# A. S. KARTHIKEYAN ETC v. STATE OF KERALA & ANR

- **Citation:** [1974] 2 S.C.R. 321
- **Court:** Supreme Court of India
- **Decided:** 1973-11-20
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/a-s-karthikeyan-etc-v-state-of-kerala-anr-6139
- **Pages:** 14

## Headnote

321
A
A. S. KARTHIKEYAN ETC.
v.
STATE OF KERALA & ANR.
November 20, 1973
[A. N. RAY, C.J., K. K. MATHEW, Y. V. Cl!ANDRACllUD,
0
A. ALAGIRISWAMI AND P. N, BHAGWATI, JJ.J _ .
c
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F
6H
Ktrala Motor Ythlclt1 (TtJxarlan c/ Passtng111 and G0Dd1 .Amtfid1ntnt) ·
Acr (IS o/ 1971) ond.Motor 'Vthlclti (Ktrala Third Amtndmtnt) Act (34'
of 1971)-l'alldll)' of.
·
·
· S.ction 43 of tho Motor Vehicles .Act, 1939, lays down that tho Stile GoY·
crnment may1 from time to time issue dlrecliac.s to the State Transport AUtbority'
rca::i.rdina fix1n: of fares and freiihts for stage carriages and public carriag~'i
and 1. 44(3) requires the State Transport Authority to give effect to auc:h dircc~
tioos. In exercise of these powers the fare structure had been fixed for atag·c:-
carriages in the respondent.State from time to time. In 1963, the respondent
decided, to increase the motor vehicles tax, to introduce tax on passengers an&
&oods, and to modify the fare structure suitabty for staa:e carriages. Accordingly'
under the Kerala Motor Vehicles Taxation Act, 1963, the new rate of tax was
fixed.
Section 3 of the KeraJa Motor Vehicles (Taxation of Passcngen and
. Goods) Act, 1963, provided that there shall be levied and paid to the Govema
ment a tax on all passengers, luggage etc. and the compcsition fee wi9 fixed
per uat per quarter. Also, after hearins the representations and objections of
1hc operators and the public, there was a revision, as from July 1, 1963, of the
fare structure of stage carriages in the State. Till July 1966, the operators
collected tax on passengers and goods and paid the taxes to the Governmef.lt.
But in 1966, the operators agitated for enhancement of fares and took the matter
10 Court. In Thomman & Ori. v. The Regional Transport Officer, ErnakuTam It
Anr. I.LR. 119681 2 Kerala U3.' tho High Court held that the tax under the
t 96laAct (Taxation of Passengers and G6ods) was a tax on passeni:ers and goods
and not on 1he oper~ton as contended by the operators. but held that the Act
contained no saWfactory provision for its C9Uection, in that it was not clear:
lhat the ta:it was payable· by the f!assengers to the operators.
Thereafter, the Kerata l<lotor Vehicles (Taxation of Passengers and Good!
Amendment) Act 18 of 1971 was passed amending the 1963-Act. Two new
· sub-sections to s. 3 provided that the tax levied shall be paid by the passengers
and consignors of 1he goods to the operators along with fares and freights and
that the operators shall be liable to pay the tlx so levied to the Govemmem-.
There was also a validating section in Act 18 of 1971, _which stated that taxes
k:vied or coUected shalJ be deemed to be and to have always been levied or
collected in accordance with Jaw as if s. 3 of the 1963·Act, as amended by Act
18 of 1971 was in force at all material times. Another Act. ~lo1or __ Vehicles.
(KeraJa Third Amendment) Act 34 of 1971. effected 2 principal changes. namely.
(1) the addition of sub. s. (lA) to s. 43 of the Motor Vehicles Act which pro.
vided that any direction regarding the fll:iog of fares and freights prospectively
or retrospectively might provide that such fares and freightJ shall De inclusive
of the tax payable by passengers or consignors of goods; and (2) a validating
provision validating the directions. relatinit to fares i~<1ued on or ::ifter March 1.
1963 10 be inclusive of the tax payable under the 1963·Act. With effect from
October 15, 1971, the GoVemment also revised the rates of fare.
The operators contended that: (1) ~provisions of Acts 18 and 34 Or t97t
amounted to a ta:it not on 'P3S~n2ers and eoods but on the income of the OJ:era.
ton. (2) the. retrospective validation of levy and collection amount to a tax on
amounts collected as faro and therefore the tax wa.s a new tax on fare, and (3)
the relro!pective validation was unreasonable b•cause the operaton were made
liable for a tax which they did not In fact collect during the period July 196&
to October 14 1971. when they were agitating

## Text

_Characters 0–39,407 of 44,793. This is a partial read: ask again with offset=39407 for what follows._

321
A
A. S. KARTHIKEYAN ETC.
v.
STATE OF KERALA & ANR.
November 20, 1973
[A. N. RAY, C.J., K. K. MATHEW, Y. V. Cl!ANDRACllUD,
0
A. ALAGIRISWAMI AND P. N, BHAGWATI, JJ.J _ .
c
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6H
Ktrala Motor Ythlclt1 (TtJxarlan c/ Passtng111 and G0Dd1 .Amtfid1ntnt) ·
Acr (IS o/ 1971) ond.Motor 'Vthlclti (Ktrala Third Amtndmtnt) Act (34'
of 1971)-l'alldll)' of.
