NHPC Ltd. v. State of Himachal Pradesh Secretary

Introduction

In the SC, an appeal is filed by NHPC Ltd. challenging the rulings of the Himachal Pradesh High Court (henceforth, HC), which affirmed the constitutionality of the Himachal Pradesh Passengers and Goods Taxation Act, 1955(henceforth, 1955 Act)[1], and dismissed the writ petitions submitted by the appellants.

The appeal involved the examination the legislative authority of the Himachal Pradesh Legislative Assembly to enact both the 1955 Act and the Himachal Pradesh Passengers and Goods (Amendment and Validation Act), 1997 (henceforth, 1997 Act) as the provisions of the act seem to be violative of List II of the 7^th Schedule of the Constitution of India[2]. Furthermore, the appeal necessitated the interpretation of specific amended provisions of the 1955 Act, so as to ascertain whether the activities of the appellants fall within the scope of taxable activities outlined in Section 3(1)(A) of the 1997 Act.

Brief Facts of The Case

The appellant, NHPC Ltd., is involved in the production of electricity and operates several projects within the state of Himachal Pradesh. The work sites lack adequate public transportation and consistent taxi services., which is why, as a welfare initiative, NHPC Ltd., furnishes transportation facilities to its employees, free of cost, facilitating their commute from their residential colonies to respective work sites.

The Assessing Authority, under the 1955 Act, issued an order, mandating NHPC, the payment of passenger tax, asserting that its employees qualified as passengers under the Act. A Revision Application to the Excise and Taxation Commissioner, was filed by the appellant, contesting the Assessing Authority’s order, which was however, dismissed.

The appellant then filed a Writ Petition before the HC, contesting the constitutionality of the 1955 Act and the assessments made as per its provisions. The petition was allowed and it was instructed that the respondent reimburses the tax, collected from the petitioner. A Special Leave Petition submitted by the respondents to challenge the HC’s ruling was also rejected by this Court.

The Himachal Pradesh Legislative Assembly, on August 13, 1997, enacted the 1997 Act, amending definitions of the terms ‘business,’ ‘fare,’ ‘freight,’ and ‘passenger.’ Additionally, new definitions for terms like ‘Private Service Vehicle,’ ‘road,’ and ‘Transport Vehicle’ were introduced. Consequently, the Authorities established under the Act issued notifications to the appellant for the retrieval of taxes, which was challenged in the HC. It was argued by the appellant that the provisions of the 1955 Act and the 1997 Act are unconstitutional, as they clearly contradict the List II of the 7^th Schedule of the Constitution. Further, it was contended that the employees of the appellant would not fall within the definition of “passenger” as outlined in the amended Act, since they are transported without levying any charge.

The petition was however, dismissed, aggrieved of which, the appellant has now filed an appeal in the SC.

Issues Dealt With, by the SC

1. Whether or not the appellants’ free transport services for their employees and their children would now qualify as a taxable activity under the amended Act?
2. Does the HC’s challenged judgment warrant any intervention?

Rules Applicable

1. The Constitution of India, 1950
2. Himachal Pradesh Passengers and Goods Taxation Act, 1955
3. Himachal Pradesh Passengers and Goods Taxation (Amendment and Validation) Act, 1997

Arguments of the Appellant

Before the SC, the following arguments were set forth by the counsel of the appellant-

