Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: cpt :: form 3cd :: empanelment :: articles on VAT and GST in India :: ACCOUNTING STANDARD :: VAT Audit :: Central Excise rule to resale the machines to a new company :: TDS :: VAT RATES :: ARTICLES ON INPUT TAX CREDIT IN VAT :: due date for vat payment :: TAX RATES - GOODS TAXABLE @ 4% :: ACCOUNTING STANDARDS :: list of goods taxed at 4% :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes
News Headlines »
 CBDT issues second round of Certificates of Appreciation to tax payers for their contribution towards Nation building
 FinMin looks at cut in corporation tax
 Draft Rules for prescribing the method of valuation of fair market value in respect of the trust or the institution-Chapter XII-EB of the Income-tax Act, 1961- reg.
 India is moving towards a flawed GST
 ICAI to organise two-day international conference in Hyderabad
 Here's how to calculate tax payable on your capital gains
 Income Tax calculations for the financial year 2016-17
 CPE Events 17 October - 22 October 2016
 High Court raps I-T Department for wrong tax demand
  CBDT signs 5 advance pricing pacts with Indian taxpayers
 Finance ministry warns tax officials of action against GST protest

Tax as penalty is not valid
November, 15th 2006

Although the Supreme Court has delivered several judgements this year distinguishing tax from fee, some loose ends still need to be taken care of. 
The Supreme Court and the high courts seem to still be sorting out the distinction between tax and fee. In a recent order, the Supreme Court had declared the principles to be followed by the high courts and asked them to decide the issue in cases before them within five months.Meanwhile, the Supreme Court confronted the problem of interpretation on this score recently in Hardev Motor Transport vs State of Madhya Pradesh. 
The issue revived again in the context of contract carriage permits. The transport authorities charged holders of contract carriage permits for using their vehicles as stage carriages. This was contravention of the Motor Vehicles Act. According to the Madhya Pradesh Motor Karadhan Adhiniyam, motor vehicles plying without permits shall pay tax at the rate of Rs 1,500 per seat per month. The same levy shall be applicable if the vehicles run on an unauthorised route or make a trip thats not authorised by the permit. 
The law-makers, in their wisdom, imposed a tax by way of penalty. The state can make a law for imposing penalty for non-payment of tax or evasion of tax. But the state cannot indirectly levy a penalty by specifying a rate of tax for violation of a regulation. 
In this case, the transporters had paid tax as specified for in permits granted in their favour for contract carriages. The rate of tax payable for a contract carriage is higher than the rate of tax imposed on a stage carriage. For non-payment of tax or for payment of tax for a wrong purpose, a penalty can be imposed. 
However, according to the Supreme Court, it is difficult to conceive that a different rate of tax which is not contemplated in the law can be imposed by way of penalty. 
In a judgment delivered earlier this year by the constitution bench of the Supreme Court, Jindal Stainless Ltd vs State of Haryana, the principles of imposition of tax, compensatory tax and levy of fee were analysed. Regarding tax, the court said: Tax is levied as a part of common burden. The basis of a tax is the ability or the capacity of the taxpayer to pay. There is no identification of a specific benefit and even if such identification is there, it is not capable of direct measurement. It is assessed on certain elements of business, such as manufacture, purchase, sale, consumption, use, capital, and so on. 
The constitution bench then distinguished licence thus: A fee is generally a term of a licence. A tax is a payment where the special benefit, if any, is converted into common burden. A tax can be progressive. 
However, a fee or a compensatory tax has to be broadly proportional and not progressive. A tax may be progressive or proportional to income, property, expenditure or any other test of ability or capacity. 
Compensatory taxes, like fees, are always proportionate to benefits. They are based on the principle of equivalence. A compensatory tax is levied on an individual as a member of a class whereas a fee is levied on an individual as such. 
Even though the constitution bench thus elaborately dealt with the issue of tax and fee, in a judgment of the court delivered by a two-judge bench later this year a doubt was cast on the validity of that view. In Vijayalashmi Rice Mill vs Commercial Tax Officer, the court said that the Jindal Steel judgment was delivered in connection with Article 301 of the Constitution and it was not regarding the nature of the fee. Therefore, it cannot be regarded as an authority explaining the nature of a fee. 
In the transporters case, the Supreme Court also underlined that the executive, while fixing the rate of duty, could not be permitted to usurp the legislative power and make a provision which would be inconsistent with the substantive provision of the statute. An owner of a vehicle having one kind of permit could not have been treated as having no permit at all because the transport authorities have reasons to believe that the conditions of permit have been violated. Consequently, the Supreme Court set aside the rule in the Madhya Pradesh law. 
But it is doubtful whether the basic questions have been settled. Much will depend upon how the high courts apply the principles laid down by the constitution bench decision. In the present case, the two-judge bench has followed the five-judge bench decision, as it was bound to do. 
However, the Vijayalashmi judgment has cast doubt on the applicability of that judgment in other fact-situations. Therefore, it is still too early to say that the last word has been spoken on this contentious issue. 

M J Antony

Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Website Ranking Website Ranking Company Website Positioning Alexa Ranking Website Promotion Website top 10 ranking website top 10 promotion search engine result promotion Strategic Internet Marketing Website Optimization Website Ranking Factors

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions