“Imposition of Lifetime tax on vehicles registered outside Karnataka is ultravires to the Constitution”: Karnataka High Court [DOWNLOAD JUDGMENT]

Wealth Tax - Karnataka High Court - ITAT - Taxscan

In a recent judgment, the imposition of lifetime tax on vehicle owners who registered their vehicles outside the state of Karnataka plying for more than 30 days in the state was challenged by the petitioners through various writ petitions.

Latest amendment to section 3 of the KMVT Act provides for a mandatory condition to levy tax on all motor vehicles suitable for use on roads at the rates specified in part A of the Act. Part A5 of the Act pertains to the Lifetime tax payable for Motor Cars, Jeeps, Omni Buses and Private Service Vehicles and is made dependent on the registration of vehicles. It is emphasized that section 3 of the Act and the schedule would indicate that the levy of lifetime tax is directly linked to the registration of a vehicle, and that registration is the basis of taxation.

The main contention of the petitioners was that the Amendment made to section 3 was ultra vires to the Constitution of India. They contended that the State legislature lacks legislative competence to pass the impugned Amendment as it seeks to legislate on the principles of taxation, which are contained in Entry 35 of List III and is already covered by the MC Act. The State Act, ie, KMVT Act is enacted under Entry 57 of List II. They drew the attention of the Court to a decision made by the Supreme Court in Bolani Ores Ltd v. State of Orissa, in which the apex court made a clear distinction between these two entries. It was held that Entry 57 of State list is solely concerned with taxes on vehicles whether mechanically propelled or not, where Entry 35 of List III deals with also the principles on which the taxes on such vehicles are to be levied. In the light of this interpretation made by the Supreme Court, the petitioners contended that the amendment is void ab initio under Article 254(1) of the Constitution of India and the Central Act will prevail over the State Act.

It was further contended on behalf of the Petitioners that the Amendment is violative of Article14 which ensures the right to equality and Article 19 which guarantees free movement throughout the territory of India under the Indian Constitution. The object of the Amendment was to redress the issue of permanent residents of Karnataka State registering their vehicles outside the State. But here, the instead of redressing these residents, the Amendment victimizes the persons from neighbor States who visits the State. On this basis, it violates the equality principles enshrined under the Constitution of India.

Justice Anand Byrareddy, while deciding the case, the Court took a view in favor of the petitioners and held that the Amendment is ultravires to the Constitution as the State legislature lacks legislative competence under the provisions of the Constitution of India. The payment of lifetime tax was held to be continued under ss. 40 and 47 of the MV Act. The vehicles registered outside the State can be used in the State for 12 months without registration. On expiry of this period, the vehicles needs to be re-registered in the State of Karnataka.

Read the full text of the Judgment here.