Holding

Section 10(3) of the Uttar Pradesh Motor Vehicles Taxation Act, 1997 is constitutionally valid and does not violate Articles 14 or 19(1)(g).

Summary

The State of Uttar Pradesh seized a tanker operating under a national permit for failing to pay the additional tax required under the Uttar Pradesh Motor Vehicles Taxation Act, 1997, and ordered the owner to pay the tax plus a ten‑times penalty under Section 10(3). The owner challenged the penalty as unconstitutional, alleging violation of Articles 14 and 19(1)(g) of the Constitution. The High Court struck down Section 10(3) as ultra vires, but the Supreme Court reversed that decision, holding that the provision is a valid deterrent measure within the legislature's power. The Court emphasized that economic legislation enjoys a presumption of constitutionality and that the classification between different categories of vehicles is reasonable. It further observed that the penalty is compensatory and aimed at protecting public revenue, not confiscatory. Consequently, the Supreme Court set aside the High Court judgment and upheld the penalty provision.

Issues considered

Whether Section 10(3) of the Uttar Pradesh Motor Vehicles Taxation Act, 1997, which imposes a ten‑times penalty for non‑payment of tax, violates Article 14 (equality) of the Constitution.
Whether the same provision infringes Article 19(1)(g) (right to practice any trade, business or profession).
Whether the classification between a 25% penalty for vehicles under state permits and a ten‑times penalty for vehicles under national permits is reasonable and non‑arbitrary.

Legislation cited

Motor Vehicles Act, 1988s. 87, s. 88(12)
Uttar Pradesh Motor Vehicles Taxation Act, 1997s. 10(3), s. 12, s. 18, s. 5, s. 9

Subjects

tax evasionpenaltyconstitutional validityArticle 14Article 19(1)(g)deterrencenational permitadditional taxUttar Pradesh Motor Vehicles Taxation Act

Judgment

STATE OF U.P. AND OTHERS A
v.
SUKHPAL SINGH BAL ETC. ETC.

SEPTEMBER 2, 2005
B
[B.P. SINGH AND S.H. KAPADIA, JJ.]

Uttar Pradesh Motor Vehicles Taxation Act, 1997:
,_
Section 10(3)-Penalty-Default in payment of additional tax, payable
in advance-Twenty five percent of the due amount prescribed for goods C
carriage playing under pern1its granted by authorities within UP while ten
time of due amount for vehicles playing under permits granted by authorities
au/side U.P.-Validity of-Held, provision not ultra vires the Articles 14 and
19(l)(g) of the Constitution.
D
Fiscal statutes-Taxation-Default-Imposition of ten items penalty--
Held, valid, deterrence is the main theme or object behind such imposition.

Words & Phrases :

Penalty-Meaning of E
The tanker of the Respondent having national permit, valid for the
states of Chattisgarh, Maharashtra, Uttar Pradesh and Andhra Pradesh,
issued by the Regional Transport Authority, Durg (Madhya Pradesh) was
seized by Assistant Regional Transport Officer, Lalitpur, On the application
F
made for the release of the vehicle, the Assistant RTO passed an order
directing the appellant to pay Rs. 5100 as composite tax plus ten times
under section 10(3) of the said 1997 Act. The order of penalty was challenged
by the appellant by way ofa writ petition in the High Court of Allahabad,
in which the validity of section 19(3) was pat in issue. The High Court
holding the provision oppressive, coercive and unreasonable, dtclared G
section 10(3) of the Uttar Pradesh Motor Vehicle Taxation Tax, 1997 as
ultra vires articles 14 and 19(l)(g) of the Constitution.

