Holding

The Himachal Pradesh Taxation (On Certain Goods Carried by Road) Act, 1991 is constitutionally valid as a compensatory tax and does not require presidential assent, and the legislature may overrule the earlier decision, rendering the 1976 Act repealed.

Summary

The State of Himachal Pradesh enacted the Himachal Pradesh Taxation (On Certain Goods Carried by Road) Act, 1976 to levy a tax on goods transported by road. The Himachal Pradesh High Court declared the Act unconstitutional as a restriction on inter‑state trade under Article 301 and for lacking presidential assent under Article 304(b). The State subsequently passed a similar 1991 Act, again challenged on the same grounds. The Supreme Court held that the tax under the 1991 Act is compensatory and regulatory, not a restriction on trade, and therefore does not fall within Article 301 or require presidential assent. The Court also affirmed that a legislature may enact a new law that removes the basis of a prior judicial invalidation, and that the 1976 Act was repealed. Consequently, the High Court’s order declaring the 1991 Act ultra vires was set aside and the appeals were allowed.

Issues considered

The constitutional validity of the Himachal Pradesh Taxation (On Certain Goods Carried by Road) Act, 1991 under Articles 301 and 304(b) of the Constitution.
Whether the road tax imposed by the 1991 Act is a compensatory/regulatory tax or a restriction on inter‑state trade.
Whether the State legislature can enact a law that effectively overrules a prior judicial declaration of invalidity.
Whether the 1976 Act survives after the enactment and validation of the 1991 Act.

Legislation cited

Constitution of Indias. Article 245, s. Article 255, s. Article 301, s. Article 304(b), s. Entry 56 List II
Himachal Pradesh Passengers and Goods Taxation Act, 1955

Subjects

constitutional lawtaxationinter‑state tradeArticle 301Article 304(b)compensatory taxstate legislative competencepresidential assentroad taxrepeal

Judgment

A THE STATE OF HIMACHAL PRADESH AND ORS.
v.
YASH PAL GARG (DEAD) BY LRS. AND ORS.

APRIL 30, 2003

B [M.B. SHAH AND ARUN KUMAR, JJ.)

Himachal Pradesh Taxation (On Certain Goods carried by Road) Act,
1976-Himachal Pradesh Taxation (On Certain Goods carried by Road) Act,
C 1991-Road Tax-Levy of-High Court holding 1976 Act enacted to levy tax
on certain goods carried by road within the State unconstitutional and invalid
being restriction within the meaning of Article 30 I and also for want of
Presidential assent-Enactment of 1991 Act-Object of levy of road tax to
raise revenue for construction, maintenance and development of roads and ·
bridges-High Court holding 1991 Act ultra vires the Constitution and void
D ab initio-Validity of-Held: Tax levied under 1991 Act is compensatory in
nature for giving better facilities to the passengers and traders, thus, would
not come within the purview of restrictions contemplated under Article 301 as
such there is no requirement of obtaining previous sanction of President-
Hence 1991 Act not ultra vires the Constitution-The 1976 Act does not
E survive since it is repealed-Constitution of India, 1950-Artic/e 301, 304{b)
and Schedule Vil list II, Entry 56.

Constitution ofIndia, 1950-Artic/e 245-State legislature-Levy oftax-
Power of-1991 Act levying road tax for construction, maintenance and
development of roads and bridges-It cannot be said that the Legislature
F overruling the decision of High Court invalidating 1976 Act-Hence 1991 Act
within the legisiative competence of State-Himachal Pradesh Taxation (On
Certain Goods carried by Road) Act, 1991-Himachal Pradesh Taxation (On
Certain Goods carried by Road) Act, 1976.

Himachal Pradesh Taxation (On Certain Goods carried by Road) Act,
G 1976 was enacted to levy tax on certain goods which are carried by road
within the State. High Court held the provisions of the Act unconstitutional
and invalid being restrictions within the meaning of Article 30 I of the
Constitution and also for want of presidential assent. Subsequently, State
enacted Himachal Pradesh Taxation (On Certain Goods carried by Road)
Act, 1991 for levy of tax. The object of the levy was to raise revenue for
H 1056
,
STA TE r. Y.I'. l•ARG 1057
construction, maintenance and development of roads a·nd bridges. A
Respondent filed writ petition challenging the Act. High Court held that
the tax levied under the 1991 Act was not compensatory in nature as State
Government sought to recover only part of expenditure incurred in
construction and maintenance of road and bridges; and that the State
Legislature was not competent to enact a law so as to overrule the decision
rendered by the Higl1 Court, thus the 1991 Act is ultra vires the Constitution B
and void ab initio. Hence the present appeals.

