Supreme Court upholds Himachal Pradesh law levying tax on transport vehicle owners carrying passengers for free

The Supreme Court on Wednesday upheld a 1997 Himachal Pradesh legislation that imposed tax on transport vehicles carrying passengers free of cost, including vehicles by employers for transporting their employees and families [NHPC vs State of Himachal Pradesh Secretary and ors]..A bench of Justices BV Nagarathna and Ujjal Bhuyan stated that the Himachal Pradesh Passengers and Goods (Amendment and Validation) Act, 1997, which was enacted to undo the effect of a High Court order from that year, was valid.."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 assesses-appellants herein, have been cured by the Amendment and Validation Act of 1997," the top court observed. The Supreme Court passed the judgment while dismissing appeals filed by thermal power companies against Himachal Pradesh High Court orders from 2008 and 2009 that had upheld the 1997 Act."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," the Court concluded..By way of background, an earlier law, the Himachal Pradesh Passengers and Goods Taxation Act of 1955 levied tax on passengers and goods carried by road in certain motor vehicles in the State of Himachal Pradesh..This 1955 law was challenged before the Himachal Pradesh High Court when the State sought to recover taxes from certain thermal power companies (appellants before the Supreme Court).The appellants, as a welfare measure, had ferried its employees and kids to its offices/work sites and schools respectively free of cost. The transport facilities using company-owned buses were for such exclusive use and not open to the general public. The Assessing Authority had asked the companies to pay passenger tax under the 1955 Act for the years 1984-1985 to 1986-1987 and 1987-1988 to 1990-1991. .The High Court ruled in favour of these companies since the 1955 law was only meant to apply to certain motor vehicles which did not expressly include the transport vehicles operated by these companies. Rather, the High Court found that the 1955 Act expressly stated that the levy of tax would only be in respect of vehicle owners in the business of carriage of passengers and goods..The State government later introduced the 1997 Act to overcome the effect of the High Court judgment. By the 1997 Act, the State expanded the range of vehicles on which tax could be levied where passengers were being carried free of cost. .The Supreme Court found that various definitions including that of "passenger", "business", "motor vehicle" etc. were amended in the 1997 Act.Effectively, the levy of tax would now cover vehicles in the business of carrying passengers and goods by motor vehicles as well as where the business related to "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", the Court found. .The Court further opined that the 1997 legislation had validly overcome the effect of the High Court's earlier judgment. Therefore, the top court upheld the 1997 Act. Explaining the present position, the Court added that the tax can be levied by accounting for all passengers of transport vehicles travelling for free, except the driver, conductor or employee who discharges duties in connection with the vehicle. ."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 ... Hence, ‘passengers’ in this case would include non-fare paying employees of the appellant, or school going children of such employees", the bench explained..The apex court also rejected the argument that the passenger tax was effectively a motor vehicles tax which could not be levied by the State."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," the Court said. .The Supreme Court, however, used its plenary powers under Article 142 of the Constitution to make the tax liability effective on the appellants only from the current financial year. The Court took such a lenient view bearing in mind that the appellants were not private operators but public sector units engaged in hydro-power and irrigation projects which had extended transport facilities to its employees and children. .Advocate SB Upadhyay appeared for the NHPC (appellant). Advocate Yashraj Singh Deora appeared for the Bhakra Beas Management Board (appellant). Advocate General Anup Kumar Rattan represented the State of Himachal Pradesh..[Read Judgment]