Appellant contended that on account of huge evasion of tax, the
legislature had to enact section 10(3) providing for a deterrent penalty as H
1135
1136 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.
...
A the State of U.P. has a vast boundary and the vehicles could enter from
distant corners without payment of statutory dues at the entry point. It
was further contended that _additional tax is payable in advance by the
goods carriage oper"lting under national permit granted by the authorities
within U.P. as well as by authorities outside U.P. In case breach occurs
B in payment of additional tax within the period stipulated, a penalty of
twenty five per cent of the due amount has been prescribed for goods
carriage playing under permits granted by authorities within U.P., whereas
ten times penalty is imposed for the same offence on transport vehicles
having national permit granted by authorities outside U.P. as it was found .I
that in the former case, the authorities within the State of UP had better
c control as compared to goods carriages registered outside the State ofU.P.
playing under the national permit under section 88(12) of the M.V. Act,
1988 and, therefore, there was no discrimination between the two categories
as alleged.

D Respondent, on the other land, contended that the imposition of ten
times penalty in any event was harsh, unreasonable, unconscionable and
confiscatory in nature. It was contended that on the composite tax of Rs. ..
500, ten times penalty would come to Rs. 51000, which was unreasonable
and, therefore, violative of article 19(1 )(g) of the _Constitution. It was
E urged that penalty up to ten times could have been imposed so that in
genuine cases, the respondents could be made liable for lesser penalty in
cases of mistakes is non-payment of tax. However, in the present case,
under section 10(3), ten times penalty at a fixed rate on composite tax was
harsh, arbitrary and unreasonable as no opportunity is provided to the
F alleged offending vehicle to explain its case and to get the penalty reduced.
It was urged that in imposition of ten times penalty, there was no (

adjudication and determination of the quantum. It was urged that to
impose ten times penalty without determination violated the rights of the
respondent under Articles 14 and 19(l)(g) of the Constitution. It was next
contended that the imposition often times penalty was discriminatory and
G irrational as for the same offence in respect of vehicles falling under
section 9(3), penalty does not exceed twenty five per cent of the due
amount, whereas transport vehicle playing in UP under national permit
on default is liable to ten times penalty and, therefore, the said levy was
unreasonable, irrational and discriminatory and consequently, violative
H of Article 14 of the Constitution.
STATE OF U.P. v. SUKHPAL SINGH 1137

Allowing the appeals, the Court A

HELD : I.I. while considering the scope of economic legislation as
well as tax legislation, the courts must bear in mind that unless the
provision is manifestly unjust or glaringly unconstitutional, the courts
must show judicial restraint in interfering with its applicability. Merely B
because a statute comes up for examination and some arguable point is
raised, the legislative will should not be put under a cloud. It is now well-
settled that there is always a presumption in favour of the constitutional
validity of any legislation unless the same is set aside for breach of the
provisions of the Constitution. The system of checks and balances has to
be utilized in a balanced manner with the primary objective of accelerating C
economic growth rather than suspending its growth by doubting its
constitutional efficacy at the threshold itself. [1144-G, H; 1145-A, BJ

State of Madras v. V.G. Row. AIR (1952) SC 196, referred to.
D
Bhavesh D. Parish & Others v. Union of India & Another reported in
(2000] 5 sec 471, relied on.

1.2. Every legislation, particularly in economic m~tters, is essentially
empiric and it is passed on experimentation. There may be possibilities
of abuse but on that account alone it cannot be struck down as invalid. E
These can be set right by the legislature by passing amendments. The
Court must, therefore, adjudge the constitutionality of such legislation by
the generality of its provisions. Laws relating to economic activities should
be viewed with greater latitude than laws touching civil rights such as
freedom of speech, religion etc. Moreover, there is a presumption in F
favour of the constitutionality ofa statute and the burden is upon him who
attacks it to show that there has been a clear transgression of the
constitutional principles. The legislature understands and correctly
appreciates the needs of its own people, its laws are directed to problems
made manifest by experience and its discrimination are based on adequate
grounds. There may be cases where the legislation can be condemned as G
arbitrary or irrational, hence, violative of Article 14. But the test in every
case would be whether the provisions of the Act are arbitrary and irrational
having regard to all the facts and circumstances of the case. Im.morality,
by itself cannot be a constitutional challenge as morality is essentially a
subjective value. The terms "reasonable, j1,1st and fair" derive their H
1138 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A significance from the existing social conditions. [1145-C, D, E)

R.K Garg Etc. v. Union of India & Others, [1981) 4 SCC 675, relied
on.

1.3. The High Court had erred in striking down section 10(3) as ultra
B vires Articles 14 and 19(1)(g) of the Constitution. Penalty under section
10(3) of the Act is compensatory. It is levied for breach ofa statutory duty
for non-payment of tax under the Act. Sec(ion 10(3) is enacted to protect
public revenue. It is enacted as a deterrent for tax evasion. If the statutory
dues of the State are paid, there is no question of imposition of heavy
C penalty. [1145-F; 1146-B]

State of Tamil Nadu v. M Krishnappan & Another, [2005) 4 SCC 3,
referred to.

1.4. Everything which is incidental to the main purpose of a power
D is contained within the power itself. The power to impose penalty is for
the purpose of vindicating the main power which is conferred by the
statute· in question. Deterrence is the main theme of object behind that ..
imposition of penalty under section 10(3) and, therefore, it is not possible
to say that in the instant case the provision of Section 10(3) infringes
E Articles 14 and 19(1)(g) of the Constitution, as held in the impugned
judgment. (1146-B, C; 1148-AJ

Rahimbhai Karimbhai Nagriwala v. B.B. Patel & Others, (1974) 97 ITR
660, referred to .

F 1.5. Under the provisions of Section 18 of the Act the authority
deciding appeals against orders passed by Tax Officer under Section 12
is really exercising initial jurisdiction and that under the Act, there are
sufficient safeguards and conditions which are not onerous and which
provide a forum for the aggrieved party to get redressal and, therefore,
the High Court had erred in striking down section 10(3)of the Act.
G [1146-G, H; 1147-A]

2.1. "Penalty" is a slippery word and it has to be understood in the
context ir. which it is used in a given statute. A penalty may be the subject-
matter of a breach of statutory duty or it may be the subject-matter of
H a complaint. In ordinary parlance, the proceedings may cover penalties
STATE OF U.P. v. SUKHPAL SINGH [KAPADIA, J.] 1139

for avoidance of civil liabilities which do not constitute offences against A
the State. This distinction is responsible for any enactment intended to
protect public revenue. Thus, all penalties do not flow from an offence as
is commonly understood but all offences lead to a penalty. Whereas the
former is a penalty which flows from a disregard of disregard of statutory
provisions, the latter is entailed where there is mens rea and is made the B
subject-matter of adjudication. (1145-G, H; 1146-A)

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 887J of2003.

From the Judgment and Order dated 25.3.2003. of the Allahabad High
Court in C.M.W.P. No. 1513 of 2002. C

WITH

C.A. Nos. 8875, 8881-8883, 8885, 8887-8890, 8893, 8895, 8897, 8900,
8903, 9591 and 9592 of 2003. D

Ms. Shobha Dixit, Vishwajit Singh, Ritesh Agrawal and Pradeep Misra
for the Appellants.

Pannanand Gaur, Jamshed Bey, A.L. Trehan, Farrukh Rasheed, Ashok
Kumar Gupta, H.K. Puri, Uljwal Banerjee, S.K.Puri, Ms. Priya Puri, V.M. E
Chauhan, Parijat Sinha, P.K. Jain, Taraknath Bandyopadhyay, Tara Chand
Shanna, Ms. Neelam Sharma, Anil Kumar Gupta-II and Dr. Mrs. Vipin Gupta
for the Respondents.

