Case: Mahindra and Mahindra Financial Services Ltd Vs. State of U.P. and Ors

2. As above stated, that the appellant – 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 dispute is liability to pay tax under the U.P. Motor Vehicles Taxation Act, 1997 (hereinafter referred to as the Act, 1997) on such financier-in-possession of the vehicle. Before the High Court, the following question was referred to the Full Bench:-1. Whether in view of Sections 2(g), 2(h), 4, 9, 10, 12, 13, 14 and 20 of the Act, 1997 read with Sections 39, 50 and 51 of the Act, 1988 and other relevant provisions of the said enactments and the Rules of 1998 and 1989, 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? If not, who is liable in this regard?2.1 By the impugned judgment and order, the High Court has held against the appellant – financier and has held that the appellant being in possession of the vehicle as a financier is liable to pay tax under the Act, 1997.2.2 Feeling aggrieved and dissatisfied with the impugned judgment and order holding that the appellant as a financier-in-possession of the transport vehicle in question is liable to pay the tax under the Act, 1997, the appellant – financier has preferred the present appeal.

Court's reasoning:
9. On a conjoint reading of the aforesaid provisions, it can be seen that in respect of a transport vehicle, the tax is to be paid in advance as monthly tax or yearly tax, as the case may be, and only thereafter such vehicle shall be put to use.Therefore, before any transport vehicle is put to use or used, the owner is liable to pay the tax in advance and only thereafter the vehicle can be used or operated. The wordings of Section 4(2-A) are very clear that no public service vehicle SHALL BE USED in any public place unless a monthly tax at such rate as may be notified by the State Government is paid in respect thereof. As per Section 9(1)(iv)(a), the tax payable under sub-section (2-A) of Section 4 shall be payable in advance on or before fifteenth day of each month next following. Therefore, the requirement under law is to first pay the tax in advance as provided under Section 9 and thereafter to use the vehicle. In other words, it is pay the tax and use and not use and pay the tax. Therefore, the submission on behalf of the appellant-financier that tax has to be paid at the time of use or thereafter cannot be accepted. If such a submission is accepted, in that case, Section 9(1)(iv)(a), which provides for the amount of tax to be paid in advance will become redundant and/or nugatory.9.1 However, in a case where, after the tax is paid as per Section 4(2- A) read with Section 9, the vehicle is not used and there is non-use of the vehicle, the operator and/or the owner, as the case may be, may apply and claim for refund as per Section 12 and may get the refund subject to fulfilling all the requirements as provided under Section 12. The question of refund will come only when the tax is first paid and thereafter on non-use, the tax paid is to be refunded, of-course subject to fulfilling the requirements of claiming the refund as provided under Section 12 of the Act, 1997.10. The sum and substance of the aforesaid discussion would be that the owner or operator has to first pay the tax in advance and thereafter if the transport vehicle is not used for a continuous period of one month or more since the tax was last paid, he may have to apply for the refund, which may be granted subject to compliance of the necessary requirements as per first proviso to Section 12 and subject to satisfaction of the Taxation Officer that the transport vehicle has not been used for a continuous period of one month or more since the tax was last paid.10.1 There is only one eventuality where no tax or advance tax under the Act, 1997 shall be payable namely under sub-section (2) of Section 12, where the operator or, as the case may be, the owner of a motor vehicle, does not intend to use his vehicle for a period of one month or more, he shall, before the date the tax or additional tax, as the case may be, is due, surrender the certificate of registration, the token, if any, issued in respect of the motor vehicle and the permit, if any, to the Taxation Officer of the region where the tax or additional tax was last paid and only on such surrender, no tax or additional tax under Act, 1997 shall be payable in respect of such vehicle for each completed calendar month of the period during which the vehicle remains withdrawn from use and the aforesaid documents remain surrendered with the Taxation Officer.11.1 An identical question came to be considered by the Gujarat High Court in the case of Abdul Samad Abdul Hamid Shaikh (supra), where in paragraphs 5.3 and 5.4, it is observed and held as under:-5.3 ………………………..If the vehicle is repossessed by the financier subsequently, in that case the remedy available to such financier would be by submitting an appropriate application before the appropriate authority of non-use of such vehicle and for the period of such non- use the liability to pay the tax shall not arise. Otherwise, the liability to pay the tax continues.5.4 Section 4(1) of the Act, 1958 provides that the tax is required to be paid in advance by every registered owner, or any person having possession or control, of such motor vehicles. Section 8 of the Act, 1958 provides that if the tax leviable in respect of any motor vehicle remains unpaid by any person liable for the payment thereof, and such person before having paid the tax has transferred the ownership of such vehicle or has ceased to be in possession or control of such vehicle, the person to whom the ownership of the vehicle has been transferred or the person who has possession or control of such vehicle shall also be liable to pay the said tax to the Taxation Authority…12. In view of the above discussion and for the reasons stated above, 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 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.