# G. K. KRISHNAN ETC. ETC v. THE STATE OF TAMIL NADU & ANR. ETC

- **Citation:** [1975] 2 S.C.R. 715
- **Court:** Supreme Court of India
- **Decided:** 1974-11-12
- **Bench:** A. N. Ray, K. K. Mathew, A. Alagiriswami
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/g-k-krishnan-etc-etc-v-the-state-of-tamil-nadu-anr-etc-6220
- **Pages:** 17

## Headnote

Madril.I Motor Vehicles Taxation A.er (3 of
1931)-,Tax on Contract
Carriages enha11ced 1by notification-If
violative
of A.rt. 301-Motlve for
enhancing tax, if relevant-If discriml11atory as compared to stage carrlaees
tttrd violati've of A.rt. 14.
The enhan::ement of motor vehicles tax on omnibuses imposed by the
State Government, by notification dated September 20, 19711 from Ra. 30/·
per seat per quarter to Rs. 100 per aeat per quarter was caallenged on the
following arounds :-
(I) The notification was not a measure of taxation but a
device
to
eliminate the competition of omnibuses with stage carriages run by the
Government;
(2l Since the tait operates as a restriction on
the
freedom
of trade
commerce and 'intercourse within the State, it could be imposed only by'
a law which had obiained the previous sanction
of the
President · under
Art. 304. and as the notification was issued by the government in the exercise of its delegate power, it was not a {aw made by the legislatur0 nor
could the previous sanction of the President be obtained for it; and
(3) The distinction made between contract carriages and atage carriaae1.
in the matter of levy of vehicle tait offends Art. 14.
Rejecting the con!entions.
HELD : 1. The tax was imposed by the Government in the exercise of
its power under S. 4 of the Madras Motor Vehicles Taxation Act, 1931. A1
the State Legislature was competent to pass the Act and as the Government
is authorised under s. 4 to levy the tax, the question of the
motive
with
which the tax was imppsed is immaterial. There can be ne>
plea
of
a
colourable exercise "! power to tax if the Government had power to impose
the tax and the fact that the impe>sition of the tax was for the purpose of
eliminating competition would not detract from its validity,
[720A-B]
2. (a) Article 301 imposes a general limitation on all legislative power.in
order to secure that trade, commerce and intercourse throughou~ the territory
of India shall be free. The word 'free' does not mean freedom from regula·
tion. There is a distinction between laws interfering with freedom to carry
out the activities constituting trade and law imposing . on
those
engaged·
therein rules of proper conduct or other restraints directed to the due and
orderly manner of carrying out the activities. This distinction 'is described
as regulation. The true solution in any given case· could
be · found
by
distinguishing between features of the transaction or activity
in
virtue. of
which it fell within the category of trade, commeree and intercourse and
those features which, though invariably found to occur "in some form or
another in the transaction or action are not essential to the conception. What
is relevant is the contrast between
the essenti.al
attributes of trade and
commerce and the incidents of the transaction which do not give it necessarily
the character of trade and commerce. Laws for government of su:h incidents.
'regulate'.
If a tax is compensa!ory or regulatory, it cannot operate as a
restriction on the freedom of trade or commerce. A compensatory· tax la
based on the nature and the extent of the use made of the roads. if the
proceeds are de~oted to the repair, upkeep, maintenance of relevant
roada
and the collection of the exaction involves no substantial interference with
the movement.
What is essential for the purpose of securing
freedom
of ·
movement by road is that no pecuniary burden should be placed upon it
716
SUPREME COURT REPORTS
[1975] 2 s.c.R.
w bich goes beyond a proper recompeMi to the state for the actual use made
of the physical facilities provided in the shape of a road. Motor nhicleir
require, for their safe, efficient and ct:oniimica! use, roads
of considerable
width, hardness and durability, and. the maintenance of such. roads will C03t
the government money .. But; because the users of vehicles· generally, mld of
public motor vehicles in particular! ~tand in a special and direct relation
t~
such roads, and may be said to denve a special

## Text

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G. K. KRISHNAN ETC. ETC.
v.
THE STATE OF TAMIL NADU & ANR. ETC.
November 12, 1974
[A. N. RAY, C.J., K. K. MATHEW AND A. ALAGIRISWAMI, JJ.]
Madril.I Motor Vehicles Taxation A.er (3 of
1931)-,Tax on Contract
Carriages enha11ced 1by notification-If
violative
of A.rt. 301-Motlve for
enhancing tax, if relevant-If discriml11atory as compared to stage carrlaees
tttrd violati've of A.rt. 14.
The enhan::ement of motor vehicles tax on omnibuses imposed by the
State Government, by notification dated September 20, 19711 from Ra. 30/·
per seat per quarter to Rs. 100 per aeat per quarter was caallenged on the
following arounds :-
(I) The notification was not a measure of taxation but a
device
to
eliminate the competition of omnibuses with stage carriages run by the
Government;
(2l Since the tait operates as a restriction on
the
freedom
of trade
commerce and 'intercourse within the State, it could be imposed only by'
a law which had obiained the previous sanction
of the
President · under
Art. 304. and as the notification was issued by the government in the exercise of its delegate power, it was not a {aw made by the legislatur0 nor
could the previous sanction of the President be obtained for it; and
(3) The distinction made between contract carriages and atage carriaae1.
in the matter of levy of vehicle tait offends Art. 14.
