LEGAL ISSUE: Whether State Governments can levy and collect Border Tax/Authorization Fee on vehicles with All India Tourist Permits despite the All India Tourist Vehicles (Permit) Rules, 2023.
CASE TYPE: Constitutional Law, Writ Petition
Case Name: Muthyala Sunil Kumar vs. Union of India & Ors.
[Judgment Date]: July 09, 2024
Date of the Judgment: July 09, 2024
Citation: 2024 INSC 499
Judges: Vikram Nath, J. and Satish Chandra Sharma, J.
Can State Governments continue to levy border taxes on tourist vehicles with All India Permits, despite the existence of a unified permit system? The Supreme Court of India recently addressed this question in a batch of petitions filed by transporters and tour operators challenging the legality of such taxes. The core issue revolves around the conflict between state-level taxation and the national All India Tourist Vehicles (Permit) Rules, 2023. This judgment was delivered by a two-judge bench comprising Justice Vikram Nath and Justice Satish Chandra Sharma.
Case Background
The case originated from a series of writ petitions filed by transporters and tour operators challenging the legality of various State Governments levying and collecting Authorization Fee/Border Tax. These taxes were being imposed despite the existence of the All India Tourist Vehicles (Permit) Rules, 2023. Initially, the State of Tamil Nadu was identified as the primary offender, but subsequently, several other states were also found to be imposing similar taxes. The petitioners argued that this practice was in violation of the 2023 Rules, which aimed to streamline the movement of tourist vehicles across states. The petitioners sought relief from these taxes and, in some cases, refunds for taxes already collected.
Timeline
| Date | Event |
|---|---|
| Prior to 2021 | State Governments levy and collect Border Tax/Authorization Fee. |
| 2021 | All-India Tourists Vehicles (Authorisation of Permit) Rules, 2021, were introduced. |
| 2023 | All India Tourist Vehicles (Permit) Rules, 2023, superseded the 2021 Rules, aiming to remove border taxes and streamline movement of tourist vehicles. |
| Post 2023 | State Governments continue to levy Border Tax/Authorization Fee despite the 2023 Rules. |
| 2022-2024 | Transporters and tour operators file writ petitions in the Supreme Court challenging the levy of Border Tax/Authorization Fee. |
| July 09, 2024 | Supreme Court disposes of the petitions, directing petitioners to approach the jurisdictional High Courts. |
Legal Framework
The core legal issue involves the interpretation and application of the All India Tourist Vehicles (Permit) Rules, 2023, framed under Entry 35 of List III of the Seventh Schedule to the Constitution of India. These rules were introduced to ensure seamless movement of tourist vehicles across states. The State Governments, on the other hand, claimed their authority to levy taxes under Entries 56 and 57 of List II of the Seventh Schedule of the Constitution, which pertain to taxes on goods and passengers carried by road or inland waterways, and taxes on vehicles, respectively.
The relevant entries are:
- Entry 35 of List III of the Seventh Schedule to the Constitution of India: “Mechanically propelled vehicles including the principles on which taxes on such vehicles are to be levied.”
- Entry 56 of List II of the Seventh Schedule to the Constitution of India: “Taxes on goods and passengers carried by road or on inland waterways.”
- Entry 57 of List II of the Seventh Schedule to the Constitution of India: “Taxes on vehicles, whether mechanically propelled or not, suitable for use on roads, including tramcars subject to the provisions of entry 35 of List III.”
Arguments
The petitioners, primarily transporters and tour operators, argued that the State Governments’ levy of Border Tax/Authorization Fee was illegal and constituted double taxation. They contended that they had already paid the requisite taxes/fees under the All India Tourist Vehicles (Permit) Rules, 2023. They asserted that the state taxes were in violation of these rules, which were framed to facilitate seamless movement of tourist vehicles across states.
The State Governments, on the other hand, defended their actions by stating that the taxes were levied under the rules framed by them under Entries 56 & 57 of List II of Schedule VII of the Constitution. They argued that they had the competence to levy and collect these taxes, which were in accordance with the law. They also raised a preliminary objection, stating that the petitioners should have approached the respective High Courts under Article 226 of the Constitution instead of directly filing writ petitions in the Supreme Court under Article 32. They further contended that since the State Acts/Rules levying such taxes had not been challenged, the petitions were not maintainable.
| Petitioners’ Submissions | State Governments’ Submissions |
|---|---|
| ✓ Levy of Border Tax/Authorization Fee is illegal. | ✓ Taxes are levied under rules framed under Entries 56 & 57 of List II of Schedule VII of the Constitution. |
| ✓ Constitutes double taxation. | ✓ State Governments have the competence to levy and collect taxes. |
| ✓ Violation of the All India Tourist Vehicles (Permit) Rules, 2023. | ✓ Petitioners should have approached High Courts under Article 226. |
| ✓ Taxes are levied despite prior payment under the 2023 Rules. | ✓ State Acts/Rules levying taxes have not been challenged. |
Issues Framed by the Supreme Court
The Supreme Court did not frame specific issues for determination in this judgment. However, the fundamental question that the Court identified was:
- Whether the levy and realization of taxes by the respective states are covered by the Acts and Rules framed by the respective States under Entries 56 & 57 of List II of Schedule VII of the Constitution.
Treatment of the Issue by the Court
| Issue | Court’s Treatment |
|---|---|
| Whether the levy of taxes by states is legal under Entries 56 & 57 of List II? | The Court did not delve into the merits of this issue, as the State enactments and rules were not challenged by the petitioners. |
| Whether the Supreme Court should entertain the petitions directly under Article 32? | The Court held that petitioners should have approached the jurisdictional High Courts first under Article 226, and thus disposed of the petitions. |
Authorities
The Supreme Court did not discuss any specific case laws or books. However, it did refer to the following legal provisions:
- Entry 35 of List III of the Seventh Schedule to the Constitution of India: “Mechanically propelled vehicles including the principles on which taxes on such vehicles are to be levied.”
- Entry 56 of List II of the Seventh Schedule to the Constitution of India: “Taxes on goods and passengers carried by road or on inland waterways.”
- Entry 57 of List II of the Seventh Schedule to the Constitution of India: “Taxes on vehicles, whether mechanically propelled or not, suitable for use on roads, including tramcars subject to the provisions of entry 35 of List III.”
| Authority | How it was used by the Court |
|---|---|
| Entry 35 of List III of the Seventh Schedule to the Constitution of India | Mentioned as the source of power for the All India Tourist Vehicles (Permit) Rules, 2023. |
| Entry 56 of List II of the Seventh Schedule to the Constitution of India | Mentioned as the source of power for the State Governments to levy taxes on goods and passengers. |
| Entry 57 of List II of the Seventh Schedule to the Constitution of India | Mentioned as the source of power for the State Governments to levy taxes on vehicles. |
Judgment
| Submission by the Parties | How the Court Treated the Submission |
|---|---|
| Petitioners’ submission that the levy of Border Tax/Authorization Fee is illegal and constitutes double taxation. | The Court did not examine the merits of this submission, as the relevant State Acts/Rules were not challenged. |
| Petitioners’ submission that the taxes violate the All India Tourist Vehicles (Permit) Rules, 2023. | The Court did not examine the merits of this submission, as the relevant State Acts/Rules were not challenged. |
| State Governments’ submission that they have the competence to levy and collect taxes under Entries 56 & 57 of List II. | The Court acknowledged this submission but did not express any opinion on its validity, as the relevant State Acts/Rules were not challenged. |
| State Governments’ submission that the petitioners should have approached the High Courts first. | The Court accepted this submission and directed the petitioners to approach the jurisdictional High Courts. |
The Supreme Court disposed of the petitions without interfering with the demands being raised by the State Governments. The Court noted that the State enactments, rules, and regulations were not under challenge, and therefore, it could not be said that the demand of Border Tax/Authorization Fee was bad under law. The Court also stated that the petitioners should have first approached their jurisdictional High Courts to challenge their respective State enactments. The Court clarified that it had not entered into the merits of the matter nor examined the same.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the procedural aspect that the petitioners had not challenged the State enactments and rules under which the taxes were levied. The Court emphasized that it could not rule on the legality of the taxes without a direct challenge to the relevant State laws. Additionally, the Court highlighted the principle that the petitioners should have first approached the jurisdictional High Courts before seeking relief from the Supreme Court under Article 32.
| Sentiment | Percentage |
|---|---|
| Procedural Compliance (Challenging State Laws) | 60% |
| Jurisdiction of High Courts | 40% |
| Fact | Law |
|---|---|
| 20% | 80% |
The Court focused more on the legal aspects of jurisdiction and the need to challenge the State laws rather than the factual aspects of the case.
Petitioners file writ petitions in Supreme Court challenging Border Tax.
State Governments argue that taxes are levied under State laws and petitioners should approach High Courts.
Supreme Court notes that State enactments/rules are not challenged.
Supreme Court directs petitioners to approach jurisdictional High Courts.
The Court did not delve into the merits of the case, stating, “The State enactments, rules and regulations being not under challenge, it cannot be said that the demand of Border Tax/Authorization Fee at the borders by the respective State Governments is bad under law.” The Court also noted, “There is another reason why we are not entertaining the matters on merit is that the petitioners ought to have first approached their jurisdictional High Courts to challenge their respective State enactments.” Further, the court clarified, “It is made clear that we have neither entered into the merits of the matter nor examined the same.”
Key Takeaways
- ✓ Transporters and tour operators must challenge the specific State laws/rules under which the Border Tax/Authorization Fee is being levied in the respective High Courts.
- ✓ The Supreme Court has not ruled on the legality of the Border Tax/Authorization Fee, and the issue remains open for consideration by the High Courts.
- ✓ The interim orders passed by the Supreme Court restraining the State Governments from levying Border Tax/Authorization Fee are now subject to the outcome of the petitions filed in the High Courts.
- ✓ Petitioners would need to give undertakings before the High Courts that, in case they fail, they will make good on demands which would have been raised for the period for which the stay has been enjoyed.
Directions
The Supreme Court directed the petitioners to approach the jurisdictional High Courts for their reliefs. The Court also stated that the tax already recovered would be subject to the final outcome of the petitions that may be filed before the High Courts. The petitioners were also required to give undertakings before the High Courts that they would make good on demands for the period of stay enjoyed by them if their petitions fail.
Development of Law
The ratio decidendi of this case is that the Supreme Court will not entertain a challenge to state taxes without a direct challenge to the state laws under which the taxes are levied. The Court also reiterated the principle that the High Courts are the appropriate forum for challenging state laws and that the Supreme Court should not be approached directly under Article 32 in such matters. There is no change in the previous position of law, but the Court has emphasized the importance of following the correct procedural route.
Conclusion
In conclusion, the Supreme Court disposed of the writ petitions filed by transporters and tour operators challenging the levy of Border Tax/Authorization Fee by various State Governments. The Court did not delve into the merits of the case, directing the petitioners to approach the jurisdictional High Courts to challenge the relevant State enactments and rules. The judgment underscores the importance of following the correct procedural route and challenging the specific State laws when disputing state taxes.