H.P Passengers & Goods Taxation Act, 1955 – Tax Levied On Owner Of Vehicle Validly Falls Within Entry 56 List II Of 7th Schedule Of Constitution: SC

While interpreting certain provisions of the Himachal Pradesh Passengers and Goods Taxation Act, 1955, as amended by the Amendment and Validation Act of 1997, so as to determine whether the activity of the appellants, would be a taxable activity under Section 3(1-A) of the Amendment and Validation Act of 1997, the Supreme Court held that simply because notices have been issued to the owners or assessment orders have been passed against the owners of the vehicles, it cannot be said that the tax is levied on the motor vehicles.

The Supreme Court clarified that if the persons carried happen to be employees of the owners of the buses, such employees should pay the tax, and when the employer, i.e., the owner of the vehicle, does not collect the tax from such employees, he should himself pay it, in discharge of the employer’s statutory duty as an agent of the State to collect tax based on the amended provision.

The activity of the appellant in providing gratis transportation to its employees, and their children, would be a taxable activity under Section 3(1-A) of the Amendment and Validation Act of 1997, added the Court.

The Supreme Court held so while considering the legislative competence of the Himachal Pradesh Legislative Assembly to enact the Act of 1955 and the Amendment and Validation Act of 1997, which are stated to be enacted on the strength of Article 246, read with Entry 56 of List II of the Seventh Schedule of the Constitution of India.

The Two Judge Bench of Justice B. V. Nagarathna and Justice Ujjal Bhuyan observed that “The import of the Act of 1955, as amended by the Amendment and Validation Act of 1997, could be gathered from the Preamble which provides that it has been enacted to provide for levying a tax on passengers and goods carried by road in motor vehicles. It is therefore clear that tax is sought to be imposed on passengers and goods, carried by road in motor vehicles. It is a no brainer that such a tax falls within the legislative field governed by Entry 56 of List II of the Seventh Schedule of the Constitution, which pertains to “taxes on goods and passengers carried by road and inland water ways”. 

Advocate S.B. Upadhyay appeared for the Petitioner whereas Advocate Anup Kumar Rattan appeared for the Respondent.

The brief facts of the case were that the Act of 1955 was enacted by the Himachal Pradesh Legislative Assembly with a view to levy tax on passengers and goods carried by road in certain motor vehicles in the State of Himachal Pradesh. The appellant, engaged in the generation of electricity and has various projects in the State with project sites situated at different locations. These work sites are not properly serviced by any public transport system or regular taxis and the residential colonies of the staff employed at the various project sites are located at far of distances from the project sites. Therefore, as a welfare measure, the appellant provides transport facilities to its employees in order to enable them to reach their respective work sites from their residential colonies and for their children to travel to and from their schools, comfortably. These transport facilities were being provided free of cost, for the exclusive use of the employees of the appellant and their children. The buses utilized for such purpose were owned and operated by the appellant.

The Assessing Authority under the Act of 1955, assessed the liability of the appellant-NHPC Ltd. to pay passenger tax under the Act for the years 1984-1985 to 1986-1987 and 1987-1988 to 1990-1991 in respect of the activity of providing transport facilities to its employees and their children. The assessment was passed on the premise that its employees and their children were passengers under the Act and therefore, the appellant was liable to pay passenger tax for providing them with transport facilities. Such assessment when challenged before the High Court, the Respondents were directed to refund the tax collected under the provisions of the Act of 1955. Later, the Himachal Pradesh Legislative Assembly passed the Amendment and Validation Act of 1997 with a view to remove the basis of the judgment of the High Court, and accordingly, the Authorities constituted under the Act, issued notices to the appellant for recovery of tax under the provisions of the Amendment and Validation Act of 1997, in respect of the appellant’s activity of providing transport facilities to its employees and their children. The vires of the said Amendment Act was challenged before the High Court, which was dismissed. Hence, the Appellant approached the Apex Court.

After considering the submission, the Apex Court stated that while it may be open to the legislature to alter the law retrospectively, to remove the basis of a judgment declaring such law to be invalid, it is essential that the alteration is made only to bring the law in line with the decision of the Court.

Therefore, the defects in the legislation, as it stood before the Amendment and Validation Act of 1997 was enacted, must be cured by way of the amendments introduced retrospectively, added the Bench.

The Bench explained the defects identified by the High Court that the levy of tax on passengers was only on certain motor vehicles and the provisions of the 1955 Act were not applicable to entities, such as, appellants.

After analyzing the Amendment Act, the Bench found that the defect has been cured by introducing Section 3(1A) by way of the Amendment and Validation Act of 1997 and omitting the Explanation to Section 3(1). Thus, Section 3(1A) seeks to bring non-fare paying passengers at par with fare paying passengers, by prescribing two alternate methods to notionally determine fares or freights, when the same has not been charged.

Further, the Bench found that by way of the Amendment and Validation Act of 1997, the definition of ‘businesses was enlarged and it now includes, besides the business of carrying passengers and goods by motor vehicles, any trade, commerce or manufacture, or any adventure or concern whether or not the same is carried on with a profit motive; and any transaction in connection with, incidental or ancillary to such trade, commerce, or manufacture.

The Bench also noted that the scope of term ‘owner’ has been enlarged by way of the Amendment and Validation Act of 1997, to mean the owner of the motor vehicle used for carrying passengers or transporting goods in or through the territory of the State of Himachal Pradesh.

Thus, the Apex Court concluded that by enacting the Amendment and Validation Act of 1997, the Himachal Pradesh State Legislature has validly removed the basis of the judgment of the High Court dated Mar 27, 1997.

Cause Title: NHPC Ltd. v. State of Himachal Pradesh and Ors. [Neutral Citation: 2023: INSC: 810]

Click here to read/download the Judgment