MAHINDRA AND MAHINDRA FINANCIAL SERVICES LTD versus STATE OF U.P. AND ORS on 22 February 2022

[2022] 16 S.C.R.

AMAHINDRA AND MAHINDRA FINANCIAL SERVICES LTD.

v.

STATE OF U.P. AND ORS.

(Civil Appeal No. 1217 of 2022)BFEBRUARY 22, 2022

[M. R. SHAH AND B. V. NAGARATHNA, JJ.]

U.P. Motor Vehicles Taxation Act, 1997 : ss. 2 (h), 4, 9, 10,12 and 20 – Payment of tax – Non-use of vehicle and refund of tax– Financier of motor vehicle/transport vehicle in respect of whichChire-purchase, lease or hypothecation agreement entered – Liabilityto pay tax from the date of taking possession of the vehicle –Appellant – financier extended loan for purchase of transport vehicle– However, due to default in payment, took back the possession ofthe vehicle – As regards, the liability to pay tax under the 1997 Act,Dthe High Court held that the appellant being in possession of thetransport vehicle liable to pay tax under the 1997 Act – Held:Financier in possession of the transport vehicle owing to non-payment of loan amount is an ‘owner’ u/s. 2 (h) of the 1997 Actread with s. 2(30) of the 1998 Act – Financier of a motor vehicle/transport vehicle in respect of which a hire-purchase or lease orEhypothecation agreement has been entered, is liable to tax from thedate of taking possession of the said vehicle under the saidagreement – If, after the payment of tax, the vehicle is not used fora month or more, then such an owner may apply for refund u/s. 12and has to comply with all the requirements for seeking the refundF– However, in a case, under sub-section (2) of s. 12 and subject tosurrender of the necessary documents as mentioned in sub-section(2) of s. 12, the liability to pay the tax would not arise – MotorVehicles Act, 1988.

Dismissing the appeal, the CourtG

HELD: 1.1 As per Section 2(h) of the U.P. Motor VehiclesTaxation Act, 1997 read with Section 2(30) of the Motor VehiclesAct, 1988, even a person in possession of the vehicle under thehire- purchase agreement or an agreement of sell or an agreementof hypothecation can also be said to be the “owner”. Therefore,Ha financier like the appellant, who is in possession of the transport vehicle in question owing to non-payment of the loan amount isan “owner” under the relevant provisions of the Act, 1997 andAct, 1988. [Para 8.3][445-D-E]

1.2 The requirement under law is to first pay the tax inadvance as provided under Section 9 and thereafter to use thevehicle. In other words, it is ‘pay the tax and use’ and not ‘useand pay the tax’. Therefore, the submission on behalf of theappellant-financier that tax has to be paid at the time of use orthereafter cannot be accepted. However, in a case where, afterthe tax is paid as per Section 4(2- A) read with Section 9, thevehicle is not used and there is non-use of the vehicle, theoperator and/or the owner, as the case may be, may apply andclaim for refund as per Section 12 and may get the refund subjectto fulfilling all the requirements as provided under Section 12.The question of refund will come only when the tax is first paidand thereafter on non-use, the tax paid is to be refunded, of-course subject to fulfilling the requirements of claiming the refundas provided under Section 12 of the Act, 1997. [Para 9, 9.1][446-G; 447-B, C-D]

1.3 The owner or operator has to first pay the tax in advanceand thereafter if the transport vehicle is not used for a continuousperiod of one month or more since the tax was last paid, he mayhave to apply for the refund, which may be granted subject tocompliance of the necessary requirements as per first proviso toSection 12 and subject to satisfaction of the Taxation Officer thatthe transport vehicle has not been used for a continuous periodof one month or more since the tax was last paid. There is onlyone eventuality where no tax or advance tax under the Act, 1997shall be payable namely under sub-section (2) of Section 12, wherethe 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 ormore, he shall, before the date the tax or additional tax, as thecase may be, is due, surrender the certificate of registration, thetoken, if any, issued in respect of the motor vehicle and the permit,if any, to the Taxation Officer of the region where the tax oradditional tax was last paid and only on such surrender, no tax oradditional tax under Act, 1997 shall be payable in respect of suchvehicle for each completed calendar month of the period during AB

