Nhpc Ltd vs The State Of Himachal Pradesh Secretary

2023INSC810 REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3948 OF 2009

NHPC LTD. ....APPELLANT(S)

VS.

STATE OF HIMACHAL PRADESH SECRETARY & ORS. ...RESPONDENT(S)

WITH

CIVIL APPEAL NOS. 4738-4743 OF 2009

CHIEF ENGINEER, BHAKRA BEAS MANAGEMENT BOARD ....APPELLANT(S)

VS.

STATE OF HIMACHAL PRADESH THROUGH ITS SECRETARY & ORS. ….RESPONDENT(S)

AND

CIVIL APPEAL NO. 6931 OF 2009

RESIDENT ENGINEER, DEHAR POWER HOUSE DIVISION, BHAKRA BEAS MANAGEMENT BOARD ....APPELLANT(S)

VS.

STATE OF HIMACHAL PRADESH THROUGH ITS SECRETARY & ORS. ….RESPONDENT(S)

JUDGMENT

Signature Not Verified

NAGARATHNA, J.

Digitally signed by Neetu Sachdeva Date: 2023.09.06 16:38:10 IST Reason:

These appeals have been filed assailing the final Orders of the

High Court of Himachal Pradesh dated 11 December, 2008 and 06 May, 2

2009, whereby the vires of the Himachal Pradesh Passengers and Goods

Taxation Act, 1955 (hereinafter referred to as the “Act of 1955” for the

sake of brevity) as amended from time to time, particularly by the

Himachal Pradesh Passengers and Goods (Amendment and Validation),

Act, 1997 (hereinafter referred to as the “Amendment and Validation Act

of 1997” for the sake of brevity) has been upheld and the writ petitions

filed by the appellants herein, i.e., Civil Writ Petition Nos. 725 of 1998,

422 of 1998, 401 of 2001, 464-467 of 2001 and 79 of 2007, have been

dismissed.

Bird’s eye view of the controversy:

2. The controversy in these cases revolves around the question

whether, by enacting the Amendment and Validation Act of 1997, the

Himachal Pradesh State Legislature has validly removed the basis of the

judgment of the Division Bench of the High Court dated 27 March,

1997. In the said judgment, the Act of 1955 had been held not to include

within its scope, the activity of the appellants in providing gratis

transport facilities for their employees and their children, as the

charging provision contained therein, namely, Section 3 (1) and the

Explanation thereto were couched in very ambiguous terms.

2.1. These appeals also call for consideration of ancillary arguments in

the matter such as 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 3

of Article 246, read with Entry 56 of List II of the Seventh Schedule of

the Constitution of India.

2.2 Further, these appeals also call for interpretation of certain

provisions of the Act of 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.

Brief facts of the case:

3. Since the controversy involved in these appeals is identical, the

appeals are being disposed of by way of this common judgment. For the

sake of convenience, the facts of the lead matter, i.e., Civil Appeal No.

3498 of 2009 shall be narrated as under:

3.1. The facts in a nutshell are 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 said Act received Presidential assent on

25 November, 1955.

3.2. The appellant, NHPC Ltd. is engaged in the generation of

electricity and has various projects in the State of Himachal Pradesh.

Many project sites are situated at different locations in the interiors of

Himachal Pradesh. These work sites are not properly serviced by any

public transport system or regular taxis. The residential colonies of the 4

staff employed at the various project sites are located at far of distances

from the project sites. Therefore, as a welfare measure, the appellant,

NHPC Ltd. 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. It is to be clarified at this juncture that the transport

facilities were being provided free of cost, for the exclusive use of the

employees of the appellant and their children and members of the public

were not permitted to use the said transport facilities. The buses utilized

for such purpose were owned and operated by the appellant-NHPC Ltd.

3.3. The Assessing Authority under the Act of 1955, Respondent No. 3

herein, 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. Assessment Orders were

passed on 01 October, 1992 stipulating the liability of the appellant,

NHPC Ltd. to pay passenger tax under the Act of 1955, 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 as described hereinabove. It is

to be stated at this juncture that the Assessment Orders were passed

on the assumption that every bus of the appellant, NHPC Ltd. was

plying on every day of the relevant years; a passenger travelled on every 5

seat of every bus; and every employee travelled the full distance shown

in the logbook.

3.4. The appellant filed Revision Application before the Commissioner,

Excise and Taxation, Himachal Pradesh, Respondent No. 2 herein,

challenging the Assessment Orders dated 01 October, 1992. The same

was dismissed on the ground that a revision application would not be

maintainable and it would be appropriate to instead, file an appeal.

3.5. In the said background, the appellant, NHPC Ltd. filed Writ

Petition No.1733 of 1995 before the High Court, challenging the vires of

the Act of 1955, and the assessments made in accordance with the

provisions thereof. The pertinent contentions raised by the appellant in

the said Writ Petition may be encapsulated as under:

i. That under the Act of 1955, no tax can be levied on the appellant

as its employees and their children were being carried in the

appellant’s buses, without any fare or consideration. That

passenger tax as contemplated under the Act of 1955 was to be

levied only on fare-paying passengers against tickets issued by the

owner of the motor vehicles, who is engaged in the business of

carrying passengers for hire and reward.

ii. That no rate or fare had been specified by the competent authority

under the Motor Vehicles Act, 1939 (hereinafter referred to as “MV

Act” for short) for the routes on which the appellant’s buses plied,

nor had any contractual rate been agreed upon between the 6

appellants and its employees. Therefore, the charging provision,

i.e., Section 3 (1) of the Act of 1955 and the Explanation thereto

would not be attracted.

iii. That in passing the Assessment Orders dated 01 October, 1992,

erroneous and baseless assumptions had been made to the effect

that every bus of the appellant, NHPC Ltd. was plying on every day

of the relevant year; a passenger travelled on every seat of every

bus; every employee travelled the full distance shown in the

logbook; and every passenger was paying a fare of Rs. 1.15 per

kilometer.

iv. That even if the assessee was liable to pay tax under the Act of

1955, they would not be liable to pay surcharge under Section 3A

of the Act as the said provision would not be applicable to the

appellants. Further, Section 3A of the Act of 1955 was

unconstitutional and suffered from excessive delegation of powers

to the State Government to prescribe the rate of surcharge leviable,

without laying down any guideline on the basis of which surcharge

was to be prescribed.

3.6. By the Judgment and Order dated 27 March, 1997, the Division

Bench of the High Court allowed Civil Writ Petition No.1733 of 1995

filed by the appellant and directed the Respondents to refund the tax

collected under the provisions of the Act of 1955. The pertinent findings

of the Division Bench of the High Court are culled out hereinunder: 7

i. That the scheme of the Act of 1955 was to levy a tax on passengers

of certain motor vehicles only. Intention of the legislature could be

gathered from the various definitions contained in Section 2 of the

Act, and the same was to make the Act applicable only to persons

who carried on the business of transport. The definition of ‘owner’

would fortify such finding, as ‘owner’ was defined to mean a person

holding a permit under the Motor Vehicles Act.

ii. That the liability of the assessee was to be determined for the years

1984-1985 to 1986-1987 and 1987-1988 to 1990-1991. Prior to 31

May, 1988, ‘motor vehicle’ was defined to mean “a public service

vehicle or public carrier, or private carrier or a trailer attached to

any such vehicle.” Further, the definition of ‘passenger’ excluded

from its scope the driver, conductor and employee of the owner of

the motor vehicle. Therefore, the appellant’s buses would not be

covered under the definition of ‘motor vehicle’, as defined at the

relevant point of time. That on applying the definition of the

expressions, ‘motor vehicle’ and ‘passenger’ to the charging

provision, the appellant would not be liable for tax under the Act of

1955.

iii. That as regards the period between 31 May, 1988 and 30

September, 1990, the scope of the definition was expanded only to

include any vehicle used in contravention of the provisions of the

Motor Vehicles Act for carriage of passengers or goods or both, for

hire and reward. Since the appellant’s buses were not used for 8

carriage of passengers for hire or reward, appellant would not be

liable to discharge tax under the Act.

iv. That from 01 October, 1990, the definition of ‘motor vehicle’ was

enlarged to include any ‘transport vehicle,’ which, as defined under

the Motor Vehicles Act, 1988 (hereinafter, “MV Act, 1988” for the

sake of convenience) means “a public service vehicle, a goods

carriage, an educational institution bus or a private service

vehicle.” That although the said definition of ‘motor vehicle’ would

cover the buses of the appellant, the Explanation to Section 3 (1) of

the Act of 1955 would not permit such an application.

v. That the Explanation to Section 3 (1) of the Act of 1955 introduced

a legal fiction requiring assessments to be made on the assumption

that even passengers who did not actually pay a fare, were being

carried at the normal rate chargeable on the concerned route. That

there was no definition of ‘route’ for the purposes of the Act and the

definition of ‘route’ under the MV Act could not be referred to as

the routes on which the appellant’s buses plied were not ‘routes’ in

the sense defined under the MV Act. Hence, ‘route’ could not be

equated to any ‘road’ so as to hold the appellant-assessee liable to

pay tax under the Act of 1955. That for charging tax, by invoking

the Explanation to Section 3(1), routes were required to be

prescribed, but since no routes had been prescribed, the

Explanation could not come to the rescue of the respondent

Authorities.

9 vi. Further, in the absence of any prescription as to what the ‘normal

rate’ would be, the Respondent Authorities could not have levied

tax on the appellant based on artificial assumptions. That there

was no basis to warrant the Authorities from taking into account

the fare payable in the adjoining areas, in calculating the ‘normal

rate.’

vii. That the charging provision could not be given effect to unless the

terms ‘route’ and ‘normal rate’ had been expressly and

unambiguously defined.

3.7. A Special Leave Petition filed by the Respondents before this

Court, assailing the judgment of the High Court dated 27 March, 1997

was dismissed by an Order dated 28 July, 1997.