1. The HC has not adequately recognised the amendments made to the 1955 Act, as it has erroneously determined that the primary focus of the Act is to impose taxes on passengers instead of, on motor vehicles. Further, it was wrong of the HC to infer that the Act in its definition of “passengers” encompasses those people also who avail the transportation services, without being levied any fare.  
   1. It was submitted that the amendments fail to account for the fact that the buses and other motor vehicles belonging to the appellant to transport its employees to work sites, do so without collecting any charge. These individuals travel for free, and therefore, cannot be considered “passengers” at all.
   1. It was submitted that List II of the 7^th Schedule of the Constitution mentions that the tax can be collected from the vehicle’s owner or operator only when they can transfer the tax burden to the passengers, but not otherwise. A.S. Karthikeyan v. State of Kerala[3], was also referred to by the counsel, in which it was held that the owner of the bus (in this case, the appellants) is not obligated to pay passenger tax if no fare is collected from the passengers; the owner is not liable to pay the tax from his own income.
   1. Relying on Tata Engineering and Locomotive Co. v. The Sales Tax Officer, Poona[4], it was asserted that ‘passenger’ is an individual who travels by paying a fare to the vehicle’s owner or operator. Consequently, an employee of the operator who does not pay a fare is not considered a passenger, which is why, the NHPC Ltd. is not liable to pay any tax.
   1. It was also submitted by the appellant’s counsel that if sub-clauses (ii) and (iii) of Section 2 are construed to encompass businesses beyond the transportation of passengers, it would violate Article 14 of the Constitution on two grounds. Firstly, it would equate a person or entity not engaged in the business of transporting passengers and goods with those who do. Secondly, it would treat a person or entity not conducting business for profit on the same footing as one engaged in profit-motivated business.
   1. It was thus contended that since the legislature is violative of the Constitution itself, it should be declared unconstitutional.
   1. With the aforementioned arguments, the counsel prayed before the SC to allow the appeal, and quash the judgement of the HC, in favour of the appellant.

Arguments of the Respondent

Before the SC, the following arguments were set forth by the counsel of the respondent-

1. The HC was accurate in its judgement to hold the appellant liable for taxes, as ‘business’ in the amended act now encompasses any activity, whether conducted with or without a profit motive, and includes any related transactions associated with such activity.
   1. That simply because the notice for payment of taxes was issued to the appellant does not mean that the tax itself was levied on him. Rather, it just required the appellant to gather the tax amount from the passengers and deposit with the respondent.
   1. That such a legislation is not unconstitutional, as the Constitution itself  mentions for the collection of “taxes on goods and passengers carried by road and inland water ways.”
   1. With these arguments, it was thus concluded that the appeal should be rejected and the judgement of the HC be affirmed.

Adjudication by the SC

The SC while referring to Tirath Ram Rajendra Nath, Lucknow v. State of Uttar Pradesh[5], Hindustan Gum and Chemicals Ltd. v. State of Haryana[6], Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality[7], the Court stated that a legislature cannot overturn a judicial decision directly. Nevertheless, if a competent legislature retroactively eliminates the basis or foundation of a judgment, rendering it invalid, it is a valid legislative action, as long as it does not violate any other constitutional limitations. Further, it is clear that the shortcomings identified by the Division Bench, which formed the basis for its decision that the provisions of the Act would not apply to the appellant, have been accurately rectified by the 1997 Act.

The SC on laying emphasis on the definition of “business” as provided in the 1997 Act stated that since the modified definition has the broadest scope and encompasses any trade, commerce, manufacture, adventure, or concern, the appellant’s argument that it does not fall under this definition is not correct. Further, it was held that the in the instant case, the passengers would also include those who commute without paying any fare, as the same has been provided by the legislature, as per which, any person travelling on a motor vehicle is a passenger except the conductor, the driver, and the owner himself.

In light of these observations, the appeal was dismissed.

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[1] Himachal Pradesh Passengers and Goods Taxation Act, 1955, No. 15, Acts of Parliament, 1955 (India).

[2] INDIA CONST.

[3] A.S. Karthikeyan v. State of Kerala, (1974) 1 SCC 258.

[4] Tata Engineering and Locomotive Co. v. The Sales Tax Officer, Poona, (1979) 1 SCC 208.

[5] Tirath Ram Rajendra Nath, Lucknow v. State of Uttar Pradesh, (1973) 3 SCC 585.

[6] Hindustan Gum and Chemicals Ltd. v. State of Haryana, (1985) 4 SCC 124.

[7] Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality, (1969) 2 SCC 283.

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