The Judgment of the Court was delivered by F
'
KAPADIA, J. : These civil appeals by special leave are directed against
the judgment and order of the High Court of Allahabad, declaring section
10(3) of the Uttar Pradesh Motor Vehicles Taxation Act, 1997 (for short "the
1997 Act") as ultra vires articles 14 and 19(1 )(g) of the Constitution.
G
The facts lie within a narrow compass and they are as follows:

Sukhpal Singh is the owner of a tanker bearing registration No.MP-24C-
0377. The said tanker is covered by national pennit granted by the Regional
Transport Authority, Durg. The national pennit granted was for Chattisgarh, H
1140 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A Maharashtra, Uttar Pradesh and Andhra Pradesh. Sukhpal was granted an
authorization certificate on the basis of the national pennit valid up to
14.2.2003.

On 26.2.2002, while carrying goods from Bhilai Steel Plant to Sonepat,
B the tanker in question entered the State of U.P and after unloading the goods
returned from Sonepat. While doing so, the tanker crossed t~e U:p. border
at Masaura and when it was about 8 kms. in the State of M.P., the vehicle
was seized by the Assistant Regional Transport Officer, Lalitpur on 4.3.2002.

On 5.3.2002, Sukhpal made an application for release of his vehick on
C which the Assistant RTO passed an order directing Sukhpal to pay Rs.5100
as composite tax plus ten times penalty under section 10(3) of the said 1997
Act, as amended by U.P. Amending Act No.25 of 2001.

The order of penalty was challenged by Sukhpal vide writ petition in
D the High Court of Allahabad, in which the validity of section 10(3) was put
in issue.

We have quoted the facts in the case of Sukhpal as a representative
matter in the group of similar matters.

E Smt. Shobha Dixit, learned senior counsel appearing on behalf of the
appellant-State submitted that on account of huge evasion of tax, the
legislature had to enact section 10(3) providing f<;>r a deterrent penalty as the
State of U.P. has a vast boundary and the vehicles could enter from distant
corners without payment of statutory dues at the entry point. Learned counsel
F pointed out that drivers would carry demand drafts in their pockets and they
did not pay the taxes (including additional tax) till they were apprehended
and when apprehended they made an excuse of paucity of collection centres.
She contended that the aforestated defaults constituted tax evasion and,
therefore, the State Legislature incorporated section 10(3) into existing
section 10 by Amending Act No.25 of 2001 imposing ten times penalty.
G Learned counsel next contended that the vehicle in question was "goods
carriage" operating under national permit granted under section 88(12) of the
Motor Vehicies Act, 1988 (for short "the M.V. Act, 1988") and, therefore,
it was liable to pay additional tax at the rate applicable to such "goods
carriage" under part 'B' of the third schedule [See: section 5\1 )(b) of the 1997
H Act]. Learned counsel submitted that under section 5, additional tax has been
STATE OF U.P. v. SUKHPAL SINGH [KAPADIA, J.] 1141

levied on goods carriage plying under permits granted by the authorities A
within UP, goods carriage operating under national permit granted under
section 88(12) of the M.V. Act, 1988 and goods carriage plying under permits
granted by authorities outside Uttar Pradesh for inter-State route partly lying
in Uttar Pradesh and, therefore, there was no discrimination to the levy of
additional tax. Learned counsel further contended that under section 9(l)(iii)
of the 1997 Act, additional tax is payable on goods ce'Tiage under section
B
5(1)(a) in advance on or before the fifteenth day of January, April, July and
October in each year. Learned counsel urged that under section 9(3), in cases
where breach occurs in payment of additional tax within the period specified
under section 9(1 ), a penalty of twenty five per cent of the due amount has
been prescribed for goods carriage plying under pennits granted by authorities c
within UP, whereas a ten times penalty is imposed for the same offence on
transport vehicles having national permit under section 10(3) as it was found
that in the former case, the authorities within the State of UP had better control
as compared to goods carriages registered outside the State of UP plying under
the national permit under section 88(12) of the M.V. Act, 1988 and, therefore,
D
there was no discrimination between the two categories as alleged.

