vehicle for. a period of one year as . _
the State Government may by notification direct.'.- 1• ,
. . ' ~.-.... .. -
·_ . -·,· ,·
•
Emphasis added :· _

The maximuin limit of Rs. 2200 mentioned in section 3(1) was
increased by successive legisla~ive amendments to Rs. 2750.in 1963,
to Rs. 4,200 in 1965, to Rs i0,000 in 1970 and to Rs. 20,000 in 1978.
In exercise of the power conferred on it, the State Government fixed
the rate of tax in- the case of stage carria_ges at. Rs. 75 per seat in
H 1965, at Rs. 100 per seat in 1970 _and at Rs. 200 'per seat in 1974,
subject to the maximum prescribed by the Act. . On.March 31, 1978,
the State Government issued a Notification providing -that o~ and -
__ after April 1, \978; ·every stage carria~e · plying in ·the State _of
'MALWA BIJS v. PUNJAB (Venkataramiah, J.) 101~

Punjab should pay tax at Rs. 275 per seat where it operated upto
125 kilometres a day and Rs. 300 per seat where it operated for more A
than 125 kilometres subject to a maximum of Rs. 20,000 per year
in both the cases. Then came the Amending Act in 1981 by which
ihe maximum limit prescribed in section 3(1) of the Act was raised
to Rs. 35,000 retrospectively with effect from October 1, 1980.
Section 3 of the Amending Act inserted a new section in the Act
being section 3-A of the Act which authorised the State Government
B
to issue a Notification under section 3(1) raising the rates of tax
retrospectively with effect from October I, 1980. After the amend·
ment1n 1981, section 3(1) of the Act reads thus:

"3. (I) A tax shall be leviable on every motor vehicle c
in equal instalments for quarterly periods commencing
on the first day of April, first day of July, first day of
Oct0ber and the first day of January at such rates not
exceeding Rs. 35,000 per vehicle for a period of one year,
as the Sta1e Government may by notification direct."
D
Pursuant to the above section, as amended in 1981, and the
newly inserted section 3·A of the Act which conferred power on it
to raise the rates of tax under the Act with effect from October I,
1980, the State Government issued the following Notification on
March 19, 1981 :
E

"DEPARTMENT OF TRANSPORT
NOTIFICATION
F
The 19th March, 1981

No. S.O.°lftP.A. 4/24/S 3/Amd/81-In exercise of
the powers conferred by sub·se;:tion (I) of section 3 read
with section 3-A of the Punjab Motor Vehicles Taxation
Act, 1924 (Punjab Act No. 4 1924) and all other powers
G
enabling him in this behalf, the Governor of Punjab is
pleased to make the. following amendment in the schedule
appended to the Punjab Government, Transport Depart-
ment Notification no. S.0./50/P.A. 4/24/S. 3/71 dated
10th November, 1971 with effect from the !st Octoper,
H
1980 namely :-
i o1 4 SUPREME COURT REPORTS [1983) 2 s.c.R.
'
AMENDMENT A

A
In the said schedule, against serial No. 5 for item (i)
and entries relating thereto, th.e following ifem and entries
shall be substituted, namely :

"(l) Stage carriages for hire Rs. 500 per seat
B and used for the transport subject to a
of passengers, excluding maximum of
the driver and conductor. Rs. 35,000."

SADA NAND
Secretary to . Government, Punjab
c
Department of Transport."

The final position that emerged after the above Notification
was that every stage carriage plying for hire and used for the
transport of passengers (excluding the driver and conductor) had to
D pay per year Rs. 500 per seat subject to a maximum of Rs. 35,000
irrespective of the distance over which it operated daily.

The petitioners have challenged in these petitions the amend
ment made in 1981 increasing the maximum limit of the tax to
Rs. 35,000 per year and the Notification dated March .19, 1981 raising
E the tax to. Rs. 500 per seat on various grounds. The petitioners
inter a/ia contend that the levy of tax of Rs. 500 per seat imposed by
the impugned Notification is violative of Article 14, Article 19(J)(g)
and Article 304(b) of the Constitution. They have also pleaded
that the tax now levied is outside the scope of Entries 56 and 57 of
F List II of the Seventh Schedule to the Constitution. The principal
point urged by them is that the tax now levied is expropriatory and
not compensatory in character and is being collected by the State
Government for the purpose of augmenting its general revenues
which is forbidden by the Constitution. In support of their case
the petitioners have furnished the following figures contained in the
G budget presented to the State Legisluture in the year 1981-82 :

"Receipts
Taxes on vehicles Rs. 1 3,86,00,000
H 'taxes on goods and
passengers Rs. 35,45,00,000

Total Rs. 49,31 ,00,000
1.thwA BUS v. rtlNJAB (Yenkat~ramiah, J.) 101~

Expenditure
On roads and bridges Rs. 34,03,00,000
Excess of receipts over
expenditure : Rs. 15,28,00,000"

It is contended by the petitioners that in view of the above
figures, furhishe\l by the State Government itself, there was no justi-
fication for increasing the rate of tax by the impugned Notification.
The petitioners have further pleaded that the impugned levy imposes
au unreasonable restriction on the freedom of trade, commerce and
intercourse within the State of Punjab.
o·
The State Government has justified the impugned levy in the
counter affidavit filed in the .case, the deponent of which is a Joint
Secretary to the Governinent of Punjab, Transport Department. It
is contended by the State Government inter a/ia that the pica of the
petitioners that the revenue raised by the impugned Notification
.'must be used only for the purpose of providing facilities pertaining
to roads and bridges and'or facilities connected with the transpor-
tation of goods and passengers' was misconceived having regard to
the various other responsibilities of the State Government which it
has to bear in connection with road transports a~d if the expenditure
incurred on all items of relevant expenditure is taken into consider-
ation, it would become clear that the levy in question is not excessive.
It is urged that the levy is compensatory in character and is, therefore,
not hit by Article 301 or Article 304 (b) of the Constitution. The
State Government has also-furnished certain. figures relating to the
expenditure incurred by it to show that the levy is neither arbitrary F
nor violative of Article 19 (I) (g) of the Constitution.

We shall now proceed to examine the relevant constitutional
provisions. {\rticle 301 and Article 304 (b) which are in Part XIII of
the Constitution. read thus: G

"301. Subject to the other proviSlons of this Part,
·trade, commerce and intercourse throughout the territory
of India shall be free,

304. Notwithstanding anything in article 301 or article
303, the Legislature of a State may by law....: · ·
ioi6 SUPREME COURT REPORTS t1983) 2 s.c.R..

(a) .............. .
A
(b) impose such reasonable restrictions on the
freedom of. trade, commerce or intercourse with
or within that State as may be required in the
public interest:
B
Provided that no Bill or amendment for the purposes
of clause (b) shall be introduced or moved in the Legisl-
ature of a State without the. previous sanction of the·
President."
--~-:
These provisions of the Constitution came up for consideration
before a Constitution Bench consisting of five learned Judges of this
Court in Atiabari Tea Co. Ltd. v. The State of Assam and Ors.( 1) and
the main point which arose for decision in that case was whether the
taxing provisions in the Seventh Schedule tO the Constitution were
subject to Articles JOI to 304 and, if so, what would be their effect
on taxes levied under Entry 56 of List II of the Seventh Schedule to
the Constitution. Gajenderagadkar, J. (as he then was) who pro-
nounced the judgment on behalf of himself, Wanchoo and Das
Gupta, JJ. with whom Shah, J, (as he than was) agreed though by
assigning a wider meaning to the freedom of trade, commerce and
intercourse dealt with by Article 301 of the Constitution, observed 'at
page 861 thus:

