Sainik Motors, Jodhpur And Ors. vs The State Of Rajasthan on 22 March, 1961

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

Court: supreme-court

Case Number: Not extracted

Decision Date: 22 March, 1961

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

Sainik Motors, Jodhpur and Others filed a petition before the Supreme Court of India on 22 March 1961. The bench hearing the matter consisted of Justices J.C. Shah, J.L. Kapur, M. Hidayatullah and S.K. Das, and the judgment was delivered by Justice Hidayatullah. The petition was presented under Article 32 of the Constitution. Seven petitioners were parties to the case. They challenged, on the ground of unconstitutionality and excess of statutory authority, 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 of those Rules. For convenience, the Court referred to these three instruments respectively as “the Act,” “the Rules,” and “the notification.” The first petitioner was a registered firm; petitioners numbered two through six were partners of that firm, and petitioner number seven was the firm’s General Manager. Petitioner seven also held a public carrier permit for the whole of Rajasthan in his personal name. Collectively, the petitioners possessed fifty‑nine stage‑carriage permits issued by the Regional Transport Authority, Jodhpur, covering a variety of routes that included roads of differing surfaces, some being sandy or katcha and others being metalled, tarred, or similar. The Act, enacted in 1959, imposed a tax on passengers and goods conveyed by road in motor vehicles. The legislative competence claimed for the Act derived from Entry 56 of the State List in Schedule VII of the Constitution, which authorises taxes on goods and passengers carried by road or on inland waterways. The Act obtained the President’s assent on 27 April 1959 and was published in the Rajasthan Gazette on 30 April 1959. On the same day the Rules, framed under section 21 of the Act, were also published together with the relevant notification. The Rules were later amended; the Court’s consideration was limited to the amended Rules. Before proceeding further, the Court described the structure of the Act and the content of the Rules and notification. The Act comprised twenty‑one sections and became effective throughout Rajasthan on 1 May 1959. It contained the usual provisions found in taxation statutes, such as matters relating to appeals, revisions, offences, penalties, compounding of offences, recovery of tax as arrears of land revenue, bars on proceedings, exclusion of civil‑court jurisdiction, refunds, and powers to make Rules. Detailed discussion of those provisions was deemed unnecessary. The Court focused only on the provisions concerning the imposition of the tax and the method of its recovery, which were relevant to the case. Section 3 of the Act defined the levy of tax, and section 4 explained the method of collection. Because these sections were the principal subject of the petitioners’ attack, the Court reproduced them in full, beginning with: “3. Levy of tax. – (1) There shall be levied, charged and paid to the …”

The statute authorised the State Government to impose a tax on every fare and freight charged for passengers carried and goods conveyed by motor vehicles. The tax rate could not exceed one‑eighth of the fare or freight value when the journey occurred on cemented, tarred, asphalted, metalled, gravel or kankar roads, and could not exceed one‑twelfth of that value on other types of roads. The rate was to be fixed by notification from the State Government, but each tax charge had to be at least one naya paisa and would be calculated to the nearest naya paisa. An explanation clarified that if a vehicle transported passengers or goods without charging any fare or freight, the tax would be levied as if the normal fare or freight rate for that route had been applied. The provision further addressed situations where a lump‑sum amount was paid, for example for a season ticket, subscription or contribution that granted the right to be carried or to have goods transported without additional payment or at a reduced charge. In such cases the tax was to be calculated on the lump‑sum amount or on an amount that the prescribed authority deemed fair and equitable, taking into account the fare or freight rate fixed by a competent authority under the Motor Vehicles Act, 1939. The statute also dealt with journeys that crossed the State boundary. When passengers or goods were moved from a place outside the State to a place inside, or vice‑versa, the tax was payable only for the portion of the journey that lay within the State, at the rate specified in the first sub‑section, and the tax amount was to be proportionate to the distance covered inside the State compared with the total distance of the trip. However, if a journey started and ended within the State but passed through another State’s territory, the full tax on the entire fare or freight was to be levied, and the owner was required to issue a single ticket or receipt for the whole journey.

