M/S. Sainik Motors, Jodhpur And Others vs The State Of Rajasthan

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Petition No. 82 of 1959

Decision Date: 28 March 1961

Coram: M. Hidayatullah, S.K. Das, J.L. Kapur, J.C. Shah

In this matter, the petitioners, who were partners of a registered firm that possessed public carrier and stage carriage permits, instituted a petition challenging the constitutional validity of certain provisions of the Rajasthan Passengers and Goods Taxation Act, 1959, the Rajasthan Passengers and Goods Taxation Rules, 1959, and a notification issued under Rule 8. The case was heard by a bench of the Supreme Court of India comprising Justice M. Hidayatullah, Justice S.K. Das, Justice J.L. Kapur and Justice J.C. Shah, and the judgment was delivered on 28 March 1961. The citation of the decision appears as 1961 AIR 1480 and 1962 SCR (1) 517, with subsequent references in later reports. The Act in question imposed a tax on passengers and goods conveyed by road in motor vehicles, authorising the State Government to accept a lump‑sum payment in lieu of the tax that was otherwise payable under the Act. Section 3(4) of the Act delineated the method of collection and expressly allowed the State Government to accept such a lump sum, while Rule 8(i) of the 1959 Rules stipulated that the tax “shall be paid in lump sum” and the accompanying notification fixed the rates of the tax. The Court examined whether the incidence of the tax fell on “passengers and goods” rather than on the income of the petitioners, even though the quantum of tax was measured by fares and freights. It held that the taxing provision, namely Section 3, remained within the scope of Entry 56 of the State List in Schedule VII of the Constitution, and therefore did not exceed the legislative competence of the State. The Court referred to earlier decisions such as Mathurai v. State of Madras, I.L.R. (1954) Mad 867, and Alma Ram Budhia v. State of Bihar, (1952) I.L.R. 31 Pat 493, to affirm its reasoning. It further observed that the tax did not contravene Articles 301 or 304 of the Constitution because it did not impede inter‑State trade, commerce or intercourse; the tax applied only to the portion of fare or freight attributable to travel within Rajasthan, even when the journey originated or terminated outside the State. Regarding the interpretative question of the word “shall”, the Court noted that although “shall” is generally mandatory, it can be construed as directory in certain contexts. Accordingly, it concluded that the use of “shall” in Rules 8 and 8A and in the notification should be read as directory, consistent with Section 4 of the Act.

The Act that confers authority on the Rules and on the notification creates a discretionary power by employing the words “may accept”. Consequently, the Act, the Rules and the notification must be interpreted in a harmonious manner so that they function together as a single scheme. The language that appears to be mandatory was intended to fix peremptorily the amount of the lump‑sum payment when that sum is offered in place of the tax. The Court relied on several authorities that illustrate the principle that a statutory provision may give rise to an option, namely Re Lord Thurlow Ex Parte Official Receiver (1895) 1 Q.B. 724, Mannikam Patter v. Nanchappa Chettiar (1928) M.W.N. 441, In re Rustom [1901] I.L.R. 26 Punjab 369, Jethaji Peraji Firm v. Krishnayya (1929) I.L.R. 52 Mad. 648 and Burjore and Bhavant Pershad v. Mussumat Bhagana (1883) L.R. II I.A. 7. The lump‑sum figure was calculated on the basis of averages and could not be challenged by pointing out that on certain days no business might be carried out. A comparison with the railways, which fall under Union jurisdiction, was held to be inadmissible. The Court observed that there was no discrimination among operators of public motor vehicles, all of whom were subject to the Act, and that it was improper to compare persons travelling on better‑constructed roads with those using inferior roads. Operators using the better roads were required to pay a higher tax, but this did not constitute discrimination against any particular class.

