Mahindra and Mahindra Financial Services Ltd vs State of U.P.

Mahindra and Mahindra Financial Services Ltd vs State of U.P.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1217 OF 2022

Mahindra and Mahindra

Financial Services Ltd. …Appellant(s)

Versus

State of U.P. and Ors. …Respondent(s)

J U D G M E N T

M.R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned judgment

and order dated 16.12.2019 passed by the Full Bench of the High Court

of judicature at Allahabad, Bench Lucknow in Writ Petition No. 4529 of

2018 by which the High Court has dismissed the said writ petition

preferred by the appellant herein and held that the appellant herein as a

financier-in-possession of the transport vehicle is liable to pay tax under

the U.P. Motor Vehicles Taxation Act, 1997, the original writ petitioner,

the financier has preferred the present appeal. The said financier had

extended a loan for the purchase of the transport vehicle and on default

in payment of the loan is in possession of the vehicle in question.

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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

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transport vehicle in question is liable to pay the tax under the Act, 1997,

the appellant – financier has preferred the present appeal.

3. Shri Prashant Kumar, learned counsel has appeared on behalf of

the appellant and Ms. Garima Prasad, learned Senior Advocate has

appeared on behalf of the State of U.P.

4. Learned counsel appearing on behalf of the appellant has taken us

through the relevant provisions of the Act, 1997 and also the provisions

of the Motor Vehicles Act, 1988 (hereinafter referred to as “Act, 1988”) in

support of his submission that being a financier-in-possession of the

transport vehicle, who has taken the possession of the transport vehicle

in question on default in payment of the loan, unless the said transport

vehicle is put to use and/or is being actually used, there shall not be any

liability on the appellant-financier to pay the tax payable under the Act,

1997.

4.1 Learned counsel appearing on behalf of the appellant has

vehemently submitted that the appellant is the financier, who had

extended a loan for purchase of the transport vehicle in question and on

default in payment of the loan, it took possession of the vehicle in

question. That the registered owner had paid all the taxes prior to the

date of such possession by the appellant-financier.

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4.2 It is submitted that the taxes due and payable under the Act, 1997

are on the ‘use’ of the transport vehicle. It is submitted therefore 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.

4.3 It is vehemently submitted by learned counsel appearing on behalf

of the appellant by relying upon Section 4(2-A), Section 6 and Section 9

that the Scheme of the Act emphasizes the operation of the vehicle

specifically a transport vehicle. It is submitted that on the operation/use

of a transport vehicle preliminary and additional tax is imposed on such a

public transport vehicle. It is contended that it is for this reason, both,

the operator and owner of the vehicle are included in the definition for

payment of tax in addition to registered owner. It is urged therefore that

the most important factor is operation/running of a vehicle as a precondition for imposition of tax. It is submitted that the aforesaid condition

becomes absolutely essential for the purpose of Section 12, which

provides that even in case the tax is paid in advance for running of

vehicle for a particular period and the same is not actually run for that

period then the refund may be sought and granted in appropriate case.

It is submitted that even for the purpose of refund also, as the financier,

who will not be in possession of a token or permit or the registration

certificate will not be in a position to even pray for refund.

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4.4 It is vehemently submitted by learned counsel appearing on behalf

of the appellant that as the original certificate of registration and the

permit would be with the registered owner, the appellant-financier cannot

use the transport vehicle in the absence of having any permit and/or

certificate of registration. Therefore, there cannot be any liability on the

financier to pay the tax imposed under the Act, 1997.

4.5 Making the above submissions and relying upon a decision of this

Court in the case of State of Maharashtra and Ors. Vs. Sundaram

Finance and Ors., (1999) 9 SCC 1, it is prayed to allow the present

appeal and to hold that the appellant being a financier-in-possession of

the transport vehicle is not liable to pay any tax under the Act, 1997

unless it is put to use.

5. Ms. Garima Prasad, learned Senior Advocate appearing on behalf

of the State has taken us through the entire Scheme of the Act, 1997.