3.8. In that background, on 13 August, 1997, the Himachal Pradesh

Passengers and Goods (Amendment & Validation) Ordinance was

promulgated. The Himachal Pradesh Legislative Assembly passed the

Amendment and Validation Act of 1997 on 27 September, 1997 with a

view to remove the basis of the judgment of the Division Bench of the

High Court dated 27 March, 1997. By virtue of the Amendment and

Validation Act of 1997, definitions of the terms ‘business’, ‘fare’, ‘freight’

and ‘passenger’ were amended. Further, definitions of terms such as

‘Private Service Vehicle’, ‘road’, ‘Transport Vehicle’, came to be

introduced. Explanation (1) to Section 3 (1) of the Act of 1955, which

was the charging provision in the said Act, was omitted and Sub-section 10

(1A) was inserted in Section 3, which was to serve as a charging

provision. The nuances of the amendments introduced by the

Amendment and Validation Act of 1997 shall be adverted to at a later

stage.

3.9. 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.

3.10. The appellant challenged the vires of the Amendment and

Validation Act of 1997 and the assessments made thereunder, as also

of the Act of 1955 by filing Civil Writ Petition No. 725 of 1998 before the

High Court. The primary grounds of challenge were as under:

i. That the Act of 1955 as well as the Amendment and Validation Act

of 1997 are unconstitutional inasmuch as they seek to levy tax on

vehicles, which is contrary to Entry 56, List II of Seventh Schedule

of the Constitution of India.

ii. That the definitions of ‘passenger’, ‘business’, ‘fare’ and ‘road’ are

artificial and unnatural, as also contrary to the purpose and object

of the Act and hence, ultra-vires.

iii. That employees of the appellant and their children would not be

covered by the definition of “passenger", as appearing in the 11

Amendment and Validation Act of 1997, inasmuch as they are

carried free of charge.

3.11. By the impugned judgment dated 11 December, 2008, the High

Court of Himachal Pradesh dismissed Civil Writ Petition No. 725 of 1998

filed by the appellant and upheld the vires of the Act of 1955 as

amended from time to time, particularly by the Amendment and

Validation Act of 1997. The pertinent findings of the Division Bench of

the High Court may be epitomized as under:

i. The Court did not find favour with the contention of the Petitioner

that the impugned legislations had the effect of taxing the vehicles,

carrying passengers or goods and, hence, the State Legislature does

not have the competence to enact it. It was held that from a reading

of the Preamble of the Act and also various provisions thereof, it

was clear that the Act seeks to impose tax, not on motor vehicles,

but on the passengers and goods carried therein. That the import

of the Act 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. That simply for the reason

that notices have been issued to the owners or assessment orders

have been passed against the owners of the vehicles, it could not

be said that the tax is levied on the motor vehicles.

ii. That the Preamble of the Act of 1955 provided that the same was

an Act to provide for levying tax on passengers and goods carried 12

by road in ‘certain’ motor vehicles. The word ‘certain’ is omitted by

the Amendment and Validation Act of 1997. That this change in no

way suggests that the scope of the Act was amended to include

taxation on vehicles, instead of on the passengers and goods

carried therein.

iii. That the defect in the Explanation to Section 3(1) of the Act of 1955,

which was noted by the Division Bench of the High Court in passing

the judgment dated 27 March, 1997, had also been removed by

omitting the said Explanation and inserting Section 3(1A) in the

Amendment and Validation Act of 1997, which seeks to bring non-

fare paying passengers at par with fare paying passengers. Further,

the Competent Authority as well as Schedule I to the Amendment

and Validation Act of 1997 prescribe the fare and freight for

different categories of motor vehicles and for different roads and the

higher of the two would apply.

iv. That Section 3(1A) of the Amendment and Validation Act of 1997,

when read with the amended definition of the term ‘business’ would

leave no scope for doubt that all kinds of passengers and goods

carried in private service vehicles are subject to taxation, under the

Act, irrespective of whether such passengers or goods were being

carried for hire or reward. Therefore, the Amendment and

Validation Act of 1997, covers non-fare paying passengers (such as

the appellant’s employees and their children) as also goods and

material belonging to the appellant themselves.

13 Aggrieved by the aforesaid judgment of the High Court, which

has been followed by the High Court in its subsequent Order dated

21 July, 2009 in CWP 79 of 2007, the present appeals have been

filed.

Submissions:

4. We have heard Sri S.B. Upadhyay, learned Senior Counsel along

with instructing counsel for the appellant(s) in Civil Appeal No. 3948 of

2009; Sri Yashraj Singh Deora, learned counsel for the appellant(s) in

Civil Appeal Nos. 4738-4743 of 2009 and Civil Appela No. 6931 of 2009

and Sri Anup Kumar Rattan, learned Advocate General for the State of

Himachal Pradesh along with instructing counsel. We have perused the

material on record.

4.1. Learned Senior Counsel Sri Upadhyay, appearing on behalf of the

appellant(s) in Civil Appeal No. 3948 of 2009 submitted as under:

i. That the impugned judgment of the High Court of Himachal

Pradesh has not properly appreciated the import of the

Amendments made to the Act of 1955 by way of the Amendment

and Validation Act of 1997 inasmuch as the High Court has upheld

the said Act of 1997, by losing sight of the fact that the said Act

does not remove the basis of the judgment passed by the High

Court earlier, by which, the Explanation to Section 3 (1) of the Act

of 1955 was deleted and the further amendments were made by

inclusion of Section 3 (1A) and certain other provisions. That the 14

High Court has proceeded on a misplaced interpretation of the Act

of 1955, as amended by the Amendment and Validation Act of 1997

to hold that the latter Act, seeks to impose tax on passengers and

not motor vehicles and that the said Act covers non-fare paying

passengers as well which it cannot do so.

ii. Elaborating the aforesaid contention, learned senior counsel

submitted that the Amendments made to the Act of 1955 do not

take into consideration the fact that the buses and other motor

vehicles of the appellants herein which are used to ferry their

employees to work sites and children of their employees to schools

are free of charge and without collecting any fare from the

passengers. They travel gratis and therefore, in that sense, are not

passengers at all. Nevertheless, the incidence of tax are on the

appellants who are the owners of the buses and other vehicle who

have been levied the tax despite the fact that they are not collecting

any tax or any fare from their “passengers” who are none other than

their employees and children of their employees. Therefore, the Act

itself does not apply to the appellants and hence, they are not liable

to pay any tax under the Act.

iii. It was further submitted that the High Court has failed to

understand the import of the amendments made to the Act of 1955

as the said amendments in no way can mulct any liability to pay

tax on the appellants herein. That the true import of the Act of

1955, as amended by the Amendment and Validation Act of 1997 15

is to levy and collect tax on motor vehicles, transgressing Article

246, read with Entry 56 of List II of the Seventh Schedule of the

Constitution of India. The said legislative Entry pertains to “taxes

on goods and passengers carried by road and inland water ways.”

The said Entry therefore authorises the State Legislatures to levy,

inter-alia, passenger tax. That the incidence of a passenger tax

levied on the strength of Entry 56 of List II of the Seventh Schedule,

must be on the passengers and not on the vehicles in which

passengers are carried or on the owners of such vehicles. That it is

open to the Legislature to provide a convenient machinery or

method for collection of such tax. Therefore, the tax can be

recovered from the owner or operator of the vehicle, only when,

such owner or operator can pass on the burden of the tax to the

passengers but not otherwise. In this regard, reliance was placed

on A.S. Karthikeyan vs. State of Kerala, (1974) 1 SCC 258 with

a view to bring out the differences between a tax on the income of

the operators vis-à-vis passenger tax. That in the present case the

incidence of the tax is on the appellants who are the owners of the

buses, and not on the passengers. The appellants’ role in the

present case cannot be to collect the tax from the passengers and

deposit the same with the Respondent Authorities as no fare is

collected from the passengers, but to still discharge the tax liability

out of their own coffers.

16 iv. That fundamentally, ‘passenger’ means a person who travels by

paying a fare to the owner or operator of the vehicle, vide M/s Tata

Engineering and Locomotive Co. vs. The Sales Tax Officer,

Poona, A.I.R. 1979 SC 343. Therefore, a non-fare paying employee

of the operator, or a school-going child of such employee, is not a

passenger within the meaning of the constitutional entry.

v. That the Amendment and Validation Act of 1997 had introduced

sub-clauses (ii) and (iii) to Section 2 (aa) of the Act which defines

‘business’. That the said sub-clauses are brought within the scope

of the term ‘business’:

a) any trade, commerce, or manufacture, or any adventure or

concern in the nature of trade, commerce, or manufacture,

whether or not such trade, commerce, manufacture, adventure

or concern is carried on with a motive to make gain of profit

and whether or not any gain or profit actually accrues from

such trade, commerce, manufacture, adventure or concern

vide Section 2 (aa) (ii); and,

b) any transaction in connection with or incidental or ancillary to

such trade, commerce, manufacture, adventure or concern

vide Section 2 (aa) (iii).

That notwithstanding the fact that the scope of the term

‘business’ has been widened, sub-clauses (ii) and (iii) to Section

2 (aa) are to be read in harmony with sub-clause (i) thereof,

which provides that ‘business’ includes the business of 17

carrying passengers and goods by motor vehicles. That if

‘business’ is held to mean just any trade, commerce,

manufacture, adventure or concern, sub-clause (i) of Section 2

(aa), which specifies the nature of business, would become

redundant.

vi. That if sub-clauses (ii) and (iii) to Section 2 (aa) are interpreted to

include even businesses other than the business of carrying

passengers, the said sub-clauses would be violative of Article 14 of

the Constitution on two counts. First, a person or entity who/which

does not carry the business of carrying passengers and goods by

motor vehicles, would be treated at par with a person or entity

who/which carries on such business. Second, a person or entity

who/which does not carry on a business with a profit motive, would

be treated at par with a person or entity who/which carries on a

business with a profit motive. In both the circumstances, unequals

would be treated equally and this is opposed to the Constitutional

mandate of equality under the law.

vii. That the definitions of ‘business’, ‘passenger’, ‘road’, ‘fare’ and

‘freight’ under the Amendment and Validation Act of 1997 are

artificial and insertion/substitution of such definitions is an illegal

attempt to bring the Amendment and Validation Act of 1997 within

the scope of Entry 56 of List II of the Seventh Schedule to the

Constitution.

