Holding

The amended Bombay Motor Vehicles Tax Act, as modified by the Maharashtra Acts of 1987 and 1988, constitutes a regulatory and compensatory tax within State competence and does not violate Article 14.

Summary

The State of Maharashtra amended the Bombay Motor Vehicles Tax Act, 1958 to levy a one‑time tax on motorcycles and tricycles, charging fifteen times the annual rate and a higher rate for company‑owned vehicles, with limited refund provisions. The Bombay High Court struck down the amendment as beyond the State's legislative competence under Entry 57 of List II and not a compensatory or regulatory tax. The State appealed, and the legislature subsequently amended the Act again (Maharashtra Acts XXXIII of 1987 and IX of 1988) to modify refund provisions. The Supreme Court held that, after these amendments, the tax qualifies as a regulatory and compensatory levy within the State’s competence and does not violate Article 14 despite differential rates. Consequently, the challenge to the amended provisions failed.

Issues considered

Whether the levy of a one‑time tax on motorcycles and tricycles is within the legislative competence of the State under Entry 57 of List II of the Seventh Schedule.
Whether the tax is of a compensatory or regulatory nature or merely a revenue tax.
Whether the higher rate imposed on company‑owned vehicles infringes the equality clause under Article 14 of the Constitution.
Whether the absence of a refund for the 14th and 15th years renders the tax invalid.

Legislation cited

Bombay Motor Vehicles Tax Act, 1958s. 3, s. 6, s. 9
Constitution of Indias. Article 14, s. Article 301, s. Article 304, s. Entry 57 of List II
Maharashtra Act IX of 1988s. refund rate amendment
Maharashtra Act XIV of 1987s. 3(1C), s. 6(6)
Maharashtra Act XXXIII of 1987s. 3(4) (deleted), s. 9(7)

Subjects

Motor vehicles taxOne‑time taxRegulatory taxCompensatory taxLegislative competenceEntry 57Article 14DiscriminationRefund provisionsMaharashtraBombay Motor Vehicles Tax Act

Judgment

A STATE OF MAHARASHTRA & ORS. ETC.
v.
MADHUKAR BALKRISHNA BADIYA & ORS. ETC. •

AUGUST 17, 1988

[SABYASACHI MUKHARJI AND L.M. SHARMA, JJ.]

Bombay Motor Vehicles Tax Act, 1958 (as amended by
Maharashtra Act XIV of 1987, Maharashtra Act XXXIII of 1987 and
Mahqrashtra Act IX of 1988)-Challenging validity of amended provi-
sions of-Whether levy of one-time tax on motor cycles or tricycles in
C the State was beyond the legislative competence of State Legislature and
beyond Entry 57 of List II of Seventh Schedule.

These Civil appeals and special leave petitions centred round one
point, namely, the validity of the Bombay Motor Vehicles Tax Act, 1958
as amended by Section 3 of the Maharashtra Act XIV of 1987 and
'll> Section 6 of the said Act as amended by Maharashtra Act XXXIII of ·.
1987 and the Maharashtra Act IX of 1988.

Section 3 of the said Act XIV of 1987 added sub-section (IC) to
provide for the levy of one-time tax at 15 times the annual rate on all
motor cycl~S in ·the State. The safd provlSions further provided that in
1£ the case of motor cycles owned by a company or other commercial
organisation, the one-time tax was to be levied at thrice the rate. •
Section 6 of the said Act XIV of 1987 added sub-section (6) to
section 9, enabling a registered owner of a motor cycle or ·tricycle to
obt.ain refund of "one-iime tax" under certain conditions.

Petitions were filed in the High Court by the respondents in the
appeals and petitioners in the special leave petitions, challenging the
amended provisions of the principal Act. The High Court held that (i)
the levy of the one-time tax was beyond the legislative competence of the
State Legislature and also beyond Entry 57 of List II of the Seventh
G Schedule, and (ii) the provision for imposition of levy at thrice the rates
on the vehicles owned by a firm or company, were neither discrimina·
tory nor arbitrary. The High Court struck down Act XIV of 1987. The
appeals by leave were filed by the State and the special leave petitions
were filed by the petitioners in this Court against the decision of the
High Court. In the meanwhile, the Maharashtra Legislature enacted f
H Maharashtra Act XXXIII of 1987, which deleted Section 3(4) of the
482
STATE OF MAHARASHTRA v. M.B. BADIYA 483