Rejecting the con!entions.
HELD : 1. The tax was imposed by the Government in the exercise of
its power under S. 4 of the Madras Motor Vehicles Taxation Act, 1931. A1
the State Legislature was competent to pass the Act and as the Government
is authorised under s. 4 to levy the tax, the question of the
motive
with
which the tax was imppsed is immaterial. There can be ne>
plea
of
a
colourable exercise "! power to tax if the Government had power to impose
the tax and the fact that the impe>sition of the tax was for the purpose of
eliminating competition would not detract from its validity,
[720A-B]
2. (a) Article 301 imposes a general limitation on all legislative power.in
order to secure that trade, commerce and intercourse throughou~ the territory
of India shall be free. The word 'free' does not mean freedom from regula·
tion. There is a distinction between laws interfering with freedom to carry
out the activities constituting trade and law imposing . on
those
engaged·
therein rules of proper conduct or other restraints directed to the due and
orderly manner of carrying out the activities. This distinction 'is described
as regulation. The true solution in any given case· could
be · found
by
distinguishing between features of the transaction or activity
in
virtue. of
which it fell within the category of trade, commeree and intercourse and
those features which, though invariably found to occur "in some form or
another in the transaction or action are not essential to the conception. What
is relevant is the contrast between
the essenti.al
attributes of trade and
commerce and the incidents of the transaction which do not give it necessarily
the character of trade and commerce. Laws for government of su:h incidents.
'regulate'.
If a tax is compensa!ory or regulatory, it cannot operate as a
restriction on the freedom of trade or commerce. A compensatory· tax la
based on the nature and the extent of the use made of the roads. if the
proceeds are de~oted to the repair, upkeep, maintenance of relevant
roada
and the collection of the exaction involves no substantial interference with
the movement.
What is essential for the purpose of securing
freedom
of ·
movement by road is that no pecuniary burden should be placed upon it
716
SUPREME COURT REPORTS
[1975] 2 s.c.R.
w bich goes beyond a proper recompeMi to the state for the actual use made
of the physical facilities provided in the shape of a road. Motor nhicleir
require, for their safe, efficient and ct:oniimica! use, roads
of considerable
width, hardness and durability, and. the maintenance of such. roads will C03t
the government money .. But; because the users of vehicles· generally, mld of
public motor vehicles in particular! ~tand in a special and direct relation
t~
such roads, and may be said to denve a special and direct benefit from them, it
is not unreasonable that they should be called upon to make a special contd·
bution to th~ir m<iintenance over and above their general contribution as tax
payers of the State.
[721C-H; 722B-FJ
( b) In the counter affidavit filed on behalf of the State, the aver111tlnt is
that Government has incurred an expenditure of Rs. 19.Sl crores in the year
J 97C>-7 l on the maintenance and construction of roads while the receipts from
out of the· vehicle tax was
only
Rs. 16.38 crores.
It would not
be
right to . say that a tax is not compensatory because the precise or s~ecifio
amount collected
is not actually used for providing any facilities,
and a
working test for deciding whether a tax is compensatory· or not is· to enquire
whether the trades people are 'baving the use of certain facilities
for the
better cond.uct of their business and not paying patently much more than
what is required for providing the facilities. It would be impossible to judge
the compensatory nature of a · tax by a meticulous test and, in the
nature of
things, it could not be. done. It is always difficult to evolve a fdrmuJa
which will in all cases ensure exact compensation for the use of thC road
by vehicles havin.1t regard to . their type, weight and mileage: Rough approxi.
rnation, rather than mathematical
acr.uracy is all that is required.
[722G;
723A·Dl
'
Automobile Transport. (Ra}asthan) Ltd.
v.
State of Rajastha11 [1963] 1
-S.C.R. 491
follow~.d.
( c) If the tax is attacked on the ground that it is excessive, the buiden
of proof is upon the one attacking its validity, The amount of the char1e1
and the method of collection are primarily for determination by the State
itself, although they must be reasonable and fixed according to some uniform,
fair and practical standard. Although any method of taxation which lw
a direct bearing upon or connection with the use of the highways is &PPGtent-·
ly valid, a tax which has no such apparent bearing· and is not shown to be
compensatory, but is rather a tax on the privilege of engaging in trade and
commerce, is ~yond the power of the State. It is
.also not necessary '!hat
there should be a separate fund or expenses allocation of money .fOt' fhO'
maintenance of roads to prove the compensatory purpose when such p11111ose
is proved by alternative evidence. [723G-724B]
(d) It could not be said that vehicle tax can be levied only for . 1the
Ji$tl. of the road in existence 8ll4 that the levy is not compensatory because
government has included the cost of the construction of new
roads
111so
in their 'road costs', because.