18

viii. Reliance was placed on J.K. Jute Mills Co. Ltd. vs. State of Uttar

Pradesh, A.I.R. 1961 SC 1534 to contend that when a statute has

been enacted by a State Legislature, outside the permissible field of

legislation, merely using artificial terminology so as to bring the

legislation within the scope of a particular legislative Entry would

not save the same from being declared to be unconstitutional.

ix. That the Amendment and Validation Act of 1997 did not remove

the basis of the judgment of the Division Bench of the High Court

dated 27 March, 1997, by curing the defects and plugging the

lacunae in the Act of 1955. Rather, it has been enacted with the

oblique motive of destroying the finality, force and effect of the said

judgment of the High Court, which has been affirmed by this Court.

4.2. Sri Yashraj Singh Deora, learned counsel for the appellants in

Civil Appeal Nos. 4738-4743 of 2009 and Civil Appeal No. 6931 of 2009

adopted the submissions of learned Senior Counsel Sri Upadhyay and

further contended as under:

i. That in order to be covered under the definition of ‘business’

provided under the Amendment and Validation Act of 1997, the

trade, commerce, manufacture of the assessee, or the transactions

connected therewith or incidental thereto must have some

connection with the business of carrying passengers and goods by

road. When the term ‘business’ is construed in such a manner, the

main activities of the respective appellants, would not amount to 19

carrying on business, as the same do not relate to the activity of

carrying passengers and goods by road. That in a case where the

main activity does not amount to ‘business’, then the connected,

incidental or ancillary activities would also not amount to

‘business’ unless an independent intention to conduct business in

these connected, incidental or ancillary activities is established by

the revenue, vide State of Tamil Nadu vs. Board of Trustees of

the Port of Madras, (1999) 4 SCC 630; Commissioner of Sales

Tax vs. Sai Publication Fund, (2002) 4 SCC 57. That in the

present case, there is no material to establish that the ancillary

activity of providing transport facilities to their employees and their

children is conducted with an independent intention to conduct

business through such activity. Therefore, in the present case,

neither the main activity of the appellants, nor the ancillary activity

of providing transport facilities to their employees and their

children, would amount to ‘business’ as defined under the

Amendment and Validation Act of 1997.

ii. Referring to the various amendments brought about by the

Amendment and Validation Act of 1997 and contrasting them with

the unamended provisions, it was contended that the said Act has

not removed the basis of the judgment of the Division Bench of the

High Court dated 27 March, 1997, nor has it cured the defects in

the Act of 1955. That such an enactment is simply contradictory to 20

the decision of the High Court, without addressing the underlying

reasoning of the Court.

iii. That the retrospective effect of forty-two years, given to the

Amendment and Validation Act of 1997 is totally unreasonable and

arbitrary. That particularly in relation to taxation statutes,

retrospectivity cannot be excessive or harsh, vide National

Agricultural Cooperative Marketing Federation of India Ltd.

vs. Union of India, (2003) 5 SCC 23. That on this ground alone,

the Amendment and Validation Act of 1997 may be struck down as

being unconstitutional.

With the aforesaid submissions, learned Senior Counsel and

learned counsel for the appellants prayed that the impugned

judgments be set aside and the Act of 1955, as amended by the

Amendment and Validation Act of 1997, be struck down as being

arbitrary, illegal and unconstitutional.

5. Per contra, Sri Anup Kumar Rattan, learned Advocate General for

the State of Himachal Pradesh supported the impugned judgment and

submitted that the High Court had proceeded to pass the impugned

orders on a sound appreciation of the facts of the matter and the

applicable law and the same would not call for any interference by this

Court. It was further contended as under:

i. That the Amendment and Validation Act of 1997 has validly

addressed the deficiencies in various provisions of the Act of 1955 21

and has therefore removed the basis of the judgment of the Division

Bench of the High Court dated 27 March, 1997 in accordance with

law. That it is trite that if a law passed by a Legislature is struck

down or rendered inoperative by a Court, the competent Legislature

can correct the infirmities which formed the basis of the Court’s

decision to strike down the law and make such amended law

effective retrospectively, vide M/s West Ramnad Electric

Distribution Co. vs. State of Madras, A.I.R. 1962 SC 1753; Rai

Ramkrishna vs. State of Bihar, A.I.R. 1963 SC 1667; Lohia

Machines Ltd. vs. Union of India, (1985) 2 SCC 197; State of

Himachal Pradesh vs. Yash Pal Garg, (2003) 9 SCC 92;

Baharul Islam vs. Indian Medical Association, 2023 SCC

OnLine SC 79.

ii. That Section 3 (1A) as incorporated by the Amendment and

Validation Act of 1997, provides that notwithstanding anything

contained in sub-section (1) of Section 3, when passengers are

carried and goods are transported by a motor vehicle and no fare

or freight, whether chargeable or not, has been charged or fare or

freight has been charged at a concessional rate, the tax at the rates

directed by a Notification by the Government under sub-section (1),

shall be levied, charged and paid as if the passengers were carried

or goods were transported, either on fares or freights fixed by the

competent authority, under the MV Act, for different classes of roads

and motor vehicles in the State, or on fares and freights specified in 22 Schedule I to the Act for different classes of roads and motor vehicles,

whichever is higher. That previously, under the Act of 1955,

Explanation to Section 3(1), which provided that when passengers

are carried and goods are transported by a motor vehicle and no

fare or freight, whether chargeable or not, had been charged, the

tax was levied and paid, as if such passengers were carried or goods

transported, at the normal rate prevalent on the route. The

ambiguity in the charging provision, i.e., Section 3 (1) of the Act of

1955 arose on account of the fact that the terms ‘normal rate’ and

‘route’ had not been defined under the said Act. Owing to such a

defect/lacuna, the charging provision could not be given effect to

as noted by the Division Bench of the High Court in the judgment

dated 27 March, 1997. That by the Amendment and Validation Act

of 1997, Explanation to Section 3(1) has been deleted and Section

3 (1A) has been inserted, 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 is to be adopted in every

case. Further, the terms ‘fares’, ‘freights’ and ‘roads’ have been

defined, thereby removing the defects/deficiencies in the Act of

1955.

23

iii. That another reason given by the Division Bench in the judgment

dated 27 March, 1997 for holding that employees of the appellants

and their children were not covered by the Explanation (now

deleted by way of the Amendment and Validation Act of 1997) was

in relation to the definition of ‘business’. ‘The term ‘business’ was

defined in a narrow manner in the Act of 1955 and meant the

business of carriage of passengers and goods. Therefore, when the

definitions of the terms ‘motor vehicle’ and ‘business’ were read into

the charging provision, the inference was, only those who were not

in the business of carrying passengers and goods, would not be

covered by the charging provision. This loophole has also been

plugged by way of the Amendment and Validation Act of 1997,

inasmuch as the definition of ‘business’ has been 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.

That ‘business’ now means just any business, carried on with or

without a profit motive, or any ancillary transactions in connection

with such business. The said expression having being widened, a

macro meaning and interpretation must be given to the same, was

the submission.

24

iv. That simply for the reason that notices had been issued to the

owners or assessment orders had been passed against the owners

of the vehicles, it could not be said that the tax was being levied on

the motor vehicles. The tax sought to be imposed was on the

passengers and goods carried by road and the operators/owners of

the motor vehicles were simply required to facilitate payment of tax

by collecting the same from the passengers and depositing it with

the Respondent Authorities. That the Act of 1955, as amended by

the Amendment and Validation Act of 1997, was enacted on the

strength of Entry 56 of List II of the Seventh Schedule of the

Constitution of India, which pertains to “taxes on goods and

passengers carried by road and inland water ways.”

With the aforesaid submissions, it was prayed that the present

appeals be dismissed as being devoid of merit and the impugned

orders of the High Court, be affirmed.

Points for Consideration:

6. Having heard learned counsel for the respective parties and on

perusal of the material on record, the following points would emerge for

our consideration:

i. Whether, by enacting the Amendment and Validation Act of 1997,

the Himachal Pradesh State Legislature had validly removed the

basis of the judgment of the Division Bench of the High Court dated

27 March, 1997, whereby the Act of 1955 had been held not to 25

include within its scope the activity of the appellants of providing

gratis transport facilities for their employees and their children?

ii. Whether the activity of the appellants of providing gratis transport

facilities for their employees and their children, would now be a

taxable activity under Section 3(1-A) of the Amendment and

Validation Act of 1997?

iii. Whether the impugned judgment of the High Court calls for any

interference?

iv. What order?

Legal Framework:

7. Before proceeding further, it would be useful to refer to the legal

framework relevant to the issues which arise in these appeals. Entry 56

List II of the Seventh Schedule of the Constitution of India reads thus:

“56. Taxes on goods and passengers carried by road or on inland waterways.”

7.1. The preamble of the Act of 1955 indicates that it is an Act to

provide for levying a tax on passengers and goods carried by road in

‘certain’ motor vehicles. Section 2(e) defined ‘motor vehicle’ as any

transport vehicle, including a motor vehicle used for carrying

passengers or goods, for hire or reward even in contravention of the

provisions of the MV Act. Section 2 (aa) of the Act of 1955 defined

‘business’ to mean the business of carrying passengers and goods by

motor vehicles. Section 2 (g) defined ‘passenger’ to mean any person 26

travelling in a motor vehicle, but did not include the driver or conductor

or any employee of the owner of the vehicle travelling in bona fide

discharge of his duties in connection with the vehicle. The term ‘owner’

was defined under Section 2 (f) to mean the owner of the motor vehicle

in respect of which a permit had been granted or countersigned under

the provisions of the Motor Vehicles Act, 1939.

7.2. Section 3 (1) which was and still is the charging provision provided

that a tax shall be levied and charged by the State Government on all

fares and freights in respect of all passengers carried and goods

transported by motor vehicles, at such rates not exceeding one-sixth of

the value of the fare or freight, as the Government may, by notification,

direct. The charging provision contained an Explanation which read as

under:

“When passengers are carried and goods are transported by a motor vehicle, and no fare or freight, whether chargeable or not, has been charged the tax shall be leviable and paid as if such passengers were carried or goods were transported at the normal rate prevalent on the route.”