Appellant-State contended that the High Court erred in holding that
the State has failed to prove that the impugned road tax was not regulatory
or compensatory in nature; that the State of Himachal Pradesh is entirely C
hilly State and the cost of construction of roads and bridges is many times
high as compared to other places; and that roads are the only mode of
transport, therefore, in order to provide roads, bridges and repair, the State
Legislature had levied the tax to mobilize additional sources for
developmental purposes in exercise of its power under Entry 56 of List II
of Seventh Schedule to the Constitution. D

Respondents conte.nded that in the writ petition challenging the
validity of 1976 Act, State failed to contend and prove that the !evy of tax
was compensatory or regulatory; and that as the assent of the President
was not obtained under Article 304(b), High Court rightly held that the E
1991 Act was invalid.

Allowing the appeals, the Court

HELD: I. The H.P. Taxation (On Certain goods Carried by Road)
Act, 1991 is not ultra vires the Constitution, thus the order of High Court F
is quashed and set aside. Further as the 1976 Act does not survive because
of its .repeal and by enactment of the Himachal Pradesh Taxation (On
certain Goods carried by Road) Act, 1991, no further declaration is granted.
11071-H; 1072-A-BI

2. A demand for tax from the traders in common with others is not G
a restriction on the right to carry on trade, commerce and intercourse. Such
tax wiluld not come within the purview of the restrictions contemplated
under Article 301 of the Constitution unless it is established that in reality,
it hampers or burdens the trade and commerce. Further so long as the tax
remains compensatory or regulatory, it cannot operate as a hindrance. If H
1058 SUPREME COURT REPORTS 1200313 S.C.R.

A a State tax law accords identical treatment in the matter of levy and
collection of tax on the goods manufactured within the State and identical
goods imported from outside the State, Article 304(a) would be complied
with. There is an underlying assumption in Article 304(a) that such a tax
when levied within the constraints of Article 304(a) would not be violative
B of Article 301 and State Legislature has the power to levy such tax.
11069-H; 1070-A, B, q

3.1. The State Legislature enacted the Himachal Pradesh Taxation
(On Certain Goods carried by Road) Act, 1991 wherein in Preamble, it is
specifically stated that it was incurring much more expenditure than the
C revenue from the road tax. Necessary affidavit stating the expenditure
incurred for construction and maintenance of roads and bridges as well
as the total amount collected on the basis of tax was tiled before the High
Court. Undisputedly, most part of the State of Himachal Pradesh is not
connected by railway. For a hilly area having heavy downpour every year,
the roads require more expenditure for maintenance. For trade, commerce
D and intercourse, laying down of additional roads is also the necessity. These
facts were pointed out to the High Court, but the Court held that as the
State Government recovers only a part of the expenses incurred in
construction and maintenance of roads and bridges, levy is not
compensatory is on the face of it erroneous and cannot be sustained.
E 11070-D-FI

3.2. For levy to be compensatory, it is not required that entire amount
of cost incurred should be recovered. The State can and may incur the cost
of construction and maintenance of roads and bridges from other revenue
but that would not justify in holding that levy of tax is not compensatory.
F It is also settled that there can be no bar to intermingling of the revenue
realized from regulatory and compensatory taxes and from other taxes of
general nature, nor can there be any objection to more or less expenditure

G
being incurred in case of compensatory and regulatory levy.
11065-G, H; 1066-AI -
3.3. In the instant case, the tax is compensatory in nature for giving
better facilities to the passengers and traders, therefore, it would not come
within the purview of restrictions contemplated under Article 301. Hence,
there is no question of complying with the requirement of proviso to Article
304(b) of the· Constitution of obtaining previous sanction of the President.
H (1070-G(
STATEv. Y.P.GARG 1059
4.1 It is settled law that the Legislature can change the basis on which A
a decision is rendered invalidating the Act and thereby validating the
legislation which has been declared to be null and void. The cause for
invalidating the Act can be removed and if such cause is removed, it cannot
be said that the Legislature had acted beyond its competence.11071-A, Bl

4.2. The State Legislature enacted the 1991 Act by specifically stating · B
that levy of tax was compensatory and that the revenue recovered from
the tax was much less than the expenditure incurred by it for construction,
maintenance and repair of roads and bridges in hilly area. Thus it cannot
be said that the Legislature was overruling the decision rendered by the
High Court invalidating the 1976 Act. This only makes it clear that levy of C
road tax was compensatory. Further, the competence of legislature to pass
such law cannot be challenged. 11071-F, GI

