Everything in life is somewhere else, and you get there in a car

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D. Murali

THIS is the story of an unhappy owner of an Opel Astra not owing to any automobile glitches, but because the Karnataka authorities imposed on him a `life-time tax' on `value basis', under the Motor Vehicle Taxation Act of the State. He challenged at the High Court the Act's validity, arguing that the levy "on the value of the car exceeding 1500 CC was arbitrary, discriminatory and hit by Article 14 of the Constitution."

A Single Judge of the Karnataka High Court held that vehicles costing Rs 6 lakh and above constituted a different class and so, `levy cannot be said to be discriminatory and violative of Article 14 of the Constitution.' On appeal, a Division Bench upheld the decision of the learned Single Judge. Aggrieved, the Opel owner drove down to the apex court.

Kiran Suri, arguing for the appellant, said that it was `unreasonable' to classify vehicles on the basis of value, with the Rs 6 lakh cost as the cut-off. Motor vehicle taxes are compensatory in nature, she said, and so, such taxes "can only be levied on the basis of the capacity of the engine, the weight of the vehicle and the floor area" because "such parameters have nexus with the user and maintenance of the road." The extra parameter `value' robbed the levy of its `regulatory/compensatory' nature, because this new parameter had `no nexus with the wear and tear of the public road'.

Justices S. N. Variava, AR. Lakshmanan and S. H. Kapadia heard the case and said, "We do not find any merit in the above arguments."

Their reasoning was that the classification indicated "a measure or a rate of tax applied differently on different vehicles depending upon various circumstances." Thus, "so long as there is competence to levy and collect the tax under Entry 57 List-II of the Seventh Schedule to the Constitution, the levy cannot be struck down only on the ground that the incidence of the tax falls differently on different categories of the vehicles."

The court also said that the burden has to be distributed on different classes of vehicles or on different persons who owned the vehicles. "How equitable such tax could fall on different persons is not for the Court to decide," reads the judgment. Before dismissing the appeal, the judges drew reference to a similar case, The State of Tamil Nadu vs M. Krishnappan, decided on the same day, that is, March 18. As E.B. White said, "Everything in life is somewhere else, and you get there in a car."

Sumo in the Supreme Court

Krishnappan purchased a Tata Sumo in September 1998, paying Rs 5.25 lakh. The car's unladen weight was 1,700 kg and the `one time tax' he suffered was Rs 20,540. He felt that the amendment to the Tamil Nadu Motor Vehicles Taxation Act, 1974, created a dichotomy between vehicles registered prior to July 1, 1998 (old vehicles) and the vehicles registered thereafter (new vehicles). "In respect of the old vehicles, an option was given either to pay one time tax or an annual tax, but in the case of new vehicles no such option was provided for and consequently, it became compulsory to pay one time tax." He challenged the amendment and the High Court decided in his favour, but the State took up the matter to the apex court.

The main thrust of Krishnappan was that the levy of motor vehicle tax was compensatory in nature for the use of public road, and that the wear and tear of such roads maintained by the State had relevance to the unladen weight of the vehicles and not to the value of the vehicle. At the apex court, arguing for the State of Tamil Nadu, A.K. Ganguly said that imposition of tax depending on the status of the owner or the nature of the vehicle does not alter the nature of the levy. For the appellant, it was M. G. Ramachandran who submitted that the classification between the old and the new vehicles made the levy arbitrary, discriminatory and unreasonable.

Justices S. N. Variava, AR. Lakshmanan and S. H. Kapadia heard the case and observed that India is a cost-push economy. "It has high rate of inflation. The costs of maintenance as well as the costs of material used in the maintenance of the roads increases by the day. This naturally costs the State, which has to find funds for making new roads, and for maintenance of those that are in existence."

The judges also pointed out convenience of life tax, both for the administration and the taxpayers. Another benefit to users is that they do not have to pay taxes at the increased rates from time to time over the economic life of vehicle as contemplated by Section 3(2) of the Act, noted the court. Pointing out that weight alone may not provide a sufficient parameter/ basis for imposition of `life time tax', the judgment provides an example: "The weight of the Honda CRV car is 1500 kg as against the weight of Tata Indigo GLX which weighs 1490 kg and yet the cost of Honda CRV is Rs 15,24,396 whereas the price of Tata Indigo is Rs 5,08,651."

Applying the test laid down in the Bombay Tyre International Ltd case, the court said that the index of `weight-cum-value' maintains the nexus with the essential character of the levy. "When an economic activity is to be valued, it is open to the lawmaker to take into account various factors including the paying capacity of the user, the value of the vehicle, the economic life of the vehicle and so on," said the court.

At the end, it was a smooth drive for the tax.


Wife: "Will you check the bill, please?"

Husband: "No, that'll tax my brains!"

Wife: "You're lying!"

(This article was published in the Business Line print edition dated April 16, 2005)
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