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Awhich the vehicle remains withdrawn from use and the aforesaiddocuments remain surrendered with the Taxation Officer. [Para10, 10.1][447-E-H; 448-A]

1.4 The submission that the documents referred to in sub-section (2) of Section 12 are not with the financier/owner andBthey remain with the registered owner and therefore such afinancier/owner may not be able to get the refund under sub-section (1) of Section 12 or exemption from payment of tax asper sub- section (2) of Section 12 is concerned, on the aforesaidground, the liability of the owner/financier to pay the tax will notcease. It is for the financier to acquire the documents such asCoriginal registration certificate, permit, token etc. from theregistered owner at the time of seizure of the vehicle. If, for anyreason, the financier/owner is not able to secure the documents,then he has to follow the procedure for getting fresh certificateof registration as provided under Section 51 of the Act, 1988.DTherefore, before seeking refund under sub-section (1) of Section12 or before he is exempted from payment of tax under sub-section (2) of Section 12, such an operator / owner has to complywith and fulfill all the conditions, which are mentioned therein.[Para 11][448-B-D]

E1.5 A financier of a motor vehicle/transport vehicle inrespect of which a hire-purchase or lease or hypothecationagreement has been entered, is liable to tax from the date oftaking possession of the said vehicle under the said agreement.If, after the payment of tax, the vehicle is not used for a month ormore, then such an owner may apply for refund under Section 12Fof the Act, 1997 and has to comply with all the requirements forseeking the refund as mentioned in Section 12, and on fulfillingand/or complying with all the conditions mentioned in Section12(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 / operatorGshall not be entitled to the full refund but shall be entitled to therefund of an amount equal to one-third of the rate of quarterly taxor one twelfth of the yearly tax, as the case may be, payable inrespect of such vehicle for each thirty days of such period forwhich such tax has been paid. However, only in a case, which H

falls under sub-section (2) of Section 12 and subject to surrenderof the necessary documents as mentioned in sub-section (2) ofSection 12, the liability to pay the tax shall not arise, otherwisethe liability to pay the tax by such owner/operator shall continue.The impugned judgment and order passed by the High Courtdoes not warrant any interference by this Court. [Para 12][449-B-E]

State of Maharashtra and Ors. v. Sundaram Financeand Ors. (1999) 9 SCC 1; Jagir Singh and Ors. v. Stateof Bihar and Ors. (1976) 2 SCC 942 : [1976] 2 SCR80; Abdul Samad Abdul Hamid Shaikh v. State ofGujarat Special Civil Application No. 5788 of 2012 –referred to.

Case Law Reference

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1217of 2022.

From the Judgment and Order dated 16.12.2019 of the High Courtof Judicature at Allahabad, Lucknow Bench in Misc. Bench No. 4529of 2018.

Prashant Kumar, Amarjit Singh Bedi, Advs. for the Appellant.

Ms Garima Prasad, AAG, Pradeep Misra, Suraj Singh, Advs. forthe Respondents.

The Judgment of the Court was delivered by

M. R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 16.12.2019 passed by the Full Bench of the High Courtof judicature at Allahabad, Bench Lucknow in Writ Petition No. 4529 of2018 by which the High Court has dismissed the said writ petitionpreferred by the appellant herein and held that the appellant herein as afinancier-in-possession of the transport vehicle is liable to pay tax underthe U.P. Motor Vehicles Taxation Act, 1997, the original writ petitioner,the financier has preferred the present appeal. The said financier had A

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Aextended a loan for the purchase of the transport vehicle and on defaultin payment of the loan is in possession of the vehicle in question.