principal Act as '.91'ended by the Maharashtra Act XIV of 1987,
A
whereby the exi§_tiilg provisions of refund for temporary non-user were
made inapplicable in cases of motor cycles and tricycles, restricting the
right of refund to Section 9(6) in the contingencies mentioned.therein. It
also introduced sub-section (7) to section 9 conferring the right of re-
fund in respect of motor cycles and tricycles in accordance with the
rates specified in the Fifth Schedule. But the said schedule did not B
prescribe a sepa~ate rate of refund for the company-owned vehicles.
Therefore, the refund in respect of the company-owned vehicles was the
same as that payable to individual-owned vehicles even though the tax
paid on former class of vehicles was three times. Soon thereafter, the
Maharashtra Legislature enacted Act IX of 1988, whereby the only
relevant change for the present purpose was that the rate of refund was
enhanced to three times-in respect of the company-owned vehicles. c
/

Before this Court, the appellant-State submitted that the amend-
ments enacted by the Maharashtra Acts XXXIII of 1987 and IX of 1988
had brought the principal Act as amended by the Maharashtra Act XIV
of 1987 within the constitntional requirements of making 'one-time tax' D
a regulatory and compensatciry tax and that it .was not necessary to
decide if the Act as it stood when it was challenged before the High
Court, ,.,,s beyond the legislative competence of the State Legislature.

The respondents in the appeals and the petition"ers in the special
leave peUtions urged that as even after the amendment no refund was E
available in respect of a vehicle which had been registered for more than
13 years, the effect of that was that no refund at all was available in
respect. of the tax paid for a vehicle for the 14th and 15th years. The
impugned levy of tax ceased to be compensatory or regulatory and was
void under Entry 57 of List II and was violative of Article 301 of the
Constitution. F

Disposing of the appeals and dismissing the special leave petitions.
the Court,

HELD: The tax imposed on the motor vehicles or a class of motor
~ycles would not be valid unless it is compensatory or regulatory or does G
not have any nexus with the vehicles using the roads. In such a case, the
levy would be violative of Art. 301 of the Constitution and would not be
protected by Art. 304 of the Constitution. [487D I

The fact that the Act, as at present, did not provide for refund in
the 14th and 15th years, did not make the law outside the competence of H

)

'
484 SUPREME COURT REPORTS [1988] Supp. 2 S.C.R.

A the State Legislature. The concept of "regulatory and compensatory"
tax does not imply mathematical precision of quid pro quo. [489E]

After the amendment, the Act came within the constitutional
requirements of making the one-time tax a regulatory and compensa-
tory tax. It was true that the Act has not provided for refund in the 14th
B and 15th years but that does not make the law outside the competence of
the State Legislature. It is not mathematical precision that is necessary
nor can it be. There is in the provisions as amended, a discernible and
an identifiable object behind the levy and a nexus between the subject
and the object of the levy. [491E-F]

Two principles have to be emphasised, firstly, that the tax must be
c regulatory and compensatory and secondly, there must be no discrimi-
nation. A taxation law cannot claim immunity from the equality clause
in Article 14 of the Constitution, but in view of the intrinsic complexity
of fiscal adjustments of diverse elements, a considerably wide discretion
and latitude in the matter of classification for taxation purpose is
D permissible. The life of motor cycles and tricycles normally exceeds 25
years. Non-refund for certain period is not conclusive of the matter.
Even if mathematical precision is not possible, it cannot be said that it is
wholly unmathematical. The collection of tax for a period of 15 years at
one point of time is a convenient method enabling the owner to use the
vehicle for more than 25 years without having to pay the tax periodi-
E cally and pay the enhanced tax that may be levied during the 25 years of
life of the vehicle. Regulatory and compensatory tax can be levied to the
extent the State is required to pay for rendering the services. [49JG; 492A-C]

The ft.et, as at present, is not violative of Article 14 of the Constitu-
tion. The fact that the company-owned vehicles are taxed at three times the
F rate payable by individuals, does not make the legislation violative of
Article 14. Historically, the Company-dwned vehicles have always been
taxed at a rate higher than the individually-owned vehicles. The legisla-
ture has the power to distribute tax burden in a flexible _manner and the
Court would not interfere with the same. It could not be said that there
was differentiation without any basis..~md as such there was discrimina-
G tion. [492E-H]

In view of the principles applicable to the taxation laws and
various other factors, the Maharashtra Act as amended from time to
time does not suffer from any vice of being not regulatory or
compensatory taxation nor from the vice of being violative of Article 14
H of the Constitution, and the challenge to the provisions of the Act
STATE OF MAHARASHTRA v. M.B. BADIYA !MUKHARJI, J.] 485

as amended after the judgment of· the High Court C()uld not be A
maintained. [494G-H; 495A)

After the amendments afore-mentioned the Act does not suffer
from the vice mentioned in the judgment of the High Court . .The ap-
peals were allowed thus, and the·challenge made in the special leave ·
petitions was dismissed. [4958) · B

The t~xes would be realised. in accordance with th~ Act and the
necessary adjusim.ents would be .made accordingly. [495<;)

Boiani Ors. Ltd. v. State of Orissa, [1975) 2 SCR 138; G.K.
Krishnan v. The State of Tamil Nadu & Anr., [1975) 2 S.C.R. 715; C
Malwa Bus Service (P) Ltd. v. State of Punjab and Ors., [1983) 2
S.C.R. 1009; International Tourist ·corporation v. State of Haryana &
Ors., [1981] 2 S.C.R. 364; Income Tax Officer, Shillong & Anr. v. N.
Takim Roy Rymbai, etc., [1976] 2 SCR 413; Mrs. Meenakshi & Ors. v.
State of Karnataka & Ors., AIR 1983 SC 1283; Anant Mills Co. Ltd. v.
State of Gujarat and Ors., [1975] 3 S.C.R. 220; Khandige Sham Bhat & D
Ors. v. The Agricultural Income Tax Officer, [1963] 3 SCR 809 and
State of Karnataka v. K. Gopalakrishna Shenoy and Another, A.I.R.
1987 S.C. 191 I, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.
1631-33 of 1987 etc. E

From the Judgment and Order dated 10.7.1987 of the Bombay
High Court in W.P. Nos. 941, 986 and 1012 of 1987.
/
A.S. Bobde, Adv. General, S.K. Dholakia and A.S. Bhasme for
the Appellants. F

Soli J. Sorabjee, R.N. Sachhar, Mrs. Aruna Mathur, J. Wad,
K.J. John and A.K. Sanghi for the Respondents.

The Judgment of the Court was delivered by
G
SABYASACHI MUKHARJI, J. These civil. appeals and special
leave petitions centre around one point, namely, the validity of the
Bombay Motor Vehicles Tax Act, 1958 as amended by Section 3 of the
Maharashtra Act, XIV of 1987 as well as Section 6 of the said Act as
amended by Maharashtra Act XXXIII of 1987 as well as the
Maharashtra Act IX of 1988. fl
486 SUPREME COURT REPORTS [1988] Supp. 2 S.C.R.

A The Bombay Motor Vehicles Tax Act, 1958 prior to its amend-
ment in 1987 provided for levy of tax on vehicles annually or quarterly.
In 1987, by Section. 3 of the Maharashtra Act No. XIV of 1987, sub-
section ( lC) was added to provide for levy of one time tax at 15 times
the annual rate on all motor cycles used or kept for use in the State.
The said provisions further provided that in case of motor cycles used
B or kept for use by a company or other commercial organisation, the
one time tax was to be levied at thrice the rate. Section 6 of the
Maharashtra Act 14 of 1987, added sub-section (6) to Section 9 of the
principal Act. The new sub-section (6) enabled a registered owner of
motor cycle or tricycle to obtain refund of "one time tax" in cases
where (a) the vehicle is removed outside the State; and (b) the regist-
C ration of vehicle is cancelled due to scrapping of the vehicle, or for a
similar reason. The refund was to be paid in accordance with the
Fourth Schedule. the Third and Fourth Schedules were introduced by
the Maharashtra Act 14 of 1987.

