Tax on Passengers and Goods Carried by Road Validated: The Incidence of the Tax Continues to Be on the Passengers - Supreme Court

In a recent judgment, the Supreme Court of India has upheld the validity of the Act of 1955, as amended by the Amendment and Validation Act of 1997, which imposes a tax on passengers and goods carried by road in motor vehicles. The judgment was delivered by a bench comprising Justices B.V. Nagarathna and Ujjal Bhuyan.

Legislative Competence: The Court held that the Himachal Pradesh Legislative Assembly possessed the legislative competence under Article 246, read with Entry 56 of List II of the Seventh Schedule of the Constitution of India, to enact the Act of 1955 and the Amendment and Validation Act of 1997.

Definition of 'Business': The Court observed that the definition of 'business' has been expanded to include not just the business of carrying passengers and goods but also any trade, commerce, manufacture, or concern. "The definition of ‘business’ as amended has the widest amplitude and includes any trade, commerce, manufacture, adventure or concern," the Court noted.

Tax Incidence: "The incidence of the tax continues to be on the passengers who travel in the buses or other vehicles of the appellants irrespective of whether they travel gratis or are paying any fare," the Court clarified.

Liability to Pay Tax: The Court ruled that the appellants should be made liable to pay the tax w.e.f. 01.04.2023, the current financial year onwards, and not for the period prior thereto.

Public Sector Organizations: The Court took into consideration that the appellants are public sector organizations engaged in hydro-power and irrigation projects, providing free transportation to their employees and their children as a welfare measure.

The judgment referred to the case of M/s Tata Engineering and Locomotive Co. to clarify the definition of 'passenger' but noted that the decision would not be applicable to the present case as it turns on its own facts.

The appeals were dismissed, and the final Orders of the Division Bench of the High Court of Himachal Pradesh were affirmed, subject to the clarifications made.

This judgment is expected to have significant implications for the transportation sector, particularly for public sector organizations providing free transportation services to their employees and their children.

Date Of Decision: 06 September 2023

NHPC LTD. vs STATE OF HIMACHAL PRADESH    SECRETARY & ORS.