The State of Himachal Pradesh and Others Vs GOEL Bus Service Kullu Etc etc(Supreme Court)
Date-13th January 2023
Sub-Whether special road tax charged by State of Himachal Pradesh for motor vehicles violating the rules is in the nature of penalty and thus against the competence of the State under Constitution of India?

In this interesting case, the larger three judges bench of the Supreme Court was deciding the competency of the State of HP to levy special road tax under Entry No 56 and 57 of the List II of the Article 246 of Constitution of India when it was argued that the said tax was in the nature of penalty and was thus against the legislative competence of the State since there was already a law on the subject being Motor Vehicles Act which was passed by Central Government in terms of concurrent list.
The court made interesting discussion about when an imposition is in the nature of penalty and/or when it can be said to be a tax. It has held that tax charged for non-fulfilment of any obligation would also be compensatory and regulatory in nature. Distinction was carved out between a penalty imposed for breach of statutory duty and penalty imposed being a subject matter of a complaint that would require adjudication. The view expressed consistently is that it would be compensatory or regulatory where it is imposed for breach of a statutory duty. Moreover dealing with challenge to the legislation for being ultra vires, the court held that It is by now well settled that any tax legislation may not be easily interfered with. The Courts must show judicial restraint to interfere with tax legislation unless it is shown and proved that such taxing statute is manifestly unjust or glaringly unconstitutional. Taxing statutes cannot be placed or tested or viewed on the same principles as laws affecting civil rights such as freedom of speech, religion, etc. The test of taxing statutes would be viewed on more stringent tests and the law makers should be given greater latitude. It would be useful to refer to a couple of judgments on the above proposition.

Thus the special road tax was held to be tax and not penalty and the judgement of high court was reversed.

This judgement will be very helpful in interpretation of an impost as to whether it is in the nature of tax or penalty and will be useful across taxation laws.

Ramesh Patodia
14-01-2023