5. While deciding the constutionality of the 1976 Act, High Court held
that such a tax amounts to restriction of trade, commerce and intercourse
among the States without considering its effect. The High Court was D
required to determine whether the impugned provisions amounted to a
restriction directly or indirectly on the 'movement of trade and commerce.
Therefore, the order that the 1976 Act is unconstitutional and invalid· is
also against the settled legal position and is set aside. (1071-D, E]
E
Mis. Sainik Motors, Jodhpur and Ors. v. The State of Rajasthan, 119621
I SCR 517; AtiabariTea Co. ltd. v. The State of Assam and Ors., (19611 I
SCR 809; The A utomobi!e Transport (Rajasthan) ltd. v. The State ofRajasthan
and Ors., 1196311SCR491; Khyerbari Tea Co. ltd. and Anr. v. The State of
Assam, 119641 5 SCR 975; State of Karnataka and Anr v. Mis. Hansa
Corporation, 1198014 SCC 697; International Tourist Corporation etc. v. State F
of Haryana and Ors., j 19811 2 SCR 364; Maharaja Tourist Service etc. v. State
of Gujarat, 1199112SCR524 and Sharma Transport v. Government of A.P.
and Ors., 120021 2 SCC 188, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 3545- G
3562 of I 991.

From the Judgment and Order dated I0.12.90 of the Himachal Pradesh
High Court in C.W.P. Nos. 58, 62, 72, 73, 74, 77, 79, 230, 235, 261300178,
109, 127, I30, 28Il79, I 15/83, 540 and 338 of 1988.
WITH H
1060 SUPREME COURT REPORTS [2003) 3 S.C.R.

A C.A.Nos. 12094-12258/96, 827-833 of 1995.

Naresh K. Sharma and Shrish Kumar Mishra for the Appellants.

Sunil Gupta, Rakeshwar L. Sood, Ravi Prasad Gupta, E.C. Agrawala,
Rajiv Shakdhar, U.A. Rana, Arvind Kumar, Ms. Anuradha Priyadarshini, Raj
B Kumar Gupta, Sheo Kumar Gupta, A.N. Bardiyar, G.S. Chatterjee, Raja
Chatterjee, Ms. Manjula Gupta, (NP) Chandra Prakash Pande, K.K. Bhatt,
A.K. Gupta J.S. Attri, Anil Kumar Gupta,-11 Ms. Meenakshi Arora, (NP),
T.N. Singh (NP) Dr. Krishan Singh Chauhan (NP), Pankaj Kalra (NP) Prem
Sunder Jha, B.S. Banthia (NP) for the Respondent.

C The Judgment of the Court was delivered by

SHAH, J. The High Court of Himachal Pradesh by judgment and order
dated I0.12.1990 allowed Civil Writ Petitions No.58 of 1978 etc. filed by the
respondents challenging the validity of the provisions of the H.P. Taxation
D (On certain Goods carried by Road) Act, 1976 (No. 34 of 1976) (hereinafter
referred to as "the 1976 Act") and held that the said provisions were
unconstitutional and invalid. The Court held thus:-

"We have seen earlier that by the impugned provision, there is a
direct levy upon the carriage of goods by road and water ways. It is
not the case of the respondent State that the levy was compensatory
E
or regulatory in character. In any case, we do not find any mention
in the reply filed by the State of any facts which may bring the levy
in either of the two categories.

On the averments made in the petition, noticed by us earlier,
F which have not been effectively denied on.behalf of the State, there
is hardly any scope for saying that the levy does no/ amount to
-
restriction within the meaning of Article 301 of the Constitution of
India. The levy could only have been saved, in case the restriction
brought about by it purported to be in public interest, and that too,
if the assent of the President had been obtained either by way of
G previous sanction or even by obtaining his assent to the Act
subsequently to bring it within the four corners of Article 255.
Admittedly, there is no sanction of the President at any stage."

The High Court also directed that the amount deposited towards the tax
be refunded in terms of interim orders.
H
STATEv. Y.P.GARG (M.B.SHAH.J.] 1061
That judgment and order is challenged by the State of Himachal Pradesh A
by filing Civil Appeal Nos.3545/91 and others.