Learned counsel further contended that under section IO of the 1997
Act, no transport vehicle under temporary permit granted under section 87
of the M.V. Act, 1988 or under national permit granted under section 88(12)
of the M. V. Act, 1988 or under permit by section 88(9) of the said M.V. Act, E
1988 can ply in U.P. without payment of tax at the specified rate for each
of the three categories. According to the learned counsel in the present case,
we are concerned with section I 0(1 )(b) of the 1997 Act, as the offending
vehicle was a transport vehicle under national permit granted under section
88(12) of the M. V. Act, 1988 by a authority in State of M.P. and, therefore, F
it was liable to pay additional tax under section 5 at the rate mentioned in
clause 'B' of the third schedule to the 1997 Act.

Learned counsel submitted that since the offending vehicle was found
plying in the State ofU.P. without payment of additional tax, it became liable
to ten times penalty. Learned counsel further pointed out that section 12 of G
the 1997 Act provides for refund and in cases where refund is refused, the
aggrieved person is entitled to move the appellate authority and, therefore,
determination and adjudication is also provided for in the Act. Learned
counsel, therefore, urged that the High Court had erred in striking down
section 10(3) of the 1997 Act as oppressive, coercive and unreasonable and, H
1142 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A therefore, violative of articles 14 and 19(1 )(g) of the Constitution.

On behalf of the respondent, it was urged that there was paucity of
collection centres in UP and in most cases these centres were located 50 to
60 kms. from the entry point and consequently, the drivers were required to
carry demand drafts/cash to pay composite tax in these centres and in the
B
process if apprehended, they are fined under section I 0(3) of the Act. It was
further submitted that the imposition of ten times penalty in any event was
harsh, unreasonable, unconscionable and confiscatory in nature. In this I
connection, it was urged that on the composite tax of Rs.5100, ten times
penalty would come to Rs.51000, which was unreasondble and, therefore,
c violative of article 19(1 )(g) of the Constitution. It was urged that penalty up
to ten times could have been imposed so that in genuine cases, the respondents
could be made liable for lesser penalty in cases of mistakes in non-payment
of tax. However, in the present case, under section 10(3), ten times penalty
at a fixed rate on composite tax was harsh, arbitrary and unreasonable as no
D opportunity is provided to the alleged offending vehicle to explain its case
and to get the penalty reduced. It was urged that in imposition of ten times
penalty, there was no adjudication and determination of the quantum. It was
urged that to impose ten times penalty without determination violated the
rights of the respondent under articles 14 and 19( 1)(g) of the Constitution.
It was next contended that the imposition often times penalty was discriminatory
E and irrational as for the same offence in respect of vehicles failing under
section 9(3), penalty does not exceed twenty five per cent of the due amount,
whereas transport vehicle plying in UP under national permit on default is
liable to ten times penalty and, therefore, the said levy was unreasonable,
irrational and discriminatory and consequently, violative of article 14 of the
F Constitution. It was further urged that vehicles registered in UP had to pay
Rs.550 as composite tax and ten times penalty for such vehicles came to
Rs.5500 whereas transport vehicles plying under national permit have to pay
composite tax C?f Rs.5100 and on default, they are liable to penalty of
Rs.51000, which according to the respondent was unreasonable, discriminatory
and violative of their rights under article 14 of the Constitution.
G
Before dealing with the aforestated contentions, we may analyse the
provisions of the U.P. Motor Vehicles Taxation Act, 1997. The Act was
enacted to provide for imposition of tax in the ~tate on motor vehicles. The
Act was-also enacted to provide for imposition of additional tax on motor
l
H vehicles engaged in the transport of passengers and goods for hire. Section
STATE OF U.P. v. SUKHPAL SINGH [KAPADIA, J.] I 143