The method of collecting the tax was prescribed in the same section. The owner of the motor vehicle was responsible for collecting the tax from the passenger or consignee and then paying it to the State Government in the manner laid down by the regulations. A proviso allowed the State Government, in the case of public carriers, to accept a lump‑sum payment in place of the tax that would otherwise be chargeable on freight, provided the payment was made according to the prescribed procedure. A further proviso extended a similar discretion to contract carriage operators, permitting the State Government to accept a lump‑sum payment in lieu of the tax that would otherwise be chargeable on fare, again subject to the prescribed manner of payment. The statute also required that a ticket be issued showing the tax paid, or that a receipt be provided indicating the freight charged and the tax paid. This requirement ensured that the tax liability was transparent to the parties involved and that the State could verify proper collection and payment of the tax.

The provision requires that a ticket or receipt must display the amount of tax that has been paid, or alternatively must show a receipt indicating the freight that has been charged together with the tax that has been paid. A special proviso is contained in the provision whereby, in respect of passengers, the tax becomes payable only when the passenger enters the State, provided that the journey commenced outside the State. Section six of the Act imposes on the owner of a motor vehicle a duty to maintain proper accounts and to file periodic returns, and it also provides that penalties may be levied for failure to comply, the amount of those penalties being specified in section eight. Section seven deals with the appointment of taxing authorities, while section twelve authorises officers to enter vehicles, garages and offices for purposes of inspection and verification. Section ten obliges owners to furnish tables of fares and freight rates, together with time‑tables and other relevant information. Section nine authorises the State Government to grant exemption from all or any of the provisions of the Act to any person or class of persons. The Rules made under the Act set out the matters that must be prescribed by the Rules themselves. For the purpose of this case, reference need be made only to Rules eight and eight‑A, both of which have been the subject of challenge. Rule eight, sub‑rule (i), prescribes that tax shall be paid by affixing stamps to tickets, and it contains a second proviso which states, “Provided further that the tax payable under the Act on fare by the owner of a motor‑cycle, rickshaw or a motor cab shall be paid to the State Government in lump sum, of which the amount shall be fixed by the State Government from time to time by Notification in this behalf.” Rule eight, sub‑rule (ii), provides that “The owner of a public carrier shall pay to the State Government a lump sum in lieu of the tax chargeable under the Act on freight and the amount of such lump sum shall be fixed by the State Government from time to time by Notification in this behalf.” Rule eight‑A, as relevant to the present dispute, reads: “Provisions for payment of lump sum in lieu of tax on fare or freight. – (1) In cases covered by the second proviso to sub‑rule (1) of rule eight and by sub‑rule (ii) of that rule, the lump sum fixed by the State Government as payable in lieu of the tax on fare or freight, as the case may be, shall be deposited in cash into a Government Treasury or a Sub‑Treasury in equal quarterly instalments payable within 15 days from the 31st day of March, the 30th day of June, the 30th day of September and the 31st day of December every year; and in case of such vehicles not registered in Rajasthan to the in‑charge of the check post or barrier at the time of their entry into the State of Rajasthan or to the officer of the Excise and Taxation Department nearest to the point of entry into the State and having jurisdiction over that area: Provided that – (a) for the quarter ending on the 30th day of June,”.

In 1959 the payment of the lump‑sum tax was to be made for the months of May and June at a rate of one‑twelfth of the total sum for each month. The rules allowed a reduction in the amount for a quarter if the owner had not used the vehicle for the entire quarter preceding the prescribed dates. If the owner stopped using the vehicle before any of those dates, the owner was required to pay the proportionate amount for that quarter immediately upon cessation. Additionally, where the owner had not used the vehicle for a continuous period of at least three months and could produce a certificate from the authority empowered under the Rajasthan Motor Vehicles Taxation Act, 1951, or the rules made thereunder, confirming that the tax for that period had been refunded under section 7 of the Act, no tax under the Act was payable for that period. The owner was also obligated to inform the Assessing Authority as soon as the vehicle went out of use, and to notify the Assessing Authority immediately when the vehicle was placed back on the road. The notification issued under rule 8 prescribing the lump‑sum rates was dated 30 April 1959 and bore the reference No. F. 15(5) E & T/59. III. The notification stated that, in accordance with 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 certain classes of motor vehicles was to be paid in lump sum, with the amounts specified opposite each class. For public carriers (goods vehicles) holding a general permit under the Motor Vehicles Act, 1939, and authorized to use all roads in Rajasthan, the lump sum was Rs 420 per annum for vehicles with a load‑carrying capacity below five tons and Rs 540 per annum for vehicles with a capacity of five tons or more. For carriers holding a permit for operation within a single region or on fixed routes in a region, the amounts were Rs 360 per annum for capacities below five tons and Rs 480 per annum for capacities of five tons or more. For carriers operating on hire on temporary permits, the rates were Rs 2 per calendar day for capacities below five tons and Rs 4 per calendar day for capacities of five tons or more. The notification declared that it would take effect from 1 May 1959.

