Supreme Court Upholds Tax Levy on Manufacturers for Possession of Chassis of Vehicles under Bihar Motor Vehicles Taxation Act [Read Judgment]

While upholding the provision imposing levy of tax under the Bihar Motor Vehicles Taxation Act, 1994, a two-judge bench of the Supreme Court has held that the manufacturer is liable to pay tax for the possession of the chassis of the motor vehicles manufactured by them before they are delivered to the dealers and/or the purchasers of the said vehicles.

The Bihar Government, under section 6 of the Bihar Motor Vehicles Taxation Act, 1994 imposed penalty on the appellants, Tata Motors Ltd, on the chassis of the motor vehicles manufactured by the appellants during the period this chassis are in their “possession”, i.e., before they are delivered to the dealers and/or the purchasers of the said vehicles.

The bench comprising Justice A K Sikri and Justice M R Shah pointed out that after the manufacture of the vehicle when it remains with the manufacturer (or when it remains with the dealer after delivery thereof to the dealer by the manufacturer) and before it is sold to the ultimate consumer, the vehicle is brought on the road and is driven. It may be for the purpose of testing the technical suitability of such a vehicle or when it goes for delivery from the manufacturer’s factory to the dealer’s showroom. Likewise, the dealer may also drive this vehicle for the limited purpose, say it is driven by the customer etc. Since, a vehicle cannot be brought on the road and be driven without any valid registration, contemplates two situations to meet such contingencies.

“Section 2(8) of the MV Act (the Central Act) provides the definition of ‘dealer’. As per this provision, as originally stood, a manufacturer was also included in the definition of ‘dealer’. However, this provision was amended vide Act 54 of 1994 whereby the Legislature omitted ‘manufacturer’ from the ambit of the expression ‘dealer’. The manufacturer, therefore, no more remained the dealer,” the bench said.

“Under Section 5, the tax is payable at the time of registration of the vehicle, which is payable by the registered owner. In contrast, Section 6 is the stage before that as it is on the event of the vehicle being possessed by the manufacturer or dealer. We, therefore, are of the opinion that the appellants are liable to pay tax under Section 6 of the Bihar Act. Maybe, Section 6 is not happily worded.”

Upholding the constitutionality of the provision, the bench upheld the findings of the High Court that the provision which stipulates the manufacturer or a dealer of a motor vehicle, in respect of the motor vehicle in his possession in the course of business as such a manufacturer or dealer shall pay tax, is within the legislative competence of Entry 57.