·
·
· S.ction 43 of tho Motor Vehicles .Act, 1939, lays down that tho Stile GoY·
crnment may1 from time to time issue dlrecliac.s to the State Transport AUtbority'
rca::i.rdina fix1n: of fares and freiihts for stage carriages and public carriag~'i
and 1. 44(3) requires the State Transport Authority to give effect to auc:h dircc~
tioos. In exercise of these powers the fare structure had been fixed for atag·c:-
carriages in the respondent.State from time to time. In 1963, the respondent
decided, to increase the motor vehicles tax, to introduce tax on passengers an&
&oods, and to modify the fare structure suitabty for staa:e carriages. Accordingly'
under the Kerala Motor Vehicles Taxation Act, 1963, the new rate of tax was
fixed.
Section 3 of the KeraJa Motor Vehicles (Taxation of Passcngen and
. Goods) Act, 1963, provided that there shall be levied and paid to the Govema
ment a tax on all passengers, luggage etc. and the compcsition fee wi9 fixed
per uat per quarter. Also, after hearins the representations and objections of
1hc operators and the public, there was a revision, as from July 1, 1963, of the
fare structure of stage carriages in the State. Till July 1966, the operators
collected tax on passengers and goods and paid the taxes to the Governmef.lt.
But in 1966, the operators agitated for enhancement of fares and took the matter
10 Court. In Thomman & Ori. v. The Regional Transport Officer, ErnakuTam It
Anr. I.LR. 119681 2 Kerala U3.' tho High Court held that the tax under the
t 96laAct (Taxation of Passengers and G6ods) was a tax on passeni:ers and goods
and not on 1he oper~ton as contended by the operators. but held that the Act
contained no saWfactory provision for its C9Uection, in that it was not clear:
lhat the ta:it was payable· by the f!assengers to the operators.
Thereafter, the Kerata l<lotor Vehicles (Taxation of Passengers and Good!
Amendment) Act 18 of 1971 was passed amending the 1963-Act. Two new
· sub-sections to s. 3 provided that the tax levied shall be paid by the passengers
and consignors of 1he goods to the operators along with fares and freights and
that the operators shall be liable to pay the tlx so levied to the Govemmem-.
There was also a validating section in Act 18 of 1971, _which stated that taxes
k:vied or coUected shalJ be deemed to be and to have always been levied or
collected in accordance with Jaw as if s. 3 of the 1963·Act, as amended by Act
18 of 1971 was in force at all material times. Another Act. ~lo1or __ Vehicles.
(KeraJa Third Amendment) Act 34 of 1971. effected 2 principal changes. namely.
(1) the addition of sub. s. (lA) to s. 43 of the Motor Vehicles Act which pro.
vided that any direction regarding the fll:iog of fares and freights prospectively
or retrospectively might provide that such fares and freightJ shall De inclusive
of the tax payable by passengers or consignors of goods; and (2) a validating
provision validating the directions. relatinit to fares i~<1ued on or ::ifter March 1.
1963 10 be inclusive of the tax payable under the 1963·Act. With effect from
October 15, 1971, the GoVemment also revised the rates of fare.
The operators contended that: (1) ~provisions of Acts 18 and 34 Or t97t
amounted to a ta:it not on 'P3S~n2ers and eoods but on the income of the OJ:era.
ton. (2) the. retrospective validation of levy and collection amount to a tax on
amounts collected as faro and therefore the tax wa.s a new tax on fare, and (3)
the relro!pective validation was unreasonable b•cause the operaton were made
liable for a tax which they did not In fact collect during the period July 196&
to October 14 1971. when they were agitating for enhancement cf fare.
--
322
SUPREME COURT REPORTS
( 1974 J 2 S.C.R.
Rejecting !he contentions. the Court,
HELD: (I) The provisiom of the 1963-Act (taxation of passengm and
. goods) indicate ·that the tax under that Act ia a tax on pusenaers and ownen
of goods and that the operators only collected the tax. When pu!eDFfl and
owners of goods pay the tax, the Government requires an agency to collect it
. ~nd the operators are such agent.s. The power to enact such a measure ii
derived from entry 56 of the State List II of the Seventh Schedule lo tho
.Constitution, [329B·C. D-FJ
.
M /1 Saillik Motors, Jod/1p11r & Otlitrs v. Th• Stal• of Ra/a1t/1an, (1962)
1 s.c:a. 517, followed.
(2) The tax recovered retroapectively 11 well 11 prospectively ii the
l&Dle
tax, a tax on passen'°ra and JOO(ls. The tax ii lmpoeed by the 1963 Act lllld Ito
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· cblU'acter as well as incidence is determined by the 1963-Act No tax ii impooed
or collected under Act 34 of 1971, nor was there any alteration of the chailcter
of the tax which had already been imposed. The machinery for ill colloctloa
which was implicit in the 1963-Act was made explicit by Act 18 of 1971. Tbe
C
State Government fixed the fare in July I, 1963 after taking into account the
0tlement of tax on passengers and goods imposed by the 1963-Act The operators
in coliecting fares from passengers in fact collected the ta:ii: due from them under
·the 1963-Act along with the fare. Section 43(1A) of the Motor Vehicles Act only
clarified tile factual basis. It i! competent to the State Leaislature to amend the
Motor Vehicles Act by enacting that directiom regarding fares can be inclusive
of tax. The two Acts of 1971 were only for the purpoae of dispellin& the doubtl
·expressed in Thon1n1au Case.