It appears that being aggrieved by the said judgment and order and in
order to avoid delay in recovering the road tax, apart from filing appeals, the
State enacted the Himachal Pradesh Taxation (On Certain Goods carried by
Road) Act, 1991 (Act No. I0 of 1991) (hereinafter referred to as "the 1991 B
Act"). The objects and reasons of the 1991 Act read thus: -

"The Himachal Pradesh Taxation (On Certain Goods Carried by
Road) Act, 1976 was enacted under Entry 56, List II of the Seventh
Schedule to the Constitution of India to levy a tax on certain goods
which are carried by road within the State of Himachal Pradesh. The C
charging Section 3 of this Act categorically declared the levy of tax
to be in addition to the tax levied or leviable under the Himachal
Pradesh Passengers and Goods Taxation Act, 1955. The conspicuous
distinction between the taxes imposed by the Act of 1955 and Act of
1976 is that while under the former Act the tax is calculation with D
reference to the fare or freight charged or chargeable, whereas under
the Act of 1976, it is calculated with reference to weight or volume
ofgoods carried by road. Neve11heless in both these en~ctments there
exists identity of inextricable nexus with the carriage of goods by .
road.
E
2. In various writ petitions, the Hon'ble High Court of Himachal
Pradesh has held that the tax levied under the aforesaid Act is a direct
levy upon the carriage of goods by road and waterways and it is
constitutionally invalid being violative of Article 30 I read with Article
304(b) of the Constitution of India. The High Coul1 has fu1ther ordered
that the State Govt. shall refund, along with interest, the amount of F
tax deposited towards tax by the petitioners. Th is judgment, therefore,
went against the basic intention underlying the enactment of the H.P.
Taxation (On Certain Goods Carried by Road) Act, 1976, namely, a
compensation for the huge expenditure incurred each year by the
Govt. on construction, development and maintenance of roads and G
bridges within the State.

3. The Hon'ble Supreme Cou1t in its various judgments has held that
measures imposing compensatory taxes, do not come within the
purview of restrictions contemplated by A1ticle 30 I and such measures
need not comply with the requirements of the proviso to A1ticle H
1062 SUPREME COURT REPORTS (2003] 3 S.C.R.

A 304(b) of tlie Constitution. The Court has also clearly declared that
the tax imposed under Entry 56, ibid, is of a regulatory and
compensatory character. The power to levy taxes on goods and
pass(:ngers carried by road or inland waterways belongs exclusively
to the State Legislature.

B 4. The invalidation of the Act is attributable principally to the unclear
statement of objectives appended to its Bill and inadequate or feeble
defence to prove that it was, in fact, a compensatory taxation measure.
In the absence of effective reply the Hon 'ble Court did not have the
occasion to go to the compensatory character of this enactment. In
the proposed Bill, the levy has been rationalized by making it
c chargeable on the slabs ofmileage of roads actually used/or carrying
of goods within the State and ihe method or machinery of collection
has also been suitably modified to remove the defects existing in the
Himachal Pradesh Taxation (On Certain Goods Carried by Road)
Act, 1976.
D
5. ft is well known that the roads and bridges are life line in the hilly
terrain of Himachal Pradesh and every year the State Government
has to devote a sizeable chunk of its budget exclusively to the
construction, development, repair, upkeep and maintenance of roads
and bridges, without which any development is unthinkable. Besides
E loss of a recurring income of revenue of nearly Rs.9 crores each year,
to the State Exchequer, the impending refund of tax will drain out not
less than Rs.42 crores from the State exchequer, which will mean
absolute halt to the construction, maintenance and development of
roads and bridges for many years to come for want of funds. Hence,

F
in order to ensure availability of sufficient funds for construction,
development, upkeep and maintenance of roads and bridges in the
State, it has become necessary to levy the tax on certain goods carried
-
by road within the State. It is also esse11tial to validate the tax imposed
and collected by the State Govt. right from the date of commencement
of the aforesaid Act.
G
6. The Bill seeks to achieve the aforesaid objectives."

The aforesaid Act was also challenged by filing Civil Writ Petition
No.377/91 etc. before the High Court. By judgment and order dated 13th
December, 1994, the writ petitions were allowed and the 1991 Act was also
H declared ultra vires and void ab initio. The State Government was directed
STATEv. Y.P. GARG [M.B. SHAH. J.] 1063
to refund the tax already collected. The ·Court after considering various A
decisions rendered by this court held that the impugned Act would attract
application of Article 301 and require compliance of Article 304(b) of the
Constitution of India. The Court also observed that the Act under consideration
merely because it was referable to Entry 56 of State List in the Constitution
would by itself not be sufficient to hold that it is regulatory or compensatory B
in nature and that the nature of the law is not what its Preamble states it to
be. The Court thereafter referred to the earlier decision rendered by it in M/
s Yashpal Garg's case and held that it was not permissible to the State
Legislature to overrule the said decision pending appeal before the Supreme
Court. The Court observed that the effect of Court's judgment holding the
1976 Act constitutionally invalid was to obliterate the same from the statute C
book and hence, there was nothing to be repealed by the State Legislature.
Hence, the writ petitions were allowed.