7.3. Section 2(c) provided an inclusive definition of the term ‘fare’ which

would include sums payable for a season ticket or in respect of a

contract carriage.

7.4. It was primarily the aforesaid provisions of the Act of 1955 that

formed the subject of interpretation by the Division Bench of the High 27

Court in Writ Petition No.1733 of 1995, which was allowed by the

judgment dated 27 March, 1997 as per the reasons indicated above.

8. With a view to bring the employees of the appellants and their

children, travelling in the buses of the appellants without payment of

fare within the tax net under the Act of 1955 and also to validate the

collection of tax already made thereunder, the Amendment and

Validation Act of 1997 was enacted by the Himachal Pradesh Legislative

Assembly. By way of the Amendment and Validation Act of 1997,

amendments were brought about to the Preamble and various

provisions of the Act of 1955 with retrospective effect, viz. date of

enforcement of the Act of 1955. The amendments brought about, which

are relevant for the purpose of deciding these appeals are as under:

i. The preamble, as amended states that it is an Act to provide for

levying a tax on passengers and goods carried by road in motor

vehicles. The word ‘certain’ which earlier preceded the term ‘motor

vehicle’ has been deleted by way of the Amendment and Validation

Act of 1997.

ii. The definition of ‘business’ has been amended 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.

28

iii. The definition of ‘fare’ was amended to include sums fixed by the

competent authority under the MV Act for hire of motor vehicle for

carriage of passengers and transport of goods; sums payable for a

season ticket; and where no such fare has been paid, includes the

sums specified under Schedule I.

iv. The term ‘owner’ has been defined to mean owner of the motor

vehicle used for carrying passengers or transporting goods in or

through the territory of the State of Himachal Pradesh.

v. The following provisions defining the terms ‘private service vehicle’,

‘road’, and ‘transport vehicle’ were introduced by way of the

Amendment and Validation Act of 1997:

“2(gb) “private service vehicle” means a motor vehicle constructed or adapted to carry more than six persons excluding the driver and ordinarily used by or on behalf of the owner of such vehicle for the purpose of carrying persons for, or in connection with his trade or business;”

“2(gc) “road” means a track for travel or transportation to and fro, serving as a means of communication, between two places;”

“2(ia) “transport vehicle” means a public service vehicle, a goods carriage, an educational institution bus or a private service vehicle;”

vi. Sub-section (IA) has been added to Section 3 of the Act of 1955 and

the Explanation to Section 3 (1) has been deleted. Section 3(1A)

provides that notwithstanding anything contained in sub-section

(1) of Section 3, when passengers are carried and goods are

transported by a motor vehicle and no fare or freight, whether 29

chargeable or not, has been charged or fare or freight has been

charged at a concessional rate, the tax at the rates directed by

Notification issued by the Government under sub-section (1), shall

be levied, charged and paid as if the passengers were carried or

goods were transported, either on fares or freights fixed by the

competent authority, under the MV Act, for different classes of

roads and motor vehicles in the State; or on fares and freights

specified in Schedule I to the Act for different classes of roads and

motor vehicles, whichever is higher.

vii. Section 9 has been inserted, which provides for validation of

assessments made under the Act of 1955.

viii. Schedule I has been added to the Act, which stipulates the fares on

which tax would be leviable, for different categories of motor

vehicles and class of roads.

9. For easy reference, as submitted by Sri Yashraj Singh Deora,

learned counsel, a comparative table of the relevant provisions of the Act

of 1955 and the amendments introduced to such provisions, by way of

the Amendment and Validation Act of 1997, is provided hereinunder:

Parameters The Himachal Pradesh The Himachal Pradesh Passengers and Goods Passengers and Goods Taxation Act, 1955 Taxation (Amendment and Validation) Act, 1997 Preamble An Act to provide for levying An Act to provide for a tax on passengers and levying a tax on goods carried by road in passengers and goods certain motor vehicles. carried by road in motor vehicles.

30

Parameters The Himachal Pradesh The Himachal Pradesh Passengers and Goods Passengers and Goods Taxation Act, 1955 Taxation (Amendment and Validation) Act, 1997 Definition of 2(a) “business” means the 2[(aa) “business” the term business of carrying includes:- ‘business’ passengers and goods by motor vehicles. i. The business of carrying passengers and goods by motor vehicles;

ii. Any trade, commerce or manufacture, or any adventure or concern in the nature of trade, commerce, or manufacture whether or not such trade, commerce manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any gain or profit accrues from such trade, commerce, manufacture, adventure or concern; and

iii. Any transaction in connection with, or incidental or ancillary to, such trade, Commerce, manufacture, adventure or concern. Definition of 2(c) “fare” includes sums 2(c) “fare” or “freight

the term ‘fare’ payable for a season ticket includes sums fixed by or in respect of the hire of a the competent authority contract carriage; under the Motor Vehicles Act for the hire of motor vehicles for carriage of passengers and the transport of goods therein and includes the sum payable for a season ticket, and where no such fare or freight has been fixed, also includes such sum as specified in Schedule-1:

31

Parameters The Himachal Pradesh The Himachal Pradesh Passengers and Goods Passengers and Goods Taxation Act, 1955 Taxation (Amendment and Validation) Act, 1997

Definition of 2(e) “motor vehicle” 2(d) “motor vehicle” the term means a public service means any transport ‘motor vehicle’ vehicle or public carrier, vehicle, which is or private carrier or a mechanically propelled trailer when attached to and adapted for use upon any such vehicle; roads whether the power of propulsion is transmitted thereto from an external or internal source, or a trailer when attached to any such vehicle and includes-

(i) A motor vehicle used for carriage of passengers or goods or both for hire or reward in contravention of the provisions of the Motor Vehicles Act; and

(ii) A maxi cab, which is constructed or adapted to carry more than six passengers, but not more than twelve passengers;]

(ea) Motor Vehicles Act” means the Motor Vehicle Act, 1939 (4 of 1939) and the Motor Vehicles Act, 1988 (59 of 1988), as the case may be:]

Definition of 2(f) “owner” means the 2(f) “owner means” the the term owner of the motor vehicle owner of the motor ‘owner’ in respect of which a vehicle used for carrying permit has been granted or passengers or countersigned under the transporting goods in or provisions of the Motor through the territory of Vehicles Act, 1939 (4 of the State of Himachal 1939) and includes (a) the Pradesh, and includes, -

holder of a permit in respect of such vehicle, (b) any (a) The de-facto and de-

person for the time being in jure owners; 32

Parameters The Himachal Pradesh The Himachal Pradesh Passengers and Goods Passengers and Goods Taxation Act, 1955 Taxation (Amendment and Validation) Act, 1997 charge of such vehicle, (c)

any person responsible for (b) Any person for the time the management of the being incharge of such place of business of such vehicle;

owner, (d) Government or a Corporation constituted (c) any person responsible under the Road Transport for the management of the Corporations Act, 1950; place of business of such owners;

(d) The Government or Corporation constituted under the road Transport Corporation Act, 1950 (64 of 1950):

Definition of (gb) “Private service the term vehicle” means a motor ‘Private vehicle constructed or service vehicle’ adopted to carry more than six persons excluding the driver, and ordinarily used - by or on behalf of the owner of such vehicle for the purpose of carrying persons for, or in connection with, his trade or business; Definition of (ge) “road” means a track the term ‘road’ for travel or transportation - to and fro, serving as a means of communication, between two places; Definition of (ia) “transport vehicle” the term means a public service ‘transport vehicle, a goods carriage, - vehicle’ an educational institution bus or a private service vehicle; Charging 3. Levy of Tax. – (1) There 3. Levy of Tax.- (1) There provision: shall be levied, charged and shall be levied, charged paid to the State and paid to the State Government a tax on all Government a tax,- fares and freights in respect of all passengers carried and 33

Parameters The Himachal Pradesh The Himachal Pradesh Passengers and Goods Passengers and Goods Taxation Act, 1955 Taxation (Amendment and Validation) Act, 1997 goods transported by motor (i) On all fares in respect of vehicles at such rates not all passengers carried by exceeding one sixth of the motor vehicles at such value of the fare or freight, rates not exceeding fifty as the case may be, and as percent of the value of the Government may, by freight, and notification, direct, subject to a minimum of five paise in (ii) on all freights in respect any one case, the amount of of all goods transported by tax being calculated to the motor vehicles at such nearest multiple of five paise rates not exceeding five by ignoring two paise or less percent of the value of and counting more than two freight, paise as five paise.] As the Government may, Explanation:- When by notification, direct, passengers are carried and subject to a minimum of goods are transported by a five paise in any one case, motor vehicle and no fare the amount of tax being or freight, whether calculated to the nearest chargeable or not has been multiple of five paise by charged the tax shall be ignoring two paise or less levied and paid as if such and counting more than passengers were carried or two paise as five paise.] good transported at the normal rate prevalent on (1A) Notwithstanding the route. anything contained in sub-section (1), when (2) Where any fare or freight passengers are carried charged is a lump sum paid and goods are by a person on account of a transported by a motor season ticket or as vehicle and-

subscription or contribution for any privilege, right or i. No fare or freight, facility which is combined whether chargeable or with the right of such person not has been charged, or being carried or his goods ii. fare or freight has transported by a motor been charged at a vehicle, without any further concessional rate, payment or at a reduced charge, the tax shall be The tax at the rates as levied on the amount of directed by notification such lump sum or on such by the Government amount as appears to the under sub-section (1), prescribed authority to be shall be levied, charged fair and equitable having and paid as if the 34

Parameters The Himachal Pradesh The Himachal Pradesh Passengers and Goods Passengers and Goods Taxation Act, 1955 Taxation (Amendment and Validation) Act, 1997 regard to the fare or freight passengers were carried fixed by a competent or goods were authority under the Motor transported either on Vehicles Act, 1939. fares and frights fixed by the competent authority (3) Where passengers are under the Motor Vehicles carried or goods transported Act for different classes by a motor vehicle from any of roads and motor place outside the State [or vehicles in the State or from any place outside the on the fares and freights, State to any place outside for different classes of the State but through the roads and motor State or from any place vehicles, specified in within the State to any other Schedule- I to this Act, place within the State but whichever is higher:

through the intervening territory of another State] to Provided that the State any place within the State, Government may, by or from any place within the notification, amend State to any place outside Schedule-I, and thereupon the State the tax shall be the Schedule-1, shall payable in respect of the stand amended distance covered within the accordingly:

State at the rate laid down in sub-section (1) and shall be Provided further that every calculated on such amount notification amending as bears the same Schedule-1, shall be laid proportion to the total fare on the Table of the and freight as the distance Legislative Assembly.] covered in the State bears to the total distance of the (2) Where any fare or journey. freight charged is a lump sum paid by a person on account of a season ticket or as subscription or contribution for any privilege, right or facility which is combined with the right of such person being carried or his goods 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 35

Parameters The Himachal Pradesh The Himachal Pradesh Passengers and Goods Passengers and Goods Taxation Act, 1955 Taxation (Amendment and Validation) Act, 1997 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, 4 [1988].