2. As above stated, that the appellant – Mahindra and MahindraFinancial Services Limited, is a financier, who had extended a loan forpurchase of a transport vehicle. On default in payment of loan, it hadBtaken the possession of the vehicle in question. The dispute is liability topay tax under the U.P. Motor Vehicles Taxation Act, 1997 (hereinafterreferred to as the “Act, 1997”) on such financier-in-possession of thevehicle. Before the High Court, the following question was referred tothe Full Bench:- C“1. Whether in view of Sections 2(g), 2(h), 4, 9, 10, 12, 13, 14 and20 of the Act, 1997 read with Sections 39, 50 and 51 of the Act,1988 and other relevant provisions of the said enactments and theRules of 1998 and 1989, a Financier of a motor vehicle/ transportvehicle in respect of which a hire-purchase, lease or hypothecationagreement has been entered, is liable to tax from the date of takingDpossession of the said vehicle under the said agreements, even if,its name is not entered in the Certificate of Registration or not? Ifnot, who is liable in this regard?

2.1 By the impugned judgment and order, the High Court has heldagainst the appellant – financier and has held that the appellant being inEpossession of the vehicle as a financier is liable to pay tax under the Act,1997.

2.2 Feeling aggrieved and dissatisfied with the impugned judgmentand order holding that the appellant as a financier-in-possession of thetransport vehicle in question is liable to pay the tax under the Act, 1997,Fthe appellant – financier has preferred the present appeal.

3. Shri Prashant Kumar, learned counsel has appeared on behalfof the appellant and Ms. Garima Prasad, learned Senior Advocate hasappeared on behalf of the State of U.P.

4. Learned counsel appearing on behalf of the appellant has takenGus through the relevant provisions of the Act, 1997 and also the provisionsof the Motor Vehicles Act, 1988 (hereinafter referred to as “Act, 1988”)in support of his submission that being a financier-in-possession of thetransport vehicle, who has taken the possession of the transport vehiclein question on default in payment of the loan, unless the said transport H

vehicle is put to use and/or is being actually used, there shall not be anyliability on the appellant-financier to pay the tax payable under the Act,1997.

4.1 Learned counsel appearing on behalf of the appellant hasvehemently submitted that the appellant is the financier, who had extendeda loan for purchase of the transport vehicle in question and on default inpayment of the loan, it took possession of the vehicle in question. Thatthe registered owner had paid all the taxes prior to the date of suchpossession by the appellant-financier.

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 thereforethat unless and until the transport vehicle possessed by the financier isput 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 onbehalf of the appellant by relying upon Section 4(2-A), Section 6 andSection 9 that the Scheme of the Act emphasizes the operation of thevehicle specifically a transport vehicle. It is submitted that on theoperation/use of a transport vehicle preliminary and additional tax isimposed on such a public transport vehicle. It is contended that it is forthis reason, both, the operator and owner of the vehicle are included inthe definition for payment of tax in addition to registered owner. It isurged therefore that the most important factor is operation/running of avehicle as a pre-condition for imposition of tax. It is submitted that theaforesaid condition becomes absolutely essential for the purpose ofSection 12, which provides that even in case the tax is paid in advancefor running of vehicle for a particular period and the same is not actuallyrun for that period then the refund may be sought and granted inappropriate case. It is submitted that even for the purpose of refundalso, as the financier, who will not be in possession of a token or permitor the registration certificate will not be in a position to even pray forrefund.

4.4 It is vehemently submitted by learned counsel appearing onbehalf of the appellant that as the original certificate of registration andthe permit would be with the registered owner, the appellant-financiercannot use the transport vehicle in the absence of having any permitand/or certificate of registration. Therefore, there cannot be any liabilityon the financier to pay the tax imposed under the Act, 1997.