She has submitted that under the provisions of the Act, 1997, every

“owner” and “operator” are liable to pay tax leviable under Section 4.

5.1 It is submitted that the financier, after taking possession of the

transport vehicle under the agreement – hire purchase or lease or

hypothecation, becomes the “owner” under Section 2(h) of the Act, 1997.

That once the financier-in-possession of the transport vehicle becomes

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the “owner”, he is liable to pay the tax leviable under Section 4 of the

Act, 1997. It is contended that as per Section 2(h) of the Act, 1997 and

Section 2(30) of the Motor Vehicles Act, the financier-in-possession can

be said to be the “owner”.

5.2 It is further submitted that in the case of ‘motor vehicles other than

a transport vehicle’, one-time tax is required to be paid at the time of

registration of the vehicle, without which the vehicle cannot be registered

nor can it be used. It is submitted that a case of arrears of tax, additional

tax and penalty would not arise in such a case. That in the case of a

“transport vehicle”, since there is no provision of one-time tax,

operators/owners are required to pay the tax at uniform intervals of time

as per law. It is submitted that as per Section 9(3) read with Section

20(3) both the “owner” and “operator” would be jointly and severally

liable. It is urged that as far as arrears which are due prior to the

financer taking the possession, the primarily liability to pay is on the

owner or operator, and if it is not possible to recover from such a person

for any reason whatsoever, the same is recoverable from financier, as

according to Section 20(2), arrears are first charged over the motor

vehicle. It is submitted therefore that in order to satisfy the first charge,

the person in possession is liable to satisfy the same. But since the

primarily liability is on the registered owner, the financier, after depositing

the arrears of tax, shall be entitled to recovery of the same as per law.

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5.3 It is submitted by Ms. Garima Prasad, learned Senior Advocate

appearing on behalf of the respondent – State of U.P. that Section 4 of

the Act, 1997 is the charging section. That as per Section 4 (2-A) save

as otherwise provided by or under the Act no public service vehicle other

than those referred in sub-section (1-A) and sub-section (2) shall be

USED in any public place in Uttar Pradesh unless a monthly tax at such

rate as may be notified by the State Government is paid in respect

thereof. As per the proviso, instead of monthly tax, a quarterly or a

yearly tax may be payable at such rate as may be notified by the State

Government. It is submitted that as per Section 9(1)(iv)(a) the tax

payable under sub-section (2-A) of Section 4 shall be payable in

advance for one calendar month at the time of registration of the vehicle

under the Act, 1988 and thereafter on or before the fifteenth day of each

calendar month next following. It is submitted that such a tax is required

to be paid in advance and hence the liability to pay the tax is first and

then only can the vehicle be used. Therefore, the financier-inpossession of the transport vehicle being an “owner”, as defined under

the Act, 1997, is liable to first pay the tax. That in case, after the

payment of tax, the vehicle is not used, then, after following the

procedure and subject to compliance of Section 12, such a

financier/owner can claim refund of the tax paid. That the question of

refund on non-use will arise only in a case where the tax is first paid. It

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is submitted therefore that the liability to pay the tax would arise first and

only thereafter the refund can be claimed under Section 12 of the Act,

1997.

5.4 So far as the submission on behalf of the appellant-financier that,

as the appellant-financier is not the registered owner and/or the

registration is not transferred in favour of the appellant-financier and the

original permit and certificate of registration of the vehicle, which would

be in the name of the registered owner will be with the registered owner

and therefore the appellant-financier even cannot claim the refund is

concerned, it is contended that it is for the financier, while taking the

possession, to ensure that all the documents are seized. Even the

financier can also pray for another certificate of registration as per the

provisions of the Act, 1988. It is submitted that on the aforesaid ground,

the liability of the financier-in-possession as an “owner” to pay the tax in

advance as per Section 4(2-A) read with Section 9(1)(iv)(a) would not

cease.