SUBMISSIONS:-

The learned counsel appearing for the appellant submitted that the High D
Court materially erred in arriving at the conclusion that the State has failed
to prove that the impugned road tax was not regulatory or compensatory in
nature. It is his contention that the State of Himachal Pradesh is entirely hilly
State and the cost of construction of roads and bridges is many times high
as compared to other places and that roads are the only mode of transport
and, therefore, in order to provide roads, bridges and repair thereof, the State E
Legislature had levied the tax to mobilise additional sources for developmental
purposes. The said tax is by exercise of its power under Entry 56 of List 11
of Seventh Schedule to the Constitution.

As against this, the learned counsel for the respondents submitted that F
in the Writ Petition No.58/78 etc., the State of Himachal Pradesh failed- to
....
contend and prove that the impugned tax was compensatory or regulatory
and as the assent of the President was not obtained as contemplated under
Article 304(b ), the High Court rightly arrived at the conclusion that 'the 1991
Act' was invalid. It was contended that validation by the State Legislature
without having assent of the President of India is also unconstitutional. G
FINDINGS:-

Before dealing with the contentions of the parties, we would first refer
to the objects and reasons of 1991 Act wherein it has been specifically inter
al ia stated that: H
1064 SUPREME COURT REPORTS [2003] 3 S.C.R.

A (a) the roads and bridges are the lifeline in the hilly terrain ofHimachal
Pradesh and the State is not connected by railway;
(b) the State has to devote sizeable chunk of its budget exclusively
to the construction, development, repair, upkeep and maintenance
of roads and bridges without which any development is
B unthinkable.
(c) in such activities the State is having recurring loss of nearly nine
crores.

For this purpose, learned counsel for the appellant has pointed out the
chart revealing revenue accruals under the Act and the expenditure incurred
C on the trading facilities in the shape of roads and bridges during the periods
1976-77 to 1990-91 which is as under: - ~-

Year Amount Amount spent on Amount spent on
Collected Maintenance of The construction of
D roads and Bridges roads and Bridges

1976-77 50, 11,226 4,49,85,411 10,22,94,116
1977-78 66, 12,664 4,81,23,104 14,66,00,276
1978-79 1,21,49,137 7, 17,57,370 17,72,06,696
E 1979-80 l ,37,31,528 8,35,90,831 19,87,61,550
1980-81 1,03,64,058 6,86,93,317 22,00,60,880
1981-82 1,81,22,000 7,76,99,475 23,38,17,971
1982-83 1,16,12,100 11,83,92,845 21,77,13,747
F 9,58,34,413
1983-84 1,48,51,000 23,72,85,634
1984-85 1,24,00,000 13,60,75,532 30,45,65,517
1985-86 2,65 ,89 ,000 16,89,00,219 33,03,42,790
1986-87 4,52,26,000 14,59,31,541 34,28,37,240
G
1987-88 4,46,50,000 24, 18, 16,260 43,49,07,583
1988-89 4,88,00,000 17,08, 11,484 41,61,11,873
1989-90 7,04 ,54 ,000 18,77,53,395 41,51,33,999
20, 11,34,322
H 1990-91 6,51,82,000 40,87,80,510
STATE v. Y.P. GARG [M.B. SHAH. J.] 1065
After referring to above:stated figures and the objects and reasons which A
clarified that the intention underlying 1976 Act was to compensate the State
for the huge expenditure incurred each year on construction, development
and maintenance of roads and bridges within the State, the High Court observed
thus:-

"In para 5 thereof, it is mentioned that the State spends a sizeable B
chunk of its budget exclusively for the construction, development,
repair, upkeep and maintenance of road and bridges without which
any development is unthinkable. The learned Advocate General has
also filed additional affidavit in this court indicating the amount spent
by the respondent-State in construction ;;ind maintenance of roads and C
bridges. It is stated in the aforesaid affidavit that a sum of
Rs.20, 11,34,322 was spent on the maintenance of roads and bridges
and Rs.40,87,80,510 on construction of roads' and bridges during
1990-91 whereas only an amount of Rs.6,51,81,000 was collected as
levy under the Act. It would, therefore, appear that though the
respondent-State had spent about 61 crores of rupees in construction D
and maintenance of roads and bridges, it recovered only a sum of
Rs.6 l /2 crores from the levy under the Act. Apparenlly, !he levy is
no/ compe11sato1y in the sense slated by the learned Advocate General.
It seeks to recover 011/y a part of the expenses incurred in construe/ion
and mainlenance of roads and bridges. This position has been, more E
or less, the same from the year 1976 onwards. Jn the context of these
figures, it is submitted that the levy has been compensatory from
1976 and hence it is wrong to hold that it is directly affecting free
flow of trade or commerce throughout the territory of India, as
guaranteed under Article 30 I of the Constitution."
F
The aforesaid reason recorded by the High Court that as the State
·,.
Government recovers only a pa11 of the expenses incurred in construction
and 1naintenance of roads and bridges, the levy is not compensatory is, on the
face of it, erroneous and cannot be sustained. For levy to be compensatory,
it is not required that entire amount of cost incurred should be recovered. The
State can and may incur the cost of construction and maintenance of roads G
and bridges from other revenue but that would not justify in holding that levy
of tax is not compensatory. It is also settled that there can be no bar to inter-
mingling of the revenue realised from regulatory and compensatory taxes and
from other taxes of general nature, nor can there be aiiy objection to more
or less expenditure being incurred in case of compensatory and regulatory H
1066 SUPREME COURT REPORTS [2003] 3 S.C.R.

