Andhra ruckus on Telangana road tax

Introduction

Telangana has decided to treat transport vehicles registered in Andhra as "vehicles from other states" with effect from April 1, 2015. This effectively imposes a liability on these vehicles to pay road tax for plying in Telangana.

There is a good deal of "protest" from Andhra individuals and media about this decision. Businessman turned politician Kesineni Srinivas alias Kesineni Nani, who not so coincidentally happens to own a thriving transport business, calling in to a live TV "talk show" condemned the decision. According to him, this order violates sections 72 (1) and 72 (2) of the 2014 Telangana act. He also objected to the quantum of tax claiming an amount calculated on the basis of the former 23 districts is too high for the present ten.

The other Andhra panelists promptly agreed with their regional colleague. These worthy gentlemen went on to claim the courts would strike down the order. Chalasani Srinivas, a self proclaimed intellectual, piously observed on a different TV channel that Telangana would lose in the bargain.

A few Andhra talk show participants indulged in a breast beating exercise lamenting the latest decision is another blow to Andhras that allegedly bears the brunt of "bifurcation" & central neglect already.

Andhra Internet users reacted similarly. An Andhra gossip web site called the decision "KCR's vendetta against Andhra". A popular Andhra blogger lamented the fact Andhras would have to pay a tax to Telangana to enter "their own capital".

Andhra transport businesses have not surprisingly taken to action. Many inter-state private buses were been cancelled for a day.

Before we proceed further it may be of interest to note the road tax has been wrongly called "entry tax".

Questions

Let us try to seek answers to the following questions:

·         Does the decision violate the relevant provisions of the 2014 Telangana act?

·         Is the argument on the quantum of tax on a truncated geography sustainable?

·         What is the impact, if any, of the so called "common capital"?

The contention that Telangana would end up losing is not worth serious consideration in my opinion. For starters, why are Andhra politicians losing sleep when their already budget deficit state would gain? Should they not be welcoming the move and seriously consider subsidizing their transport businesses by reimbursing the Telangana road tax in part or even full? If their claim is indeed true, this gives Andhra a golden opportunity to practice good politics combined with good economics. This is a diversionary tactic and/or a mischievous propaganda initiative.

Background

A day before the appointed day, the Governor of the erstwhile state issued an order to the effect that "the quarterly tax paid for any quarter up to March 31, 2015, in any of the successor states shall be deemed to have been paid".

Telangana attempted to quash this through a circular but this was challenged in the High Court by our familiar friend Kesineni Nani. The honorable Court in its interim order directed the successor states to "respect" the Governor's decision. It may be noted here the relevant order lapsed midnight of March 31, 2015.

Another point that may be noted here is that Telangana has already exercised its section 101 rights and adopted the Motor Vehicles Taxation Act, 1963. Please see an earlier post if you would like to know more about how section 101 works.

Relevant extracts from the 2014 Telangana Act

The relevant sections of the Act are stated in sections 72 (1) and 72 (2).

Section 72 (1) consists of two paragraphs. The full text of the first is reproduced below (emphasis mine):

"Notwithstanding anything contained in section 88 of the Motor Vehicles Act, 1988, a permit granted by the State Transport Authority of the existing State of Andhra Pradesh or any Regional Transport Authority in that State shall, if such permit was, immediately before the appointed day, valid and effective in any area in the transferred territory, be deemed to continue to be valid and effective in that area after that day till its period of validity subject to the provisions of that Act as for the time being in force in that area; and it shall not be necessary for any such permit to be countersigned by the State Transport Authority of Telangana or any Regional Transport Authority therein for the purpose of validating it for use in such area"

The second paragraph is a proviso enabling the center to amend or modify the permit conditions in consultation with the concerned states.

Section 72 (2) consists of three paragraphs. The full text of the first is reproduced below (emphasis mine):

"No tolls, entrance fees or other charges of a like nature shall be levied after the appointed day in respect of any transport vehicle for its operations in any of the successor States under any such permit, if such vehicle was, immediately before that day, exempt from the payment of any such toll, entrance fees or other charges for its operations in the transferred territory"

The second paragraph is a proviso enabling the center to authorize such levies in consultation with the concerned state.

The third paragraph is an additional proviso exempting commercial road/bridge tolls constructed/developed by state government bodies from the prohibition.