The matter proceeded as an original‑jurisdiction petition, identified as Petition No. 82 of 1959, filed under Article 32 of the Constitution for the enforcement of fundamental rights. Counsel for the petitioners represented the seven respondents, while counsel for the respondent represented the State. The petitioners, numbering seven, challenged as unconstitutional and ultra‑vires specific provisions of the Rajasthan Passengers and Goods Taxation Act 1959, the Rajasthan Passengers and Goods Taxation Rules 1959, and a notification issued under Rule 8. For brevity, the Court refers to these as the Act, the Rules and the notification respectively. The first petitioner is a registered firm; petitioners numbered 2 to 6 are the partners of that firm, and petitioner 7 is the firm’s General Manager. Petitioner 7 holds a public carrier permit for the entire State of Rajasthan in his personal capacity. Collectively, the petitioners possess fifty‑nine stage‑carriage permits issued by the Regional Transport Authority, Jodhpur, covering various routes on roads of differing surfaces, including sandy, kachcha, metalled and tarred sections. The Act, enacted in 1959, was intended to levy a tax on passengers and goods transported by road in motor vehicles. Its legislative competence was claimed to arise from Entry 56 of the State List in Schedule VII to the Constitution, which provides for “Taxes on goods and passengers carried by road or on inland waterways.” The Act received the President’s assent on 27 April 1959 and was published in the Rajasthan Gazette on the same date.

On 30 December 1959 the Rules that were drawn up under the authority granted by section 21 of the Act were published on the same day as the notification, and both the Rules and the notification were issued concurrently. Those Rules have since been amended, and the Court’s consideration is limited to the amended version of the Rules. Before proceeding further with the adjudication, the Court found it helpful to set out briefly how the Act is organised and what the Rules and the notification contain. The Act comprises twenty‑one sections and became operative throughout the State of Rajasthan on 1 May 1959. While the Act includes the ordinary provisions that appear in every taxation statute—such as provisions on appeals, revision, offences and penalties, the power to compound offences, recovery of tax as arrears of land revenue, a bar on further proceedings, exclusion of the jurisdiction of civil courts, provisions on refunds, and the authority to make rules—the Court deemed it unnecessary to discuss those portions in detail. The Court’s analysis is confined to the provisions that relate to the levy of the tax and the manner of its recovery, and it therefore refers only to the sections that are relevant to those issues. Section 3 contains the charging provision, and section 4 sets out the method of collection of the tax. Because these two sections are the primary point of contention, the Court reproduces them in their entirety. Section 3 reads as follows: “Levy of tax. (1) There shall be levied, charged and paid to the State Government a tax on all fares and freights in respect of all passengers carried and goods transported by motor vehicles at such rate not exceeding one‑eighth of the value of the fare or freight in the case of cemented, tarred, asphalted, metalled, gravel and kankar roads and not exceeding one‑twelfth of such value in other cases, as may be notified by the State Government from time to time, subject to a minimum of one naya paisa in any one case, the amount of tax being calculated to the nearest naya paisa. Explanation—When passengers are carried and goods are transported by a motor vehicle and no fare or freight has been charged, the tax shall be levied and paid as if such passengers were carried or goods transported at the normal rate prevailing on the route. (2) Where any fare or freight charged is a lump‑sum paid by a person on account of a season ticket or as a subscription or contribution for any privilege, right or facility which is combined with the right of such person to be carried or his goods to be transported by a motor vehicle without any further payment or at a reduced charge, the tax shall be levied on the amount of such lump‑sum or on such amount as appears to the prescribed authority to be fair and equitable having regard to the fare or freight fixed by a competent authority under the Motor Vehicles Act, 1939 (Central Act 4 of 1939). (3) Where passengers are carried or goods are transported by a motor vehicle from any place outside the State to any place within the State, or from any place within the State to any place outside the State, the tax…”

The tax was required to be paid for the portion of the journey that lay within the State, using the rate specified in sub‑section (1). The amount of tax was to be computed on the basis of the proportion that the distance travelled inside the State bore to the total distance of the whole journey. A special proviso applied where a motor vehicle carried passengers or transported goods from one place inside the State to another place also inside the State, but the route passed through the territory of a different State. In such cases the tax was to be charged on the entire fare or freight payable for the complete journey, and the owner of the vehicle was required to issue a single ticket or receipt, as appropriate, reflecting the whole amount. Section (4) dealt with the method of collection of the tax. It stipulated that the owner of the motor vehicle was responsible for collecting the tax and remitting it to the State Government in the manner prescribed by law. An additional proviso allowed the State Government, for public carriers, to accept a lump‑sum payment in place of the tax normally chargeable on freight, provided that the payment was made according to the prescribed procedure. A further proviso extended the same possibility to contract carriage operators, permitting the State Government to accept a lump‑sum payment instead of the tax normally chargeable on fare, again in accordance with the prescribed method.