5.5 Learned Senior Advocate appearing on behalf of the State has

heavily relied upon the decision of this Court in the case of Jagir Singh

and Ors. Vs. State of Bihar and Ors., (1976) 2 SCC 942 : 1976 (2)

SCR 80 and the decision of the Gujarat High Court dated 25.01.2017 in

Abdul Samad Abdul Hamid Shaikh Vs. State of Gujarat, Special

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Civil Application No.5788 of 2012 in support of her submission that the

financier-in-possession of the vehicle can be said to be the “owner” and

is liable to pay the tax in advance and the only remedy available to such

a financier is to claim refund in case of vehicle is not used, otherwise he

is liable to pay the tax dues.

5.6 Making the above submissions and relying upon above decisions,

it is prayed to dismiss the present appeal.

6. Heard the learned counsel for the respective parties at length.

7. The issue before this Court is, 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.

8. While deciding the present issue, the relevant provisions of the

U.P. Motor Vehicles Taxation Act, 1997 are required to be referred to and

considered. They are Sections 2(h), 4, 9, 10, 12 and 20, which read as

under:-

“2(h) "owner" in respect of a motor vehicle means the

person whose name is entered in the certificate of

registration issued in respect of such vehicle, and where

such vehicle is the subject of an agreement of hire

purchase or lease or hypothecation, the person in

possession of the vehicle under that agreement and

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where any such person is a minor, the guardian of such

minor;

4. Imposition of tax.- (1) Save as otherwise provided in

this Act or the rules made thereunder, no motor vehicle

other than a transport vehicle, shall be used in any public

place in Uttar Pradesh unless a one-time tax at the rate

applicable in respect of such motor vehicle, as may be

specified by the State Government by Notification in the

Gazette has been paid in respect thereof:

Provided that in respect of an old motor vehicle

instead of a one time tax, annual tax applicable to such

motor vehicle as may be specified by the State

Government by Notification in the Gazette may be paid.

(1-A) Save as otherwise provided in this Act or the

rules made thereunder no three wheeler motor cab and

goods carnage having gross vehicle weight not exceeding

3000 kilograms, shall be used in any public place in Uttar

Pradesh unless yearly tax at such rate of such motor

vehicle, as may be specified by the State Government by

notification in the Gazette, has been paid in respect

thereof:

Provided that in respect of a motor vehicle under

this sub-section in lieu of yearly tax such amount of one

time tax may be payable as specified by the State

Government by notification in the Gazette.

Provided also that from the date of commencement

of the Uttar Pradesh Motor Vehicles Taxation

(Amendment) Act, 2014 no motor vehicle other than a

transport vehicle shall be used in any public place after

the expiry of validity of registration under the Motor

Vehicles Act, 1988 unless a green tax at the rate

applicable to such Motor Vehicles as may be specified by

notification, by the State Government has been paid in

respect thereof.

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(2) Save as otherwise provided by or under this Act

no goods carriage other than those specified in subsection (1-A), construction equipment vehicles, specially

designed vehicles, motor cab (other than three wheeler

motor cab), maxi cab and public service vehicles owned

or controlled by the State Transport Undertaking, shall be

used in any public place in Uttar Pradesh unless a

quarterly tax at the rate applicable to such motor vehicle

as may be specified by the State Government by

notification in the Gazette, has been paid in respect

thereof:

Provided that in respect of a motor vehicle under

this sub-section instead of quarterly tax, an yearly tax at

such rate as may be specified by the State Government

may be payable.

(2-A) Save as otherwise provided by or under this

Act no public service vehicle other than those referred 1n

subsection (1-A) and sub-section (2) shall be used in any

public place in Uttar Pradesh unless a monthly tax at such

rate as may be notified by the State Government is paid

in respect thereof:

Provided that in respect a motor vehicle under this

sub-section instead of monthly tax, a quarterly or an

yearly tax at such rate as may be notified by the State

Government may be payable.