Impact of the 2014 Telangana Act

One may be surprised (or, on second thoughts, not really) to note none of the critics appear to have examined how the situation was handled in the past. After all, we are not re-inventing the wheel here!

The equivalent sections in the 2000 Chhattisgarh act are numbered at 63 (1) & 63 (2). Sections 67 (1) & 67 (2) Jharkhand serve the same purpose. These sections tally mutatis mutandis with the ones cited above. The only addition in the 2014 Telangana act is the second proviso in 72 (2) relating to commercial tolls did not occur in the earlier acts. While this is presumably because such tolls were non-existent earlier, it is not relevant to our discussions as no one is challenging this aspect.

Having established the fact the impugned sections are nothing new, one should start looking at previous case law. Before doing so however let us examine the text of the sections to understand the meaning. As the provisos are of no concern, I will restrict myself to the first paragraph in both cases.

A plain reading of section 72 (1) establishes the following:

·         A permit issued/renewed by the erstwhile before the appointed day continues to be valid throughout the entire original territorial jurisdiction till its validity ends

·         There is no necessity for these permits to be counter signed by the appropriate Telangana authorities not withstanding section 88 of the 1988 Motor Vehicles Act

·         This is however not a carte blanche as the permit needs to satisfy all other legal requirements in force

What does section 88 of the 1988 act require? Permits issued by a regional authority are not valid beyond the jurisdiction of the authority. Section 88 (1) enables territorial extension of the permit subject to counter signature of the appropriate authority. This requirement is waived in certain cases e.g. for brief forays of less than 16 km in the "other state".

What then is the impact of this section? As per section 81 (1) of the 1988 act, the duration of a permit is 5 years. 2019 not being a leap year, a permit issued/renewed by the erstwhile state is valid without counter signature for period ranging from 1 day through 4 years 363 days from Telangana formation day depending on the original validity.

It may be noted section 72 (1) does not extend to renewals i.e. neither successor state can unilaterally extend a permit expiring on or after June 2, 2014, for a further five years in the original jurisdiction. This does not augur well for the "common capital" votaries J

A permit is an authorization to ply on a public road while road tax relates to the cost of doing so. A transport operator typically has to apply for a road permit in a prescribed form together with other documents including proof of road tax payment for the current quarter. A permit fee needs to be paid over and above the road tax. A vehicle can ply on a public road only during a quarter for which road tax has been paid even if the permit runs for the next few years.

The above clearly establishes that the terms permit & road tax are not equivalent by any stretch of imagination. Section 72 (1) relates only to permits and does not extend to road tax.

In fact this is the essence of the phrase "subject to the provisions". A permit can be enforced only if the vehicle meets other legal provisions including the payment of applicable road tax. Telangana is only restricted from insisting on counter signing the permit and/or charging additional permit fees.

Turning now to section 72 (2) we find:

·         Neither successor state can levy a toll/entry tax on vehicles with a valid permit

·         This prohibition applies only if the impugned vehicle was exempted from such toll/entry tax before the appointed day

A road tax is a charge for using public roads maintained at the cost of the exchequer. As anyone can see, this is neither a toll nor an entry tax.

In any case, the road tax paid in the erstwhile state is by no means a blanket & permanent exemption from all tolls/entry taxes. For example, the erstwhile state would have been fully within its rights to impose an entry tax in any particular area. No transport vehicle could have claimed exemption from such an entry tax before the appointed day. A right that did not accrue in the erstwhile state may not be enforced post Telangana formation.

Let us now go through available case law. Twenty transport operators filed writ petitions under grounds identical to the ones cited by Kesineni Nani and his "fellow travelers". The case (Manoj Sahay & Etc v. Bihar & Ors, 2002) was decided by a Patna High Court division bench consisting of Justice Nagendra Rai & Justice PN Yadav.

The honorable Court rejected the petitioners' contention the road tax they paid in Jharkhand is valid in Bihar as well vide section 67 (1) decreeing:

"Thus, the petitioners cannot claim that once the tax has been paid in the successor State of Jharkhand after the appointed day, the same will be treated to be the payment of tax in the State of Bihar under the Act. The tax under the Act is payable by owner for using or kept for using the roads in the State of Bihar and once the erstwhile State has been bifurcated, the transport vehicles of other States are used or kept for use on the roads of State of Bihar, the vehicle owner is liable to pay tax".