[3~3C-0]
D
Rai Ramkrlshno & Ollim v. The State of Bihar, (1964] 1 S.C.R. 897, o!IPlained
, and followed.
S. Srtkantiah &: Ors. v. Tht Rtglonal TraflSport Authority, Anantapt1r &: Ors.,
:[1971] Supp. S.C.R. 816, followed.
(3) The correspondence nnd representations by the operators and
notc:;a
of hearing prepared by the Secretariat in connection with the revialon of fareo,
show, that the incidence of the increase in the motor vehicles tax and the lllCI'..,.
t11 Jax liability on account of tax on pa11t1111r1 and goods were all taken iato con·
11deration in fixing the fare with effect from July I, 1973. Since the tax was an
element included in tho fare ·structure, the retrospective validation cannot bo nid
to be unjust. especially because the operators had collected the entire amount.
1332B.C; 334C-DJ
ORIGINAL JURISD!OTION: Writ Petition No. 326 of 1972 & 203 of
1973.
Under Article 32 of the Constitution of India for the enforcement
of fundamental rights.
Cii'il Appeal No. 1875 of 1972.
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Appeal by Special Leave from the Judgment and Order dated the
15th March, 1972 of the Kerala High C:>urt at Ernakulam in 0. P
No. 23 of 1971.
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Cil'il Appeal No. 1765 of 1972.
From the Judgment and Order dated the 16th March, 1972 of the
Kerala High Court Ernakulam in O.P. No. 3034 of 1971.
Cil'il Appeal No. 27 of 1973.
From the Judgment and Order dated the 13th March, 1972 of the
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Kcrala High Court in O.P. No. 2320 of 1971.
cCivil Appeal No. 361 of 1973.
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A. S. KARTH!KBYAN v. KERAI<A (Ray, C.J.)
323
,,
From the Judgment and Order dated the 15th March 1972 of the·
Kerala High Court in O.P. No. 2453 of 1971.
·
V. M. Tarkunde, C. K. Viswanatha Iyer, K. Jayaram and R.Chan-·
drasekharan for the petitioners (in W. P. No. 326/72).
C. K. Vi.nvanatha Iver, K. Jayaram and R. Chandrasekharan. for
the petitioners. lin W. P. No. 203/73).
M. M. Abdul Khader, V. A. Syed Mohammed, K. Paripoornam and
P. C. Chandi, for respondent No. 1 (in W.P. No. 203/73).
S. V. Gupte, V. Sivaraman Nai,, C. J. Balakrishnan and A. Srte·
dhar Nambiar, for the appellant (in C. A. No. 1875/72).
V. Sivarama11 Nair, C. J. Balakrishnan and A. Sreedharan Nambiar.
for the appellants, (in C. A. No. 1765/72).
V. Bhaskaran Nambiar and A. Sreedharan Nambiar, for the appellant (in C. A. No. 27/73),
K. T. Harindranath. and A. Sreedharan Nambiar, for the appellants,
(in C. A. No. 361/73) and for Intervener No· S.
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S. V. Gupte and A. Sreedharan Nambiar, for Intervener No. !.
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A. Sreedharan Nambiar, for Intervener Nos. 2, 3 and 6.
The Judgment of the Court was delivered by
RAY, CJ. These matters raise questions on the validity of legislative measures of le\\)' and collection of tax on passengers and goods
carried by stage cnrriages and public carrier vehicles. St8*e carrill&'!'
carry passengers and public carriers carry goods. The valujity of th•
Kerala Motor Vehicles (Taxation of Passengers and Goods Amoocr·
ment) Act, 1970 for the sake of brevity called Act 18 of.1971 as
well as 'the ¥otor Vehicles (Kerala Thrrd Amendment) Act, 1971
for the sake of brevity called Act 34 of 1971 is challenged.
The petitioners in the writ petitions and the appellants in Civil
Appeals are operators of stage carriages in the State of Kerala.
The questions which fall for consideration. in these matters are.
these. First, does Act 18 of 1971 levy a tax on passengers or doe!!
it levy a tax on the income of operators? Second, IS the retrospective
validation of levy and collection of taxes by Act 18 of 1971 legal ?
Third, is it competent to the legislature to amend section 43 of the
Motor Vehicles Act, 1939 called the 1939 Act by Act 34 of 1971 to
include retrospectively tax within fare ?
Section 43 of the 1939 Act lays down that the State Governmcmt
may, from time to time by notification in the Official Gazette, issue
rlirections to the State Transport Authority regarding fixing of fares
and fieights for stage carriages, contract carriages and public carriages.
Section 44(3) of the' 1939 Act requires the State Transport Authority
to. iive effect to such directions issued by th~ Government. It is in
exercise of these powers that the fare structure for stage carriages is
fixed from time to time.
SUPREME COURT REPORTS
[ 1974 J 2 s.c.a.
,
The State of Kerala came into existence with effect from 1 Novem·
A
.ber, 1956 by the Reorganisation of States comprising the Malabar area
of the forl!ler Mad~as State and the Travancore-Ox:hin area. The fare
structure m force m the Malabar area as on 1 November 1956 was
. 3. 90 nP i;ier mile and the minimum fare was 31 nP for di~tances less
. than 8 miles.