A levy.
Further, in our view, the question involved in this appeal is squarely
covered by number of decisions rendered by this Court.

In Mis Sainik Motors, Jodhpur and Ors. v. The Siale of Rajasthan,
B (1962) I SCR 517 the Court considered the provisions of the Rajasthan
Passengers and Goods Taxation Act which provided that where passengers
and goods were carried by motor 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 distance of
C the journey. The Constitution Bench of this Court in such a situation held that
by levy of such tax, no inter-State trade, commerce or intercourse is affected.
The tax was for purpose of State, and falls upon passengers and goods carried
by motor vehicles within the State. Such levy of tax cannot be said to offend
Articles 30 I and 304 of the Constitution.
D
It appears that the High Court solely relied upon the decision render by
this Court in Atiabari Tea Co. lid. v. The Slate of Assam and Ors., [1961)
I SCR 809 without considering the ratio laid down by a larger Bench of
Seven Judges in The Aulomobile Transport (Rajaslhan) ltd v. The State of
Rajasthan and Ors., (1963) I SCR 491). In Automobile Transport case, this
E Court exhaustively considered the decision rendered in Atiabari Tea Co. 's
case and held as under (as per majority) (page 522): -

"Nobody doubts that the application of rules like the above does
not really affect the freedom of trade and commerce; on the contrary
they facilitate the free flow of trade and commerce. The reason is that
F these rules cannot fairly be said to impose a burden on a trader or
deter him from trading: it would be absurd, for example, to suggest .....
that freedom of trade is impaired or hindered by laws which require
a motor vehicle to keep to the left of the road and not drive in a
manner dangerous to the pubic. If the word 'free' in A11. 301 means
G 'freedom to do whatever one wants to do, then chaos may be the
result; for example, one owner of a motor vehicle may wish to drive
on the left of the road while another may wish to drive on the right
of the road. If they come from opposite directions, there will be an
inevitable clash. Another class of examples relates to making a charge
for the use of trading facilities, such as, roads, bridges and aerodromes
H
STATE v. Y.P. GARG [M.B. SHAHJ] 1067
etc. Tlie collection of a toll or a tax for the use of a road or for the A
use of a bridge or for the use of an aerodrome is no barrier or
burden or deterrent to traders who, in their absence, may have to
take a longer or less convenient or more expensive route. Such
compensatory taxes are no hindrance to anybody's freedom so long
as they remain reasonable; but they could of course be converted
into a hindrance to the freedom of trade. If the authorities concerned B
really wanted to hamper anybody's trade, they could easily raise the
amount of tax or toll to an amount which would be prohibitive or
deterrent or create other impediments which instead of facilitating
trade and commerce would hamper them. It is here that the contrast,
between 'freedom' (Art. 301) and 'restrictions' (Arts. 302 and 304) C
clearly appears: that which in reality facilitates trade and commerce
is not a restriction, and that which in reality hampers or burdens trade
and commerce is a restriction. It is the reality or substance of the
matter that has to be determined. It is not possible a priori to draw
a dividing line between that which would really be a charge for a
facility provided and that which would really be a deterrent to a D
trade; but the distinction if it has to be drawn, is real and clear. For
the tax to become a prohibited tax it has to be a direct tax the effect
of which is to hinder the movement part of trade. So long as a tax
remains compensatory or regulatory it cannot operate as a hindrance."

The Court further held that the interpretation which was accepted by E
the majority in Atiabari Tea Co. 's case, subject to the following clarification,
was correct:-

"Regulatory measures or measures imposing compensatory taxes
for the use of trading facilities do not come within the purview of the F
restrictions contemplated by Art. 30 I and such measures need not
comply with the requirements of the proviso to Art. 304(b) of the
Constitution."