Section 5 of the Act set out the procedure for levying the tax and required that a ticket showing the tax paid, or a receipt showing the freight charged together with the tax paid, be issued to the purchaser. The section also contained a proviso stating that for passengers the tax became payable only upon entry into the State when the journey had commenced outside the State. Section 6 imposed a duty on the vehicle owner to maintain proper accounts, to file periodic returns, and it provided for penalties in case of non‑compliance; the scale of penalties was detailed in Section 8. Section 7 dealt with the appointment of taxing authorities, while clause 12 empowered those officers to enter vehicles, garages, and offices for inspection and verification purposes. Section 10 mandated that owners furnish tables of fares, freight rates, timetables and related information. Section 9 conferred on the State Government the power to grant exemptions from all or any of the provisions of the Act to any person or class of persons. The Rules made under the Act prescribed the specific matters that had to be detailed, but reference beyond Rules 8 and 8‑A was unnecessary for the present discussion, as those two rules were the subject of challenge. Rule 8(i) prescribed that tax be paid by affixing stamps to tickets, and it contained a second proviso stating that the tax payable on fare by the owner of a motor‑cycle, rickshaw or motor cab must be paid to the State Government as a lump sum, the amount of which would be fixed by the State Government from time to time by notification. Rule 8(ii) provided that the owner of a public carrier could pay a lump sum to the State Government in lieu of the tax chargeable on freight, the amount of such lump sum being determined as prescribed.

Rule 8‑A, as it applied to the present dispute, stipulated that a lump‑sum amount would be fixed by the State Government from time to time by notification and would be payable in lieu of tax on fare or freight. The provision required that the lump sum, once fixed, be deposited in cash into a Government Treasury or a Sub‑Treasury in equal quarterly instalments. These instalments were to be paid within fifteen days after the end of each quarter, specifically on the thirty‑first day of March, the thirtieth day of June, the thirtieth day of September and the thirty‑first day of December each year. For vehicles that were not registered in Rajasthan, the payment was to be made either to the officer in charge of the check post or barrier at the time of entry into the State, or to the Excise and Taxation Department officer having jurisdiction over the point of entry. The rule further contained several provisos. First, for the quarter ending on the thirtieth day of June 1959, payment was to be made for the months of May and June 1959 at a rate of one‑twelfth of the total sum for each month. Second, if the owner had not plied his vehicle for the entire quarter immediately preceding any of the prescribed dates, a proportionate reduction in the amount due for that quarter could be allowed. Third, where the owner ceased to ply his vehicle before any of those dates, the proportionate amount for the quarter had to be paid immediately upon cessation. Fourth, if the owner had not plied his vehicle for a continuous period of at least three months and produced a certificate from the authority competent under the Rajasthan Motor Vehicles Taxation Act, 1951, confirming that tax had been refunded for that period under section 7 of the same Act, no tax would be payable for that period. Sub‑section (2) mandated that the owner inform the Assessing Authority as soon as his vehicle went out of use, and that a prompt intimation be sent to the Assessing Authority when the vehicle was again placed on the road. The notification issued under Rule 8, prescribing the lump‑sum rates, was dated Jaipur, 30 April 1959 and bore the reference No. F. 15(5) E & T/59. III‑. It declared that, in pursuance of Rule 8 of the Rajasthan Passengers and Goods Taxation Rules, 1959, the Government of Rajasthan directed that the tax chargeable on fare or freight for the classes of motor vehicles listed therein be paid in lump sum, with the specific amounts indicated opposite each class.

