“Liability to pay tax under Section 6 is linked with the incidence of manufacturer or the dealer possessing the vehicle which is suitable for use on road during the course of his business.”
The Supreme Court has held that the manufacturers and dealers of vehicles are liable to pay additional tax under Section 6 of the Bihar Motor Vehicles Taxation Act.
Before the Patna High Court, certain manufacturers and dealers had challenged the liability imposed on them to pay tax under Section 6 of the Act, in addition to that payable under Section 7(4) of the Act. Their contention was that the said provision levies the tax on a manufacturer or a dealer of motor vehicles merely on ‘possession’ thereof by such a manufacturer or a dealer. As the high court dismissed their pleas, they moved the apex court.
The bench comprising Justice AK Sikri and Justice MR Shah rejected the contention that the Bihar Act was enacted by the State Legislature under Entry 57 of List II (State List) of the VIIth Schedule to the Constitution of India, which entry does not empower the State Legislature to impose tax on vehicle merely on possession. It agreed with the high court view 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.
The court observed: “Once Section 6 is held to be valid, it is only the interpretation thereof which was to be gone into by the High Court in this round, in order to find out whether the assessment orders passed in respect of these appeals were valid or not. On interpreting this provision, as observed earlier as well, liability to pay tax under Section 6 is linked with the incidence of manufacturer or the dealer possessing the vehicle which is suitable for use on road during the course of his business.”
The court further noted that Sections 5 and 6 operate in altogether different contexts. “Under Section 5, 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.”
The bench also rejected the contention against imposing of penalty for not paying taxes within the prescribed period. It said: “Section 23, in no uncertain terms, lays down that any person who does not pay the tax during the prescribed period shall pay a penalty at the rate prescribed by the State Government together with arrears of tax. Therefore, for non-payment of the tax within the prescribed period, penalty becomes payable at the rates specified in Rule 4.”