(2-B) Where any reciprocal agreement relating to

taxation of goods carried by road is entered into between

the Government of Uttar Pradesh and any other State

Government or a Union Territory, the levy of tax under

sub-section (1-A) or sub-section (2) shall, notwithstanding

anything contained in the said sub-section, be in

accordance with the terms and conditions of such

agreement:

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Provided that the tax so levied shall not exceed the

tax which would otherwise been levied under the Act.

(3) Where any motor vehicle other than a transport

vehicle is found plying as a transport vehicle, such tax

therefore as may be notified by the State Government,

shall be payable.

(4) The State Government may, by notification,

increase by not more than fifty percent, the rates of tax,

specified in Part 'B', Part 'C' or Part 'D' of the First

Schedule.

9. Payment of tax and penalty—(1) Subject to the

provisions of Section 11—

(i) the tax payable under sub-section (1) of section 4

shall be paid at the time of the registration of the vehicle

under the Motor Vehicles Act, 1988:

Provided that in respect of an old motor vehicle, the

tax shall be payable in advance on or before the fifteenth

day of January in each year;

(ii) the tax payable under sub-section (1-A) of

Section 4, shall be payable in advance for one year at the

time of the registration of the vehicle under the Motor

Vehicles Act, 1988 and thereafter on or before be fifteenth

day of the first calendar month of the each year next

following.

(iii) the tax payable under sub-section (2) of Section

4 shall be payable in advance for one quarter at the time

of registration of the vehicle under the Motor Vehicles Act,

1988 and thereafter on or before the fifteenth day of the

first calendar month of the each quarter next following."

(iv) (a) the tax payable under sub-section (2-A) of

Section 4 shall be payable in advance for one calendar

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month at the time of registration of the vehicle under the

Motor Vehicles Act, 1988 and thereafter on or before the

fifteenth day of each calendar month next following.

(b) the special tax payable under Section 4A in

respect of vehicles covered by temporary permit issued

for the conveyance of passengers on special occasions,

such as to and from fairs and religious gatherings or to

carry marriage parties, tourist parties or such other

reserved parties shall be paid at the time of issuance of

such temporary permit.

(2) When any person transfers a motor vehicle

registered in his name to any other person, then without

prejudice to the liability of the transfer or in this regard,

the transferee shall be liable to pay the arrears of tax,

additional tax and penalty, if any, in respect of the motor

vehicle so transferred, due on or before the date of its

transfer, as if the transferee was the owner of the said

motor vehicle during the period for which such tax,

additional tax or penalty is due.

(3) Where the tax or additional tax in respect of a

motor vehicle is not paid within the period specified in

sub-section (1), in addition to the tax or the additional tax

due, a penalty at such rate not exceeding the due amount

as may be prescribed, shall be payable, for which the

owner and the operator if any shall be jointly and

severally liable.

(4) In computing the amount of tax, additional tax or

penalty under this Act the amount shall be rounded off to

the nearest rupee, that is to say a fraction of a rupee

being fifty paise or more shall be rounded off to the next

higher rupee and any fraction less than fifty paise shall be

ignored.

10. Vehicles not to be used in Uttar Pradesh

without payment of tax— (1) Notwithstanding anything

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contained in Section 9, no transport Vehicle shall ply in

Uttar Pradesh—

(a) under a temporary permit granted under the

Motor vehicles Act, 1988 by an authority having

jurisdiction outside Uttar Pradesh unless there has been

paid in respect thereof a tax under Section 4 for its use or

stay in Uttar Pradesh.

(b) under a national permit granted under subsection (12) of Section 88 of the said Act by an authority

having jurisdiction outside Uttar Pradesh unless there has

been paid in respect thereof a tax under Section 4

calculated at the rate specified by the State Government

by Notification in the Gazette in the manner prescribed.

(c) under a permit granted under sub-section (9) of

Section 88 of the said Act read with the Motor Vehicles

(An India Permit for Tourist Transport Operators) Rules,

1993 by an authority having jurisdiction outside Uttar

Pradesh unless there has been paid in respect thereof a

tax under Section 4 at the rate specified by the State

government by notification in the Gazette in the manner

prescribed:

Provided that the State Government may, by

notification, increase by not more than fifty per cent, the

rates of tax or additional tax, as the case may be,

specified in the said Schedules.