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A4.5 Making the above submissions and relying upon a decision ofthis Court in the case of State of Maharashtra and Ors. Vs. SundaramFinance and Ors., (1999) 9 SCC 1, it is prayed to allow the presentappeal and to hold that the appellant being a financier-in-possession ofthe transport vehicle is not liable to pay any tax under the Act, 1997unless it is put to use.B

5. Ms. Garima Prasad, learned Senior Advocate appearing onbehalf 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.

C5.1 It is submitted that the financier, after taking possession of thetransport vehicle under the agreement – hire purchase or lease orhypothecation, becomes the “owner” under Section 2(h) of the Act, 1997.That once the financier-in-possession of the transport vehicle becomesthe “owner”, he is liable to pay the tax leviable under Section 4 of theAct, 1997. It is contended that as per Section 2(h) of the Act, 1997 andDSection 2(30) of the Motor Vehicles Act, the financier-in-possession canbe said to be the “owner”.

5.2 It is further submitted that in the case of ‘motor vehicles otherthan a transport vehicle’, one-time tax is required to be paid at the timeof registration of the vehicle, without which the vehicle cannot beEregistered 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 thecase 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 timeas per law. It is submitted that as per Section 9(3) read with SectionF20(3) both the “owner” and “operator” would be jointly and severallyliable. It is urged that as far as arrears which are due prior to the financertaking the possession, the primarily liability to pay is on the owner oroperator, and if it is not possible to recover from such a person for anyreason whatsoever, the same is recoverable from financier, as accordingto Section 20(2), arrears are first charged over the motor vehicle. It isGsubmitted therefore that in order to satisfy the first charge, the person inpossession is liable to satisfy the same. But since the primarily liability ison the registered owner, the financier, after depositing the arrears of tax,shall be entitled to recovery of the same as per law.

5.3 It is submitted by Ms. Garima Prasad, learned Senior Advocateappearing on behalf of the respondent – State of U.P. that Section 4 ofthe Act, 1997 is the charging section. That as per Section 4 (2-A) saveas otherwise provided by or under the Act no public service vehicleother than those referred in sub-section (1-A) and sub-section (2) shallbe USED in any public place in Uttar Pradesh unless a monthly tax atsuch rate as may be notified by the State Government is paid in respectthereof. As per the proviso, instead of monthly tax, a quarterly or ayearly tax may be payable at such rate as may be notified by the StateGovernment. It is submitted that as per Section 9(1)(iv)(a) the tax payableunder sub-section (2-A) of Section 4 shall be payable in advance for onecalendar month at the time of registration of the vehicle under the Act,1988 and thereafter on or before the fifteenth day of each calendarmonth next following. It is submitted that such a tax is required to bepaid in advance and hence the liability to pay the tax is first and then onlycan the vehicle be used. Therefore, the financier-in-possession of thetransport vehicle being an “owner”, as defined under the Act, 1997, isliable to first pay the tax. That in case, after the payment of tax, thevehicle is not used, then, after following the procedure and subject tocompliance of Section 12, such a financier/owner can claim refund ofthe tax paid. That the question of refund on non-use will arise only in acase where the tax is first paid. It is submitted therefore that the liabilityto pay the tax would arise first and only thereafter the refund can beclaimed under Section 12 of the Act, 1997.

5.4 So far as the submission on behalf of the appellant-financierthat, as the appellant-financier is not the registered owner and/or theregistration is not transferred in favour of the appellant-financier and theoriginal permit and certificate of registration of the vehicle, which wouldbe in the name of the registered owner will be with the registered ownerand therefore the appellant-financier even cannot claim the refund isconcerned, it is contended that it is for the financier, while taking thepossession, to ensure that all the documents are seized. Even the financiercan also pray for another certificate of registration as per the provisionsof the Act, 1988. It is submitted that on the aforesaid ground, the liabilityof the financier-in-possession as an “owner” to pay the tax in advanceas 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 Statehas heavily relied upon the decision of this Court in the case of Jagir AB

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ASingh and Ors. Vs. State of Bihar and Ors., (1976) 2 SCC 942 :1976 (2) SCR 80 and the decision of the Gujarat High Court dated25.01.2017 in Abdul Samad Abdul Hamid Shaikh Vs. State of Gujarat,Special Civil Application No.5788 of 2012 in support of her submissionthat 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 remedyBavailable to such a financier is to claim refund in case of vehicle is notused, otherwise he is liable to pay the tax dues.