[724B-C]
(i) Even if the C08t of construction of new roads
is
excluded
the
1'eceipts would not be sufficient to meet the expenses incurred for main~ce
of old roads and therefore. it is difficult to say that in actuBI fact
~ital
expenditure for construction of new roads was
talc.en into account in th•
'levy of vehicle tax.
[724B-F]
(ii) This court approved .in the if.ulmnoblle Castl tho reason $iVea by
the High Court that the State was charging far the cost io::urred in m1n11tainfos
and making roads. [724G-725A]
·
·
(iii) The State may impose even upon motc>r vehicles as compensati.on
for the use of the public highways a chargd which ill a fair contribution
to the l;o6t of 1construcJtln11 and maintaining roads and 1or rcgulatlns tra.fllc
thereon. [725B-C]
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.
Arm.strong and Ors. v. Tile Stale of Victoria and Oi3, 99 Ocimmonweallh
H
Law Reports 28; Commo11w~alrl1 Freilhtm ·P. Lid. v. Sned/011 102 Com.in<inwealth La.w Reports 280; /ntmtaJe Tran&it J11e. v. Li"4Hy 283 Us
18'.l
at 185 and Capital Greyhound Lin.es v. Brice 339 U.S . .542 111&rred to.' '
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G'. K. KRISHNAN v. TAMIL NADU (Mathew, J.)
717
Therefore, the tax .imposed \ly the notification is compensatory in character
~nd could not therefore restrict the freedom of trade and commerce. [726C-DJ
(e) 'hlere is no material to show tha: the tax is confiscatory ar excesrivc
and operates as an unreasonable
restricti~n upon the appellants'
right to
carry on the trade. A tax which is compensatory cannot operate
as
an
unreasonable restriction upon the fundamental right of the
appellants
to
carry en· the ·business,,. for,. the very. idea. of a compensatory tax is service
more or less commensurate with the tax levied.
No citizen has a.right to
engage in trade or business without paying for the
special
s·ervices
he
receives from the State. bocause, that is part of the cost of carrying on the
business.
[726E-F]
. 3. (a) .Tl)e reasons for enhancin~ the vehicle tax on contract carrjages are,
(a) that contract carrfages iun more mile~, (bJ' carry more load, and (c)
siage ·carriages pay surcharge on the fare collected; while owners of contract
carriage are not li2ble to· pay the surcharge. It cannot be said
that a
classification made on· the basis of. the capacity . of the contract caff\age
tQ
run more _mi_les .. is unreasonable, because, these carriages will . be'
u~ing the
road more than the .stage carnages which ha'l'.e got. time schedules, specified
routes and maximum and minimum number _of trips.
[727D-728CJ
(b) There is always a presumption that a classification is valid, especially
in a taxin& statute and. a person who challenges a classification as unreasonable has the burden of proying it.
Classification depends to a great extent
upon ·an assessment of the local condiilons 11nder which these carriages
are
being run whic.h the. legislature or the administrative body alone is compo.
tent to make. The Act in :its II Schedule classilies contract carriages
and
stage ·carria~ separately for'. tax purpOses. Therefore, . when the Government,
in the exercise of its power to tax, made a classification between stage carriage&
nu- the one chahd and contract carriage on the other hand and fixed a higher
rate of tax on the latter, the presumption is that Government made that classification on the. basis of its information that contract carriages are osing tho
roads more than the s!Age. carnages because they are running more milej; and
this Court· ha~ to· assume, in the absence of any materials placed by the owners
ot contract- carriages, that. the classification is· reasonable. Hence, the levy of
an enhanced rate of vehicle tax on contract carriages is not hit by Art. 14.
[730G-73 IEI
Stale of Gujarat v.
Ambica Mills Ltd, [1974] II S.C.J. 211, at 231., Sa11
Antonio SchMI District v. Rodriguez 411 U.S. 1 and CtJrmichae/ v. Southern
Coal & Coke .Co. 301 u:s. 495 referred to
C!vIL APPELLATE JURISDICTION :
1972 and 128 to 132 of 1973.
Civil Appeal Nos. 2415 of
Appeals by Special Leave from the Judgments and Order ·dated
the 14th February, 1972 of the Madras High Court iri WPs. Nos.·
3062171 and 3069-3073 of 1971.
S; V. Gupte (In CA No. 128/73), K. S. Ramamurthi (In CA
No. 129 of 1973 .and 2415 of f 972) and A. T. M. Sompath, for the
G
appellants (in CAs. Nos. 2415/72 and qS-132/73). ·
H
S. Govind Swaminathan, Advocate Gen. for the State of Tamil
Nadu, N. S. Sivan, A. V. Rangom aiid A. Subhashirii, for the respondent (in C.A. 2415/72 and 128-129/73). ·
A. T. M. Sampath, for the petitioners in WPs. Nos. 1051-54, 1120,
1463-65 ·and 488-495173.
E. C. Agarwala, for the petitfqneril (in WPs. No. 994 and 1312/73
K. R. Nambiar, for the jietitioners (in WP. No. 1850173).
.
.