In the case of Luna Mopeds, the one tlme tax comes to Rs.2925
o which according to the petitioners in the S.L.P. Nos. 11673-75/87, is
86% of the ex-factorJ,price of the Moped. In that view the petitions
were filed by the respandents in the first batch of appeals and the
petitioners in the second batch challenging the amended provisions of
the Bombay Motor Vehicles Tax Act, 1958. On or about 9/lOth July,
1987, a Division Bench of the Bombay High Court, Nagpur Bench
E held that the levy of one time tax was beyond the legislative compe-
tence of the State Legislature and also beyond Entry 57 of List II of the
Seventh Schedule. It further held that the provision for imposition of
levy at thrice the rates, so far as the vehicles owned by the firm or the
company, were neither discriminatory nor arbitrary. The High Court,
however, in view of the fact that the refund was restricted to the
F circumstances mentioned above, struck down Act 14 of 1987. Accord-
ing to the High Court, the absence of provisions for refund in cases of
temporary non-user made the Maharashtra Act XIV of 1987, con-
fiscatory in character and not regulatory or compensatory which alone
was in the co'mpetence of the State Legislature. The State preferred.
applications for leave to appeal against the impugned judgment and
G the special leave having been granted, are the subject-matter of Civil
Appeals Nos. 1631-33/87. The petitioners also filed special leave appli-
cations which are the subject-matter of Special Leave Petitions Nos.
11673-75/87 which have been heard along with these appeals. While
the State's appeal against the High Court's judgment was pending
before this Court, the Maharashtra Legislature enacted -Maharashtra
ff Act XXXIII of 1987. It deleted Section 3(4) of the principal Act, as
STATE OF MAHARASHTRA v. M.B. BADIYA (MUKHARH, J.) 487

amended by Maharashtra Act XIV of i987. That provision made the A
existing provisions of refund fot temporary non-user inapplicable in
cases of motor cycles and tricycles, restricting the right of refund to
Section 9(6) in contingencies mentioned above. It also introduced sub-
section (7) to Section 9 conferring right of refund in respect of motor
cycles and tricycles in accordance with the rates specified in the Fifth
. Schedule and prescribed the rates of refund in the Fifth Schedule. But B
the said Schedule did not prescribe a s~parate rate of refund fQr
company-owned- ve)l.lcles. Therefore, the _refund Jn respect of
company-owned vehicles wouldbe same as that payable' to fodlviilual~
owned vehiCles, even though the tax paid on former class of vehicles
was three·ti.m.es. Soon thereafter the Maharashtra Legislature enacted
Act 9 of 1988. The only relevant change for the present purpose was C
that the rate of refund was enhanced to three times in respect of
company-owned vehicles._

Before the contentions are judged, it is imperative to reiterate
that the tax imposed on motor vehicles or a class of motor cycles would
not be valid unless it is compensatory or regulatory or does not have D
any nexus with the vehicles using-the public roads. In such a case the
levy would be violative of Art. 301 of the Constitutfo{l:and would not
be protected by Art. 304 of the Constitution. In-tliis connection refe-
. rence may first be made to tne observations of this Court in Boiani
Ores Ltd. v. State of Orissa, [1975) 2 SCR 138 where at page 155 this
Court 'observed that Entry 57 of List II of the Seventh Schedule was E
subject to the limitations, namely, toe power of taxation cannot ex-
ceed the compensatory nature which must have some nexus with the
vehicles using the roads. If the·vehicles do not use the roads, notwith-
standing that these are registered under the Act, these carmot be
taxed. More or less, the same view was echoed in G.K. Krishnan v.
The State of Tamil Nadu & Anr., [1975) 2 SCR 715. p

See also Malwa Bus Service (P) Ltd. v. State of PurJjab & Ors.,
[1983] 2 SCR 1009.

On behalf of the appellant-State, the learned Advocate-General
submitted that the amendments enacted by the Maharashtra Act No. G
33 of 1987 and No. 9 of 1988, have brought the principal Act as
amended by the Maharashtra Act No. XIV of 1987 within the constitu-
tional requirements of making 'one time tax' a regulatory and com-
pensatory tax. It was submitted by him that this development ·had
made it unnecessary for this Court to decide if the Act, as it stood
when it was challenged before the High Court, was beyond the legisla- H.
488 SUPREME COURT REPORTS l1988] Supp. 2 S.C.R.