"Our conclusion, therefore, is that when Art. 301
· provides that trade shall be free throughout the territory
of India it means that the flow of trade shall run smooth
F
and unhampered by any restriction either at the
boundaries of the States or at any other points inside
the States themselves. It is the free movement or
the transport of goods from one part of the country
G to the other that is intended to be saved, and if
any Act imposes any direct restriCtions on the very
movement of such goods it attracts the provisions of Art.
301 and its validity can be sustained only if it satisfies
the requirements of Art. 302 or Art. 304 of Part XIII. At
this stage we think it is necessary to repeat that when it is
H said that the freedom of the movement of trade cannot be

(1) [1961] l S.C.R. 809.
MALWA nus v. PuNJAB (Venkataramiah, i.) . 101?

subject to any restrictions in the form of taxes imposed on
the carriage of goods or thefr. movement all that is meant A
is that the said restrictions can be imposed by the State
Legislatures only after satisfying the requirements of Art.
304 (b). It is not as if i10 restrictions at all can be imposed
on the free movement of trade."
. - B
The same question arose later on very sharply in The
Automobile Transport (Rajasthan) Ltd. v. The State of Rajasthan and
Ors.(') before a bench of seven learned Judges pf this Court in which
the c.orrectness of the decision in the case of Atiabari Tea Co. Ltd.
(supra) was questioned. In this case, the effect of Articles 301 to
c
304 of the Constitution on the power of the State Legislature to levy
tax under Entry 57 of List II of the Seventh schedule to the
Constitution arosefo'. d.etermination. There were three judgmepts
in that case. The Judgment of Das, Kapur and Sarkar, JJ:\vas
delivered by Das, J. with whom Subba Rao, J. agreed in his D
concurring judgment. The minority judgment of Hidayatullah,
Rajagopala Ayyangar and 'Mudholkar, JJ. was delivered by
Hidayatullah, J. In that case, the contention of the appellant was
that the ·tax levied under section 4 of the Rajasthan Motor Vehicles
Taxation Act, 19 51 read with its Schedules constituted a direct and
immediate restriction on· the m1>vement of trade and commerce with E
. and within the State of Rajasthan inasmuch as motor vehicles which
carried passengers and goods within or through that State had to pay
the tax which imposed a pecuniary burden on a commercial activity
and was, therefore, hit by Article 301 of the Constitution and was
not saved by Article 304 (b) inasmuch as neither the proviso to F
Article 304 (b) had been complied with nor was that Act assented to
· by the President as provided in Article 255 of the Constitution. On
behalf of the State of Rajasthan, it was inter alia urged that a fiscal
legislation enacted for the purpose of raising revenue for the mainte-
nance of roads etc. was not hit by Article 30 I and that the impugned
levy which was intended for providing facilities to motor vehicles G
traffic did not constitute an immediate or direct impediment on the
movement of trade and co.mmerce. In the course of the hearing of
that case, it was canvassed that the impugned tax being compensatory
was outside the purview of Artic)e 301 and Article 304(b). After
H

{!) [1963] l S.C.R. 491.
iols SUPREME co'uttT REPORTS [t983\ 2s.c.R.
examining all the views expressed in the Atiabari Tea Co.'s case
A (supra) Das, J. observed at pages 532-533 thus:

"We have, therefore, come. to the conclusion that
neither the widest interpretation nor the narrow ii;iter·
pretations canvassed before us are acceptable. The inter·
B pretation which was accepted by the majority .in the •
Atiabari Tea Co. case 11961) I SCR 809 is correct, but
subject to this clarification. Regulatory measures or
measures imposing compensatory 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 proviso to
Art. 304(b) of the Constitution."

