Financier Possessing Vehicle Based On Hire-Purchase Or Hypothecation Agreement Liable To Pay Tax Under U.P. Motor Vehicles Taxation Act: Supreme Court

Upholding a Full bench judgment of the Allahabad High Court, the Supreme Court observed that a financier in possession 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 under U.P. Motor Vehicles Taxation Act, 1997.

The liability is from the date of taking possession of the said vehicle under the said agreements, the bench comprising Justices MR Shah and BV Nagarathna observed.

Mahindra and Mahindra Financial Services Ltd. had approached the Apex Court challenging the High Court judgment which held that it is liable to pay tax under the Act. Mahindra and Mahindra Financial Services Limited, is a financier, who had extended a loan for purchase of a transport vehicle. On default in payment of loan, it had taken the possession of the vehicle in question. The issue raised in this case was whether a  Financier of a motor vehicle/ transport vehicle in respect of which a hire-purchase, lease or hypothecation agreement has been entered, is liable to tax from the date of taking possession of the said vehicle under the said agreements, even if, its name is not entered in the Certificate of Registration or not?

The appellant's contention was that unless and until the transport vehicle possessed by the financier is put to use, there shall not be any liability of the financier to pay the tax. As as the original certificate of registration and the permit would be with the registered owner, the financier cannot use the transport vehicle in the absence of having any permit and/or certificate of registration and thus there cannot be any liability on the financier to pay the tax imposed under the Act, 1997, it contended. On the other hand, the State contended that  financier-in possession of the transport vehicle being an "owner", as defined under the Act, 1997, is liable to first pay the tax.

The court noted that Section 51 of the Motor Vehicles Act provides for special provisions regarding motor vehicle subject to hire-purchase agreement, etc

"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 hire purchase 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". the court observed.

Referring to relevant provisions of the Act, 1997, the bench, while dismissing the appeal, observed thus:

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 26 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. 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.

Headnotes

Case name| no. | date: Mahindra and Mahindra Financial Services Ltd. vs State of U.P. | CA 1217 of 2022 | 22 Feb 2022

Citation: 2022 LiveLaw (SC) 198

Coram: Justices MR Shah and BV Nagarathna

Counsel: Adv Prashant Kumar for appellant, Sr. Adv Garima Prasad for respondent- State