A tive competence of the State Legislature. It was further emphasised
that the fact that the Act at present, does not provide for refund in the
14th &v15th years, does not make the law outside the competence of
the State Legislature. It was urged that the concept of "regulatory and
compensatory tax" does not imply mathematical precision. In this con-
text one may refer to the observations of this Court in International
B Tourist Corpn. v. State of Haryana & Ors., [1981] 2 SCR 364, where at
page 374 Justice Chinnappa Reddy speaking for this Court observed as
follows:

"But to say that the nature of a tax is of a compensatory
and regulatory nature is not to say that the measure of the
tax should be proportionate to the expenditure incurred on
c the regulation provided and the services rendered. If the
tax were to be proportionate to the expenditure on regula-
tion and service it would not be a tax but a fee.

While in the case of a fee it may be possible to pre-
D cisely identify and measure the benefits received from the
Government and levy the fee according to the benefits
received and the expenditure incurred, in the case of a
regulatory and compensatory tax it would ordinarily be
well high impossible to identify and measure, with any
exactitude, the benefits received and the expenditure in-
E curred and levy the tax according to the benefits received
and the expenditure incurred. What is necessary to uphold
a regulatory and compensatory tax is the, existence of a
specific, identifiable object behind the levy and a nexus
between the subject and the object of the levy."

F Earlier this principle had been stated in Income Tax Officer,
Shillong & Anr. v. N. Takim Roy Rymbai etc., [1976] 3 SCR 413,
where this Court observed that though taxation law could not claim
immunity from the equality clause in Article 14 of the Constitution, it
must be remembered that in view of the intrinsic complexity of fiscal
adjustments of diverse elements, the State has a considerably wide
G discretion in the matter of classification for taxation purposes. The fact
that the tax falls more heavily on some in the same category, is by itself
no ground to render the law invalid. Similar are the observations of
this Court in Mrs. Meenakshi & Ors. v. State of Karnataka & Ors.,
AIR 1983 SC 1283; Anant Mills Co. Ltd. v. State of Gujarat & Ors.,
[1975] 3 SCR 220 and Khandige Sham Bhat & Ors. v. The Agricultural
H Income Tax Officer, [1963] 3 SCR 809.
STAIB OF MAHARASHTRA v. M.B. BAnIYA lMUKHARJI, J.)489

· In the instant case, the impugned legislation had been subse-
quently amended to provide for the refund of a proportionate part of
the one-time tax in the event of the vehicle not being used for a period
of quarter or more than a quarter of a year as mentioned before. This
was provided by substituting a new sub-section (7) to section 9 of the
Act and also substituting new Fifth Schedule. · · ., · ·'
B.
Even after the amendment, however, no refund is 'available in
respect of a vehicle which has been registered for more than .13 year5.
The effect of the same is ihai no refund at all is availablein respect of
the taX paid for a vehicle for the 14th, and 15th years, it was urged on
behalf of the respondents in the appeals and the petitioners in the
S.L.Ps. It was submitted on their behalf that so far as four-wheeler$'
are concerned, Section 9(1) of the act provided for refund of the prci-
c
portionate amount of tax for every completed calendar nionih tor
which the vehicle has not been used. It was urged on behaifof the
respondents in the appeals and the petitioners in the S.L.Ps. thai ihei:e
is no justification whatsoever for the. non-grant of the refund of the
proportionate amount of tax paid in respect of a two wheeler or three D
wheeler, which is not used in its 14th and/or 15th year. On this Score;it
was urged on their behalf that ihe impugned levy of in ceases to be
compensatory or regulatory and as such is void under Entry 57 of Lisi
II and thus violative of Article 301 of the Constitution. · '· ·'
; - '
In our opinion the fact that the Aci, as at pr~seni;' does noi E
provide for refund in the 14th and 15th yeais; does not make the law
outside the competence of the State Legislature. The concept of
"regulatory and compensatory" iait does not imply mathematical pre~
• cision of quid pro quo. This aspect was emphasised iri International
Tourist Corporation etc. etc. v. State of Haryana & Ors:, (supra) as
noted before: · F