(2-A). Where a motor vehicle plies for hire or reward in contravention of the provisions of the Motor Vehicles Act, 1988 the owner of such vehicle shall, without, prejudice to any action which is or may be taken under that Act, be liable to pay tax at the rate specified in sub-section (1) or such amount of fares and freights as may be determined in the prescribed manner by the prescribed authority.]

(3) Where passengers are carried or goods transported by a motor vehicle from any place outside the State [or from any place outside the State to any place outside the State but through the State or from any place within the State to any other place within the State but through the intervening territory of another State] to any place within the State, or from any place within the State to any place outside the State the tax shall be payable in respect of the distance covered within 36

Parameters The Himachal Pradesh The Himachal Pradesh Passengers and Goods Passengers and Goods Taxation Act, 1955 Taxation (Amendment and Validation) Act, 1997 the State at the rate laid down in sub- section (1) and shall be calculated on such amount as bears the same proportion to the total fare and freight as the distance covered in the State bears to the total distance of the journey.

(Underlining by us)

9.1. Apart from the above, the salient Sections to be noticed are

Sections 5 to 9 of the Amendment and Validation Act of 1997 which read

as under:

“5. In Section 3A, of the Principal Act, for the words “stage/contract carriage”, the words “transport vehicle, excluding a goods vehicle/carriage”, shall be substituted.

6. In Section 3B and 21A of the Principal Act, the word “Schedule”, wherever it occurs, the word “Schedule-II” shall be substituted.

7. The existing “SCHEDULE” to the Principal Act shall be re-numbered as “SCHEDULE-II and before the “SCHEDULE-II” so re-numbered, the following “SCHEDULE-I” shall be inserted namely:- (not typed in the Paperbook)

* * * * * * * * *

8. The amendments to the Principal Act, made by Sections 2, 3, 4, 5, 6 and 7 of the Act shall and shall always be deemed to have been made retrospectively from the date of the commencement of the Principal Act.

9. (1) Notwithstanding anything contained in any judgment, decree, or order of any court or other authority to the contrary, any assessment, levy, charge or payment of any tax on passengers and goods carried to have been 37

made or any action taken or anything done under the provisions of the Principal Act at any time on or after the commencement of the Act, but before the commencement of the Himachal Pradesh Passengers and Goods Taxation (Amendment and Validation) Act, 1997 (hereinafter referred to as this 'Act'), shall be deemed to be a valid action or thing had been made, taken or done under the provisions of the said Act as amended by this Act and accordingly-

i) the aforesaid tax assessed, levied, charged, paid or collected or purporting to have been assessed, levied, charged, paid or collected under the provisions of the said Act, before the commencement of this Act shall be deemed to be and always be deemed to have been validly assessed, levied, charged, paid or collected in accordance with law:

(ii) no suit or other proceeding shall be maintained or continued in any court or before any authority for the refund of, and no enforcement shall be made by any court or authority of any decree or order directing the refund of any such aforesaid tax, which has been collected;

(iii) recoveries, if any, shall be made in accordance with the provision of the said act of all amounts which would have been collected thereunder as such aforesaid tax if this Act had been in force at all material times; and

(iv) anything done or any action taken (including any rule or order made, notification issued or direction given or exemption granted or penalty imposed) under the said Act before the commencement of this Act shall be deemed always to have been validly done or taken in accordance with this Act.

(2) For the removal of doubts, it is hereby declared that-

(a) nothing in sub-section (1) shall be construed in preventing any person-

(i) from questioning, in accordance with the provisions of this Act, the assessment, levy, charge, payment or collection of the aforesaid tax; or 38

(ii) from claiming refund of the aforesaid tax paid by him in excess of the amount due from him under this act;

and

(b) no act or omission on the part of any person, before the commencement of this act, shall be punishable as an offence which would not have been so punishable as if this Act had not come into force.”

Analysis:

“It is when things go wrong that the retroactive validating statute often becomes indispensable as a curative measure; though the proper movement of law is forward in time, we sometimes have to stop and turn about and pick up the pieces.”

- Lon Fuller, The Morality of Law (1960).

10. Since these appeals concern, inter-alia, the issue, as to, whether,

by enacting the Amendment and Validation Act of 1997, the Himachal

Pradesh State Legislature has validly removed the basis of the judgment

of the Division Bench of the High Court dated 27 March, 1997, it would

be useful to discuss the law on the adoption of the legislative device of

abrogation, to remove the basis of a judgment of a Court in a legislation.

10.1. In the following decisions, this Court has laid down the law with

regard to the permissible extent and manner of removing the material

basis of a judgment, by correcting the anomalies pointed out by a Court

in a legislation:

i. In M/s. Tirath Ram Rajendra Nath, Lucknow vs. State of Uttar

Pradesh, A.I.R. 1973 SC 405, this Court held that there is a

distinction between encroachment on the judicial power and 39

nullification of the effect of a judicial decision by changing the law

retrospectively. The former is outside the competence of the

legislature but the latter is within its permissible limits. In that

case, the U.P. Sales Tax Act (Amendment and Validation) Act, 1970

was upheld by this Court.

ii. In Hindustan Gum and Chemicals Ltd. vs. State of Haryana,

(1985) 4 SCC 124, this Court held that it is permissible for a

competent legislature to overcome the effect of a decision of a court

setting aside the imposition of a tax by passing a suitable

Legislation, by amending the relevant provisions of the statute

concerned with retrospective effect, thus taking away the basis on

which the decision of the court has been rendered and by enacting

an appropriate provision validating the levy and collection of tax

made before the decision in question was rendered. In that decision,

reliance was placed on Shri Prithvi Cotton Mills Ltd. vs. Broach

Borough Municipality, A.I.R 1970 SC 192, a Constitution Bench

decision of this Court, which has laid down the requirements which

a validating law should satisfy in order to validate the levy and

collection of a tax which has been declared earlier by a court as

illegal. The relevant portion of the said judgment reads as under:

“When a Legislature sets out to validate a tax declared by a court to be illegally collected under an ineffective or an invalid law, the cause for ineffectiveness or invalidity must be removed before validation can be said to take place effectively. The most important condition, of course, is that the Legislature must possess the power to impose the tax, 40

for, if it does not, the action must ever remain ineffective and illegal. Granted legislative competence, it is not sufficient to declare merely that the decision of the court shall not bind for that is tantamount to reversing the decision in exercise of judicial power which the Legislature does not possess or exercise. A court’s decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances. Ordinarily, a court holds a tax to be invalidly imposed because the power to tax is wanting or the statute or the rules or both are invalid or do not sufficiently create the jurisdiction. Validation of a tax so declared illegal may be done only if the grounds of illegality or invalidity are capable of being removed and are in fact removed and the tax thus made legal. Sometimes this is done by providing for jurisdiction where jurisdiction had not been properly invested before. Sometimes this is done by re-enacting retrospectively a valid and legal taxing provision and then by fiction making the tax already collected to stand under the re-enacted law. Sometimes the Legislature gives its own meaning and interpretation of the law under which the tax was collected and by legislative fiat makes the new meaning binding upon courts. The Legislature may follow any one method or all of them and while it does so it may neutralize the effect of the earlier decision of the court which becomes ineffective after the change of the law. Whichever method is adopted it must be within the competence of the Legislature and legal and adequate to attain the object of validation. If the Legislature has the power over the subject-matter and competence to make a valid law, it can at any time make such a valid law and make it retrospectively so as to bind even past transactions. The validity of a validating law, therefore, depends upon whether the Legislature possesses the competence which it claims over the subject-matter and whether in making the validation it removes the defect which the courts had found in the existing law and makes adequate provisions in the validating law for a valid imposition of the tax.”

iii. In the case of Indian Aluminium Company Co. vs. State of

Kerala, A.I.R 1996 SC 1431, the principles regarding the

abrogation of a judgment of a court of law by a subsequent

legislation were culled out in the following words:

41 “56. From a resume of the above decisions the following salient principles would emerge:

(1) The adjudication of the rights of the parties is the essential judicial function. Legislature has to lay down the norms of conduct or rules which will govern the parties and the transaction and require the court to give effect to them;

(2) The Constitution has delineated delicate balance in the exercise of the sovereign power by the Legislature, Executive and Judiciary;

(3) In a democracy governed by rule of law, the Legislature exercises the power under Articles 245 and 246 and other companion Articles read with the entries in the respective Lists in the Seventh Schedule to make the law which includes power to amend the law.

(4) The Court, therefore, need to carefully scan the law to find out: (a) whether the vice pointed out by the Court and invalidity suffered by previous law is cured complying with the legal and constitutional requirements; (b) whether the Legislature has competence to validate the law; (c) whether such validation is consistent with the rights guaranteed in Part III of the Constitution.

(5) The Court does not have the power to validate an invalid law or to legalise impost of tax illegally made and collected or to remove the norm of invalidation or provide a remedy.

These are not judicial functions but the exclusive province of the Legislature. Therefore, they are not the encroachment on judicial power.