. Subba Rao, J. who agreed with the· judgment of Das, J.
observed at pages 564-565 thus :

"The foregoing discussion may he summarized in the
following propositions : (I) Art. 301 declares a right of
free movement of trade without any obstructions by way
of barriers, inter-State, or intra-State or other impedi·
E ments operating as such barriers. (2 The said freedom
is not impeded, but, on the oiher hand, promoted, by
regulations creating conditions for the free movement
of trade, such as, police regulations, provision for ser·
vices, maintenance of roads, provision for aerodromes,
warfs etc., with or without compensation. (3) Parliament
F may by law impose restrictions on such freedom in the
public interest; and the said law can be made by virtue
of any entry with respect where of Parliament has power
to make a law. (4) The State also, in exercise of its
legislative power, may impose similar restrictions, subject
to the two conditions laid down in Art. 304(b) and sub-
G
ject to the proviso ment.ioned therein. (5) Neither
Parliament nor the State Legislature can make a law
giving preference to one State over another or making
discrimination between one State and another, by virtue
of any entry in the Lists, infringing the said freedom.
H
(6) This ban is lifted in the case of Parliament for the
purpose of dealing with situations arising _out of scarcitr- .
of goods in any part of the territory of India and also ·
MALWA BUS v. PUNJAB CVenkataramiah, J.) tbi9
in the case of a State under Art. 304(b), subjeot to the
conditions mentioned therein. And (7) the State can A
impose a non-discriminatory tax on goods imported from
other States or the Union territory to which similar
goods manufactured or produced in that State are
subject."
B
It is not necessary to refer here io the views expressed in the
minority judgni.ent. The gist of the majority decision in the case of
the Automobile Tratlsport (Rajasthan) Ltd. (supra) is that as long as
taxes levied under Entries 56 and 57 of List JI of the Seventh Schedule
to the Constitution are compensatory, they would fall outside the
scope of Article 301 of the Constitution. But if they are not com- c
pensatory, then being a restriction on the freedom of trade, com-
merce or intercourse, they have to satisfy the requirements of clause
(b) of Article 304. In all cases falling under Article 304(b) no bill
or amendment can be introduced or moved in the Legislature of a
State without the previous sanction of the President. If for any D
reason the requirement is not complied with, in order to be valid
such law should receive the assent of the President as provided in
Article 255 of the Constitution.

The main question which arises for determination now, there·
fore, is whether on the facts and in the circumstances of the case,
the levy in question is for .any reason not compensatory. In the case
of the Automobile Transport (Rajasthan) Ltd. (supra) the circums-
tances when a tax on motor vehicles can be characterised as com-
pensatory were discussed. oa·s, J. observed at pages 536-537 thus :
F
"The taxes are compensatory taxes which instead of
hindering trade, commerce and intercourse facilitaM them
by providing roads and maintaining the roads in a good
state of repairs. Whether a tax is compensatory or not
cannot be made to depend on the preamble of the statute
G
imposing it. Nor do we think that it would be right to ·
say that a tax is not 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 com·
H
pensatory and at others not so. It seems to us that' a
working test for deciding whether ·a !al! is compensatory
or not is to enquire whether the trades pe(lple:are having .
i626' SUPilBME COURT REPORts tt9s3l 2s.c.R.
the use of certain facilities for the better conduct of
A 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.
B Nor do we think that it will make any difference
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 providing them are borne by the State out of whatever
c source it may be .....

We were addressed at some length on the distinction
between a tax, a fee and excise duty. It was also pointed
out to us that the taxes raised under the Act were not
specially ear-marked for the building or maintenance of
D roads. We do not think that these considerations
necessarily determine whether the taxes are compensatory
taxes are not. We must consider the substance of the
matter."

E The same principle is followed and reiterated in G. K.
Krishnan etc. etc. v. The State of Tamil Nadu · & Anr. etc.(') and
in International Tourist Corporation etc. etc. v. State of Haryana
& Ors.(')

It is undeniable that there have been vast changes in the road
F systems of all the States in India during recent years and the State
of Punjab is no exception. The roads themselves have very greatly
increased iii. extent. There is also a like increase in road traffic. The
number of motor vehicles, both passengers vehicles and goods vehicles
which use the road hai gon·~ up. The cost of maintenance of roads
G has gone up correspondingly. The spiralling inflation has added to the
mounting costs. Naturally the rates of taxes on motor vehicles have
also constantly and inevitably risen. in every part of the country. As
mentioned earlier the mandate of the provisions in part XIII of the
Constitution is not that trade, commerce and intercourse should be
H
(I) [1975] 2 S.C,R. 715.
(2) [1981]2 S.C.R. 364.
MALWA BUS .v. PUNJAB (Venkataramiah, J.) 1021