.
.
.
'··
718
SUPREME COURT REPORTS
[ 197 5] 2 s.c;R,
N. Natesan (In WP. Nos. 2S·3 and 394/73), A.. K. Sert
(In
A
395/73) and K. Doraiswami and K. layarom, for the petitioners (In
all rest of potitions).
S. Govil'ld Swaminadhan, Advocate Gen. for State of Tamil Nadu,
A. v. Rangam and A. Subhoshini, for the respondents (In all the
petitions) .
The Judgment of the Court was deliv~red by
MATIIEW, J.-llll the Civil ApPeals, the qu~tions for consid1~r~
tion are whc:ther the enhancement of motor vehicles tax on ommbuses lmp<>Sl'.d by G.0. No. 2044-Home dated 20-9-1971
by
the
Governmellt of Tamil N adu from Rs. 30 per seat per quarter to
.Rs. 100/- p:r seat per quarter is constitutipnally valid and wh~1her
the distinction made between contract carnages and stage carnages
in the matter of levy of vehicle tax offends Article 14 of the Constitution.
The writ petitions assail the validity of the aforesaid notification
oμ the additional ground, namely, that the tax levied under the nott<
ti.cation imposes restrictions on the freedom of trade, commerce and
intercourse guaranteed by Article 301 of the Constitution and that,
as the notifi,cation is not law passed after obtaining the previous
sanction of the President of India, the tax is invalid.
We take up for consideration Writ Petition No. 253 of 1973 a.nd
tho judgment therein will dispose of the Civil Appeals and the Writ
Petitions.
· ·
The petitioner is the owner of an omnibus which has a capacity
to accommodate 54 passengers. He obtained a permit on i&:S-1968
to operate it as a contract carriage and was paying tax at the rate of
Rs. 30/- per seat per quarter under the Madras Motor
Vehicles
Taxation Act 3 of 1931 (hereinafter called the 'Act'). This Act. was
passed with a view to abolish levy of tolls in the Presidency of Madra&
and th~ levy of taxes on motor. vehicles by local bodies. The raite
of tax which. originally stoocl at Rs. 10/- per seat per quarter was
increased to Rs. 30/- per seat per quarter when the systems of issuing
permits for omnibuses by the regional transport authorities came into
vogue.
The Government of Tamil Nadu by G.O.M.S.
923-Home
dated 19-4-1969 increased the rate of tax with respect to omnibuses
from Rs. 30/- to Rs. 50/- per seat per quarter with effect from
1-7-1969. It was announced that this measure was with a view to
avoid unhealthy competition between omnibuses and regular
stage
carriage buses and to put down the !llisuse of omnibuses.
The owners
of omnibuses questioned the validity of the notification in Writ Petition
No. 1412 of 1969, etc. During the pendency of those writ petitions, the
government increased the rate of tax from Rs. 50/- to Rs. 100/- pt:r
seat per quarter with effect from 1-9-1970 by G.0.M.S. 434-lfome
dated 27-2-1970.
The avowed object of this measure also was to
avoid unhealthy competition of omnibuses with regular stage carriages.
A number of writ petitions were filed challenging tho validity of this
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G. K. KRISHNAN v. TAMIL NADU (Mathew, J.)
719
notification. By a common judgment dated
29-1-1971, . the
~Iigh
Court allowed the writ petitions and quashed t~e afore~a1~ notifications holding that the notifications were a device to elimmate
the
operation of contract carriages and that the notifications werp not
made in the exercise of the power of taxation.
The result was that
the rate of tax was restored to Rs. 30/- per seat per quarter.
Appeals were preferred against this decision to this Court.
Thereafter, the Government of Tamil Nadu issued G.0.M.S .. 2544Home dated 20-1-1971 enhancing the tax from Rs. 30/- to Rs. 100/-
per seat per quarter with effect from 1~ 7-1971. It is this G.O. which
the petitioner challenges in the writ petition.
Counsel for the petitioner submitted, firstly, that the notification
was not a measure of taxation but a device to eliminate the competition of omnibuses with stage carriages run by Government and, therefore, the tax is bad. Secondly, he submitted that the tax is neither
compensatory nor regulatory_ in character and, therefore, the tax is a
restriction on the freedom of trade, commerce and intercourse guaranteed under Article 301 and as the notification is not a law passed
wit~ .the previous sanction of the President, it ·wou'.d not be saved by
Article 304(bl. In other words, the submission was that since the
tax operates as restriction on the freedom of trade, commerce and
intercourse within the State, it could be imposed only by a law which
had obtained the previous sanction of the President and as the noti,.
fication in question was issued by. the Government in the exercise of
its delegated power, it was not a law made by . the legislature nor
could the previous sanction of the President be obtained for it.
The tax was imposed by the Government in the . exercise of its
power under s. 4 of the Madras Motor Vehicles Taxation Act, 1931.
That section provides :
"4(1) The State Government may, by
notification in
the official gazette, from time to time direct that a tax shall
be levied on every motor vehicle. using any public road in the
Presidency of Madras.
(2) The notification issued under sub-section (1) shall
specify the rates at which, and the quarter from which, the
tax shall be levied :
Provided that the rates shall not exceed the
maxima
specified in Schedule II.
( 3) A notification under sub-section ( 1) may be issued
so as to have retrospective effect from a d•ate not earlier than.
· the 1st day of July, 1962.
Provided that a notification under sub-section
( 1)
in
respect of the rates as amended by the Madras Motor Vehicles Taxation (Amendment) Act, 1967 shall not have retrosnective effect from_ a date earlier than the 1st day of July,
1967."
15-L319SupCI/75
720
SUPREME COURT REPORTS
[1975] 2 s.c.R.
As the st~te legisl~ture was competent to pass the Act and as the
A
Goverru:nent ~s aut~onsed under s. 4 to levy the tax, the question of
t~e motive with which the tax was imposed is immaterial. To put it
diffe!ently, !here can be no plea of a colourable exercise of power to
tax ~f the . <!overnment had power to impose the ta~ and the fact that
t~e 1mpos1tton of the tax was for the purpose of eliminating competiho~ would not detract from i.ts validity. If an authority has power
to lffipose a tax, the fact that 1t gave a wrong reason for exercising the
B
power. would not dero~ate from the validity of the tax.
Therefore,
there 1s no substance m the first contention.
Th~ ~econd submission raises the point whether. tax in question is
a restriction on the freedom of trade, commerce and intercourse guranteed by Article 301 of the Constitution.
In Atiabari Tea Co. v. State of Assam(!) (hereinafter referred to
as 'Atrabari Case'), the appellants challenged the validity of the Assam
Taxation (on Goods carried by Roads and Inland Waterways)
Act,
1954, on the ground that it violated Article 391 and was not saved by
Article 304 (b). By a majority of 4 to 1, this Court upheld the
challenge •and declared the Act to be void. The majority said that it
\VOuld be reasonable and proper to hold that restrictions, freedom from
which is guaranteed by Article 301, would be such restrictions as
directly and immediately restrict or impede the free flow or movement
of trade and that taxes may and do amount to restrictions, but it is
only such taxes as directly and immediately restrict trade hat would
fall with in the purview of Article 301. Sinha, C.J. dissented. He held
that taxation simpliciter, as opposed to discriminatory taxation, was
not within Article 301. Shah, J. who delivered a separate judgment
. said that Article 301 guaranteed freedom. in its widest amplihide-freedom from prohibition, control, burden or impediment in commerc:ial
intercourse.
The direct and immediate restriction test had great adverse effect
upon the financial autonomy of states. For instance, a 1'aw passed by
a state legislature under entry 56 in List II, namely "taxes on goods and
passengers carried by road or gn inland waterways" would be a restric~
tion which is immediate and direct on the movement part of trade and
commerce and would be bad.
This means that Entry 56 in List II
is rendered otiose.
In view of the grave impact of this judgment, when appeals from
Rajasthan High Court came up for consideration
in
Automobile
Transport (Rajasthan) Ltd. v. State of Rajasthan(2 )
(hereinafo~r
referred to as the 'Automobile Case'), a larger Bench was constituted
•and that Bench considered the question once again.
The appellants
in that case impugned the Rajasthan Motor Vehicles Taxation Act,
19 51, inter alia as violating Article 30 l. The High Court dismissed
the petitions ana this Court, by a majority of 4 to 3 held that the Act
was valid and dismissed the appe.•als.
The case practically overruled
the decision in A tiabari Case( 1) , insofar as it held that if a state legis.-
lature wanted to impose tax to raise moneys necessary in order to
(I) [1961] l S .. C.R. 809.
(2>: [1963] I S.C.R. 491.
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G. K. KRISHNAN v. TAMIL NADU (Mathew, J.)
721
maintain roads, that could only be done after obtaining the sanction of
the President as provided in Article 304(b). In Khverbari Tea co.
Ltd. v. The State of, Assam(1), it was said that the decision in Atiabari
case was affirmed in Automobile Case with a clarifiC'ation that regulatory measures or measures imposing compensatory tax do not come
within the purview of restrictions contemplated in Article 301 and
that such measures need not comply with the requirement of the provisions of Article 304 (b). In whatever way one may choose to put it,
the effect of the majority decision in the Automobile Case is that a
compensatory tax is not a restriction upon the movement part of trade
and commerce.
Article 301 imposes a general limitation on all legislative power in
order to secure that trade, commerce and intercourse throughout· the
territory of India shall be free.
Article 302 gave power to Parliament to impose general restrictions upon that freedom.
But a restriction is put on this relaxation by Article 303 (I) which prohibits Parliament from giving preference to one State over anoth.er or discriminating
between one State and another by virtue of the entries relating to trade
•and commerce in Lists I and III of Seventh Schedule and a similar
restriction is placed on the states, though the reference to the states
is inappropriate. Each of the clauses of Article 304 operates as a
proviso to Articles 301 and 303. Article 304(a) places goods imported from siste!'-States on a par with similar goods manufactured. or
produced inside the state in regard to state taxation within the allocated filed. Article 304 (b) is the State analogus to Article 302, for it
makes the state's power contained in Article 304(b) expressly free
from the prohibition contained in Article 303 (I) by reason of the
opening words of Article 304. Whereas in Article 302 the restrictions are not subject to the requirement of reasonableness, the restrictions under Article 304 (b) are so subject.