It was further submitted on behalf of the owners of two wbeeiers
that the impugned one-time levy of Rs.975 has been worked out ai
Rs.65 per two wheeler per annum for 15 years arid is sought to be·
recovered from the two wheeler owner as a one-time down paymerii ai
the time the two-wheeler is purchased by him.' On behalf .of the G
respondents/petitioners it was contended that having regard io the
extent of road user by a two wheeler' in oomparison with the road user
by a four wheeler, the Legislature considered thai a •iait of Rs.65 jier
two wheeler per annum would be a reasonable arid adequate com-
pensatory levy. While the maximum annual i:ate of iri was fixed at Rs.
200 per annum for motor cars weighing not more thari 750 kg arid H
490 SUPREME COURT REPORTS l 1988) Supp. 2 S.C.R.
A Rs.360 per annum for motor cars weighing between 750 kg to 1500 kg;
it may be noted that the tax on four wheelers has not been increased.
But as far as two wheelers are concerned the one-time tax for the
period of 15 years is exactly 15 times the amount of tax of Rs.65 per
year. It is clear from these factors, it was submitted by the owners of
the two wheelers, that the Legislature continues to consider the tax of
B Rs.65 per two wheeler per year to be an adequate compensatory tax.
However, by recovering the tax for the future period of 15 years in
advance as a one time levy, the taxing authorities are in fact recovering
not Rs.65 per two wheeler per year but in reality about Rs.356.79 per
two wheeler per year. The respondents/petitioners sought to explain
the position by submitting that if the two wheeler owner has an amount
C of Rs.975 with him at the time of purchase of the vehicle, and is not
compelled to make one-time payment, then he would initially pay only
Rs.65 as the tax for the first year. That would leave a balance amount
of Rs. 910 which could be invested by him at an interest yield of 15%
per annum. It was urged that the rate of interest that is recoverable as
well as paid under the Income Tax Act is 15% per annum. The said
D amount of Rs.910 would yield an interest of Rs.136.50 in the first year.
Out of that amount of Rs.136.50 an amount of Rs.65 would be paid by
the two wheeler owner as tax at the beginning of the second yea .
1

Consequently, an amount of Rs.71.50 would be available from out of
the said interest earning of Rs.136.50, which also could be invested at
a yield of 15% per annum. Consequently, the amount of interest that
E woud be earned .by the vehicle owner in the second year would come to
Rs.147 .23, out of which only Rs.65 would have to be paid as tax in the
beginning of the third year, leaving a balance of Rs.82.23 available for
' further investment. It was submitted that by compelling the vehicle
owner to make the one-time down payment of Rs.975 at the time of
the purchase of the vehicle, the owner is in reality being deprived of a
F total amount of Rs.4376.19 over the said period of 15 years. If this
amount is divided by 15, the resultant figure will be Rs.291.79. The
effective tax burden has thus in fact been multiplied by about 5 times
only as a result of the one-time levy, it was urged. It was submitted
that the said one-time levy was unreasonable, discriminatory and not
regulatory or compensatory. The fact that a tax on motor vehicles m.ust
G be compensatory and regulatory in order to be valid, was emphasised
in the decision of this Court in State of Karnataka v. K. Gopalakrishna
Shenoy and another, A.LR. 1987 S.C. 1911 where at page 1915 of the
report, it was observed that tax on motor vehicles is a compensatory
tax levied for the use of the roads and it is not a tax on ownership or
possession of motor vehicles. It was emphasised on behalf of the
H owners of the vehicles _that the impugned legislation is based on the
STATE OF MAHARASHTRA v. M.B. BADIYA (MUKHARJI, J.] 491

assumption that two wheelers and three wheelers have an approximate A
life of 15 years. It is on that basis and footing that the rates of tax have
been fixed. It was contended that the life of two wheelers and three
wheelers is as much as 25 to 30 years and therefore, the recovery of the
one time tax for the period of 15 years actually constitutes the confer-
ment of a benefit on the owners of two wheelers and three wheelers. In
this connection, on the other hand it is of importance to note that the B
Department of Heavy Industry, Ministry of Industry, Government of
India, had commissioned a report from an eminent firm of Chartered
Accountants on Long Term Demand. Projections for Automotive
Vehicles (including two wheelers and three wheelers). The said report
concludes, after an exhaustive analysis of statistical data including the
data provided by vehicle manufacturers and also studies made in the
past, that the average life of scooters is 10 years, that of motor cycles 9
c
years and that of mopeds 5 years. But what was emphasised was that
one-time levy of tax compelled owners of two wheelers to incur a
further expenditure of about 70% of the cost of the vehicles purchased
by them at the time they acquire the vehicle and that imposes heavy
additional liabilities. It was, therefore, submitted that it was neither D
compensatory nor regulatory and furthermore, it was discriminatory.