2(a) defines "additional tax" to mean a tax imposed under section 5 or section A
6 in addition to the tax imposed under section 4. Section 2(d) defines "goods
carriage" to mean any motor vehicle constructed or adapted wholly or partly
for use for the carriage of goods, or any motor vehicle not so constructed or
adapted when actually used for the carriage of goods, and includes a trailer.
Section 2(h) defines "owner" in respect ofa motor vehicle to mean the person B
whose name is entered in the certificate of registration issued in respect of
such vehicle. Section 2(n) defines "transport vehicle" to mean a goods
carriage or a public service vehicle. Section 4 imposes tax on motor vehicles
other than transport vehicles used in any public place in U.P. Section 4(1)
inter a/ia states that no motor vehicle, other than a transport vehicle, shall
be used unless a one-time tax at the rate applicable and as specified in part c
'B' of the first schedule is paid. Section 4(2), inter alia, states that no transport
vehicle shall be used in any public place in U.P. unless a tax at the rate
prescribed in part 'D' of the first schedule has been paid. Section 5 deals with
levy of additional tax on goods carriages. It states, inter alia, that no goods
carriage shall be operated in any public place in U.P., unless there has been D
paid, in addition to the tax payable under section 4, an additional tax at the
rate applicable to goods ca.riage specified in the third schedule. The third
schedule is again in two parts. In the case of goods carriage plying under
permits granted by the State authorities, the tax payable is different from the
goods carriage operated under national permits granted under section 88(12)
of the 1988 Act. In the latter case, additional tax is payable at the iate E
prescribed by part 'B' of the third schedule. Therefore, sections 5(l)(a) and
5(1 )(b) show a dichotomy in the matter of levy of additional tax bet·.veen
goods carriages plying under permits granted by authorities with_in the State
of U.P. and goods carriages plying under national permits. Section 9 deals
with payment of tax and penalties. Under section 9(l}(ii), the tax payable F
under section 4(2) is payable in advance for each quarter at the time of
registration of the vehicle. Under section 9( 1)(iii}, the additional tax payable
under section 5(l)(a) is required to be paid in advance on or before the 15th
day of January, April, July and October in each year. Under section 9(3), it
is stated, that, where the tax or additional tax in respect of a motor vehicle
is not paid within the period specified in sub-section (I), a penalty at the rate G
not exceeding twenty five per cent of the due amount, shall be payable, for
which the owner and the operator shall be jointly and severally liable. Section
l() deals with transport vehicles which ply in U.P. It begins with the non
obstante clause. It states that notwithstanding anything contained in section
9, no transport vehicle shall ply in the State under a temporary permit granted H
1144 SUPREME COURT REPORTS [2005) SUPP. 2 S.C.R.

A under the 1988 Act unless the vehicle has paid a tax under section 4 calculated
at the appropriate rate specified in the first schedule, as also additional tax
under section 5 calculated at the appropriate rate specified in the sixth
schedule. Under section IO(l)(b), no transport vehicle shall ply in U.P. under
a national pennit granted under section 88(12) of the M.V. Act, 1988 by an
authority having jurisdiction outside U.P. unless the vehicle has paid additional
B
tax under section 5 at the rate specified in clause 'B' of the third schedule.

The main question in these civil appeals is whether section I 0(3)
inserted by Amending Act No.25 of 2001 imposing ten times penalty is void
for infringement of respondent's rights under articles 14 and 19(1 )(g) of the
c Constitution as held by the impugned Judgment. Therefore, we are concerned
with the validity of the said section which reads as foilows:

"JO. Vehicles not to be used in Uttar Pradesh without payment of
tax.- (3) If such transport vehicle is found plying in Uttar Pradesh
D without payment of the tax or additional tax payable under this Act
such tax or additional tax along with a penalty, equivalent to ten
times of the due tax or additional tax shall be payable."

In the case of State of Madras v. V. G. Row reported in AIR 1952 SC
196 at p. 200, this Court observed as follows:-
E
"It is important in this context to bear in mind that the test of
i:easonableness, wherever prescribed, should be applied to each
,_ individual statute impugned, and no abstract standard, or general
_ pattern of reasonableness can be laid down as applicable to all cases.
F The nature of the right alleged to have been infringed, the underlying
purpose of the restrictions imposed, the extent and urgency of the
evil sought to be remedied thereby, the disproportion of the imposition,
the prevailing conditions at the time, should all enter into the judicial
verdict."