The word 'free' in Article
30 I does. not mean freedom from regulation.
There is a clear distinction between laws interfering with freedom to carry out the activities
constituting trade and laws · imposing on those engaged therein rules
of proper conduct or other restraints directed to the due and orderly
manner of carrying out the activities.
This distinction is described as
regulation.
The word 'regulation' has no fixed
connotation. Its
meaning differs according to the nature of the thing to which it is
•applied.
The true solution, perhaps, in any given case, could be found
by distinguishing between features of the transaction Ci>r activity in virtue
of which it fell within the categQry of trade, commerce and intercourse
and those features which, though invariably found to occur in some
form or another in the transaction or action are not essential to the
conception.
What is relevant is the contrast between the essential
attribute of trade and commerce and the incidents of the transaction
which do not give it necessarily the character of trade and commerce.
Such matters relating to hours, equipment, weight/size of load, lights,
which form the incidents of transportation, even if inseparabie, do
not give the ·transaction its essential character of trade or commerce.
Laws for government of such incidents 'regulate' (2).
(I) [1964) 5 S.C.R. 975.
(2) See Wynes, "Legislative, Executive and Judicial Powers'', p. 270.
722
SUPREME COURT REPORTS
(1975) 2 s.C.R.
Regulations like rules of traffic facilitate freedom of trade and
commerce whereas, restrictions impede that freedom. The collection of
toll or tax for thei use of roads, bridges, or aerodromes, t:tc., do m;it
operate as barriers or hindrance to trade. For a tax to become a
prohibited tax, it has to be a direct tax, the effect of which is to hiader
A
the movement part of_ the trade. If the tax is compensatory or regulatory, it cannot operate as a restriction on the freedom of trade or
.B.
commerce,
The question for consideration th.en is, whether the tax here, is a
compensatory tax.
Strictly speaking, a compensatory tax is based on the nature. and
the extent of the use made of the roads, as, for example, a miJeoage or
ton-mileage charge or the like, and if the proceeds are devoted tp the
C
repair, upkeep, maintenance and depreciation of relevant roads and
the collection of the exaction involves no substanti'al interference with
the movement.
The expression 'reasonable compensation' is con-
".enient but vague. The s1andard of reasonableness can only lie in the
severity with which it bears on traffic and such evidence of extravagance in its assessment as come from general considerations. What
is essential for the purpose of securing freedom of movement by road
I).
is that no pecuniary burden should be placed upon it which goes beyond a proper recompense to the state for the actual use made of the
physical facilities provided in the shape of a road.
The difficulties
are very great in defining this conception.
But the conception appears
to be· based on a real distinction between remuneration for the provision of a specific physical service of which particular use is made and
a burden placed upon transportation in aid of the general expenditure
E
of the state. It ts clear tlr.at the motor vehicles require, for their safe,
efficient and economical use, roads of considerable width, hardness
and durability; the maintenance of such roads will cost the government
money.
But, because the users of vehicles generally, and of public
motor vehicles in particular, stand in a specral and direct relation to
such roads, and may be said to derive a special and direct benefit from
them, i.t seems not unreasonable that they should be called upon to · F
make a special contribution to their maintenance over and
above
their general contribution as taxpayers of the State. If, however, a
charge is imposed, not for the purpose of obtaining a proper contribu1tion to the maintenance and upkeep of the road, but for the purpose of
adversely affecting trade or commerce, then it would be a restriction
on the freedom of trade, commerce or iμtercourse ( 1).
In the counter-affidavit filed on behalf of the State, the averment
G
is that Government has incurred an expenditure of Rs. 19 .51 crore:;
in the year 1970-71 on the maintenance and construction of roads
while the receipts from out of vehicle tax is only Rs. 16.38 crores ..
It is also stated therein that the amount of Rs. 19.51 crores did not
include the grants made to local bodies like municipalities and Panchayat Unions for the repair and maintenance of roads within their jurisdiction.
"Road: costs", according to the affidavit, not only includes
H
(I) see Freightlines & Construction Holding Ltd. v. State of New-South Wales,
(1968) A.C. 625.
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G. K. KRISHNAN v. TAMIL NADU (Mathew, J.)
723
the -cost of construction and maintenance of roads, but also the costs
relating to the erection and maintenance of traffic control devices,
safety measures, improvements to old layouts and ihe increased esrabliment of enforcement staff.
In the Automobile Case (supra) this Court said that it would not
be right to say that a tax is not compensatory because the precise or
specific amount collected is not actually used for providing any facilities and that. a working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having -the use
of certain facilities for the better conduct of their' business and paying
not patently much more than wh~t is required . from providing the
facilities, and that it would be impossible to judge the compensatory
1
nature of a tax by a. meticulous test and, in the nature of things, it
could not be done.