It was further submitted that section 3(IC)(c) exempts public
trusts and recognised institutions. That was bad.

In our opinion, after the amendment the mischief mentioned in E
the judgment and order of the High Court of Bombay has been
remedied. On an examination of the various provisions of the Act as
amended, we have come to the conclusion that after the amendment
the Act comes within the constitutional requirement of making the
one-time tax a regulatory and compensatory tax. It is true as was
emphasised that the Act has not provided for refund in the 14th and .p
15th years but does not make the law outside the competence of the
State Legislature. It is not mathematical precision that is necessary nor
can it be. Th.ere is in the provisions as amended, a discernible and an
identifiable object behind the levy and a nexus between the subject
and the object of the levy.
G
In this matter two principles have to be emphasised, firstly, that
.the tax must be regulatory and compensatory and secondly, there must
be no discriniination. About discrimination it is well to remember that
a taxation law cannot claim immunity from (he equality clause in
Article 14 of the Constitution. But in view of the intrinsic complexity
of fiscal adjustments of diverse elements, a considerably wide discre- H
492 SUPREME COURT REPORTS [1988] Supp. 2 S.C.R.

A tion and latitude in the matter of classification for taxation purpose is
permissible. See the observations of this Court in Income Tax Officer,
Shillong and Anr. etc. v. N. Takim Roy Rymbai etc. etc., (supra). Also
see the observation in Mrs. Meenakshi and others v. State of
Karnataka, (supra); Anant Mills Co. Ltd. v. State of Gujarat & Ors.,
(supra) and Khandige Sham Bhat and Ors. v. The Agricultural lncome-
IB tax Officer, (supra). The evidence on record shows that the life of
motor cycles and tricycles normally exceeds 25 years. The so-called
non-refund for certain period is not conclusive of the matter. Even if
mathematical precision is not possible, we cannot say that it is wholly
unmathematical. The collection of tax for a period of 15 year$ at one
point of time is a convenient method enabling the owner to use the
C vehicle for more than 25 years, without having to visit the office to pay
the tax periodically, and pay enhanced tax that may be levied during
the 25 years of life of the vehicle. Regulatory and compensatory tax·
can be levied to the extent the State is required to pay for ren<;lering
the services. According to the State, the evidence on record shows that
the cost of services is twice the total amount recovered from all types
~ of vehicles. The balance of expenditure is met by the State from the
general revenues. Even from this half collection, the motor cycles and
tricycles contribute only 6.4 per cent. The percentage of motor cycles
and tricycles is 56 to 58 percent of all vehicles. Thus, even insubstantial
increase in their rates cannot be said to be not a "regulatory or
compensatory'' tax measure.
E
The Act, as at present, is not violative of Article 14 of the Con-
stitution. The fact that company-owned vehicles are taxed at three
times the rate payable by individuals, does not make the legislation
violative of Article 14. Historically, the company-owned vehicles have
always been taxed at a rate higher than the individually-owned vehi-
F cles. As appears from the records produced, the motor cycles and
tricycles constituting 56 to 58 per cent of all types of vehicles contri-
bute only 6.4 per cent of the total revenue earned through the tax
imposed by the Act. It is well-settled that the Legislature has the
power to distribute tax burden in ·a flexilile manner and the Court
would not interfere with the same. This principle has been reiterated
<1J in G.K. Krishnan etc. etc. v. The State of Tamil Nadu_ & Anr. etc.,
(supra) where this Court observed that in the context of commercial
regulation, Article 14 is offended only if the classification rests on
grounds wholly irrelevant to the achievement of the objective and this
lenient standard is further weighted in the State's favour by the fact
that a statutory discrimination will not be set aside if a stat~ of facts may
B reasonably be· conceived by the Court to justify it. Tax laws have to
STATE OF MAHARASHTRA v. M.B. BADIYA [MUKHARJI, J.] 493