The fare structure in Travancore-Cochin area prior to
I November, 1956 was 3.90 nP per mile and the minimum was 19 nP.
There was difference only in the minimum fare between Mnlnbar and
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Travancore-Cochin areas.
In 1958 the difference between the minimum fnre of the two was
·eliminated. The Kerala Government on 15 April, 1958 incre8$ed the
.rate of fare to 4 nP per mile and tho minimum fare was 16 nP.
Prior to 1 July, 1963 there was no provision for the levy of tax on
passengers and goods in the Travancore·Cochin area. In the Malabar
C
area the Madras Motor Vehicl~s (Taxation of Passengers and Goods)
Act 1952 was in force over and above the Madras Motor Vehicles
Taxation Act.
In the Travancore-Cochin area there was oiily the
"Travancore-Cochin Vehicles Taxation Act 14 of 1950. The incidence
·of tax on stage carriages and public goods carriages was the same
·after the formation of the Kerala State in 1956. In the Malabar area
a tax of Rs. 25 /- per ·seat per quarter was levied under the Motor
D
V~hiclf.s Taxation Act and a compounded rate of Rs. 12.50 per seat
per· quarter under the Motor Vehicles (Taxation of Passengers and
Goods) Act. The aggregate elf the two taxes in the Malabar area was
Rs. 37.50 per seat per quarter in respect of stage carriages. In the
Travancore-Cochin area the rate of vehicles tax under the Vehicles
Taxation Act wa~ Rs. 37.50 l'er seat per quarter equal to th& total
incidence of tax in the Malabar area for stage cat>'iilges.
E
. The fare structure throughout tbe Kerala State after 1958 was 4
nP per mile and the minimum was 16 nP. In 1961 the GoverTimeill
of Kerala continued the fare at 4 nP. per mile buneauced the minimum
from 16 nP to 10 nl!.
In this background, the Government of Kerala on consideration of
proposals made by the Transport Commissioner decided in the month
-of February, 1963 first to increase the motor vehicles tax throughout
the State; second, to introduce tax on passengers and goods throughout the State; and, third to increase the fare structure suitably for
·stage carriages. The incidence of tax at Rs. 37.50 per seat p~r quarter
prevalent in the Kerala State was low oompared to the mc1dence of
vehicle tax in the three neighbouring States of Madras, Mysore and
Andhra Pradesh.
In Madras, the total incidence of vehicle tax per
seat per quarter was Rs. 40/ - and composition fee under Taxation of
Passengers and Goods Act was Rs. 25/- aggregating Rs. 65/- in 1962.
In Mysore, the rate was Rs. 57.50 per seat per quarter comprising
vehicle tax and composition fee under Taxation of Passengers and
Goods Act. In Andhra Pradesh, the total comprising the taxation of
passengers and vehicle tax was Rs. 67.50 in 1963.
Ill 1963 the Kerala Motor Vehicles (Taxation of Passengers and
Goods) Act 1963 for the sake brevity called Act 25 of 1963 was
enacted.
~ction 3 of Act 25 of 1963 provided that "there shall be
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A, S. KARTH!KBYAN V. KERAJ:,A (Ray, CJ.)
325
levied and ·paid to the Government a tax on all passengers, luggage
and goods carried by stage carriages and on all goods transported by
public carrier vehicles at the rate of 10 nP in the rupee on the fares
and freights payable to the operators of such stage carriages and at
the rate of 5 nP in the rupee on the freights payable to ,the operators
of such public carrier vehicles." The Act 25 of ! 963 was published
on 15 ,April, 1963 in the Kerala Gazette Extraordinary and was brought
into force with effect from 1 July,. 1963. The Act 25 of 1963 con-
,tained these provisions. The operator is permitted to compound the
tax assessable on him in circumstances and conditions mentioned
therein. The operator is required to submit returns in prescribed forms.
'lbe operator is to pay tax every month. There are provisions for
assessment, penalty, production of accounts.
The State Government of Kerala published a draft notification on
4 March, 1963 for revising the fare structure. After hearing the
representations and objections of the operators and the public, the final
notification was issued on 13 June, 1963 and was published in the
Gazette on 18 June, 1963. By this notification, the fare was fixed at
3 nP per kilometre and the minimum fare was fixed at 20 nP.
The rate of tax under the Kerala Motor Vehicles Taxation Act,
1963 was fixed at Rs. 35/- pet seat per quarter in respect of vehicles
where the total distance permitted to be operated did not exceed 200
kilometres and Rs. 40/· in respect of vehicles where the total distance
permitted to be operated p.er. day exceeded 200 kilometres. The com·
position fee paya1lle under Act 25 of 1963 was fixed at Rs. 25]· per
seat per quarter.
Therefore, the total incidence of the two taxes
under Motor Vehicles Taxation Act and the Taxation of Passengers
and Goods Act was Rs. 60/. per seat per quarter for vehicles no.t
operating in excess cl. 200 lctlome!rcs a day and Rs. 65/· per seat per
quarter in respect of vehicles operating in excess of 200 kilometres a
day.
As a result of Act 25 of 1963, the fare structure with effect from
1 July, 1963 was 3 nP per kilometre and the minimum was 20 nP.
Prior to 1 Juey, 1963, the rate of fare was 2.5 nP per kilometre and
the minimum was 10 nP.