It is well to remember the practical administrative difficulties in
imposing a tax at •a rate per mile. It is always difficult to evolve a
formula which will in all cases ensure exact compensation for the use
of the road by vehicles having regard to their type, weight and mileage.
Rough approximation, rather than mathematical accuracy, is all that
is required.
In all such matters, it is well to remember the profound
truth of the sayings "it is the mark of an educated man to look for
precision in each class of things just so far as the nature of the subject
admits"( 1).
·
The Supreme Court of U.S.A. rakes the view that the validity of
a tax on vehicles must be determined not by way of a formula but
rather by the result, and in several C'ases,
the court
has
upheld the validity of a fiat fee not geared to weight, mileage or
seating capacity, provided the fee is reasonable in amount and is not
shown to be in excess of the compensation for the use of the roads( 2).
According to that Court, since the purp0se of the tax imposed by the
state on motor vehicle using its road is to obtain from them a fair
contributive share of the cost of constructing and maintaining the
public highways and facilities furnished and to defray the expense of
administering the police regulations enacted for
the
purpose
of
ensuring the public safety, the method used by the state for imposing tax does. not seem to be of great significance; but such taxation,
however, can only be for the purpose of compensating the state for
the use of its roads and to defray the cost of construction and maintenance and expenses in regulating motor traffic, and it must affirmatively appear that such is the purpose of the legislation sought to be
.upheld. But, once •a proper purpose is established, the state has consirderable discretion in the method, measurement and amount of the
tax.
·
It has been said that the amount of the charges and the method
of collection are primarily for determination by the state itself, although
they must be reasonable and fixed •according to some uniform, fair and
practical standard. If the tax is attacked on the ground that it is
excessive, the burden of proof, is upon the one attacking its validity.
(I)' see Basic Works of Aristotle, F.d. Richard McKson, p. 936.
(2) see Mor[. v. Bingaman, 298 U. S. 407; aml Am> MP)'ftowfr.trf111$1( Co, v
Board of R. R. Commrs., 332 IJ, S, 497,
724
SUPREME COURT REPORTS
[1975] 2 s.c.R..
Althoug.h any. method of taxation :Vhich has oa direct bearing upon or
co~nectiort with the use of the highways is apparently valid, a tax
which has no such apparent bearing and is not shown to be compensatory, but is rather a tax on the privilege of engaging in trade or· commerce, is beyond the power of the state. Nor is it necessary that there
should be a separate fund or express allocation of money for the
maintenance of roads to prove the compensatory purpose when such
purpose is proved by alternative evidence.
:\1r. Natesan -appearing for some of the writ petitioners submitted
that the levy is not a compensatory tax, because, the government has
included the cost of the construction of new roads also in their 'road
costs· and that that would derogate from the compensatory character
of the (•ax.
His argument was that it is only for the use of the road in
existence that vehicle tax can be levied and that capital expenditure for
construction of new roads cannot be taken into account and included
in the levy of vehicle tax. In Armstrong and Others v. The State of
Victoria and Others(!), the Court said that traffic is a constant flow and
tlie regularly recurring charges of maintaining a surface for it to run
upon may be recoverable from the flowing traffic without any derogation of the freedom of movement; but any contribution to capital expenditure goes altogether outside such •a principle and the charge must
be a genuine attempt to cover or recover the costs of upkeep of the
roads. In Commonwealth Freighters Pvt. Ltd. v.
Sneddo11(2),
the
court observed that it does not seem logical to include the capital cost
of new highways or other capital expenditure in the costs taken as the
basis of the computation of road costs.
It is clear from the counter-•affidavit filed that Rs. 19.51 crores have
been spent not only for the maintenance of roads but also for construction of new ones and that the receipt from the vehicle tax was only
Rs. 16.38 crores.
However, it is not clear whether any capital expenditure for construction of new roads really entered into the actual
levy of vehide tax. It might be th•at even if the cost of construction
of new roads is excluded, the receipts would not be sufficient to meet
the expenses incurred for maintenance of old ·roads and, therefore, it
is. difficult to say that in actual fact, capital expenditure for constmction of new roads was tak~n into account in the levy of vehicle tax.
That part, in the Automobile Case (supra), this Court quoted with
approval a passage from the judgment of the High Court. The passage is as follows :
" .... We find that in 1952-53 income from motor vehicles taxation under the Act was in neighbourhood of 34
lakhs. In that very year, the expenditure on new roads and
maintenance of cld roads was in the. neighbourhood of 60
lakhs. In 1954-55, the estimated income from the tax was
35 lakhs, while the estimated expenditure was over 65
lakhs. It is obvious from these figures that the State is
(I) 99 Commonwealth Law Reports 28.
(2) 102 Commonwealth Law Reports 280.
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G. K. KRISHNAN v. TAMIL NADU (Mathew, I.)
ch!ll'ging from the users of motor vehicles &omething in the
ne1ghbourhocr.I of 50% of the cost it has to incur in maintainin,g and making roads".