·respond closely to local needs and Court's familiarity with. these needs A
is likely to be limited. Therefore, the Court must be aware of its own
remoteness and lack of familiarity with the local problems. Classifica-
tion is dependent upon peculiar needs and specific difficulties of the
community. The needs and the difficulties of a community are con'
stituted out of facts and information beyond the easy ken of the Court.
B
It appears that in the .ins.tan! case, the State Government has
specifically averred that the company"Owned vehicles travel more and
\!se roads more often. No evidence have been produced t.o the con-
trary". In view of the well-settled principles, we cannot say that there was
differentiation without any basis and as such there was discrimination.

It further appears that the Government of India has liberalised
c
the licensing policy and granted large number of industrial licences for
the manufacture of two wheelers. In Maharashtra itself following is the
,new registration of two wheelers during the last four and five years:

"198'3-84 -1,13,949 D
1984-85 --1,24.877
1985-86 -1,66,124
1986-87 -2,01,904"

In 1986-87 per working day on an average 929 new two wheelers
have been registered. There was tremendous strain on Motor Vehicles E
Department due to increase in the number of two wheelers. The
following statistics and figures indicate the position that one time tax
,..
on two wheelers have beneficient effect:

"As on 1.4.1987 ·there were 10,93,170 two wheelers in
Maharashtra and total number of vehicles was 1841 lakhs. p

In .1985-86 the total revenue by way of Motor
Vehicles fax was Rs.98 crores out of which only Rs.6 to 7
crores was from two wheelers.

That means 58% vehicles (3 wheelers) used to give only G
6.4% Motor Tax for which 22,000 man days were required
to be spent.

All the two wheeler owners were required to come to
R.T.O. for payment of tax every year.
ff
494 SUPREME COURT REPORTS [1988] Supp. 2 S.C.R.

A Almost 70 to 75% Motor Vehicle Tax arrear cases were of
2 wheelers.

Because of new system of one time tax if the owner pays it,
he is not required to pay the tax again during the life time
of the 2 wheeler.

Any further increase in one time tax rate will not be applic-
able to the 2 wheelers which have already paid the one time
tax.

Statistics show that the 2 wheelers are being used for more
than 25 years.
c
The rate of increase of 2 wheelers because of easy availabi-
lity and afforl:!ability is almost 25%. The total number of
two wheelers projections in the State will be as follows:

D By the end of 1986-87 - 10.94 lakh
1987-88 - 13.33lakh
1988-89 - 16.20 lakh
1989-90 - 19.69lakh
1990-91" - 23.77lakh
1991-92 - 28.73 lakh
E
Existing vehicles will have to pay one time tax in sliding
scale rate. Older the vehicles, less will be the tax.

This tax system is already i~stence in Kamataka since
1.4.1986 and also in Gujarat, Rajasthan.
F
This new system will definitely give relief to the two
wheeler owners as they will not be required to come to
R. T. Office for annual payment."

Having regard to these factors and having regard to the princi-
6 pies applicable to taxation laws, we are of the opinion that the
Maharashtra Act as amended from time to time and mentioned
hereinbefore, does not suffer from any vice of being not regulatory or
compensatory taxation nor from the vice of being violative of Article
14 of the Constitution.

H In that view of the matter, the challenge to the provisions of the
STATE OF MAHARASHTRA v. M.B. BADIYA IMUKHARJJ, J.) 495

Act as amended after the judgment of the Bombay High Court cannot A
be maintained.

In that view of-the matter, Civil Appeals Nos. 1631-1633 of 1987
are disposed of by saying that after the amendments noted hereinbe·
fore the Act does not suffer from the vice mentioned in the judgment
of the High Court of Bombay. The appeals are, therefore, allowed and B
disposed of accordingly.

In that view of the matter the challenge made in the special leave
petitions Nos. 11673·75 of 1987 is dismissed. In the facts and circums·
'tances of the case, there will be no orders as to costs. Incerim orders, .if
any, are vacated. The tues will be realised in accordance with the Act c
and necessary adjustments will be made accordingly.

S.L.