After the fixation of fare structure on 1 July, 1963 there were
repeated
representations from
operators to increase the fare and
representations from the public for reduction of the minimum of 20
nP. A transport High level Committee was constituted with Shri C.
M .. Mathew a retired District Judge as the Chairman. The Committee recommended that there was no need to raise the fare structure
bat it recommended a reduction of the minimmn fare from 20 Ps. to 10
Ps. Presumably pursuant to the recommendation, a notification was
issued on 24 April, 1964 reducing the minimum from 20 Ps to 10 Ps.
From the year 1963 to 1966, the operators paid to the Government taxes under Act 25 of 1963. The operators collected tax on
passengers and goods.
But in 1966 tho operators agitated for enhancement of fare.
Eventually the operators went before the Kerala High Court. The
326
SUPREME COURT REPORTS
[ 1974] 2 S.C.R,
operators challenged Act 25 of 1963. The main contention of the
operators was that Act 25 of 1963 Imposed the tax not on the paasengers or consignors of the goods but on the operators who carry
the passengers or the goods, The decision of the Kerala ~
Court
in Thomman & Ors v. T.he Regional Transport Officer, Ernal<ulam(')
reported in I.L.R. (1968) 2 Kerala 153 was on 4 Marca 1968
The High Court held that the tax is a tax on the passengers and goods'
The High Court expressed the view that there was no satisfactory provi:
sion for the collection of the tax,
The High Court observed that
provision must be made for the collection of the tax from the passenger as tax specifying the quantum calculated and computed on
the basis of the provision of the Act.
Soon after the decision in Thomman case (supra)
the State
Government issued a notification dated 29 April, 1968 and published
it on 30 April, 1968.
This notification was to tne effect tn•t the
fare with effect from 1 July, 1963 was inclusive of the tax leviable
under Act 25 of 1963. There was also a draft· amendment to the
Kerala Motor Vehicles (Taxation of Passengers and Goods) Rules,
1963.
A new rule n"mbered rule 3(2) was inserted.
That new
rule was to the following effect :-
.
"The fares and freights collected from. the passengers
or consignors of goods as the case may be, may includ~
in it, such proportion of the tax as is payable under section
3 of the Act and the prescribed authority while making
the assessment under sub-rule , (i) shall calculate the tax
due to the Government under the act from the fares and
freights collected on the same proportion".
The purpose of the 1968 notification was that the fare already
fixed and which was effective from 1 July, 1963 was inclusive of the
tax and that such tax was ·being collected from the passengers and
the consignors of the goods.
The 1968 notification was also challenged in the Kerala High
Court. The Government represented that oo tax would be collected
without complying with the directions in Thomman case
(supra)
On this representatio11 of the State, the Kerala High Court dismissed
the writ petitions.
Thereafter a bill was introduced in the Assembly to aniend Act
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25 of 1963. The Bill was published in the Gazette on 11, August,
1969. The Bill was to have ·come up for consideration on 9 1anuary1
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1970. It was not taken up for consideration on that day.
lnsteaa
an Ordinance (Ordinance No. 1 of 1970) was promulgated on 4
January, 1970 mtroducing amendments. to Act 25 of 1963.
Ibis
· 1970 Ordinance was challenged in the Kerala lilgh Court.
On 19
January, 1970 the High Court passed an order that "collection of
tax under Act 25 of 1963 as amended by Ordinance 1 of 1970 is
stayed in respect of the period prior to its publication in the Karcla . H
Gazette on 5 January, 1970 to the extent the operator has not collec·
ted the same during the said period."
The· operators resolved to
collect 1 O per cent extra over the fare from the. month of 1 anuary,
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A, S, KARTHIKBYAN v. KBll,ALA (Ray, CJ.)
327
1970. Tho tr1111port Commla1loner asked them not to do ao. On
2 February, 1970 a conference wu held by tho M!nllter !or Tram•
port.
'f11e operators aarc.d that no
e1inanco.i amount would be
collected by them penolnj tho docl1lon of the Koral& Hlah Court.
The Government issued instructions on 24 February, 1970 that until
further orders from the Government "the operators shall not be required to pay the tax unde.r Act 25 of 1963 for the period trom 5
January, 1970 in rendering services in respect of the concerned vehicle
such as issue and renewal of permits etc."
The impugned Act 18 of 1971 was passed by the Legislature on
28 February, 1970 and received the assent of the Governor on 1 June,
1971. Act 18 of 1971 introduced two· sub-sections to section 3 of the
. Act 25 of 1963. Act 18 of 1971 was enacted to clarify the position
with regard to levy of and collection of taxes from passengers and
consignors of goods .in accordance. with the observations of the Kerala
High Court in Thomman Cll!Ye (supra).
The High Court observed
in that case that provision should be made for the collection of the tax
from the passenger as tax specifying the quantum calculated and
computed on the basis of provision in the Act. The High Court also
observed that the tax would be payable to the operator who was liable
to pay the same to the State. It is in this background that Act 25 of
1963 was amended by Act 18 of 1971. Act 25 of 1963 contained inter
alia the provisions that "there shall be levied and paid to the Government a tax on all passengers, luggage and goods". The provision
was amended by Act 18 of 1971 by substituting the words "there shall
be levied a tax" in place of the words "there shall be levied and paid
to the Government a tax". The result of the amendment was that
"there shall be levied a tax on all passengers, luggage and goods".