G In the case of Bhavesh D. Parish & Others v. Union of India & Another
reported in [2000] 5 SCC 471, this Court laid down that while considering
the scope of economic legislation as well as tax legislation, the courts must
bear in mind that unless the provision is manifestly unjust or glaringly
unconstitutional, the courts must show judicial restraint in interfering with its
H applicability. !Yrerely because a statute comes up for examination and some
STATE OF U.P. v. SUKHPAL SINGH [KAPADIA, J.] I 145

arguable point is raised, the legislative will should not be put under a cloud. A
It is now well-settled that there is always a presumption in favour of the
constitutional validity of any legislation unless the same is set aside for breach
of the provisions of the Constitution. The system of checks and balances has
to be utilized in a balanced manner with the primary objective of accelerating
economic growth rather than suspending its growth by doubting its B
constitutional efficacy at the threshold itself.

In the case of R.K. Garg Etc. v. Union of India & Others reported in
[1981] 4 SCC 675, this Court held that every legislation, particularly in
economic matter~, is essentially empiric and it is based on experimentation.
There may be possibilities of abuse but on that account alone it cannot be C
struck down as invalid. These can be set right by the legislature by passing
amendments. The Court must, therefore, adjudge the constitutionality of such
legislation by the generality of its provisions. Laws relating to economic
activities should be viewed with greater latitude than laws touching civil rights
such as freedom of speech, religion etc. Moreover, there is a presumption in D
favour of the constitutionality of a statute and the burden is upon him who
attacks it to show that there has been a clear transgression of the constitutional
principles. The legislature understands and correctly appreciates the needs of
its own people, its laws are directed to problems made manifest by experience
and its discrimination are based on adequate grounds. There may be cases
where the legislation can be condemned as arbitrary or irrational, hence, E
violative of article 14. But the test in every case would be. whether the
provisions of the Act are arbitrary and irrational having regard to all the facts
and circumstances of the case. Immorality, by itself, cannot be a constitutional
challenge as morality is essentially a subjective value. The terms "reasonable,
just and fair" derive their significance from the existing social conditions. F
In the light of the above judgments as applicable to the provisions of
the said 1997 Act, we are of the view that the High Court had erred in striking
down section l 0(3) as ultra vires articles 14 and 19( l )(g) of the Constitution.
"Penalty" is a slippery word and it has to be understood in the context in which
it is used in a given statute. A penalty may be the subject-matter of a breach G
of statutory duty or it may be the subject-matter of a complaint. In ordinary
parlance, the proceedings may cover penalties for avoidance of civil liabBities
which do not constitute offences against the State. This distinction is
responsible for any enactment intended to protect public revenue. Thus, all
penalties do not flow from an offence as is commonly understood but all H
1146 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A offences lead to a penalty. Whereas the former is a penalty which flows from
a disregard of statutory provisions, the latter is entailed where there is mens
rea and is made the subject-matter of adjudication. In our view, penalty under
section 10(3) of the Act is compensatory. It is levied for breach of a statutory
duty for non-payment of tax under the Act. Section I 0(3) is enacted to protect
B public revenue. It is enacted as a deterrent for tax evasion. If the statutory
dues of the State are paid, there is no question of imposition of heavy penalty.
Everything which is incidental to the main purpose of a power is contained
within the power itself. The power to impose penalty is for the purpose of
vindicating the main power which is conferred by the statute in question.
Deterrence is the main theme of object behind that imposition of penalty under
c section 10(3).

In the case of State of Tamil Nadu v. M Krishnappan & Another reported
in [2005] 4 SCC 53, this Court has held that entry 57 of list II of the seventh
schedule to the Constitution provides a field to the State legislature to impose
D tax in respect of every aspect of a vehicle. The State has to find funds for
making new roads and for maintenance of existing roads. The Motor Vehicles
Act is regulatory and compensatory in nature in the sense that it is imposed
to meet the increasing costs of maintenance and upkeep and to that extent it
is not plenary. In the said judgment, it has been held that imposition of higher
burden of tax on vehicles based on intelligible reasoning and differentia will
E not make the impugned levy discriminatory, arbitrary or unreasonable so as
to violate article 14 of the Constitution.

