The Supreme Court held that motor vehicle tax is compensatory in nature and cannot be charged if a vehicle is not used or kept for use in a public place. Vehicles confined to private premises like RINL’s yard are exempt from such tax.
New Delhi: The Supreme Court has ruled that motor vehicle tax cannot be charged if a vehicle is not used or kept for use in a public place. The Court explained that this tax is compensatory in nature, which means it is collected only when someone actually uses public infrastructure like roads and highways.
A bench of Justices Manoj Misra and Ujjal Bhuyan gave this ruling while hearing an appeal against a December 2024 judgment of the Andhra Pradesh High Court.
The Court said,
“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.”
While discussing Section 3 of the Andhra Pradesh Motor Vehicle Taxation Act, 1963, the bench noted that the law specifically uses the phrase ‘public place’. Section 3 is the charging section that allows the state government to impose tax on motor vehicles.
The judges explained,
“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.”
They further said,
“Therefore, 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.”
In this case, the dispute was about vehicles owned by a firm that were used only inside the premises of Rashtriya Ispat Nigam Limited (RINL) at Visakhapatnam Steel Plant. The firm had deployed 36 vehicles for moving iron and steel materials within the central dispatch yard.
This yard was inside a walled and restricted area, with entry and exit strictly controlled by CISF security. The company argued that since these vehicles never went out onto public roads, they should not be charged motor vehicle tax.
The Supreme Court agreed, saying,
“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.”
Earlier, the firm had approached the Andhra Pradesh authorities for exemption from tax, citing Section 3 of the Act. A single judge of the High Court had supported the company’s argument, holding that the dispatch yard was not a public place, and directed the authorities to refund Rs 22,71,700 to the firm.
But later, a division bench of the High Court set aside that order, which led the firm to approach the Supreme Court.
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The Supreme Court finally allowed the appeal, noting,
“When admittedly the motor vehicles of the appellant firm in this case were confined for use within the Rashtriya Ispat Nigam Limited premises which is a closed area, then question of the vehicles being used or kept for being used in a ‘public place’ does not arise.”
The Court made it clear that the taxable event under Section 3 arises only when a vehicle is either actually used in a public place or kept in a way that shows an intention for public use. Since the vehicles here were used strictly inside private restricted premises, no tax liability could be imposed.
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