The former wording of section 3 that "there shall be levied and paid
to the Government a tax on all passengers, luggage and goods" \\118
said by the High Court to raise doubts as to whether the provision clearly said that the tax was payable by the passengers to the operators_.
The two new sub-sections introduced to section 3 by Act 18 of
1971 are f!i"st that the tax levied under sub-section ( 1) shall be paid
by the passengers or the consignors of the j!OOds as the case may be to
the operators along with the fares or freights payable to the operaton
of the stage carriages or the goods vehicles. The second introduction
is that the operator shall be liable to pay the tax levied under sul>-sec·
ti on· ( 1) on all passengers, luggage or goods carried by stage cam.· ages
and on all goods carried by goods vehicles of which he is the opera!Or
to the Government in the manner provided in this Act,
The other provision in Act 18 of 1971 is validating section which
is as follows :-
.
''Notwithstandllig any judgment, decree or order of any
court, 1)11 taxes levied or collected or pnrported to have ~en
levied or collected under the Principal Act before the date
H
of colllll!encement of this section shall be deemed to be and
to have alwavs been -levied or collecte<i in acco•dance w'th
law as if section 3 of the principal Act as amended by this
Act was in force· at all material times when such tax was
9-522Sup. CI/74
328
SUPREME COURT REP OR TS
( 1974] 2 S.C.R.
levied or collected, and no such levy or collection shall be
called in .question on the ground that it was without authority of law, and all taxes so levied or purported to have been
levied but not collected may bp collected ln accordance with
the prov(sions of the principal Act as amended by this Act :
Provided that nothing in this Act shall render any person
liable to be convicted of any offence in respect of anything
done or omitted to be done by him before the 5th day 01.
January, 1970 if such act or omission was not an offence
under the principal Act before the aforesaid date but for the
provisions of this Act."
The validating section in Act 18 of 1971 stated that taxes levied
or collected shall be deemed to be and to have always been levied or
collected in accordance with law as if section 3 of Act 25 of 1963 as
amended by act 18 of 1971 was in force at all material times. The
validating section became necessary to render levy as well as coJJection
lawful.
Act 18 of 1971 received the assent of the Governor on 1 June,
1971. On the same day, Ordinance No. 15 of 1971 was pa8sed. This
Ordinance wa~ replaceu by Act 34 of 1971. Act 34 of 1971 effected
two principal changes.
First, it amended section 43 of the Motor
Vehicles Act, 1939 by addlng sub;.section (lA) .to section 43 of that
Act. The amended sub-section (IA) stated principally that any direction regarding the fixing of fares and freights prospectively or retrospectively might provide that such fares and freights "shall be inclusive
of the tax payable by passengers or consignors of goods''. The other
change effected by Act 34 of 1971 is \)lat it validated inter alia the
directions relating to fares issued on or after 1 March, 1963 or there·
after to be inclusive of the tax payable under Act 25 of 1963.
The challenge by the operators to the validating sections in Act 18
of 1971 and Act 34 of 1971 is primarily based on the ground that the
operators did not and could not collect tax from the passengers because
the fare fixed with effect from 1 July, 1963 did not Include the tax
imposed by Act 25 of 1963, The other challenge is that the directions
issued by the State Government before the amendment of section 43
of the 1939 Act about fixlng of fare did• not include tax and, therefore,
restrospective validation of fare to be inclusive of tax was to levy tax
on fare.
The three principal contentions on behalf of the operators with
regard to the legality of Acts 18 and 34 of 1971 are these, F°U'st, the
impugned provisions amount to a tax not on passengers and goods but
on the income of operators. Second, the impugned provisions as to
retrospective validation of levy and collection are a tax on amounts
which are collected as fare and, therefore restrospectively it is a tax
on fare and fare alone. Third the retrospective validation is unreasonable because the operators are made liable for tax which they did not
in fact collect. All these contentions turn on the question as to whether
tax was included as an element in the fare, which became effective
from 1 July, 1963.
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A, S. KARTHIKBYAN v. KBRALA (RaY., C.l.)
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The q,uestion whethet the statutes, viz., Act 25 of 1963 and Act 18
of 1971 impose a tax on passengers and owners of goods or is a tax
on the income of operators has been rightly held by the Kerala Hiah
Court in Thomman case (supra) and this case to be a tax on passengers and goods. This Court in M/s Salnlk Motors, Jodhp11r &
Others v.
The State of Ra;asthan [1962] 1 S.C.R. 517 construed
the Raiasthan Passengers and Goods Taxation Act, 1959 and held that
the incidence of the tax was upon passengers and goods and not upon
the 'income of the operators of stage carriages though 'the measure of
the tax is furnished by the amount of fare and freight charged". The
power to enact such legislative measure is derived from Entry 56 of the
State List. The Entry provides "taxes on goods and passengers carried
by road or on inland waterways".
In Sainik Motors case (supra)
s..::tion 3 provided "there shall be levied, charged and paid to the State
Government a tax on all fares and freights in respect of passengers
carried and goods transported by motor vehicles at such rates which
are thereafter set out". Section 4 in Sainik Motors
case
(supra)
provided that the "tax should be collected by the owner of the motor
vehicles and paid to the State Government in the prescribed manner".
Though there is no comparable provision in the present case· of section
4 in Sainik Motors case (supra) .as to method of collection of tax
the various provisions like levy and payment before amendment of
section 3 and levy and collection after amendment of that section, composition of tax in section 4, submission of return in section 5, procedure
where no payment is made in section 7, fares and freights escaping
assessment in section 8, penalty for non-payment of tax in section 9
indicate th'!.t the tax i• on passengers and owners of goods and the
operators collect the tax. It is obvious that when passengers and owners
of goods pay the tax the Government requires an agency to collect such
tax because these taxes are payable to the Government. The operators
of stage carriages and public carriers are agents of the Government ·
to collect these taxes. The composition of tax which is allowed to
operators also shows that it is a tax on passengers and owners of goocb
and the composition is a convenient mode of payment by operators
who collect the tax.
The agitation of the operators for increase of fare which had been
going on particularly since the year 1966 led to the formation of two
committees for investigation into that question. One of the committees
was with Sbri K. Sankaran, a retired Chief Justice of Kerala High Court
as Chairman and tlie other committee was with the Minister for Reven.ue
and Labour as Chairman. The Government on consideration of the
recommendations of these committees revised the rates of fare with effect
from 15 October, 1971. The rate of fare was raised from 3 Ps per
kilometre fixed on 1 July, 1963 to 3.3 Ps with effect from 15 October,
1971 per kilometre. The minimum fare which had been fixed on 1
July, 1963 at 20 Ps and reduced to 10 Ps on 24 April, 1964 was raised
to 20 Ps with effect from 15 October, 1971. The Government considered revision of fare on account of several factors.
The operators paid to Government taxes on passengers and goods
from 1 July, 1963 npto the month of July, 1966. The operators have
also been paying to the Government taxes on passengers and goods
330
SUPREME COURT 11.BPOl\TS
[ 1974] 2 s.c.a.
from 15 October, 1971. The entire controversy between the.operators
on the one hand and the State on tho other is for the.period July, 1966
to 14 October, 1971.
The heart of the matter ls whether tax was included in the fare and,
therefore, paid by passengers particularly in the disputed period bet·
ween July, 1966 and' October, 1971. If no tax has in fact been paid
by passengers or owners of goods the retrospective validation by Acts
18 and 34 of 1971 of levy and collection 01 tax and retrospective in·
clusion of tax within !are could be contended to be nnreasonable, unworkable and unconscionable according to the operators.
When the operators challenged Act 25 of 1963
in
Thomman
case (supra) the High Court said that the Court was not in a position
to say whether the liability imposed by the Act had or had no1 been
absorbed by the increase of fare with effect from 1 July, 1963. The
provision in the Act is that there shall be a tax at the rate of 10 nP in
the rupee on the fares and freights payable to the operators of stage
carriages and at the rate of 5 nP in the rupee on the freights payable
to operators of public carrier vehicles. The machinery for the collection of the tax is the same as for the collection of the fare. The provision of tax at the rate of 10 Ps in the rupee as also 5 Ps in the rupee
shows that the tax is payable along with fares and freights. There is
no difficulty in ascertaming or quantifying the tax payable because the
rates are specified to be "in the rupee". Tax is collected by the opera·
tor with the fare from the passengers. To illustrate if the fare paid is
110 paise the tax levied is 10 paise. The fare to be appropriated by
the operators is 100 paise and the tax of 10 paise is collected by the
operator and paid to the Government.
The contemporaneous evidence on the question whether the State
Authorities at the time of fixing the fare in the month of July, 1963
included the tax imposed under Act 25 of 1963 within the fare fixed. is
furnished first by the letter of the Director of Transport dated 2 April,
1963, second, by the representation of the operators dated 3 April,
1963 and third by· the notes of hearing prepared by the Secretariat
under the heading "Motor Vehicles Stage Carriages Fare Revision File".
The Director of Transport in his aforementioned letter set out in
paragraphs 2,3 and 4 thereof as follows :-
"2. At the existing rate of fares, the earning per mile
(RP.M.) worked out for the year 1962-63 comes to 123 nP.
The present proposal to increase the basic rate as 3 nP per
head per kilometre will result in about 20 percent increase in
the rate of fares.
From the actual fil!llres of the previous
years, the Departtnent could expect only about 8 per cent in
the RP.M. from the services at the proposed rate of fares.
Thus 133 nP seems to be a fair estimate of the E.P.M. which
the department could expect to get for the year 1963-64 after
the fair increa8e.
3. As against the mcreased E.P.M. of 133 nP the expen·
ditute worked out will come to 130 nP per mile. This in·
creased operational cost is estimated by the Department taking
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331
illto llCCOUllt the enhancod rate of vehlclo tax, the new lmpo1i·
tion. of ~Pr tax under the T1P.G. Act and such other
duties. Comequent to the propOIOd levy of tax on panen·
pr, there will lie more than 6<r per cent lncreaso In tho rate
of tax to be paid by tho department. All theso facton 'Were
taken Into consideration In estimating the operational cott.
4. No doubt the increased rate of tax, the lovy of passenaer tax and such other duties would reduce tho profit margin
and tho ·return on capital out lay to a. considerable extent.
Desoite the incidence of higher rate of tax, levy of passenger
tax and other duties, I feel that the department could still operrate its services profitably at the rate of fares contained in the
draft notification published by the Government. Since by careful operational economics the expenditure per mile could be
reduced by 2 to 3 nP per mile and the earnings increased by
rationalisation of services.
So further enhancement of fare
is unnecessary."
These statements in the letter of the Director of Transport indicate
that the increased operational cost was estimated and considered by the
Department after taking into account the enhanted rate of vehicles tax,
the new ·imposition of the passenger tax and other duties.
The representation of the operators was in answer to draft directions contained in notification dated 4 March, 1963 containing proposals
to revise the fare rates. The draft notification proposed milximum fare
at the rate of 3,75 ·DP per head per kilometre for fast passenger services
lt.
ifn thef casordinarye
~f Ghat ro~s 8;lldth3nP per hfeadthper kildsometre
111
as a maximum
arc or
services m e case o o er roa .
e operators set
out the wide disparity between increase in operational cost on the one
hand and·the inadequacy of the proposedfare rates on the other. The
operators estimated their daily expenses under several heads. One cf
the heads estimated by the operators was "increase in' tax at the revised
rate as envisaged by State budget''. That is referable to tax on passenF
gers and· goods. The operators stated that the maximum fare should
be raised to 3.5 nP per kilometre. This was aftertaking into account
the tax element.
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The represe11tation of the operators shows that the tax on passengers
and goods was one of the elements in the fare structure. This becomes
apparent in the hearing notes of the Carriage Fare Revision File prepared by the Secretariat. It was calculated that the proposal to Increase
from the then existin(l fare of. 2.5 nP per kiloin~tre to 3 nP per kilometre
would bring an additional income of Rs. 40 per day for an ordinary bus
of 40 seats operating 200 kilometres per day. The occupation ratio
work out between 60 to 80 per cent. Leaving out margin for occupation
ratio the average additional income worked at Rs. 30 per vehicle of 40
seats: The existing motor vehicles tax per seat per quarter at the time of
the fintion of fare 'was Rs. 37 .SO per seat per quarter. The then proposed enhanced tax oJi vehicles was at Rs. 60 per seat per quarter.~
existing motor vehicles tax worked at 41.6 nP per day. The enhilnccd
tali: worke!l out ·at .66.6 nP per day. The increase in motor vehicles tax
332
SUPREME COURT REPORTS
[ 1974] 2 s.c.R.
would impose an additional tax burden o~ 25 nP per seat per day. The
increase in motor vehicles tax would be at Rs. 10 per bus of 40 seats
a day. The additional cost of operation on account of Increase in cost
of fuel, spare parts came to 12 nP per mile or 8 nP P.~r kilometre. The
operational cost of a bus of 40 seats came to Rs. 16 per day. The total
additional cost per day of ·40 seats on account of vehicles tax and cost of
fuel and spare parts came to Rs. 26. The additional income as already
indicated came to Rs. 30 per day. Therefore, the operator was not hit
by the proposal for taxation which was taken into consideration. The
operators and the Chairman of the State Transport Board demanded
further increase in the rate of fare. The entire evidence at the time of
the fixation of fare is ample proof of the fact that the incidence of the
increase in motor vehicles tax, the increase in tax liability on account
of tax on passengers and goods, and additional cost of operation on
account of increase in cost of fuel and spare parts were all taken into
consideration in fixing the fare with effect from 1 July, 1963.
Counsel on behalf of the operators contended that Act 34 of 1971
imposed a new levy for these reasons. Fares were formerly exclusive
of tax. As a result of Act 34 of 1971, fares were made inclusive of tax.
The character of the fare was altered by retrospective piece of legislation.
A deeming provision subjected the amount collected by operators as
fare to a deduction of tax. Reliance was placed on the decision of thfs
Court in Rai Ramkrishna & Others v.
The State of Bihar, [1964) 1
SCR 897 in support of the contention that the character of the tax was
altered by its retrospective operation.
In Rai Ramkrishna case (supra)
the Bihar Finance Act 1950
levied tax on passengers and goods carried by public motor service in
Bihar. The owners of motor vehicles challenged the validity of the Act.
The Act was struck down by this Court. The State thereafter issued an
Ordinance. The provisions of the Act which had been struc1c down by
this Court were validated and brought into force retrospectively by.the
Ordinance from the date when the earlier Act had purported to come
into force. The provisions of the Ordinance were thereafter incorporated in the Bihar Taxation on Passengers and Goods Act, 1961. The
validity of the Act of 1961 was challenged. The owners of vehicles
contended there that retrospective operation completely altered the character of the tax proposed to be retrospectively recovered.
The contentions in Rai Ramkrishna case (supra) were !WO-fold.
First, retrospective recoveries did not have legislative competence. Second, the owners could not recover tax from passen•ers carried by them
between 1 April, 1950 and the date of the retrospective validation of
the Act in 1961. Therefore, the tax was unreasonable. It may be
stated here that future recoveries were not challenired in that case.
As
a matter of fact, the right to make future recoveries was conceded, In
the present case, the prospective future recoveries are also not challenged.
The challenge is confined to retrospective validation only.
This Court said in that case "If the scheme of section 3 for the levy
and recovery of the tax is valid under entry 5 6 of list II so far as future
reooveries are concerned, it is not easy to see how it can be said that
the character of the tax is radically changed in the present circumstances,
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A, S. KARTHIKEYAN V.