(6) In exercising legislative power, the Legislature by mere declaration, without anything more, cannot directly overrule, revise or override a judicial decision. It can render judicial decision ineffective by enacting valid law on the topic within its legislative field fundamentally altering or changing its character retrospectively. The changed or altered conditions are such that the previous decision would not have been rendered by the Court, if those conditions had existed at the time of declaring the law as invalid. It is also empowered to give effect to retrospective legislation with a deeming date or with effect from a particular date.

42

(7) The consistent thread that runs through all the decisions of this Court is that the legislature cannot directly overrule the decision or make a direction as not binding on it but has power to make the decision ineffective by removing the base on which the decision was rendered, consistent with the law of the Constitution and the Legislature must have competence to do the same.”

In the aforesaid case, the issue that arose for consideration

was as to the vires of Section 11 of the Kerala Electricity Surcharge

(Levy and Collection) Act, 1989. It was observed that the said

provision was valid and not an incursion on judicial power,

notwithstanding the fact that the effect of Section 11 was to validate

collection of tax made under an invalid law.

iv. A Constitution Bench of this Court in State of Tamil Nadu vs.

Arooran Sugars Ltd., (1997) 1 SCC 326, summarised the law on

the legislative device of abrogation, to remove the basis of a judicial

pronouncement in the following words:

“30. From the aforesaid authorities, it is settled that there is a demarcation between legislative and judicial functions predicated on the theory of separation of powers. The legislature has the power to enact laws including the power to retrospectively amend laws and thereby remove causes of ineffectiveness or invalidity. When a law is enacted with retrospective effect, it is not considered as an encroachment upon judicial power when the legislature does not directly overrule or reverse a judicial dictum. The legislature cannot, by way of an enactment, declare a decision of the court as erroneous or a nullity, but can amend the statute or the provision so as to make it applicable to the past. The legislature has the power to rectify, through an amendment, a defect in law noticed in the enactment and even highlighted in the decision of the court. This plenary power to bring the statute in conformity with the legislative intent and correct the flaw 43

pointed out by the court can have a curative and neutralizing effect. When such a correction is made, the purpose behind the same is not to overrule the decision of the court or encroach upon the judicial turf, but simply enact a fresh law with retrospective effect to alter the foundation and meaning of the legislation and to remove the base on which the judgment is founded. This does not amount to statutory overruling by the legislature. In this manner, the earlier decision of the court becomes non- existent and unenforceable for interpretation of the new legislation. No doubt, the new legislation can be tested and challenged on its own merits and on the question whether the legislature possesses the competence to legislate on the subject matter in question, but not on the ground of over-reach or colourable legislation.”

v. In Bakhtawar Trust vs. M.D. Narayan, (2003) 5 SCC 298, this

Court observed as under while laying down a three-pronged test to

determine the vires of a validating Act:

“14. The validity of any statute may be assailed on the ground that it is ultra vires the legislative competence of the legislature which enacted it or it is violative of Part III or any other provision of the Constitution. It is well settled that Parliament and State Legislatures have plenary powers of legislation within the fields assigned to them and subject to some constitutional limitations, can legislate prospectively as well as retrospectively. This power to make retrospective legislation enables the legislature to validate prior executive and legislative Acts retrospectively after curing the defects that led to their invalidation and thus makes ineffective judgments of competent courts declaring the invalidity. It is also well settled that a validating Act may even make ineffective judgments and orders of competent courts provided it, by retrospective legislation, removes the cause of invalidity or the basis that had led to those decisions.

15. The test of judging the validity of the amending and validating Act is, whether the legislature enacting the validating Act has competence over the subject-matter;

whether by validation, the said legislature has removed the defect which the court had found in the previous laws; and 44

whether the validating law is consistent with the provisions of Part III of the Constitution.”

vi. In Cheviti Venkanna Yadav vs. State of Telangana, (2017) 1

SCC 283, this Court considered a question relating to the validity

of an amendment with retrospective effect after a provision of the

Act was struck down by the Court- When does it not amount to the

statutory overruling of a judgment by the legislature? This Court

held that the legislature has the power to legislate including the

power to retrospectively amend laws, thereby removing causes of

ineffectiveness or invalidity of laws. Further, when such correction

is made, the purpose behind the same is not to overrule the decision

of the court or encroach upon the judicial turf, but simply enact a

fresh law with retrospective effect to alter the foundation and

meaning of the legislation and to remove the base on which the

judgment is founded. The order of the High Court, inter alia, holding

that the amended provisions did not usurp the judicial power was

upheld.

vii. In Madras Bar Association vs. Union of India, (2022) 12 SCC

455, L. Nageswara Rao J., speaking for the majority (2:1) laid down

the following principles, as regards the permissibility of abrogation,

to remove the basis of a judgment:

“43. The permissibility of a legislative override in this country should be in accordance with the principles laid down by this Court in the aforementioned as well as other judgments, which have been culled out as under: 45

a) The effect of the judgments of the Court can be nullified by a legislative act removing the basis of the judgment.

Such law can be retrospective. Retrospective amendment should be reasonable and not arbitrary and must not be violative of the fundamental rights guaranteed under the Constitution. (Lohia Machines Ltd. and Anr. v. Union of India and Ors., (1985) 2 SCC 1987).

b) The test for determining the validity of a validating legislation is that the judgment pointing out the defect would not have been passed, if the altered position as sought to be brought in by the validating statute existed before the Court at the time of rendering its judgment. In other words, the defect pointed out should have been cured such that the basis of the judgment pointing out the defect is removed.

c) Nullification of mandamus by an enactment would be impermissible legislative exercise (See: S.R. Bhagwat and Ors. v. State of Mysore, (1995) 6 SCC 16). Even interim directions cannot be reversed by a legislative veto (See: Cauvery Water Disputes Tribunal, 1993 Supp (1) SCC 96 and Medical Council of India v. State of Kerala and Ors., (2019) 13 SCC 185).

d) Transgression of constitutional limitations and intrusion into the judicial power by the legislature is violative of the principle of separation of powers, the Rule of law and of Article 14 of the Constitution of India.”

viii. In a recent judgment of this Court in the case of Dr. Jaya Thakur

vs. Union of India, 2023 SCC OnLine SC 813, this Court held

that a writ of mandamus could not be nullified by a subsequent

legislation made by the legislator. That a binding judicial

pronouncement between the parties cannot be made ineffective

with the aid of any legislative power by enacting a provision which

in substance simply overrules a judgment unless the foundation of

the judgment is removed. Referring to several judgments of this

court on the Doctrine of Abrogation, the following principles as to 46

the manner in which the device of abrogation could be employed,

were identified as under:

“It could, thus, clearly be seen that this Court has held that the effect of the judgments of this Court can nullified by a legislative act removing the basis of the judgment. It has further been held that such law can be retrospective. It has, however, been held that retrospective amendment should be reasonable and not arbitrary and must not be violative of the fundamental rights guaranteed under the Constitution. It has been held that the defect pointed out should have been cured such that the basis of the judgment pointing out the defect is removed. This Court has, however, clearly held that nullification of mandamus by an enactment would be impermissible legislative exercise. This Court has further held that transgression of constitutional limitations and intrusion into the judicial power by the legislature is violative of the principle of separation of powers, the rule of law and of Article 14 of the Constitution of India.”

11. What follows from the aforesaid judicial precedent is, a legislature

cannot directly set aside a judicial decision. However, when a competent

legislature retrospectively removes the substratum or foundation of a

judgment to make the decision ineffective, the same is a valid legislative

exercise provided it does not transgress on any other constitutional

limitation. Such a legislative device which removes the vice in the

previous legislation which has been declared unconstitutional is not

considered to be an encroachment on judicial power but an instance of

abrogation recognised under the Constitution of India. The decisions

referred to above, manifestly show that it is open to the legislature to

alter the law retrospectively, provided the alteration is made in such a

manner that it would no more be possible for the Court to arrive at the 47

same verdict. In other words, the very premise of the earlier judgment

should be removed, thereby resulting in a fundamental change of the

circumstances upon which it was founded.

12. The power of a legislature to legislate within its field, both

prospectively and to a permissible extent, retrospectively, cannot be

interfered with by Courts provided it is in accordance with the

Constitution. It would be permissible for the legislature to remove a

defect in an earlier legislation, as pointed out by a constitutional court

in exercise of its powers by way of judicial review. This defect can be

removed both prospectively and retrospectively by a legislative process

and previous actions can also be validated. However, where a legislature

merely seeks to validate the acts carried out under a previous legislation

which has been struck down or rendered inoperative by a Court, by a

subsequent legislation without curing the defects in such legislation,

the subsequent legislation would also be ultra-vires. Such instances

would amount to an attempt to ‘legislatively overrule’ a Court’s

judgment by a legislative fiat, and would therefore be illegal and a

colourable legislation.

13. At this juncture, we must highlight that separation of powers, as

crystalised under the Indian Constitution, is characterised by division

of power and functions between the legislature, executive and the

judiciary, which are the three co-equal organs of the State. The doctrine

also necessarily postulates that each institution has some power to 48

regulate the functions of the others; this is in the form of the ancillary

principle of “checks and balances.” The role of the judiciary in

galvanising our constitutional machinery characterised by institutional

checks and balances, lies in recognising that while due deference must

be shown to the powers and actions of the other two branches of the

government, the power of judicial review may be exercised to restrain

unconstitutional and arbitrary exercise of power by the legislature and

executive organs. The power of judicial review is a part of the basic

feature of our Constitution which is premised on the rule of law. Unless

a judgment has been set aside by a competent court in an appropriate

proceeding, finality and binding nature of a judgment are essential

facets of the rule of law informing the power of judicial review. In that

context, we observe that while it may be open to the legislature to alter

the law retrospectively, so as to remove the basis of a judgment declaring

such law to be invalid, it is essential that the alteration is made only so

as to bring the law in line with the decision of the Court. 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. Simply setting at naught a decision of a court without

removing the defects pointed out in the said decision, would sound the

death knell for the rule of law. The rule of law would cease to have any

meaning if the legislature is at liberty to defy a judgment of a court by

simply passing a validating legislation, without removing the defects 49

forming the substratum of the judgment by use of a non-obstante clause

as a technique to do so.

14. The legislative device of abrogation by enacting retrospective

amendments to a legislation, as a means to remove the basis of a

judgment and validate the legislation set aside or declared inoperative

by a Court, must be employed only with a view to bring the law in line

with the judicial pronouncement. Abrogation is not a device to

circumvent any and all unfavourable judicial decisions. If enacted solely

with the intention to defy judicial pronouncement, such an amendment

Act may be declared to be ultra-vires and as a piece of ‘colourable

legislation.’ The device of abrogation, by way of introducing retrospective

amendments to remove the basis of a judgment, may be employed when

a legislature is under the bonafide belief that a defect that crept into the

legislation as it initially stood, may be remedied by abrogation. An act of

abrogation is permissible only in the interests of justice, effectiveness

and good governance, and not to serve the oblique agenda of defying a

court’s order, or stripping it of its binding nature.

15. The Constitution of India precludes any interference by the

legislature with the administration of justice and judicial determination

of the validity of a legislation. The power of abrogation is to be exercised

in the light of the said Constitutional mandate. The legislative device of

abrogation must be in accordance with the following principles which

are not exhaustive:

50

i. There is no legal impediment to enacting a law to validate a

legislation which has been held by a court to be invalid, provided,

such a law removes the basis of the judgment of the court, by curing

the defects of the legislation as it stood before the amendment.

ii. The validating legislation may be retrospective. It must have the

effect that the judgment pointing out the defect would not have been

passed, if the altered position as sought to be brought in by the

validating statute existed before the court at the time of rendering

its judgment.

iii. Retrospective amendment should be reasonable and not arbitrary

and must not be violative of any Constitutional limitations.

iv. Setting at naught a decision of a court without removing the defect

pointed out in the said decision is opposed to the rule of law and

the scheme of separation of powers under the Constitution of India.

v. Abrogation is not a device to circumvent an unfavourable judicial

decision. If enacted solely with the intention to defy a judicial

pronouncement, an Amendment and Validation Act of 1997 may be

declared as ultra-vires.

Validity of the Act of 1955 as amended by the Amendment and

Validation Act of 1997:

16. We shall now proceed to consider the issue as to validity of the Act

of 1955 as amended by the Amendment and Validation Act of 1997, in

light of the principles and case law discussed hereinabove. For the 51

purpose of carrying out such an exercise, it is necessary to first, identify

the defects pointed out by the High Court in its judgment dated 27

March, 1997, whereby the Act of 1955 had been held not to 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.

16.1. The defects identified by the High Court in its judgment dated 27

March, 1997 are as under:

i. The High Court observed 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. This was on

a reading of a definition of ‘motor vehicle’ and ‘owner’ as found in

the Act of 1955. Further, the definitions of ‘motor vehicle’ as well

as the definition of ‘passenger’ were restricted as a result, 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. Also, the definition of ‘transport vehicle’ was

restricted.

ii. Explanation to Section 3 (1) of the Act of 1955 introduced a legal

fiction requiring assessments to be made on the assumption that

even passengers who did not pay a fare, were being carried at the

‘normal rate’ chargeable on the concerned route. There was no 52

definition of ‘route’ for the purposes of the Act and the definition of

‘route’ under the MV Act could not be referred to as the routes on

which the appellant’s buses plied were not ‘routes’ in the sense

defined under the MV Act. Hence, ‘route’ could not be equated to

any ‘road’ so as to hold the appellant-assessee liable to pay tax

under the Act of 1955. That for charging tax, by invoking the

Explanation to Section 3(1), routes were required to be prescribed,

but since no routes had been prescribed, the Explanation could not

come to the rescue of the respondent Authorities.

iii. In the absence of any prescription as to what the ‘normal rate’

would be, the Respondent Authorities could not have levied tax on

the appellant based on artificial assumptions. There was no basis

to warrant the Authorities from taking into account the fare payable

in the adjoining areas, in calculating the ‘normal rate.’

iv. The charging provision could not be given effect to unless the terms

‘route’ and ‘normal rate’ had been expressly and unambiguously

defined.

v. The term ‘business’ was defined in a narrow manner in the Act of

1955 and meant the business of carriage of passengers and goods.

Therefore, when the definition of the term ‘business’ was read 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.

53

vi. Intention of the legislature was to make the Act of 1955 applicable

only to persons who carried on the business of transport. The

definition of ‘owner’ would fortify such finding, as ‘owner’ was

defined to be a person holding a permit under the Motor Vehicles

Act.

16.2. Having identified the basis for the finding of the Division Bench of

the High Court that the Act of 1955 was inapplicable to the appellants

herein, we shall now proceed to determine whether such basis has been

removed by curing the defects listed hereinabove, by introducing the

Amendment and Validation Act of 1997. For this purpose, a tabular

representation of the defects pointed out by the High Court and details

of the corresponding provision(s) enacted/amendment introduced to

remove the defects, is as hereinunder:

Sl. No. Defects identified in the Act Details of the corresponding of 1955 by the Division Bench provision(s) of the High Court in the enacted/amendment judgment dated 27 March, introduced by the 1997. Amendment and Validation Act to remove the defects.

1. The term ‘business’ was defined The definition of ‘business’ has in a narrow manner in the Act of been enlarged by way of the 1955 and meant the business of Amendment and Validation Act carriage of passengers and and it now includes, besides goods. the business of carrying passengers and goods by motor vehicles, any trade, commerce or manufacture, or any adventure or concern whether 54

Sl. No. Defects identified in the Act Details of the corresponding of 1955 by the Division Bench provision(s) of the High Court in the enacted/amendment judgment dated 27 March, introduced by the 1997. Amendment and Validation Act to remove the defects.

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.

2. The expression ‘fare’ included In Section 2(c) of the sums payable for a season ticket Amendment and Validation Act, in respect of the hire of contract fare or freight has been defined carriage. It did not include a to include sums fixed by the case where no fare or freight was competent authority under the charged from a passenger. Motor Vehicles Act for the hirer of motor vehicles for carriage of passengers and the transport of goods therein and includes sum payable for a season ticket and where no such fare or freight has been fixed, also includes such sum as specified in Schedule I.

3. The meaning of the word “Motor The scope of the expression Vehicle” meant a public service “Motor Vehicle” has been vehicle or public carrier, or extended to mean any transport private carrier or a trailer when vehicle, which is mechanically attached to any such vehicle; propelled and adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or 55

Sl. No. Defects identified in the Act Details of the corresponding of 1955 by the Division Bench provision(s) of the High Court in the enacted/amendment judgment dated 27 March, introduced by the 1997. Amendment and Validation Act to remove the defects.

internal source, or a trailer when attached to any such vehicle and includes a motor vehicle used for carriage of passengers or goods or both for hire or reward in contravention of the provisions of the Motor Vehicles Act.

4. The meaning of ‘owner’ was The scope of term ‘owner’ has restricted to those persons been enlarged to mean the holding a permit under the owner of the motor vehicle used Motor Vehicles Act. for carrying passengers or transporting goods in or through the territory of the State of Himachal Pradesh.

5. As per the Explanation to i. Explanation to Section Section 3(1) of the Act of 1955, 3(1) has been deleted and where no fare or freight had Section 3 (1A) has been been charged, tax was to be inserted, prescribing two levied on the ‘normal rate’ alternate methods to notionally chargeable on a given ‘route.’ determine fares or freights, However, there was lack of when the same has not been clarity as to the meaning of the charged, i.e. by taking into terms ‘normal rate’ and ‘route’, account: (a) fares or freights as appearing in the charging fixed by the competent provision, i.e. Section 3(1) and authority, under the MV Act, or the Explanation thereto, in the (b) fares and freights specified absence of definitions in the Act in Schedule I to the Act for of 1955. different classes of roads and 56

Sl. No. Defects identified in the Act Details of the corresponding of 1955 by the Division Bench provision(s) of the High Court in the enacted/amendment judgment dated 27 March, introduced by the 1997. Amendment and Validation Act to remove the defects.

motor vehicles. The higher of the two fares is to be adopted in every case.

ii. Schedule I to the Amendment and Validation Act prescribes the fare and freight for different categories of motor vehicles, for different roads.

iii. Section (2gc) defining the term ‘road’ has been introduced.

16.3. It is evident from the table presented hereinabove that the defects

identified by the Division Bench of the High Court in the judgment dated

27 March, 1997, forming the basis for its decision to the effect that the

provisions of the Act would not be applicable to the assessees-

appellants herein, have been cured by the Amendment and Validation

Act of 1997. The manner in which the defects have been cured, may be

explained as follows:

i. The High Court had observed that for charging tax, by invoking the

Explanation to Section 3(1) of the Act of 1955, the ‘normal rate’ and

‘routes’ were required to be prescribed, but since no normal rate or

routes had been prescribed, the Explanation could not come to the

rescue of the respondent Authorities. This defect has been cured 57

by introducing Section 3(1A) by way of the Amendment and

Validation Act of 1997 and omitting the Explanation to Section 3(1).

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, 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. Further, Schedule I introduced by way of the

Amendment and Validation Act of 1997 stipulates the freights and

fares which would be applicable for different classes of roads and

motor vehicles. Section (2gc) defining the term ‘road’ has also been

introduced. Therefore, the vacuum identified by the High Court,

which was making the charging provision inoperative qua the

appellants, has been removed.

ii. Another reason given by the Division Bench in the judgment dated

27 March, 1997 for holding that employees of the appellants and

their children were not covered by the Explanation (now deleted by

way of the Amendment and Validation Act of 1997) was in relation

to the definition of ‘business’. ‘The term ‘business’ was defined in a

narrow manner in the Act of 1955 and meant the business of

carriage of passengers and goods. Therefore, when the definitions

of the terms ‘motor vehicle’ and ‘business’ were read into the 58

charging provision, the inference would be that those who were not

in the business of carrying passengers and goods, would not be

covered by the charging provision. This loophole has also been

plugged by way of the Amendment and Validation Act of 1997,

inasmuch as the definition of ‘business’ has been 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.

iii. The High Court had further held that the intention of the State

legislature was to make the Act of 1955 applicable only to persons

who carried on the business of transport. That the definition of

‘owner’ would fortify such finding, as ‘owner’ was defined to be a

person holding a permit under the Motor Vehicles Act. However,

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.

Therefore, this defect has also been cured.

59

16.4. In light of the aforesaid discussion, we hold 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 Division

Bench of the High Court dated 27 March, 1997.

17. Sri Yashraj Singh Deora, learned counsel for the appellants in

Civil Appeal Nos. 4738-4743 of 2009 and Civil Appeal No. 6931 of 2009

submitted that in order to fall within the meaning of the term ‘business’

as defined under Section 2 (aa) of the Amendment and Validation Act of

1997, the trade, commerce, or manufacture of the assessee, or, the

transactions connected therewith or incidental thereto must have some

connection with the business of carrying passengers and goods by road.

The main activity of the assessees would not amount to carrying on

business, as the same does not relate to the activity of carrying

passengers and goods by road. In a case where the main activity does

not amount to ‘business’, then the connected, incidental or ancillary

activities would also not amount to ‘business’ unless an independent

intention to conduct business in these connected, incidental or ancillary

activities is established by the revenue. In the present case, there is no

material to establish that the ancillary activity of providing transport

facilities to the employees and the children of the assessees-appellants

herein is conducted with an independent intention to conduct business

through such activity. Therefore, in the present case, neither the main

activity of the appellants, nor the ancillary activity of providing 60

transport facilities to their employees and their children, would amount

to ‘business’ as defined under the Amendment and Validation Act of

1997.

18. We do not find the said argument is acceptable. As observed

hereinabove, the amended definition of the term ‘business’ includes

within the scope of the term, not only the business of carrying

passengers and goods, but also any other trade, commerce,

manufacture or concern, whether or not the same is carried on with a

motive to earn profit. Further activities incidental and ancillary to such

trade, commerce, manufacture or concern are also included within the

ambit of ‘business’. As per the amended definition, it is not necessary

for either the primary business, trade or manufacture, or the ancillary

activity to be related to the business of carrying passengers and goods.

That is the very purpose of the amendment. The definition of ‘business’

as amended has the widest amplitude and includes any trade,

commerce, manufacture, adventure or concern.

19. Learned counsel for the appellants have contended that

definitions of ‘passenger’, ‘business’, ‘fare’ and ‘road’ are artificial and

unnatural, as also contrary to the purpose and object of the Act and

hence, ultra-vires. However, no reasons have been cited to demonstrate

how the said definitions are artificial. Therefore, we find no merit in the

said contention.

61

20. It is also submitted, with respect to the term ‘passenger’ that

fundamentally, ‘passenger’ means a person who travels by paying a fare

to the owner or operator of the vehicle, vide M/s Tata Engineering and

Locomotive Co. (supra). Therefore, a non-fare paying employee of the

operator, or a school going child of such employee, is not a passenger.

The said submission would also not come to the aid of the appellants.

The meaning of the term ‘passenger’ would have to be gathered in every

case, having regard to the definition of the said term in the relevant

statute. The decision of this Court in M/s Tata Engineering and

Locomotive Co. (supra) would be of no assistance to the appellants in

this regard, as the said judgment turns on its own facts. In the said

case, this Court while referring to the charging provision contained in

the Bombay Motor Vehicles (Taxation of Passengers) Act, held that non-

fare paying passengers would not fall within the purview of the said Act.

The said decision would not be relevant in the facts of the present case,

as an interpretation of the charging provision in the Act of 1955 as

amended, would not give rise to a conclusion that a non-fare paying

employee of the operator, or a school going child of such employee, is

not a passenger. The term ‘passenger’, in the present case, has been

defined under Section 2(g) of the Act in a broad sense to mean any

person travelling in a motor vehicle, but shall not include the driver,

conductor, or any employee of the owner of the vehicle travelling in the

bonafide discharge of his duties in connection with the vehicle. The only

three categories of persons who are excluded from the definition of 62

‘passenger’ are: (a) driver of the motor vehicle; (b) conductor; and (c) any

employee of the owner of the vehicle travelling in the bonafide discharge

of his duties in connection with the vehicle. The non-fare paying

employees of the appellants and their children, would not fall under any

of the said exceptions. Although, some of them are employees of the

appellants, they are not travelling in the motor vehicle in discharge of

duties “in connection with the vehicle”, their duties may be in

connection with various affairs of the appellants, but not “in connection

with the vehicle” of the appellants. Hence, ‘passengers’ in this case

would include non-fare paying employees of the appellant, or school

going children of such employees.

21. We shall now proceed to consider and determine the next aspect

argued by learned counsel, i.e., with respect to 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. This argument

appears to be a formal one as the High Court did not have an occasion

to consider the aspect of legislative competence vis-à-vis the impugned

Act.

22. 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 63

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.” Simply for the

reason that 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. If the persons carried

happen to be employees of the owners of the buses, such employees

should pay the tax. 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 on the basis of the amended provision. Whether to collect the

tax payable from the passengers (the employees and their children) or

discharge the liability itself is the prerogative of the appellants. The

incidence of the tax continues to be on the passengers who travel in the

buses or other vehicles of the appellants irrespective of whether they

travel gratis or are paying any fare. The impact or burden of the tax

however, has been assumed by the appellants-employers owing to the

fact that they wish to provide free transportation to the employees and

their children as a welfare measure. Therefore, we do not find any

substance in the contention of the appellants that the tax was sought

to be imposed on ‘motor vehicles’ and therefore, the same is outside the 64

legislative competence of the State Legislature for Himachal Pradesh. It

is clarified that the tax is on passengers and goods and the same has to

be paid by the owners of the motor vehicles whose responsibility it is to

pay. Therefore, there is no substance in the argument concerning

legislative competence of the State Legislature in enacting the Act of

1955 or the Amendment and Validation Act of 1997.

Summary of conclusions:

23. In the result we arrive at the following conclusions:

i. The Act of 1955, as amended by the Amendment and Validation Act

of 1997, is valid. The said Act seeks to impose tax on passengers

and goods carried by road in motor vehicles and the Himachal

Pradesh Legislative Assembly possessed the legislative competence

under Article 246, read with Entry 56 of List II of the Seventh

Schedule of the Constitution of India, to enact the Act of 1955 and

the Amendment and Validation Act of 1997.

ii. By enacting the Amendment and Validation Act of 1997, the

Himachal Pradesh State Legislature has validly removed the basis

of the judgment of the Division Bench of the High Court dated 27

March, 1997, inter-alia, by amending the definition of the term

‘business’; defining the terms ‘fare’, ‘freight’ and ‘road’; deleting the

Explanation to Section 3(1); and inserting Section 3 (1A) which

brought non-fare paying passengers at par with fare-paying

passengers for the purpose of levying tax under the Act. Thus, the 65

Amendment and Validation Act of 1997 is a valid piece of

Legislation.

iii. 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.

24. The next question is with regard to the liability of the appellants

to pay the tax under the Act of 1955 as amended by the Amendment

and Validation Act of 1997. The Act of 1955 was assailed in

W.P.(C)No.1733 of 1995 by the appellants herein. The High Court of

Himachal Pradesh by judgment dated 27.03.1997 struck down certain

provisions of the Act and held that the Act did not apply to the

appellants herein. The Special Leave Petition filed against the said

judgment was also dismissed by this Court on 28th July, 1997.

Thereafter, the Amendment and Validation Act of 1997 was enacted by

the legislature of the State of Himachal Pradesh. The amendments were

unsuccessfully challenged by the appellants herein by filing writ

petitions before the High Court. The impugned orders of the High Court

of Himachal Pradesh were passed in December 2008 and July, 2009.

The Special Leave Petitions filed before this Court were converted to

Civil Appeals as leave was granted in them. This Court has now upheld

the Amendments made to the Act of 1955 by virtue of the Amendment

and Validation Act of 1997 and affirmed the judgment of the High Court

of Himachal Pradesh. Therefore, the question is from when the 66

appellants herein would have to pay the tax as prior to 1997 they were

successful in assailing the Act of 1955 and it was only thereafter that

the Amendment and Validation Act of 1997 was passed by the

legislature of the State of Himachal Pradesh. That was also challenged

by the appellants herein and the controversy has now finally been set

at rest. Therefore, the question is, whether, the appellants herein 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?

25. We have considered this question in the light of the fact that the

appellants are public sector organisations (and not private operators)

who are engaged in transporting their employees and their children to

the work sites and to the school and back gratis as a facility being

provided to them having regard to the location of the work sites in

remote hilly terrain and to ensure the safety of the children of the

employees of the appellant organisations.

26. As there has been a long passage of time since the enactment of

the Amendment and Validation Act of 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, being at large, and now set at rest, we think that, in exercise

of our 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. One of the 67

reasons for directing so is by bearing in mind that the affected

appellants herein 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 for the reasons narrated above. That apart, we have

now held that by enacting the Amendment and Validation Act of 1997,

the lacunae pointed out by the High Court vide the judgment and order

dated 27 March, 1997 have been removed. Therefore, saddling the

appellants with any anterior demand would not be just and proper. We

order accordingly. Therefore, while moulding the relief to be given to the

appellants herein, only with regard to the period from which the liability

to pay tax under the Act of 1955 as amended by the Amendment and

Validation Act of 1997, the appeals stand dismissed.

27. In the result, these appeals are dismissed and the final Orders of

the Division Bench of the High Court of Himachal Pradesh, dated 11

December, 2008 and 06 May, 2009 whereby the vires of the Act of 1955

as amended from time to time, particularly by the Amendment and

Validation Act of 1997 has been upheld and the writ petitions filed by

the appellants herein, i.e., Civil Writ Petition Nos. 725 of 1998, 422 of

1998, 401 of 2001, 464-467 of 2001 and 79 of 2007, have been 68

dismissed, are hereby affirmed, subject to what has been clarified in

Paragraph 26 above.

Parties to bear their respective costs.

Pending applications, if any, stand disposed of in the aforesaid

terms.

……………..………………….J. [B.V. NAGARATHNA]

……………..………………….J. [UJJAL BHUYAN]

NEW DELHI;

06 SEPTEMBER, 2023.