In the proceedings the petitioners challenged the Act, the Rules and the notification on several grounds, though the arguments presented at the hearing were more limited than those set out in the petition. Their principal objection to the Act was that the tax had been levied on “fares and freights” rather than on “passengers and goods” as authorized. They argued that “fares and freights” constitute a distinct category, citing Entry 89 of the Union List, which confers power to tax fares and freights, to contend that a tax on fares and freights could not be imposed under the entry dealing with passengers and goods, and therefore the tax lacked legal authority. The petitioners also asserted that the Act and the Rules were inconsistent with Articles 301 and 304 of the Constitution because they imposed a restriction on inter‑State trade, commerce and intercourse. They further claimed that the provisions infringed Article 19 by imposing an unreasonable restriction on their business, and violated Article 14 by discriminating between road transport and railways. Moreover, they contended that the Act improperly granted the State Government unrestricted power to determine the lump‑sum rates without any guiding principles, and that the rates themselves were discriminatory because they varied according to the surface condition of the roads on different routes.

In the submissions, it was contended that the provision relied upon Entry No. 56 of the Union List imposed a tax on “fares and freights,” which the petitioners argued were distinct from “passengers and goods.” To support this distinction, the petitioners referred to Entry No. 89 of the Union List, which authorises the taxation of “fares and freights.” They submitted that because a tax on fares and freights constituted a different kind of tax, it could not be levied under Entry No. 56, and therefore the tax lacked any legal authority.

The petitioners also challenged the Act and the Rules on several other grounds. First, they claimed that the statutes were inconsistent with Articles 301 and 304 of the Constitution because they restricted inter‑State trade, commerce and intercourse. Second, they argued that the provisions violated Article 19 by imposing an unreasonable restriction on the petitioners’ business. Third, they asserted that Article 14 was infringed because the law discriminated between road transport and the Railways. Additional challenges were raised against the power given to the State Government to fix lump‑sum payments without any statutory guidance. The petitioners said that the rates and lump‑sum amounts discriminated between routes that used roads of different surfaces. They further contested Rules 8 and 8‑A and the accompanying notification, alleging that these instruments went beyond the Act by making the lump‑sum payment compulsory even though the Act made it optional, and by requiring payment of tax even when no passengers or goods were carried. Finally, the petitioners maintained that the tax was payable for a journey between two intra‑State points even when the route passed outside the State, thereby creating an extra‑territorial operation that was beyond the legislature’s competence.

The principal contention presented by the petitioners was that, although the statute was framed as a tax on passengers and goods, in substance it taxed the petitioners’ income, that is, the fares and freights, and was therefore unconstitutional. They argued that the tax burden fell on the operators because of competition with the Railways, and that requiring the petitioners to bear the tax in order to compete was a matter of policy, not an inevitable result of the statutory provisions. The Court, however, disagreed with this view. It held that the Act, in its essential character, imposed a tax on passengers and goods. Section 3 expressly stipulated that the tax was charged “in respect of all passengers carried and goods transported by motor vehicles.” Although the amount of the tax was calculated on the basis of the fare and freight charged, the Court observed that this calculation did not change the nature of the tax, which remained a tax on passengers and goods. The explanatory provision to Section 3(1) further stated that even where passengers were carried or goods were transported without any charge of fare or freight, the tax had to be paid as if such a charge had been made. This provision, the Court noted, demonstrated that the incidence of the tax lay upon passengers and goods, even though the quantum of tax was measured by the fares and freights. The Court also indicated that a similar argument had not been accepted by the Madras High Court in Mathurai v. State of Madras and by the Patna High Court in Atma Ram Budhia v. State of Bihar.

The Court referred to the decision of the Madras High Court in Mathurai v. State of Madras (I.L.R. [1954] Mad. 867) and noted that the same view had been expressed in Atma Ram Budhia v. State of Bihar ((1952) I.L.R. 31 Pat. 493 (S.B.)). It held that the charging provision of the Act did not extend beyond Entry No. 56 of the State list. Although the amount of tax was measured by the fare or freight charged, the tax itself remained a levy on passengers and goods. The Court explained that if a tax were imposed on passengers without regard to the distance traveled, it would create anomalies because the same fixed charge could not be appropriate in every situation. Similarly, for goods, differences in weight, bulk, or nature required a scale of payments, and such a scale could only be devised by relating the tax to the freight actually charged. Consequently, the tax varied for passengers in accordance with the distance they travelled, and it varied for goods because freight necessarily differed according to the weight, bulk, and nature of the goods transported. Despite these variations, the Court affirmed that the tax was still fundamentally a tax on passengers and goods, and it concluded that the argument that the tax was not so was untenable.

The Court further expressed the view that the tax did not affect inter‑State trade, commerce, or intercourse. It observed that the tax was imposed for State purposes and fell upon passengers and goods carried by motor vehicles within the State. While the tax also applied to passengers and goods proceeding to or from a point outside the State, it was limited to the portion of fare and freight that related to the route inside the State. To prevent the levy of tax on the portion of the route lying outside the State, an elaborate scheme was provided in Rule 8‑A. Accordingly, no tax was imposed on fares and freights attributable to routes outside the State, except in a single circumstance contemplated by the proviso to subsection (3) of section 3, which the Court indicated would be addressed separately. The Court concluded that the levy could not be said to violate Articles 301 and 304 of the Constitution. Regarding the contention that the Act merely permitted an option to pay a lump‑sum instead of the tax, the Court noted that Rules 8 and 8‑A and the accompanying notification rendered the lump‑sum payment compulsory. It observed that, on their face, the two provisos to section 4 employed permissive language, whereas the Rules and the notification used mandatory language. The Court explained that the provisos were enabling provisions that authorised the State Government to accept a lump‑sum payment in lieu of the tax actually chargeable. The use of the word “accept” indicated that the choice to pay a lump sum rested with the taxpayer, who could elect either method of payment. The Court further noted that the inclusion of such a provision was intended to promote easy observance of the Act and to facilitate its enforcement. The charge of tax calculated on fares

The assessment of tax on both passenger fares and freight charges presented practical problems for transport operators because they were required to maintain detailed accounts of every transaction. The same assessment also imposed a burden on the revenue authorities, who were obliged to conduct continual inspections and verifications to ensure correct payment of tax. To alleviate these difficulties, the legislation provided a lump‑sum payment option. Under this scheme a fixed amount could be paid each year, irrespective of whether the tax calculated on the actual fares and freight rates would have been higher or lower. Operators who wished to avoid the labour of keeping accounts and filing periodic returns could elect to pay the lump sum, and the State Government could accept such payments in order to dispense with the need for detailed account inspections and ongoing supervisory checks. The rates prescribed for the annual lump‑sum payment were made available only to those who chose to avail themselves of this convenient alternative. The petitioners, however, argued that although the statute created a facultative right, the accompanying Rules 8 and 8‑A and the related notification transformed that right into a compulsory duty. Their emphasis was on the use of the word “shall” in the Rules and the notification, contrasted with the permissive language “may accept” in the two provisos of section 4. While “shall” is ordinarily interpreted as imposing an obligatory requirement, the petitioners contended that the surrounding context might render it non‑mandatory. They cited the decision in In re Lord Thurlow Ex Parte Official Receiver [(1895) 1 Q.B. 724] where Lord Esher, MR, observed that the word “shall” is not always obligatory and may be directory, a view reinforced by Lopes L.J. who noted that “shall” can be non‑mandatory and that considerable authority supports a directory construction. Further authorities were listed where the word “shall” was held to be directory only, including Coutts Trotter, C.J., in Manikkam Pattar v. Nanchappa Chettiar [(1928) M.W.N. 441]; Russel, J., in In re Rustom [(1901) I.L.R. 26 Bom. 396; 3 Bom. L.R. 653]; Venkatasubba Rao, J., in Jethaji Peraji Firm v. Krishnayya [(1929) I.L.R. 52 Mad. 648, 656]; and the Judicial Committee in Burjore and Bhavani Pershad v. Mussumat Bhagana [(1883) L.R. 11 I.A. 7]. In the present case the Court observed that Rules 8 and 8‑A together with the notification merely specify the amount of the lump‑sum payment where such a payment is elected. The use of mandatory language in those provisions serves to fix the precise sum that must be paid and does not expand the statutory provision beyond its scope. The Rules cannot be said to exceed the authority of the parent section, which merely creates an option. Accordingly, the Act and the Rules must be read harmoniously. When read together, the apparently mandatory wording of the Rules and the notification does not negate the permissive character of section 4; it simply determines the amount payable if a taxpayer chooses the lump‑sum alternative instead of paying tax calculated on the actual fares and freights.

