Transport Vehicle Financier liable to pay Vehicle Tax from date of taking Possession for Loan default, rules Supreme Court [Read Judgment]

The Supreme Court has ruled that a financier of a transport vehicle, for which a lease or hypothecation agreement has been entered, is liable to pay tax under the Uttar Pradesh Motor Vehicles Taxation Act 1997 from the date of taking possession of the vehicle.

The Appellant Mahindra and Mahindra Financial Services Ltd r had extended a loan for the purchase of the transport vehicle and on default in payment of the loan is in possession of the vehicle in question. On default in payment of loan, it had taken the possession of the vehicle in question. The dispute is liability to pay tax under the U.P. Motor Vehicles Taxation Act, 1997 on such financier-in-possession of the vehicle.

The Supreme Court has upheld the the December 2019 judgment of the Allahabad High Court which had held that the financier-in-possession of the transport vehicle was liable to pay tax under the 1997 Act.

As per Section 2(h) of the Act,1997 read with Section 2(30) of the Act, 1988, even a person in possession of the vehicle under the hirepurchase agreement or an agreement of sell or an agreement of hypothecation can also be said to be the “owner”. Therefore, a financier like the appellant, who is in possession of the transport vehicle in question owing to non-payment of the loan amount is an “owner” under the relevant provisions of the Act, 1997 and Act, 1988.

While dismissing the appeal, the Supreme Court bench comprising of Justice M.R Shah and Justice Nagarathna observed 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, as even under Section 12(1), the owner / operator shall not be entitled to the full refund but shall be entitled to the refund of an amount equal to one-third of the rate of quarterly tax or one twelfth of the yearly tax, as the case may be, payable in respect of such vehicle for each thirty days of such period for which such tax has been paid.

The Apex Court also added that, 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.

Mahindra and Mahindra Financial Services Ltd VS State of U.P. and Ors

CITATION: 2022 TAXSCAN (SC) 116

To Read the full text of the Judgment CLICK HERE

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