Lastly, we may point out that under section 12, the drivers/operators are
entitled to claim refund of tax. Similarly, under section 18, any person
F aggrieved by the order of the Tax Officer under section 12 is entitled to move
the appellate authority within 30 days. Learned counsel for the State stated
before us and we record her statement that cases of this type would come
under section 18. Learned counsel for the State also pointed out that in
appropriate cases where the transport vehicle carries perishable goods, the
vehicle is released on the driver depositing the relevant documents with the
G Tax Officer so that payment could be made within a stipulated period.
Although section 18 refer to appellate authority, in our view, on an examination
of the scheme of the Act, we find from the provisions of section 18 that the
authority deciding appeals against orders passed by Tax Officer under section
12 is really exercising initial jurisdiction and that under the Act, there are
H sufficient safeguards and conditions which are not onerous and which provide
STATE OF U.P. v. SUKHPAL SINGH [KAPADIA, J.] I 147

a forum for the aggrieved party to get redressal and, therefore, the High Court A
had erred in striking down section I 0(3) of the Act.

In the case of Rahimbhai Karimbhai Nagriwala v. B.B. Patel & Others
reported in (1974) 97 !TR 660, penalty under section 27l(l){c) of the IT Act,
as it stood at the relevant time, was levied on the assessee at Rs.13,854, equal B
to I 00 per cent of the alleged concealed income. The assessee challenged the
constitutional validity of section 27l(l)(c) on the ground that the provision
was violative of article 14 of the Constitution inasmuch there was no
classification at all though there was a difference between various types of
tax evasions. It was urged that such a severe penalty of concealment of income
was confiscatory in nature. It was urged that under section 271(1)(a)(i) of IT C
Act, the penalty for not filing a return was correlated to the amount of the

-· tax evaded as against the con·elation of penalty to concealed income under
the impugned provisions of section 271 (I)(c)(iii) was totally arbitrary because
so far as concealed income was concerned, the penalty for concealed income
proceeded on a different footing from penalty for omission to file a return D
in time. It was also contended that the impugned penalty was disproportionate
as there was no nexus between penalty imposed and the tax evaded and under
the circumstances, it was urged that section 271 ( 1)( c)(iii) was violative of
articles 14 and 19(1 )(g) of the Constitution. This challenge was rejected by
the Gujarat High Court observing that everything which is incidental to the
main purpose of a power is contained within the power itself so that it extends E
to matters which are necessary for the reasonable fulfilment of the legislative
power over the subject matter and, therefore, the power to impose penalty is
for the purpose of vindicating the main power, which is conferred by the Act.
The object of the legislature in levying such penalty is to provide deterrent
against tax evasion and to put a stop to a practice which the legislature F
considers to be against the public interest. It has been further observed that
while article 14 forbids class legislation, it does not forbid reasonable
classification for the purposes of legislation. The Supreme Court has permitted
a very wide latitude in classification for taxation. The object of the legislature
in enacting the impugned provision is not to provide for confiscation but to
provide a penalty for concealment of income and that too by providing a G
deterrent penalty .
•
• Jn our view, the judgment of the Gujarat High Court in the case of
Rahimbhai Karimbhai Nagriwala (supra), is squarely applicable to the present
case. Deterrence is the main theme or object behind the imposition of penalty H
1148 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A and, therefore, it is not possible to say that in the instant case the provision
of section 10(3) infringes articles 14 and l9(1)(g) of the Constitution, as held
in the impugned judgment.

Accordingly, the appeals filed by the State succeed and are hereby
B allowed, the impugned judgment and order of the High Court is set aside, with
no order as to costs.

B.K. Appeals allowed.

.
....-

•