The learned judges reiterated "the person, who has been granted permit by the authority of the State of Bihar is liable to pay tax under the Act in case of use of the transport vehicle in the roads of State of Bihar".

It may be of some interest to our friends that Jharkhand had adopted the relevant vehicle tax with retrospective effect. The honorable Court found no fault with this observing:

"It is well-settled that the State Legislature has plenary power of legislation with regard to the fields occupied by it and they can legislate prospectively as well as retrospectively subject to certain constitutional restrictions. The notification of the State Government of Jharkhand adopting the Act in question clearly provides that it is applicable from 15-11-2000, meaning thereby that any tax paid by the owner of the vehicle even under the provisions of the Act will be treated to have been paid under the new Act. Nothing has been pointed out to show that there is any legal bar in making retrospective operation of the Act".

The learned judges proceeded to dismiss 67 (2) based claims decreeing "Section 67(2) of the Bihar Reorganization Act has no application at all with regard to the payment of tax under the Act". The rationale is explained as:

"There is a difference between the tax and toll. The tax under the Act, as stated above, is a compensatory tax. The toll means the payment realized for some benefits, such as for use of the market, bridge, temporary use of land etc. In case of Tolls the fee is levied according to the benefits taken which is not the case in the case of compensatory tax where it is difficult to measure the benefit with reference to collection of tax".

In the light of the above, it is certain Kesineni Nani and others raising a ruckus will bite the dust at the bench. It is best if they exercise restraint and refrain from pursuing their misadventure any further.

Geography & the quantum of road tax

Having disposed off the major ground, let us now tackle the alleged grievance that the amount is too high given the truncated geographic coverage. Most likely this is just a plan B to haggle over the tax amount once the main grievance is found baseless. Nevertheless we need to check if this makes much sense.

It is a matter of common sense that no transport vehicle would use all the permitted roads merely because the tax paid provides the "eligibility". It is also clear different vehicles would use different road distances even though the tax paid is the same. Even when the erstwhile state existed, no doubt several vehicles plied only in Telangana (or just parts of Telangana) but paid the full road tax.

It becomes clear the amount of road tax has no relationship the distance plied. If a transport operator believes the amount is unviable for his operations, he always has the option of paying a lower amount just for one trip on the selected route. If even this is beyond his capacity, he can always choose not to use Telangana public roads.

Unfortunately for Kesineni Nani & ilk, the honorable Patna High Court dismissed an identical argument raised by Manoj Sahay & others. The learned judges holding "The tax under the Act is a compensatory tax and it is levied upon those, who avail themselves of the services or convenience or advantage of the use of the roads in the State of Bihar".

The honorable Court went on to observe "only on the ground that the length of the road has been reduced after bifurcation, the petitioners cannot challenge the levy of tax collected under the Act".

Road tax & "common capital"

What does the so called "common capital" really mean? As per section 3 of the 2014 Telangana act, every square inch in Hyderabad and Ranga Reddy districts is an integral part of Telangana with effect from June 2, 2014. Andhra governing classes including ministers, legislators and state level bureaucrats are permitted work & live in Hyderabad for a duration that shall not exceed ten years under any circumstances. In other words, a temporary arrangement with no territorial rights whatsoever.

It must be noted no transport vehicle (or, for that matter, any vehicle) can reach Hyderabad without passing through other Telangana districts. These roads and indeed the ones in Hyderabad are all maintained by Telangana. As we saw earlier, the road tax is a compensation towards these costs. Andhra refusal to pay their fair share is unacceptable as it places the other people of Telangana & 27 other states (all of whom pay their fair share) at a disadvantage.

In any case, no one is preventing the Andhra government from reimbursing the additional costs to those visiting their state's offices temporarily situated on Telangana territory.

Even ignoring the above for a moment, let us consider the example of an individual living in Raichur. There is little or no chance for him to reach Bangalore (his "permanent" capital) just by sticking to Karnataka roads. Is he not paying tax to other state(s) just to reach his capital? How is the Andhra "my capital" sentiment superior to his?

Andhra pays no rent on the dozens of Telangana buildings (including heritage structures) being used by their governing elite. These premises enjoy free security as well as subsidized electricity & water. Andhra's contribution to public services (whether roads, law & order, sanitation etc.) in Hyderabad is zilch. All the expenditure used to support Andhra's "capital" is paid in full by Telangana exchequer.

The present demand is tantamount to a freeloading "guest" entertaining his friends at the host's expense.