(2) For the purpose of levy and payment of tax

under sub-clause (i) of clause (a) of sub-section (1), the

tax payable for any two weeks or part thereof shall be

2/13th of the rate specified in the First Schedule.

(3) In such transport vehicle is found plying in Uttar

Pradesh without payment of the tax or additional tax

payable under this Act such tax or additional tax along

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with a penalty, equivalent to five times of the due tax shall

be payable.

Provided that the tax under this section shall not be

payable in respect of Motor Cabs plying exclusively within

the notified area of Noida, Greater Noida and Ghaziabad

Development Authority from Delhi on the basis of permit

issued by the Transport Authorities of National Capital

Territory Delhi.

Provided further that the tax under this section shall

not be payable in respect of motor cabs (CNG operated)

plying exclusively with the limits of National Capital

Region under the permit granted as per agreement

entered into with the Governments of Uttar Pradesh,

Haryana, Rajasthan and the National Capital Territory of

Delhi.

12. Non-use of vehicle and refund of tax—(1)

When any person who has paid the tax in respect of a

transport vehicle, proves to the satisfaction of the

Taxation Officer in the prescribed manner that the motor

vehicle in respect whereof such tax has been paid, has

not been used for a continuous period of one month or

more since the tax was last paid, he shall be entitled to a

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:

Provided that no such refund shall be admissible

unless such person has surrendered the certificate of

registration, the token, if any, issued in respect of the

vehicle and the permit, if any, to the Taxation Officer,

before the period for which such refund is claimed.

Provided further that where one time tax has been

paid for a motor vehicle under sub-section (I-A) of Section

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4, the amount equivalent to 1/120 for each month shall be

refunded in respect of such vehicle.

(2) 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 on such surrender, no

tax or additional tax under this Act shall be payable in

respect of such vehicle for each complete calendar month

of the period during which the vehicle remains withdrawn

from use and the aforesaid documents remain

surrendered with the Taxation Officer:

Provided that in case such vehicle is found plying

during the period when its documents as mentioned in

this sub-section remain surrendered with the Taxation

Officer, such owner or operator, as the case may be, shall

be liable to the tax and the additional tax as if the

documents were not surrendered and shall also be liable

to the penalty equivalent to five times of the tax and

additional tax.

(3) Where the owner of a motor vehicle in respect

whereof one-time tax has been paid under this Act proves

to the satisfaction of the Taxation Officer in prescribed

manner that such motor vehicle has not been used for a

continuous period of one month or more, he shall be

entitled to a refund of such tax as may be specified by the

State Government by notification in the Gazette for the

said period:

Provided that no such refund shall be admissible,

unless the certificate of registration and the token, if any,

issued in respect of the vehicle are surrendered by the

owner with the Taxation Officer:

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Provided further that the total amount of refund

under this sub-section shall not exceed the one-time tax

paid under this Act.

(4) In calculating the amount of refund under subsection (3) any portion of the period being less than a

month, shall be ignored.

(5) The owner of a motor vehicle other than a

transport vehicle, in respect whereof one-time tax has

been paid under this Act shall be entitled to refund of such

tax at the rates specified by the State Government by

notification in the Gazette on the ground that he has, after

payment of such tax, paid tax in respect of such vehicle

under any enactment relating to any tax on motor vehicles

in any other State or Union Territory as a consequence of

such vehicle having been brought over permanently to

such other State or Union Territory or that such motor

vehicle has been converted into a transport vehicle or that

the registration of such motor vehicle has been cancelled.

(6) Where any person who has paid the tax other

than one-time tax in respect of an old motor vehicle,

proves to the satisfaction of the Taxation Officer that the

motor vehicle, in respect of which such tax has been paid,

has not been used for a continuous period of one month

or more since the tax or installment was last paid, he shall

be entitled to-a refund of an amount equal to one-twelfth,

of the rate of annual tax payable in respect of such

vehicle for each complete calendar month of such period

for which such tax has been paid:

Provided that no such refund shall be admissible

unless such person has surrendered the certificate of

registration and the token, if any, issued in respect of the

vehicle to the Taxation Officer, before the period for which

such refund is claimed.