'absolutely free' i.e. subject to no law and no taxes at all. Trade,
commerce aud intercourse should pay their way, that is, the price A
for the facilities provided by the State in the form of roads, bridges,
check posts, .the departmental organisations intended for regulation
of transport, law and order. etc.. In modern communities the exer-
cise of any trade and the conduct of any business must involve many
kinds of fiscal liabilities. Merely because certain taxes are levied on B
them it cannot be said that trade or commerce has become unfree.
Without the repair upkeep, maintenance and provision for depre-
'
•, ciation of roads, transportation• would itself become impMsible.
Motor vehicles which stand in direct relation to such roads should
as held by this Court earlier, contribute towards the cost incurred
(or the aforesaid purposes. There is nothing inconsistent with the C
,conception of freedom of trade and commerce if, in truth, what is
collected by way of tax is a pecuniary charge which is compensatory
in character. What is essential is that the burden should not dis-
proportionately exceed the cost of the facilities provided by the
State. It is not at all unreasonable to ask the owners of motor D
vehicles to contribute towards the cost of maintenance of roads etc.
as they happen to.belong to a class having a special and direct
benefit of the facilities so provided. When they are taxed, they are
paying a price for something which makes their movement safer,
easeir and more convenient. If a road fails into disrepair, the extent
' of loss they suffer will be very heavy indeed resulting in damage to :E
their vehicles and inconvenience to the passengers and the owners
of the goods they carry, There is, however, no doubt that the
·Courts do have the ultimat~ power to decide whether what is re-
covered by way of tax is in truth and substance either a contribution
towards the construction and maintenance of the roads, bridges and F
' other facilities that are necessary for providing a smooth transport
service or an exaction far in excess of what is needed for providing ·
such facilities. Courts, however, cannot insist upon an exact corre-
lation between.the tax recovered and the cost so incurred because
such exact correlation is in the very nature of things impossible to
attain. There may be in some cases a little excess recovery by way G·
of taxes. That by itself should not result in the nullification of the
law imposing the tax if the extent of such excess is marginal having
regard to the total cost involved.

The petioners have relied on certain figures furnished in the H
budget
. estimates for the year 1981-82 in support
. of their case that
;1022 SUPIUOOl COURT REPORTS · [1983) 2 s.c.tt.