725
The approach of this Court is supported by the decisions of the
~upreme Court of U.S.A. In Interstate Transit, Inc. v. Lindsey (I),
it is observed that while a state may not lay a tax on the privilege of
engaging in interstate commerce., . it may impose even upon motor
vehicles engaged exclusively in interstate commerce a charge, as compensation for the use of the public highways which is a fair contributicin to the cost of constructing and maintaining them and of regulating
the traffic thereon. In Capital Greyhound Lines v. Bricee), the
sta.te tax was upheld even though the attorney for the state had con,
ceded that the tax was allocated to the construction and maintenance
of the state highways;
Whether the restrictions visualized by Article 304 (b) would include the levy of a non-discriminatory tax is a matter on which there
is scope for difference of opinion. Article 304 (a) prohibits only imposition of a discriminatory tax. It is not clear from the article that
a tax simpliciter can be treated as a restricticlll on the freedom of
internal trade. Article 304(a) is intended to prevent discrimination
against imported goods by imposing on them tax at a higher rate than
·that borne by goods produced in the state. A discriminatory tax
against outside goods is not a tax simpliciter but is a barrier to trade
and commerce. Article 304 itself makes a distinction between tax
and restriction. That apart, taxing powers of the Union and States
are separate and mutually exclusive. It is rather strange that power
to tax given to states, say for instance, under Entry 54 of List II to
pass a law imposing tax on sale of goods should depend _upon the
goodwill of the Union executive. It is said that a tax on sale does not
impede the movement of goods. But Shah, J. said in State v, Nata·
rajan(3) : "that tax under Central sales tax on inter-state sale, it must
be noticed, is in its essence a tax which encumbers movement ci trade
and commerce". However, Bachawat, J, -in his separate jadgment in
that case said that Article 301 makes no distinction between_ movement
from one part of the state to another part of the same state and movement from one state to another, that if a tax on intra-state sale does
not offend Article 301, equally, a tax on inter-state sale cannot do so,
and that, neither tax operate directly or immediately on the free flow
of trade or free movement as the tax is on the sale, the mcivement be·
ing incidental or consequential. What is guaranteed by Article 301 is
freedom of trade, commerce and intercourse. Freedom of movement
of gqods from one place to another is a very important facet of freedom of trade and commerce. That is perhaps the reason why the
Court, in the Automobile Case (supra) restricted the freedom of trade
and comnierce guaranteed under Article 301 to the movement. part of
it. Whether there is any warrant for restricting the concept of frer.dom
of trade and commerce to the movement part of it is a matter upon
which we are not called upon to make any pronouncement.. A tax on
(1) 283 U. S. 183, at 185.
(2) 339 U.S. 542.
(3)!1968] 3 S.C.R. 829.
726
SUPREME COURT REPORTS
[1975] 2 s.C.R.
sale of goods might encumber sale an!f purchase and, to that extent,
. restricts the freedom of. trade and commerce. That apart, as Shah, J.
said, if tax on inter-state sale is in essence "a tax which encumbers
movement of trade and commerce'', a tax on. intra-state sale, if it Involves movement from croe part of the state to another part of the
same state, would encumber the movement part of it and is a restriction on the freedom of trade and commerce. Generally speaking,
selling and buying .involves delivery of the gocids sold and bought. If.
that be so, it would mean that imposition of sales tax by a state on
intra-state sale, at any rate, when the sale involves movement of goods
will be restriction of trade and commerce and unless the law imposing
it has received the previous sanction of the President, the law would
be bad as a tax on sales is neither regulatory nor compensatory. If
the Presidt:nt were to refuse his consent, the state will be bereft of that
source of revenue which the Constitution has expressly given to the
State. It is unnecessary· to pursue the matter further, as we think the
tax imposed by the notification is compensatory in character and could
DDt, therefore, restrict the freedom of trade and commerce acccirding
tq the decision in Automobile Case (supra).
In the Civil Appeals, two points have been raised, namely,
(1 )
that the tax imposed is excessive and therefore, it operates as unreasqnable restriction upon the fundamental right of the appellants to
carry on the business; and (2) that the imposition of different rates o~
tax on contract and stage carriages is discriminatory and is, therefore,
hit by Article 14.
So far as the first contention is concerned, we do not think that any
material has been placed before us to hold that the tax is confisca . tory
and operates as an unreasonable restriction upon the appellants' right
tq carry on the trade. We have already held that the tax is compensatory in character. If that is so, we do not think that it can ope:rate
as an unreasonable restriction upon the fundamental right of the appellants to carry on their business, for, the very idea of a compensatcry
tax is service more or less commensurate with the tax levied. No citizen has a right to engage in trade or business without paying for the
special services he receives from the state. That is part c~ the cost o~
carrying on the business.
Mr. Gupte contended that there was no reason for imposing vehicle
tax at a higher rate on contract carriages than on stage carriages. He
said that both stage .carriages and contract carriages are similarly
situated with respect to the purpose of vehicle taxation, namely, the use
of the road and, therefore, a higher vehicle tax on contract carriages
is manifestly discriminatory.