Transport vehicle financier liable to tax under UP law from possession date: SC


The Supreme Court on Tuesday said a financier of a transport vehicle is liable to tax under the Uttar Pradesh Motor Vehicles Taxation Act, 1997, from the date of taking possession of the vehicle.

A bench of Justices M.R. Shah and B.V. Nagarathna said: “It is held that a financier of a motor vehicle/transport vehicle in respect of which a hire-purchase or lease or hypothecation agreement has been entered, is liable to tax from the date of taking possession of the said vehicle under the said agreement.”

“If, after the payment of tax, the vehicle is not used for a month or more, then such an owner may apply for refund under Section 12 of the Act, 1997 and has to comply with all the requirements for seeking the refund as mentioned in Section 12, and on fulfilling and/or complying with all the conditions mentioned in Section 12(1), he may get the refund to the extent provided in sub-section (1) of Section 12.”

The bench added however, only in a case, which falls under sub-section (2) of Section 12 and subject to surrender of the necessary documents as mentioned in sub-section (2) of Section 12, the liability to pay the tax shall not arise, otherwise the liability to pay the tax by such owner/operator shall continue.

It observed the financier gave a loan for the purchase of the transport vehicle and on default, the firm took the vehicle in its possession.

The top court declined to interfere with a judgment of the Allahabad High Court in December 2019, which held that financier in possession of the transport vehicle was liable to pay tax under the 1997 Act, as it dismissed the appeal filed by Mahindra and Mahindra Financial Services Ltd, which moved the apex court challenging the high court verdict.

The financier submitted it is not the registered owner and/or the registration is not transferred in its favour, and the original permit and certificate of registration of the vehicle, which would be in the name of the registered owner will be with the registered owner.

The Uttar Pradesh government counsel argued that under the provisions of the 1997 Act, every owner and operator is liable to pay tax leviable under Section 4.

The bench said: “It is ‘pay the tax and use’ and not ‘use and pay the tax’. Therefore, the submission on behalf of the appellant-financier that tax has to be paid at the time of use or thereafter cannot be accepted. If such a submission is accepted, in that case, Section 9(1)(iv)(a), which provides for the amount of tax to be paid in advance will become redundant and/or nugatory.”

The firm cited provisions of the 1997 Act and the Motor Vehicles Act, 1988 claiming that being a financier-in-possession of the vehicle, “unless the said transport vehicle is put to use and/or is being actually used, there shall not be any liability on the appellant-financier to pay the tax payable under the Act, 1997”.



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