The notification issued under rule 8 of the Rajasthan Passengers and Goods Taxation Rules, 1959 set out specific lump‑sum rates for various classes of motor vehicles. For vehicles authorised under the Motor Vehicles Act, 1939 to use all roads in Rajasthan, a load‑carrying capacity of less than five tons attracted an annual payment of Rs 420, while a capacity of five tons or more attracted Rs 540 per year. For vehicles holding a permit to ply within the limits of any region or on fixed routes in a single region, the corresponding annual charges were Rs 360 for capacities below five tons and Rs 480 for capacities of five tons and above. Public carriers of goods plying on hire under temporary permits were required to pay a daily charge of Rs 2 for vehicles below five tons and Rs 4 for those of five tons and above. These rates were applicable from 1 May 1959.

The petitioners challenged the Act, the Rules and the notification on numerous grounds, although the arguments presented at the hearing were more restrained than those initially advanced in the petition. Their principal objection was that the tax was not levied on “passengers and goods” as authorized by Entry 56 of the Constitution, but instead on “fares and freights”, which they argued are distinct entities. To support this distinction, they referred to Entry 89 of the Union List, which empowers the Parliament to tax fares and freights. The petitioners contended that because the tax in question targeted fares and freights, it could not be imposed under Entry 56 and therefore lacked any legal authority. In addition, they argued that the Act and the Rules violated Articles 301 and 304 by restricting inter‑State trade, commerce and intercourse, infringed Article 19 by imposing an unreasonable restriction on their business, and contravened Article 14 by discriminating between motor‑vehicle transport and the Railways. They also objected to the State Government’s unfettered discretion to fix lump‑sum amounts without any guiding principles. The rates, they claimed, unfairly discriminated between routes that involved roads of differing surfaces. Moreover, Rules 8 and 8‑A and the accompanying notification were said to exceed the Act by making the lump‑sum payment compulsory, whereas the Act contemplated it as optional, and by requiring tax payment even when no passengers or goods were conveyed. Finally, the petitioners asserted that the provision of tax liability for a route connecting two intra‑State points that passes outside the State created an extra‑territorial effect, rendering the legislation ultra vires. Their overarching contention was that, although the legislation purports to tax passengers and goods, it in reality taxes the operators’ income—specifically, the fares and freights—making the tax unconstitutional. They further argued that the tax was borne by the operators to enable them to compete with the Railways, and that this burden was a matter of policy adopted by the petitioners rather than an inevitable consequence of the statutory provisions.

The Court observed that the contention that operators of motor vehicles are compelled to bear a tax in order to compete with the Railways is a matter of policy rather than a compulsory result of the statutory language. It held that the Act does not, in its essential substance, impose a levy on the income of the operators but rather on the passengers carried and the goods transported. Referring to Section 3, the Court noted that the provision expressly charges a tax “in respect of all passengers carried and goods transported by motor vehicles”. Although the quantum of the tax is calculated on the basis of the fare and freight charged, the Court emphasized that this method of measurement does not change the character of the tax, which remains a tax on passengers and goods. The Court further pointed to the Explanation to Section 3(1), which stipulates that even where passengers are carried or goods are conveyed without any fare or freight being charged, the tax must be paid as if such charges had been made. This, the Court said, demonstrates that the incidence of the tax falls upon passengers and goods, despite the assessment being linked to fare and freight amounts. The Court rejected a similar argument previously advanced before the Madras High Court in Mathurai v. State of Madras, and likewise rejected the view expressed in Atma Ram Budhia v. State of Bihar. In its opinion, the charging provision does not extend beyond Entry No. 56 of the State List, and therefore remains within the constitutional competence of the State. The Court explained that if the tax were levied on passengers irrespective of the distance traveled, it would produce anomalies by requiring the same amount to be paid in all cases. The same problem would arise with goods, whose weight, bulk or nature vary, necessitating a scale of payments. Consequently, while the amount of tax varies with distance for passengers and with the characteristics of the goods for freight, the tax continues to be a levy on passengers and goods, and the argument to the contrary is unsound.

The Court further expressed the view that the statute does not affect inter‑State trade, commerce or intercourse. It clarified that the tax is a State tax that falls upon passengers and goods carried by motor vehicles within the State. Although the tax also applies to passengers and goods traveling to or from an extra‑State point, the liability is limited to that portion of the fare or freight attributable to the route lying inside the State. To ensure that no tax is imposed on the segment of a journey outside the State, the statute provides an elaborate scheme in Rule 8‑A. Under this rule, the tax charge is avoided for the part of the route that lies beyond the State boundary, so that no tax is levied on fares and freights attributable to such outside portions. The Court concluded that the tax therefore remains confined to passengers and goods within the State and does not extend to the extra‑State portions of a journey.

In this case the Court observed that only a single situation, which was described in the proviso to sub‑a. (3) of section 3, fell outside the general rule and that it would be dealt with separately. The Court held that the imposition of the tax could not be said to contravene articles 301 and 304 of the Constitution. The next issue raised before the Court concerned the interpretation of the provision that permitted a taxpayer to pay a lump‑sum amount instead of the tax calculated on fares and freights. The Court noted that while the two provisos to section 4 used permissive language, Rules 8 and 8‑A together with the notification employed mandatory language. The Court explained that the two provisos to section 4 were enabling provisions; they authorised the State Government to accept a lump‑sum payment in lieu of the tax that would otherwise be chargeable. The word “accept” indicated that the choice of paying a lump sum rested with the taxpayer, who could elect either to pay the tax as computed or to make the lump‑sum payment. The Court further observed that the inclusion of such a provision was intended to facilitate compliance with the Act and to simplify its enforcement. Calculating tax on the basis of actual fares and freights required operators to maintain detailed accounts and compelled the taxing authorities to carry out continuous checks and inspections, which created practical difficulties for both sides. By contrast, a lump‑sum payment represented a convenient yearly amount, irrespective of whether the tax determined on actual fares and freights would be higher or lower. Operators who preferred to avoid the burden of accounting and filing returns could opt to pay the lump sum, and the Government, in turn, accepted such payments to relieve itself of the duty of inspecting individual accounts. The rates prescribed for the lump‑sum payment were made available to those who wished to avail themselves of this alternative.

The Court then addressed the contention that, although the statute created an option, the Rules and the notification rendered the lump‑sum payment compulsory. It drew attention to the use of the word “shall” in Rules 8, 8‑A and the notification, contrasted with the words “may accept” in the two provisos to section 4. While the Court recognized that “shall” is ordinarily interpreted as mandatory, it also pointed out that the term is not always given a compulsory meaning when the context or the legislative intention indicates otherwise. Referring to the authority in In re Lord Thurlow Ex Parte Official Receiver, the Court quoted Lord Esher, M.R., who observed at page 729 that “the word ‘shall’ is not always obligatory. It may be directory.” The Court also cited Lopes L.J., who at page 731 noted that “the word ‘shall’ is not always used in a mandatory sense” and that there is “abundance of authority to the contrary in cases where it has been held to be directory only.” Further, the Court mentioned that the word “shall” had been held to be directory in the decisions of Coutts Trotter, C.J., in Manikkam Pattar v. Nanchappa Chettiar; of Russel, J., in In re Rustom; and of Venkatasubba Rao, J., in the 1895 report (1 Q.B. 724). These authorities supported the view that the mandatory language in the Rules and the notification did not negate the permissive character of the statutory provision, but merely fixed the amount of the lump‑sum that must be paid if the taxpayer chose that method.

The Court noted that the observations made in Jethaji Peraji Firm v. Krishnayya, reported in 1901 I.L.R. 26 Bom. 396 and 3 Bom. L.R 653, and the decisions of the Judicial Committee in Burjore and Bhavani Pershad V. Mussumat Bhagana were relevant to the present issue. The Court explained that Rules 8 and 8‑A together with the accompanying notification merely prescribe the amount of a lump‑sum payment for each situation, provided that a lump sum is chosen in lieu of the tax that would otherwise be computed on the actual fares and freights. The language of the rules, although appearing mandatory, is employed to fix the lump‑sum amount peremptorily. The Court emphasized that these rules cannot be said to exceed the scope of the statute to which they are subordinate, nor can they be said to alter the colour and meaning of that statute. When the Act provides an option, the rules cannot negate that option. Accordingly, the Act and the rules must be read harmoniously. Reading them together makes clear that the seemingly mandatory wording of the rules and the notification still preserves the permissive character of the statutory provision; the rules simply lay down the amount of the lump sum that must be paid if the taxpayer elects to pay a lump sum instead of the tax calculated on actual earnings. Thus, the mandatory language is confined to the determination of the lump‑sum rates. The Court concluded that the two rules and the notification are neither void nor in conflict with the Act.