Even the view of minority rendered in the said case by Hidaytullah, J.
(as he then was), it has been specifically held that "freedom in Article 30 I G
does not mean anarchy. Similarly a demand for a tax from the traders in
common with others is not a restriction of the right to caiTy on trade and
commerce".

This aspect is highlighted in Khyerbari Tea Co. ltd. and Anr. v. The
State of Assam, [1964) 5 SCR 975, wherein the Court held thus:- H
1068 SUPREME COURT REPORTS [2003] 3 S.C.R.

A "It would immediately be noticed that though the majority view
in the Automobile Transport (Rajasthan) case substantially agreed
with the majority decision in the case of Atiabari Tea Co., there
would be a clear difference between the said two views in relation to
the scope and effect of the provisions of Article 304(b). According to
the majority view in the case of Atiabari Tea Co., if an Act is passed
B under Article 304(b) and its validity is impeached, then the State may
seek to justify the Act on the ground that the restrictions imposed by
it are reasonable and in the public interest, and in doing so, it may,
for instance, rely on the fact that the taxes levied by the impugned
Act are compensatory in character. On the other hand, according to
C the majority decision in the Automobile Transport (Rajas than) case,
compensato1y taxation would be outside Article 301 and cannot,
therefore, fall unqer Article 304 (b). "

The aforesaid case is relied upon in State of Karna/aka and Anr v.
Mis. Hansa Corporation, (1980) 4 SCC 697, wherein the Court observed
D thus:-
"27. On a conspectus of these decisions it appears well settled
that if a tax is compensatory in character it would be immune from
the challenge under Article 30 I. If on the other hand the tax is not
shown to be compensatory in character it would be necessary for the
E party seeking to sustain the validit~ of the tax law to show that the
requirements of Article 304 have been satisfied.

The Court also observed:-

30 ..... The effect of Article 304(a) is to treat imported goods on the
F same basis as goods manufactured or produced in a State. This Article
fm1her enables the State to levy tax on such imported goods in the
same manner and to the same extent as may be levied on the goods
manufactured or produced inside the State. If a State tax law accords
identical treatment in the matter of levy and collection of tax on the
goods manufactured within the State and identical goods imported
G from outside the State, Article 304(a) would be complied with. There
is an underlying ass11111p1ion in Article 304(a) that such a tax when
levied wi1hin the constraints of Article 304(a) would not be violative
of Article 301 and State legislature has the power to levy such tax."

Similarly, in International Tourist Corporation etc. v. State of Haryana
H
STATE v. Y.P. GARG [M.B. SHAH. J.] 1069
·and Ors., [ 1981] 2 SCR 364 the Court negatived the contention ·that levy of A
tax on passengers and goods passing through the State of Haryana, from a
place outside the State to a place outside the State interfered with the freedom
of trade, commerce and intercourse throughout the territory of India and so
it was violative of Article 30 I of the Constitution. The Court considered the
objection that no expenditure was incurred in connection with the development, B
construction, improvement and maintenance of National Highway in the State
of Haryana and observed thus:-

"We have pointed out in our judgment that the State Government
incurs expenditure in connection with National Highways not by
directly constructing or maintaining National Highways but by C
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,
_, When daylight comes, comes in the light;
In front the sun climbs slow, how slowly! D
But westward, look, the land is bright!
The petition is, therefore, dismissed."

Thereafter, in Maharaja Tourist Service etc. v. State of Gujarat, [1991]
2 SCR 524, the Court upheld the validity of the Punjab Motor Vehicle Taxation E
Rules and similar rules framed by the States of Gujarat, Rajasthan and Madhya
Pradesh and held that the working test for deciding whether a tax is
compensatory or not is to inquire whether the trades people are having the
use ofcertain facilities for the' better conduct oftheir business and paying not
patently much more than what is required for providing the facilities.
F
The aforesaid decisions and others were considered and followed by
this Court in Sharma Transport v. Government of A.P. and Ors., [2002] 2
sec 188] and similar contentions were negatived by observing: -
"For the tax to become a prohibited tax it has to be a direct tax
the effect of which is to hinder the movement part of trade. So long G
as a tax remains compensatory it cannot operate as a hindrance."

From the judgments as discussed above, it can be held:-
(a) A demand for tax from the traders in common with others is not
a restriction on the right to carry on trade, commerce and H
1070 SUPREME COURT REPORTS [2003] 3 S.C.R.
_I
A intercourse:
(b) Such tax would not come within the purview of the restrictions
contemplated under Article 30 I unless it is established that in
reality, it hampers or burdens the trade and commerce.
(c) So long as the tax remains compensatory or regulatory, it cannot
B operate as a hindrance.
(d) If a State tax law accords identical treatment in the matter of levy
and collection of tax on the goods manufactured within the State
and identical goods imported from outside the State, Article 304(a)
would be complied with. There is an underlying assumption in
c Article 304(a) that such a tax when levied within the constraints
of Article 304(a) would not be violative of Article 30 I and State
legislature has the power to levy such tax.