the State of Punjab was raising in all Rs. 49,31,00,000 from taxes
A on motor vehicles levied under the Act and taxes on passengers and
goods levied under the Punjab Passengers and Goods Taxation Act,
1952 while the State was spending only Rs. 34,03,00;000 on roads
and~biidges. It is apparent that the amount of expenditure referred to
above does not include the expenditu,re incurred by the State Govern-
B ment on other heads connected with road transport such as. the
Directorate of Transport, the transport authoritie's, provision of bus
stands, lighting, traffic police, cost of maintenance of roads within the
jurisdiction of local bodies such as Corporations, Municipalities and
Gram Panchayats which are recipients of Government 'grants for the
aforesaid purposes and other incidental items. . If these items
c, are also taken into consideration, the gap, if any, between the
receipts and the expenditure on the transport would b~come very
insignificant, The State Government has set out in. detail the
expenditure incurred by it for the aforesaid purposes in the affidavit
sworn to by Shri Karl Reddy, I.A.S., Joint Secretary to the Govern-
ment of Punjab. It has also produced the . book containing the
D budget ei;timates presented to the State Legislature for the year
1983-84. It shows that the State Government has actually incurred
in the year 1981-82 an expenditure of Rs. 23,32,88,000 on the main-
tenance of roads and bridges and Rs. IO,i3,53,000 as capital out lay
on roads and bridges. The total sum spent on roads and bridges alone
E thus came to Rs. 33,56,41,000. The actual receipts from taxes
realised during the year 1981·82 both under the Act and under the
Punjab Passengers and Goods Taxation Act, 1952 were, according
to the State Government; Rs. 48,82,00,000. The budget estimates
for the year 1983-84 show that the State Government proposes to
spend during the year 1983-84 about 42 crores on roads and bridges
F alone though there is no expectation of any significant increase in
the receipts by way of motor vehicles taxes. Even if the whole of .
the capital out-lay incurred by the State Government incurred during
the year in connection with the construction of new roads is not
included in the expenditure for the year for the purpose of deter-
G mining the compensatory character of the levy (although there can
be no serious objection to doing so as observed in G. K Krishnan's
case (supra) but only a part of it is taken into account alongwith
other items of expenditure which can legitimately be taken into
consideration, it is obvioqs that a substantial part of the levy on
H .motor vehicles under the Act as well as under the Punjab Passengers
and Goods TaJ1ation Act, 1952 is being spent annually on providing
MALWA BUS~· PUNJAB (Venkataramiah, J.) '1oi3
facilities to motor. vehicles operators. Moreover when once the
principle of carrying forward to future year or years a part of the A
capital outlay on roads and bridges during any financial year is
adopted in calculating the total expenditure incurred on roads and
. bridges during that year, ·it becomes inevitable that 'a part of the
unabsorbed capital out lay on roads and bridges in the previous
year or years would have to be added to the expenditure on roads
and bridges during the year in question. The arithmetical resqlt in
B
the case before us cannot, therefore, be much different.

·It may also be stated that a comparison between the total
. revenue from taxation ,pn motor vehicles and the expenditure incurred C
on providing facilities such as roads and bridges etc. in a single year
may sometimes present a' distorted picture. The figures furnished by
the State Government in respect of nine years i.e. 1973·74 to 1981·82
(both inclusive) show that the total receipts from the taxes levied
under the Act and the taxes levied under the Punjab Passengers and D
Goods Taxation Act, 1952 is in the order of Rs. 2,52,26 183,000 and
the total expenditure during the same period on roads and bridges
alone is Rs. 2,35,66,89,000. · The other relevant items of expenditure
incurred in connection with road traffic are not included in the
above expenditure. If they are included, the total expenditure is
likely to be more than the receipts. E
;

In Kewal Krishan Puri & Anr. v. State of Punjab & Ors.(')
where the question of a fee was involved, this Court said that if at
least a good and substantial portion of amount collected on account
of fees, (may be in the neighbourhood of two-thirds or three-fourths)
F
was shown with reasonable certainty to have been spent for rendering
services to those from whom the fees were collected, the levy of fees
could be upheld. In law there cannot be much difference between
the above principle applicable to fees and the principle that ought to
govern the levy of motor vehicles tax which is claimed to be of a G
·compensatory character.. We are satisfied that the State Government
has substantiated its case that the impugned tax is truly compen-
satory in nature. It has, therefore, to be held that it does not contra-
vene Article 301 and Article 304(b) of the Constitution.
H