The Court then addressed the contention that the power to fix lump sums in lieu of tax had been conferred on the Government without any guidance, rendering it unconstitutional, and that the imposition of a lump sum could oblige payment even when no passengers or goods are transported. The Court rejected these arguments. It observed, as pointed out by the learned Advocate‑General, that the prescribed lump‑sum rates are very low, ranging from less than one rupee per day at the minimum to a maximum of one and a half rupees per day. Although the rates are reasonable, the Court noted that this fact does not answer the petitioners’ argument. The Court found solid reasons to uphold the fixation of lump sums. Payment of the lump sum is not compulsory; a person may elect to pay tax calculated on actual fares and freights, which are fixed by a competent authority under the Motor Vehicles Act and take into account average earnings. The lump sum represents an average of the tax that would be realized if calculated on actual fares and freights. No operator is forced to choose the lump sum if he prefers the actual tax method. Moreover, the argument that there may be periods with no transport activity yet a tax would still be payable is without merit, because on many days the tax payable on actual earnings could exceed the lump‑sum amount. Hence, the Court held that the lump‑sum figure, being based on averages, cannot be challenged on the basis that on some days no business occurs, and the scheme remains constitutionally valid.

The Court observed that the lump‑sum amount was calculated on the basis of average earnings and therefore could not be challenged merely by pointing to occasional days on which no transport business occurred. It held that the proposition that some days might be idle did not undermine the validity of the average‑based figure. The next argument, which alleged discrimination between road transport and rail transport, was also rejected. The Court explained that the State List authorises a tax only on passengers and goods conveyed by road or inland waterways, and that the railway tax falls under a Union competence and is therefore outside the State’s legislative power. Consequently, the Constitution itself creates a clear classification between the two modes of transport. The Court found no evidence of discrimination among operators of public motor vehicles on roads, noting that the Act affected all such operators uniformly. An attempt was made to invoke section 9, which empowers the State Government to grant exemptions by general or specific order. However, the Court was informed that exemptions had been granted only to hospitals and charitable institutions. No other class of operators had received any exemption, and thus the claim of selective treatment could not be sustained.

The Court then considered the contention that a higher tax rate for cemented, tarred, asphalted, metalled, gravel and kankar roads, as compared with other roads, amounted to discrimination against operators. It emphasized that the purpose of any tax is to raise revenue for public purposes, and that tax rates naturally vary according to the degree of public benefit and the cost of constructing and maintaining the infrastructure. Accordingly, roads that require greater expenditure for construction and upkeep justify a higher tax, and all operators using such roads must pay the higher rate. The Court clarified that discrimination exists only when comparable persons are treated differently; there is no comparable class of operators using the superior roads and those using inferior roads, because the difference lies in the cost of the roads themselves, not in the status of the operators. Finally, the Court addressed the claim that the proviso to sub‑section (3) of section 3 was extra‑territorial, because it imposed tax on fares and freights attributable to the territory of another State even when the journey both started and ended in Rajasthan. Although the petitioner asserted that such routes no longer existed, the Court noted the absence of any sworn affidavit quantifying the number or length of such routes. In the absence of adequate averments, the Court rejected this contention as well.

In examining the pleadings, the Court observed that the petition did not contain sufficient averments to justify the relief sought; the factual basis advanced was found to be inadequate. Because the submissions lacked the necessary detail and substance, the Court concluded that it could not sustain the contention raised by the petitioner. Accordingly, the Court determined that the petition failed on its merits. On that basis, the Court ordered that the petition be dismissed. In addition, the Court directed that the petitioner be required to pay the costs incurred in the proceedings. Thus, the final order consisted of the dismissal of the petition together with an award of costs against the petitioner.