The Court observed that when the two Rules and the accompanying notification were read together, the mandatory wording applied only to the specification of the lump‑sum rates. Accordingly, the Court held that the Rules and the notification were not void and did not contradict the provisions of the Act. The petitioners contended that the authority to fix lump sums in place of tax had been given to the Government without any guiding principle and therefore was unconstitutional. They also argued that a lump‑sum levy would obligate payment of tax even on days when no passengers or goods were carried. The Court rejected both contentions. The Advocate‑General had pointed out that the prescribed lump‑sum rates were extremely low, ranging from less than one rupee per day at the minimum to a maximum of one and a half rupees per day. While the Court accepted that the rates were reasonable, it noted that the low amounts did not defeat the petitioners’ arguments. Nevertheless, the Court found sound reasons to uphold the fixation of lump sums. It emphasized that payment of a lump sum was not compulsory; a taxpayer could instead opt to pay tax calculated on actual fares and freights. Those fares and freights were determined by the competent authority under the Motor Vehicles Act, which considered average earnings. The lump‑sum amount itself was calculated as an average of the tax that would have been realized had the actual fares and freights been used. Consequently, no operator was compelled to choose the lump‑sum method. The Court further rejected the suggestion that the tax might be payable on days when no business occurred, noting that on some days the tax based on actual earnings could exceed the lump‑sum amount. Because the lump‑sum figure was based on averages, it could not be challenged merely on the possibility that occasional days might generate no revenue.

The Court then addressed the contention that the law discriminated between road transport and rail transport. It held that the entry in the State List authorised a tax only on passengers and goods conveyed by road or inland waterways, and that rail fare and freight taxation fell within the Union’s jurisdiction, not the State’s. This constitutional classification meant that a comparison with railway taxation was inappropriate. The Court found no evidence of discrimination among operators of public motor vehicles using roads; all such operators were equally subject to the Act. The petitioners had sought support for their argument from section 9, which permits the State Government to grant exemptions by general or specific order to any person or class. However, the Court was informed that exemptions had been granted only to hospitals and charitable institutions. Thus, the claim of discriminatory treatment based on the type of transport was dismissed. The Court noted that the petitioners further argued that higher rates of tax were imposed for roads that were cemented, tarred, asphalted, metalled, or gravel, but that point would be considered in the subsequent discussion.

The Court examined the claim that imposing a higher tax rate on kankar roads than on other roads discriminates against operators. It observed that this argument overlooks the fundamental object and purpose of a tax. The Court explained that taxes are burdens or charges imposed by legislative authority on persons or property in order to raise money for public purposes. The power to tax is therefore indispensable to any sound government, and the imposition of a tax is justified by the expectation of a return in the form of public conveniences. If this is the true import of a tax, it follows that taxes may be graded according to the extent of the conveniences they provide. Accordingly, the Court held that roads requiring greater expenditure for construction and maintenance—such as those that are cemented, tarred, asphalted, metalled, gravelled or kankar—justify a heavier tax than roads that do not require such expenditure. Consequently, all operators who use the better‑constructed roads must pay the higher rate, and there is no discrimination between them as a class. Discrimination can be found only where comparable persons are treated differently, and the Court found no basis for comparing operators using the better kind of roads with those using roads that are not so good. The difference in tax is attributable solely to the higher cost of constructing and maintaining the superior roads, and no case of discrimination was established.

The Court then addressed the final contention that the proviso to sub‑section (3) of section 3 was extraterritorial because it required tax on fares and freights attributable to the territory of another State when a route passed through that territory, even though the journey started and ended in Rajasthan. The Court was informed that at present there were no such routes, and even if they existed they would be of very short and negligible length. No affidavit had been produced to specify how many such routes were involved or the extent of their use. In view of the lack of adequate averments, the Court rejected this contention. Having considered all the arguments, the Court concluded that the petition could not succeed. Accordingly, the petition was dismissed and costs were awarded against the petitioners, with the final order recording the dismissal of the petition.