Supreme Court: In a batch of civil appeals assailing the Himachal Pradesh High Court’s orders, whereby the Himachal Pradesh Passengers and Goods Taxation Act, 1955 (‘Act, 1955’) as amended from time to time by the Himachal Pradesh Passengers and Goods (Amendment and Validation) Act, 1997 (‘Amendment Act, 1997’) were upheld, the Division Bench of B.V. Nagarathna* and Ujjal Bhuyan, JJ. Dismissed the appeals and upheld the validity of Act, 1955 as amended by Amendment Act, 1997.
The NHPC Ltd. (‘appellant’), is engaged in the generation of electricity and has various projects in the State. Many project sites are situated in the interiors of the State and are not properly serviced by any public transport system or regular taxis. The residential colonies of the staff are located at far of distances from the project sites. Therefore, as a welfare measure, the appellant provides transport facilities to its employees free of cost, 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. The buses utilized for such purpose were owned and operated by the appellant.
The Act, 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. The Assessing Authority (‘Respondent’) under the Act, 1955, assessed the liability of the appellant and passed an assessment orders on 01-10-1992 to pay passenger tax under the Act for the years 1984-1985 to 1986-1987 and 1987-1988 to 1990-1991 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.
Subsequently, a writ petition was filed before the High Court, challenging the vires of the Act, 1955. The Division Bench of the High Court vide Judgment dated 27-03-1997 held that the Act, 1955 does not include within its scope, the activity of the appellants in providing gratis transport facilities for their employees and their children as the charging provision, namely, Section 3(1) and the Explanation thereto were very ambiguous. The respondents were directed to refund the tax collected under the provisions of the Act, 1955.
The controversy arose with the enactment of the Amendment Act, 1997 by the Himachal Pradesh State Legislature with a view to remove the basis of the Division Bench Judgment. By virtue of the Amendment and Validation Act of 1997, definitions of the terms ‘business’, ‘fare’, ‘freight’ and ‘passenger’ were amended, terms such as ‘Private Service Vehicle’, ‘road’, ‘Transport Vehicle’, were introduced. Explanation (1) to Section 3 (1) of the Act, 1955, which was the charging provision was omitted and Sub-section (1A) was inserted in Section 3, which was to serve as a charging provision. Subsequently, notices were sent to the appellant for recovery of tax under the provisions of the Amendment Act, 1997. The appellants challenged the vires of the Amendment Act, 1997 on grounds of being unconstitutional as they sought to levy tax on vehicles, which is contrary to Entry 56, List II of Seventh Schedule of the Constitution of India.
The High Court upheld the validity of both the impugned Acts. Hence, the present appeals.
Analysis of the Issues
Whether, by enacting the Amendment Act, 1997, the Himachal Pradesh State Legislature had validly removed the basis of the Division Bench judgment of the High Court dated 27-03-1997?
In order to ascertain the Validity of the Act, 1955 as amended by the Amendment Act, 1997, the Court identified the defects pointed out by the High Court in its judgment dated 27-03-1997, whereby it was held the Act, 1955 does not include within its scope the activity of the appellants of providing transport facilities for their employees and their children, as the charging provision contained therein, i.e., Section 3(1) and the Explanation thereto was crouched in ambiguous terms. The Court highlighted the defects identified by the High Court along with the new additions and amendments through which the said defects were covered:
The High Court observed that the definition of ‘passenger’, ‘transport vehicle’ were restricted, the buses owned by the appellants used for carriage of the appellant’s employees and their children gratis were not covered within the charging section. It was also found on perusing the definition of ‘motor vehicle’ and ‘owner’ that the levy of tax on passengers was only on certain motor vehicles and the provisions of the Act were not applicable to entities, such as appellants herein. The Court noted that the High Court had also held that the intention of the State legislature was to make the Act, 1955 applicable only to persons who carried on the business of transport.
The Court found that the scope of term ‘owner’ was enlarged by way of the Amendment Act, 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. Therefore, the Court said that this defect was cured.
Explanation to Section 3(1) of the Act of 1955 introduced that assessments were being made on the assumption that even passengers who did not pay a fare, were being carried at the expected rate chargeable on the route concerned. There was no definition of ‘route’ for the purposes of the Act, 1955 and the definition of ‘route’ under the Motor Vehicle Act, 1988 could not be referred to as the routes on which the appellant’s buses moved. Hence, the High Court viewed that ‘route’ could not be equated to any ‘road’ so as to hold the appellant-assessee was liable to pay tax under the Act, 1955.
The Court noted that the defect in the Explanation to Section 3(1) of the Act, 1955, was cured by introducing Section 3(1A) which sought 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, i.e. by taking into account: (a) fares or freights fixed by the competent authority, under the MV Act, or (b) fares and freights specified in Schedule I to the Act for different classes of roads and motor vehicles, the higher of the two fares has to be taken into account in every case. The Court also noted that the Section (2gc) defining the term ‘road’ was also introduced. Therefore, the Court said that the vacuum identified by the High Court, which was making the charging provision inoperative qua the appellants, was removed.
In the absence of any prescription as to what the ‘normal rate’ or ‘expected rate’ would be, the Respondent could not have levied tax on the appellant based on artificial assumptions.
The charging provision could not be given effect to unless the terms ‘route’ and ‘normal rate’ had been expressly and unambiguously defined.
The term ‘business’ was defined in a narrow manner in the Act, 1955 and meant the business of carriage of passengers and goods. On reading the definition of the term ‘business’ into the charging provision, the inference was that those who were not in the business of carrying passengers and goods, would not be covered by the charging provision.
Regarding the defect in the definition of ‘business’, the Court found that the loophole was plugged by way of the Amendment Act, 1997, as the definition 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. ‘Business’ now means any business, carried on with or without a profit motive, or any ancillary transactions in connection with such business.
Whether the activity of the appellants of providing gratis transport facilities for their employees and their children, would be a taxable activity under Section 3(1-A) of the Amendment Act, 1997?
Regarding the question of from which date the appellants would be liable to pay the tax from the date when the Amendment and Validation Act of 1997 was passed or from any future date, the Court said that there has been a long passage of time since the enactment of the Amendment Act, 1997, that is about twenty-six years till date and by now there would have been replacement of the motor vehicles or buses by the appellants and their liability to pay the said taxes, hence the Court held that in view of the powers under Article 142 of the Constitution, the appellants should be made liable to pay the tax w.e.f. 01-04-2023, the current financial year onwards and not for the period prior thereto, as the appellants are not private bus operators or stage carriage operators but are public sector units engaged in hydro-power projects and irrigation projects and as a convenience or facility, owning buses for transporting their employees and children of the employees to the work sites and to schools and return to their homes as a facility being provided to them.
Thus, the Court held that the by enacting the Amendment Act, 1997, the State Legislature had validly removed the basis of the judgment of the Division Bench of the High Court dated 27-03-1997. The Court upheld the validity of the Amendments made to the Act, 1955 by virtue of the Amendment and Validation Act of 1997 and affirmed the judgment of the High Court. Hence, the appeals were dismissed by the Court.
[NHPC Ltd. v. State of Himachal Pradesh Secretary, 2023 SCC OnLine SC 1137, Decided on: 06-09-2023]
*Judgment Authored by: Justice B.V. Nagarathna
*Deeksha Dabas, Editorial Assistant has reported this brief.