In the present case, after the judgment rendered by the High Court in
Writ Petition No.58/1978, the State Legislature enacted the 1991 Act wherein
D in Preamble, it is specifically stated that it was incurring much more
expenditure than the revenue from the road tax. Necessary affidavit stating
the expenditure incurred for construction and maintenance of roads and bridges
as well as the total amount collected on the basis of tax was filed before the
High Court. Unclisputedly, most part of the State of Himachal Pradesh is not
E connected by railway. For a hilly area having heavy downpour every year,
the roads require more expenditure for maintenance. For trade, commerce
and intercourse, lying down of additional roads is also the necessity. The
aforesaid facts were pointed out to the High Court, but the Court surprisingly
arrived at the conclusion that as the State Government recovers only a part
of the expenses incurred in construction and maintenance of roads and bridges,
F levy is not compensatory. As stated above, this reasoning cannot be sustained.
In the present case, it is required to be held that the tax is compensatory in
nature for giving better facilities to the passengers and traders, therefore, it

G
would not come within the purview of restrictions contemplated under Article
30 I. Hence, there is no question of complying with the requirement of proviso
to Article 304(b) of the Constitution of obtaining previous sanction of the
President.
-
REVALIDATING ACT:-

The High Com1 also held that 1991 Act was ultra vires the power of
H the legislature as it has over-ruled the decision rendered in earlier writ petition
STATE v. Y.P. GARG [M.B. SHAH,J.) 1071
in case of Mis Yash Pal Garg. This reason also cannot be sustained as it is A
settled law that the Legislature can change the basis on which a decision is
rendered invalidating the Act and thereby validating the legislation which has
been declared to be null and void. The cause for invalidating the Act can be
removed and if such cause is removed, ii cannot be said that the Legislature
had acted beyond its competence.

- The Legislature under the Constitution has within the prescribed limits
powers to make laws prospectively as well as retrospectively. By exercise of
its powers, the Legislature can remove the basis of a decision rendered by a
competent Court thereby rendering that decision ineffective. {Re. The
B

Municipal Corporation of the City of Ahmedabad and Another etc. etc. v. C
The New Shrock Spg. And Wvg. Co. Ltd. etc. etc., [1970] 2 SCC 280}. In Re.
Cauvery Water Disputes Tribunal, [1993] Supp I SCC 96 (II), same view is
taken.

Further, while deciding the first case, i.e. Writ Petition No 58 of 1978
and others, the Court arrived at the conclusion that such a tax amounts to D
restriction of trade, commerce and intercourse among the States without
considering its effect. The Court was required to determine whether the
impugned provisions amounted to a restriction directly or indirectly on the
movement of trade and commerce. Therefore, the said decision is also against
the settled legal position and requires to be set aside.
E
However, pending appeals before this Court as the State Legislature
has passed 'the 1991 Act', 'the 1976 Act' would not survive. The 1991 Act
as discussed above was held to be ultra vires mainly on the ground that the
State Legislature was not competent to enact a law so as to overrule the
decision rendered by the High Court. The State Legislature enacted a new F
law by specifically stating that levy of tax was compensatory and that the
revenue recovered from the tax was much less than the expenditure incurred
by it for construction, maintenance and repair of roads and bridges is a hilly
area. By pointing out these facts, it cannot be said that the Legislature was
overruling the decision rendered in Mis Yashpal Garg's case. This only makes
it clear that levy of road tax was compensatory. Competen_ce of legislature to G
pass such law is not at all challenged and cannot be challenged.

Hence, these appeals are allowed and the impugned judgment and order
passed by the High Court holding the H.P. Taxation (On Certain Goods
Can·ied by Road) Act, 1991 (Act No. I0 of 1991) as ultra vires is quashed and
H
1072 SUPREME COURT REPORTS 12003] 3 S.C.R.

A set asiile: It is also held that as the 1976 Act does not survive because Of its
repeal and by enactment of the Himachal Pradesh Taxation (On Certain Goods
carried by Road) Act, 1991 (Act No. I0 of 1991 ), no further declaration is
required to be granted. Ordered accordingly. There shall be no order as to
costs.

-
B IA No.28 of 2001 in CA NOs.3545-3562 of 1991.

In view of the order passed above, the intervention application is rejected.

N.J. Appeals allowed.