(I) [1979) 3 S,C.R. 12)7,
1024 SUPREME COUltT REPOUS (1983) 2 s.c.tt

The next submission urged on behalf of the petitioners is based
A on Article 14 of the Constitution. It is contended by the. petitioners
that the Act by levying Rs. 35,000 as the annual tax on a motor
vehicle used as a stage carriage but only Rs. 1,500 per year on a
motor vehicle used as a goods carrier suffers from the vice of hostile
discrimination and is, therefore, liable to be struck down. There is no
B dispute that even a fiscal legislation is subject to Article 14 of the
Constitution. But it is' well settled that a legislature in order to tax
some need not tax all. It can adopt a reasonable classification of
persons and things in imposing tax liabilities. A law of taxation
cannot be termed as being discriminatory because different· rates
of taxation are prescribed in respect of different items provided
c it is impossible to hold that the said items .belong to distinct and
separate groups and that there is a reasonable nexus between
the classification and the object to be achieved by the imposition of
different rates of taxtion. The mere fact that a· tax falls more heavily
on certain goods or persons may not result in its invalidity. As
observed by this Court in Khandige Sham Bhat and Ors. v. The Agri-
D
cultural Income Tax Officer(!) in respect of taxation laws, the power
of legislature to classify goods, things or persons ara necessarily wide
and flexible so as to enable it do adjust its system of taxation in all }
proper and reasonable ways. The courts lean more readily in favour
of upholding the constitutionality of a taxing law in view of the com-
E plexities involved in the social and economic life of the community.
It is one of the duties of a modern legislature to utilise the measures
of taxation introduced by it for the purpose of achieving maximum'
social goods and one has to trust the wisdom of the legislature in this
regard. Unless the fiscal law in question is manifestly discrimi-
natory the Court should refrain from striking it down on the grounds
F
of discrimination. These are some of the broad principles laid
down by this Court in several of its decisions and it is unnecessary
to burden this judgment with citations. Applying these principles
it is seen that stage carriages which travel on an average· about 260
kilometres every day on a specified route or routes with an almost
G assured quantum of trafic which invariably is over cr6~ded belong to
a class distinct and separate from public carriers which carry goods on
undefined routes. Moreover the public carriers may not be operating
every day in the State. There are also other economic considerations
which distingui$h stage carriages and public carriers from each
H
(1) [1963] 3 S.C.R. 809,
MA~WA nos "· i>uN1A8 (Venkara;am;ah J.) 102S

other. The amount of wear and tear caused . to the roads·· by ani
class of motor vehicles may not; always be a determining factor, in A.
.classifying motor vehicles for purposes of taxation. The reasons
given by this Court in G.K. Krishnan's case (supra) for upholding the .
classification made between stage carriages and contract carriages both ·
of which ~re engaged in carrying PaSSengers are not relevant to the
case of a classification made between stage carriages which carri B
passengers and public carriers which transport goods. The peti-
~ioners have not placed before the Court sufficient materiaf to hold
that the impugned levy suffers from the vice of discrimination· on·
·.~ the above ground; ·

c
It was lastly urged that the levy is almost cotifhcatory in ·
character and the petitioners would have to close down their business
as stage carriage operators. It is stated that the passenger !ares were
permitted to be raised by about 43 per· cent just before the levy
was increased in this case and It is even now open to the operators D.
to move the State Government to increase the rates if they feel that
there is a case for doing so." .But on the facts and in the
circumstances of the case, we feel that it is not possible to hold that
the impugned levy imposes an. unreasonable restriction on th7
freedom of the petitioners to carry on business. The considerations
similar to those which weighed with this Court in upholding the E.
Mustard Oil Price Control Order, 1977 in Prag Ice and Oil Mills
, and Anr. etc. v. Union of India(') ought to be applied in this case
also. Though patent injustice to. the· operators of stage carriages
in fixing lower returns on ·the tickets issued to passengers should
not be encouraged, a reasonable return on investment or a reasonable F
rate of profit can not be the sine qua non of the validity of the order
of the Government fixing the maximum· fares· which the .operators
may collect from their passengers.. It cannot also be said that
merely because a business becomes uneconomical as a ·consequence
of a new levy, the new levy .would amount to an· unreasonable
restriction on the fundamental right to carry. on the said.. business. G
It is, however," open to the State Government to make any modifica-
. tions in the fares ifit feels that there is a 'need to do so.. But the.
impugned levy cannot be struck . down on the ground that the
operation of the stage carriages has become uneconomical after the
H

. (I) [1978)3 S.C.R.. 293.

'
1026 SUPRllME <XJURT REPORTS. [1983] 2 s.c.R.

introduction of the impugned levy. Moreover the material placed
by the petitioners is not also sufficient to decide whether the business
has really become uneconomical or not. We do not, therefore, find
any merit in this ground also.

In the result these petitions fail and they are dismissed. No
costs.

P.B.R. Petitions dismissed.'

)

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