The Supreme Court 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.

The NHPC Ltd. (‘appellant’), is engaged in the generation of electricity and has various projects in the State. Many project sites are situated in the interiors of the State and are not properly serviced by any public transport system or regular taxis. The residential colonies of the staff are located at far of distances from the project sites. 

Therefore, as a welfare measure, the appellant provides transport facilities to its employees free of cost, to enable them to reach their respective work sites from their residential colonies and for their children to travel to and from their schools, comfortably. The buses utilized for such purpose were owned and operated by the appellant. The Act, 1955 was enacted by the Himachal Pradesh Legislative Assembly with a view to levy tax on passengers and goods carried by road in certain motor vehicles in the State. 

The Assessing Authority (‘Respondent’) under the Act, 1955, assessed the liability of the appellant and passed an assessment orders on 01-10-1992 to pay passenger tax under the Act for the years 1984-1985 to 1986-1987 and 1987-1988 to 1990-1991 on the premise that its employees and their children were passengers under the Act and therefore, the appellant was liable to pay passenger tax for providing them with transport facilities. 

Subsequently, a writ petition was filed before the High Court, challenging the vires of the Act, 1955. The Division Bench of the High Court vide Judgment dated 27-03-1997 held that the Act, 1955 does not include within its scope, the activity of the appellants in providing gratis transport facilities for their employees and their children as the charging provision, namely, Section 3(1) and the Explanation thereto were very ambiguous. The respondents were directed to refund the tax collected under the provisions of the Act, 1955.

The controversy arose with the enactment of the Amendment Act, 1997 by the Himachal Pradesh State Legislature with a view to remove the basis of the Division Bench Judgment. By virtue of the Amendment and Validation Act of 1997, definitions of the terms ‘business’, ‘fare’, ‘freight’ and ‘passenger’ were amended, terms such as ‘Private Service Vehicle’, ‘road’, ‘Transport Vehicle’, were introduced. Explanation (1) to Section 3 (1) of the Act, 1955, which was the charging provision was omitted and Sub-section (1A) was inserted in Section 3, which was to serve as a charging provision. Subsequently, notices were sent to the appellant for recovery of tax under the provisions of the Amendment Act, 1997. The appellants challenged the vires of the Amendment Act, 1997 on grounds of being unconstitutional as they sought to levy tax on vehicles, which is contrary to Entry 56, List II of Seventh Schedule of the Constitution of India.

The High Court upheld the validity of both the impugned Acts. Hence, the present appeals.

The Court held that the by enacting the Amendment Act, 1997, the State Legislature had validly removed the basis of the judgment of the Division Bench of the High Court dated 27-03-1997. The Court upheld the validity of the Amendments made to the Act, 1955 by virtue of the Amendment and Validation Act of 1997 and affirmed the judgment of the High Court. Hence, the appeals were dismissed by the Court.

CASE NAME: NHPC V/s State Of Himachal Pradesh