In a significant pronouncement on the nature and scope of motor vehicle taxation, the Supreme Court has held that the levy is compensatory in character and cannot be imposed when vehicles are neither used nor kept for use in a public place. The Court overturned a ruling of the Andhra Pradesh High Court, which had denied tax relief to a logistics firm operating within restricted industrial premises.
The Division Bench of Justice Manoj Misra and Justice Ujjal Bhuyan, “Motor vehicle tax is compensatory in nature. It has a direct nexus with the end use. The rationale for levy of motor vehicle tax is that a person who is using public infrastructure, such as, roads, highways etc. has to pay for such usage.”
The controversy arose in relation to Section 3 of the Andhra Pradesh Motor Vehicle Taxation Act, 1963, which authorises the State to levy tax on motor vehicles used or kept for use in a “public place.
The appellant, a logistics company, had deployed 36 vehicles exclusively within the restricted premises of Rashtriya Ispat Nigam Limited (RINL), Visakhapatnam Steel Plant. The central dispatch yard, where the vehicles were operated, was enclosed by compound walls with ingress and egress regulated through gates manned by Central Industrial Security Force (CISF) personnel. No member of the public had any right of access to the premises.
The company sought exemption from payment of motor vehicle tax for the period during which its vehicles were confined to the dispatch yard. A Single Judge of the Andhra Pradesh High Court allowed the plea and directed refund of ₹22,71,700. However, this order was subsequently set aside by a Division Bench of the High Court.
The Bench ruled, “If a motor vehicle is not used in a ‘public place’ or not kept for use in a ‘public place’ then the person concerned is not deriving benefit from the public infrastructure; therefore, he should not be burdened with the motor vehicle tax for such period.”
The judges further clarified that, “the tax is on the user or intendment for use of motor vehicle in a ‘public place’. Thus, if a vehicle is actually used in a ‘public place’ or kept in such a way that it is intended to be used in a ‘public place’ then the tax liability accrues.”
Allowing the appeal, the Apex Court concluded that vehicles confined within RINL premises cannot be subjected to motor vehicle tax, stating, “Therefore, the said vehicles are not liable to be taxed for the period the said vehicles were used or kept for use within the restricted premises of RINL.”
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