Supreme Court reverses the order of Himachal Pradesh HC stating levy of additional Special road taxes to be regulatory not a penalty

The three-judge bench of the Supreme Court comprising Justices Sanjay Kishan Kaul, Abhay S. Oka, and Vikram Nath, reversed Himachal Pradesh’s High Court decision regarding the constitutional validity of the levy of additional special road tax under Section 3A(3) of HPMVT (Himachal Pradesh Motor Vehicles Taxation) Act, 1972. The top Court stated that the special road tax was introduced as a compensatory measure as well as the validity of Section 3A(3) was wrongly held to be ultra vires by the High Court. Also, they highlighted that “The tax imposed under Section 3A(3) is regulatory in character and is not a penalty.” The Supreme Court stated that the “levy of lumpsum tax has been upheld by a three-Judge bench of this Court in the case of State of Tamil Nadu vs. M. Krishnappan and Anr.”

 In this case, the respondent and several other similarly situate public transport operators challenged the validity of Section 3-A, Section 3-C, Section 4-A, and Section 5-A along with Schedule-III under Section 3-A introduced vide the HPMVT (Amendment) Act, 1999 to be held ultra vires the Constitution of India and further the notifications were quashed and set aside. The High Court upheld the validity of all the Sections except Section 3A(3) under challenge as not offending either Part III or any other provision of the Constitution of India. With respect to Section 3A(3), it was held that in substance it imposes a penalty and as such could not be treated as regulatory or compensatory tax and was, therefore, beyond the legislative competence of the State Legislature. The High Court had also quashed the notifications issued by the State for the levy of the taxes under Section 3A(3) holding that lumpsum taxes could not be levied on general assessment and had to be levied as per actual default. Thus, the top Court set aside the impugned judgment and order of the High Court.

While hearing this case, three main questions were addressed by the Supreme Court including whether the levy of special road tax under sub-section (3) is manifestly unjust or glaringly unconstitutional, levy of special road tax is regulatory or compensatory in nature and is there any repugnancy with the provisions in the Central enactment. The observations made by the Supreme Court illustrated that in the absence of any principles having been laid down by the Parliament, no fault could be found in the law enacted by the Legislature of the State of Himachal Pradesh. Also, stated that “There is nothing on record to indict the offending provision as being manifestly unjust or glaringly unconstitutional.”

Moreover, the top Court determined that such additional special road tax could be termed as regulatory in nature so as to regulate other statutory provisions being implemented and strictly followed. In addition, the State Legislatures had the power to levy taxes not only under Entries 56 and 57 of list II but also to lay down the principles under Entry 35 of List III. Therefore, no repugnancy of any kind could be alleged or pleaded, or proved in the absence of there being any central law laying down principles of levy of tax.