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(7) An operator of a transport vehicle entitled to any

refund of tax under sub-section (1), shall also be entitled

to refund of such portion of the additional tax paid under

Section 6, as is attributable to the period for which he is

entitled to refund under sub-section (1); and the amount

of. such refund shall be calculated on the same principle

as is laid down in the said sub-section.

(8) Where the operator, or as the case may be, the

owner of a motor vehicle is unable to use his motor

vehicle due to an accident of the said vehicle and the

certificate of registration, the token, if any, issued in

respect of the said vehicle and the permit, if any are

surrendered to the Taxation Officer within a week from the

date of such accident together with a copy of the first

information report, such surrender shall be deemed to

have been made on the date of the accident.

20. Recovery of tax—(1) Arrears of any tax or

additional tax or penalty payable under this Act shall be

recoverable as arrears of land revenue.

(2) The tax, the additional tax and penalty payable

under this Act shall be first charge on the motor vehicle

including its accessories, in respect whereof it is due.

(3) The Taxation Officer shall raise a demand in the

form as may be prescribed, from the owner or operator,

as the case may be, for the arrears of tax and additional

tax and penalty of each year, which shall also include the

arrears of tax, additional tax or penalty, if any, of

preceding years.”

8.1 Section 2(30) the Motor Vehicles Act defines “owner”, which reads

as under:-

(30) “owner” means a person in whose name a motor

vehicle stands registered, and where such person is a

minor, the guardian of such minor, and in relation to a

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motor vehicle which is the subject of a hire-purchase,

agreement, or an agreement of lease or an agreement of

hypothecation, the person in possession of the vehicle

under that agreement;”

8.2 Section 51 of the Motor Vehicles Act provides for special

provisions regarding motor vehicle subject to hire-purchase agreement,

etc. Section 51(1) to Section 51(5) reads as under:-

“51. Special provisions regarding motor vehicle

subject to hire-purchase agreement, etc.—(1) Where

an application for registration of a motor vehicle which is

held under a hire-purchase, lease or hypothecation

agreement (hereafter in this section referred to as the

said agreement) is made, the registering authority shall

make an entry in the certificate of registration regarding

the existence of the said agreement.

(2) Where the ownership of any motor vehicle

registered under this Chapter is transferred and the

transferee enters into the said agreement with any

person, the last registering authority shall, on receipt of an

application in such form as the Central Government may

prescribe from the parties to the said agreement, make an

entry as to the existence of the said agreement in the

certificate of registration 2 and an intimation in this behalf

shall be sent to the original registering authority if the last

registering authority is not the original registering

authority.

(3) Any entry made under sub-section (1) or subsection (2), may be cancelled by the last registering

authority on proof of the termination of the said

agreement by the parties concerned on an application

being made in such form as the Central Government may

prescribe and an intimation in this behalf shall be sent to

the original registering authority if the last registering

authority is not the original registering authority.

(4) No entry regarding the transfer of ownership of

any motor vehicle which is held under the said agreement

shall be made in the certificate of registration except with

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the written consent of the person whose name has been

specified in the certificate of registration as the person

with whom the registered owner has entered into the said

agreement.

(5) Where the person whose name has been

specified in the certificate of registration as the person

with whom the registered owner has entered into the said

agreement, satisfies the registering authority that he has

taken possession of the vehicle from the registered owner

owing to the default of the registered owner under the

provisions of the said agreement and that the registered

owner refuses to deliver the certificate of registration or

has absconded, such authority may, after giving the

registered owner an opportunity to make such

representation as he may wish to make (by sending to

him a notice by registered post acknowledgement due at

his address entered in the certificate of registration) and

notwithstanding that the certificate of registration is not

produced before it, cancel the certificate and issue a fresh

certificate of registration in the name of the person with

whom the registered owner has entered into the said

agreement:

Provided that a fresh certificate of registration shall

not be issued in respect of a motor vehicle, unless such

person pays the prescribed fee:

Provided further that a fresh certificate of

registration issued in respect of a motor vehicle, other

than a transport vehicle, shall be valid only for the

remaining period for which the certificate cancelled under

this sub-section would have been in force.”

8.3 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 hirepurchase 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

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question owing to non-payment of the loan amount is an “owner” under

the relevant provisions of the Act, 1997 and Act, 1988.

8.4 Section 4 of the Act, 1997 is the charging section. As per

Section 4, no motor vehicle other than a transport vehicle, shall be used

in any public place in Uttar Pradesh unless a one-time tax at the rate

applicable in respect of such motor vehicle has been paid in respect

thereof. Section 4 (2-A) provides that no public service vehicle

(transport vehicle) other than those referred in sub-section (1-A) and

sub-section (2) SHALL BE USED in any public place in Uttar Pradesh

unless a monthly tax at such rate as may be notified by the State

Government is paid in respect thereof. It further provides that in respect

of a motor vehicle under Section 4(2-A) instead of monthly tax, a

quarterly or a yearly tax at such rate as may be notified by the State

Government may be payable. Section 9 provides for payment of tax and

penalty. As per Section 9(1)(iv)(a) the tax payable under sub-section (2-

A) of Section 4 shall be payable in advance for one calendar month at

the time of registration of the vehicle under the Motor Vehicles Act, 1988

and thereafter on or before the fifteenth day of each calendar month next

following. Section 12 provides for non-use of vehicle and refund of tax.

As per Section12(1) when any person who has PAID THE TAX in

respect of a transport vehicle, proves to the satisfaction of the Taxation

Officer in the prescribed manner that the motor vehicle in respect

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whereof SUCH TAX HAS BEEN PAID, has not been USED for a

continuous period of one / month or more since the tax was last paid, he

shall be entitled to a 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, Section 12(2) provides that 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 on such

surrender, no tax or additional tax under Act, 1997 shall be payable in

respect of such vehicle for each complete calendar month of the period

during which the vehicle remains withdrawn from use and the aforesaid

documents remain surrendered with the Taxation Officer. As per proviso

to sub-section (2) of Section 12 in case such vehicle is found plying

during the period when its documents as mentioned in sub-section (2) of

Section 12 remain surrendered with the Taxation Officer, such owner or

operator, as the case may be, shall be liable to tax and additional tax as

if the documents were not surrendered and shall also be liable to penalty

equivalent to five times of the tax and additional tax.

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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

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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

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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. The submission on behalf of the petitioner is that many a time, the

documents referred to in sub-section (2) of Section 12 are not with the

financier/owner and they remain with the registered owner and therefore

such a financier/owner may not be able to get the refund under subsection (1) of Section 12 or exemption from payment of tax as per subsection (2) of Section 12 is concerned, on the aforesaid ground, the

liability of the owner/financier to pay the tax will not cease. It is for the

financier to acquire the documents such as original registration

certificate, permit, token etc. from the registered owner at the time of

seizure of the vehicle. If, for any reason, the financier/owner is not able

to secure the documents, then he has to follow the procedure for getting

fresh certificate of registration as provided under Section 51 of the Act,

1988. Therefore, before seeking refund under sub-section (1) of Section

12 or before he is exempted from payment of tax under sub-section (2)

of Section 12, such an operator / owner has to comply with and fulfill all

the conditions, which are mentioned therein.

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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 nonuse 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

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.

Under the circumstances, the impugned judgment and order

passed by the Full Bench of the High Court does not warrant any

interference by this Court. The appeal stands dismissed accordingly.

However, in the facts and circumstances of the case, there shall be no

order as to costs.

………………………………….J.

 [M.R. SHAH]

NEW DELHI; ………………………………….J.

FEBRUARY 22, 2022. [B.V. NAGARATHNA]

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Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले