1986 JTR(SC) 290
1987 AIR(SC) 56 ; 1987 AllLJ 101 ; 1986 2 CurCC(SC) 897 ; 1986 JT 327 ; 1986 1 JT 327 ; 1987 5 LCD 89 ; 1986 2 Scale 379 ; 1986 4 SCC 174 ; 1986 2 UJ 603 ; 1987 1 UPLBEC 211 ; 1986 KHC 663
A.P. SEN AND B.C. RAY, JJ.
Civil Appeals Nos. 1969-70 of 1972, D/-2-9-1986.
Kamaljeet Singh and others, Appellants
Versus
Municipal Board, Pilkhwa and others, Respondents.
Act
Referred
:CONSTITUTION OF INDIA : Art.301, Art.265
UTTAR PRADESH MUNICIPALITIES ACT : S.128(1)(vii)
(A) The impugned toll tax imposed by the Municipal Board, Pilkhwa, is evaluated under Article 301 of the Constitution in conjunction with Section 128(1)(vii) of the U.P. Municipalities Act, 1916, while the constitutional validity is assessed under Article 265. The State Government has subsequently withdrawn the transit tax, which further impacts the legality of the levy. The reliance on the Automobile Transport (Rajasthan) Ltd. case is distinguished on the basis that the tax lacks a compensatory character for trading facilities.
(B) Taxes imposed by municipal authorities must be compensatory in nature and connected to the provision of specific amenities or facilities to the taxpayers. A tax on tolls cannot be levied unless there is a corresponding benefit or service provided to the taxpayers, and routine statutory duties of maintenance cannot be overridden to justify such taxation. The freedom of trade and commerce under Article 301 is not to be obstructed by levies that do not facilitate such trade.
Facts of the case:
The Municipal Board, Pilkhwa, imposed a toll tax on vehicles, conveyances, animals, and laden coolies entering the municipal limits under Section 128(1)(vii) of the U.P. Municipalities Act, 1916. The taxed entities were primarily stage carriages using National Highway No. 24, but the township of Pilkhwa is located off the highway, and the board provided no compensatory facilities or amenities to the taxpayers. The highway and approach roads are maintained by the government and public works department, and the board's expenditure on maintenance is recoverable through taxation. The High Court upheld the tax, but the Supreme Court allowed the appeals after the State Government withdrew the transit tax.
Findings of Court:
The Supreme Court held that the toll tax was ultra vires because it was not a compensatory tax for the use of trading facilities. The court observed that the municipal board failed to provide any amenities or benefits to the operators, and the maintenance of roads and bridges is a statutory duty that cannot be used to justify an improper tax levy. The withdrawal of the transit tax by the State Government further undermined the validity of the impugned notification.
Issues:
Whether a municipal board can impose a toll tax on vehicles and conveyances using a national highway that passes partially through its limits, where no compensatory facilities are provided, and whether such a tax violates the freedom of trade and commerce under Article 301 of the Constitution.
Ratio Decidendi:
A toll tax is only valid if it is compensatory and linked to specific amenities or services provided to the taxpayers. Where a municipal board provides no such facilities and the roads are maintained by the government as a statutory duty, the tax is ultra vires Article 301 and Section 128(1)(vii) of the U.P. Municipalities Act, 1916.
Result:
The appeal is allowed, the impugned notification dated May 1, 1970, is struck down as ultra vires, and the High Court's judgment and order are set aside with costs.
(A) The impugned toll tax imposed by the Municipal Board, Pilkhwa, is evaluated under Article 301 of the Constitution in conjunction with Section 128(1)(vii) of the U.P. Municipalities Act, 1916, while the constitutional validity is assessed under Article 265. The State Government has subsequently withdrawn the transit tax, which further impacts the legality of the levy. The reliance on the Automobile Transport (Rajasthan) Ltd. case is distinguished on the basis that the tax lacks a compensatory character for trading facilities.
(B) Taxes imposed by municipal authorities must be compensatory in nature and connected to the provision of specific amenities or facilities to the taxpayers. A tax on tolls cannot be levied unless there is a corresponding benefit or service provided to the taxpayers, and routine statutory duties of maintenance cannot be overridden to justify such taxation. The freedom of trade and commerce under Article 301 is not to be obstructed by levies that do not facilitate such trade.
Facts of the case:
The Municipal Board, Pilkhwa, imposed a toll tax on vehicles, conveyances, animals, and laden coolies entering the municipal limits under Section 128(1)(vii) of the U.P. Municipalities Act, 1916. The taxed entities were primarily stage carriages using National Highway No. 24, but the township of Pilkhwa is located off the highway, and the board provided no compensatory facilities or amenities to the taxpayers. The highway and approach roads are maintained by the government and public works department, and the board's expenditure on maintenance is recoverable through taxation. The High Court upheld the tax, but the Supreme Court allowed the appeals after the State Government withdrew the transit tax.
Findings of Court:
The Supreme Court held that the toll tax was ultra vires because it was not a compensatory tax for the use of trading facilities. The court observed that the municipal board failed to provide any amenities or benefits to the operators, and the maintenance of roads and bridges is a statutory duty that cannot be used to justify an improper tax levy. The withdrawal of the transit tax by the State Government further undermined the validity of the impugned notification.
Issues:
Whether a municipal board can impose a toll tax on vehicles and conveyances using a national highway that passes partially through its limits, where no compensatory facilities are provided, and whether such a tax violates the freedom of trade and commerce under Article 301 of the Constitution.
Ratio Decidendi:
A toll tax is only valid if it is compensatory and linked to specific amenities or services provided to the taxpayers. Where a municipal board provides no such facilities and the roads are maintained by the government as a statutory duty, the tax is ultra vires Article 301 and Section 128(1)(vii) of the U.P. Municipalities Act, 1916.
Result:
The appeal is allowed, the impugned notification dated May 1, 1970, is struck down as ultra vires, and the High Court's judgment and order are set aside with costs.
N.B.SINHA, N.S.DAS BEHL, Prithvi Raj, Ratna Goyal, S.K.Bagga, SHOBHA DIXIT, VISHALJIT, YOGESHAR PRASAD
Judgment
JUDGMENT :- The short question that arises in these appeals by special leave is as to the validity of the imposition of a toll tax by the Municipal Board, Pilkhwa on vehicles and other conveyances, animals and laden coolies entering the municipal limits under S. 128(1)(vii) of the U.P. Municipalities Act, 1916. The High Court has upheld the levy of the toll tax relying upon the decision of this Court in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan (1963) 1 SCR 491 : (AIR 1962 SC 1406) as being compensatory in nature. In Automobile Transports case, the majority held that regulatory measures imposing compensatory taxes for the use of trading facilities do not hamper trade, commerce or intercourse, but rather facilitate them and therefore are not hit by the freedom of trade and commerce guaranteed by Art. 301 of the Constitution. The toll tax in question however cannot be treated to be a compensatory tax for the use of trading facilities. The Municipal Board provides no facilities whatever to the owners of vehicles like stage carriages making use of National Highway No. 24. The township of Pilkhwa is off the National Highway and is quite at some distance. It is connected by a road and a part of the National Highway has been included within the municipal limits. Merely because stage carriage operators like the appellant ply their stage carriages on permits issued on the inter-statal route Delhi-Garhmukteshwar which falls on the National Highway and stop their buses for the facility of passengers going to and coming from Pilkhwa, or that the Municipal Board has set up two electric poles at the toll barriers for facility of collection of the toll tax, does not justify the imposition of a toll tax. Usually, the consideration for a toll is some amenity, service, benefit or advantage which the person entitled to the toll undertakes to provide for the public in general, or the persons liable to pay the toll. The National Highway is being maintained by the Government and the approach road built by the Public Works Department. There is a nallah constructed by the Municipal Board for flow of the sewage water from the town of Pilkhwa, but that does not entitle the Board to levy a toll tax on stage carriage operators like the appellants as a compensatory tax. Even assuming that the Municipal Board has to incur expenditure on maintenance of the connecting road and the nallah, but they are facilities provided for the residents of the town for which it recovers various taxes. Furthermore, maintenance of roads, bridges, etc., are statutory duties of the Municipal Board under S. 7 of the Act. The levy of the toll tax by the Municipal Board must therefore be struck down as ultra vires.
2. We are informed by learned counsel for the respondents that the State Government by notification dated April 4, 1979 has withdrawn the transit tax on vehicles and other conveyances, animals and laden coolies who are merely passing through the municipal limits. Our attention has been drawn to a letter dated April 25, 1979 which shows that the State Government has taken a decision that all passenger vehicles like buses, cars, taxis and tempos, etc., shall not be made to pay the transit tax.
3. The result therefore is that the appeals must succeed and are allowed with costs. The judgment and order of the High Court are set aside and the impugned notification dated May 1, 1970 levying the toll tax is struck down as ultra vires.
Appeal allowed.