5.6 Making the above submissions and relying upon abovedecisions, it is prayed to dismiss the present appeal.

C6. Heard the learned counsel for the respective parties at length.

7. The issue before this Court is, whether, a financier of a motorvehicle/transport vehicle in respect of which a hire-purchase, lease orhypothecation agreement has been entered, is liable to tax from the dateof taking possession of the said vehicle under the said agreements.

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8. While deciding the present issue, the relevant provisions of theU.P. Motor Vehicles Taxation Act, 1997 are required to be referred toand considered. They are Sections 2(h), 4, 9, 10, 12 and 20, which readas under:- “2(h) “owner” in respect of a motor vehicle means the personEwhose name is entered in the certificate of registration issued inrespect of such vehicle, and where such vehicle is the subject ofan agreement of hire purchase or lease or hypothecation, theperson in possession of the vehicle under that agreement and whereany such person is a minor, the guardian of such minor; F4. Imposition of tax.- (1) Save as otherwise provided in this Actor the rules made thereunder, no motor vehicle other than atransport vehicle, shall be used in any public place in Uttar Pradeshunless a one-time tax at the rate applicable in respect of suchmotor vehicle, as may be specified by the State Government byNotification in the Gazette has been paid in respect thereof:

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Provided that in respect of an old motor vehicle instead ofa one time tax, annual tax applicable to such motor vehicle asmay be specified by the State Government by Notification in theGazette may be paid.

(1-A) Save as otherwise provided in this Act or the rulesmade thereunder no three wheeler motor cab and goods carnagehaving gross vehicle weight not exceeding 3000 kilograms, shallbe used in any public place in Uttar Pradesh unless yearly tax atsuch rate of such motor vehicle, as may be specified by the StateGovernment by notification in the Gazette, has been paid in respectthereof:

Provided that in respect of a motor vehicle under this sub-section in lieu of yearly tax such amount of one time tax may bepayable as specified by the State Government by notification inthe Gazette.

Provided also that from the date of commencement of theUttar Pradesh Motor Vehicles Taxation (Amendment) Act, 2014no motor vehicle other than a transport vehicle shall be used inany public place after the expiry of validity of registration underthe Motor Vehicles Act, 1988 unless a green tax at the rateapplicable to such Motor Vehicles as may be specified bynotification, by the State Government has been paid in respectthereof.

(2) Save as otherwise provided by or under this Act nogoods carriage other than those specified in sub-section (1-A),construction equipment vehicles, specially designed vehicles,motor cab (other than three wheeler motor cab), maxi cab andpublic service vehicles owned or controlled by the State TransportUndertaking, shall be used in any public place in Uttar Pradeshunless a quarterly tax at the rate applicable to such motor vehicleas may be specified by the State Government by notification inthe 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 maybe specified by the State Government may be payable.

(2-A) Save as otherwise provided by or under this Act nopublic service vehicle other than those referred 1n subsection (1-A) and sub-section (2) shall be used in any public place in UttarPradesh unless a monthly tax at such rate as may be notified bythe State Government is paid in respect thereof:

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Provided that in respect a motor vehicle under this sub-section instead of monthly tax, a quarterly or an yearly tax at suchrate as may be notified by the State Government may be payable.

(2-B) Where any reciprocal agreement relating to taxationof goods carried by road is entered into between the Governmentof Uttar Pradesh and any other State Government or a UnionTerritory, 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:

Provided that the tax so levied shall not exceed the taxwhich would otherwise been levied under the Act.

(3) Where any motor vehicle other than a transport vehicleis found plying as a transport vehicle, such tax therefore as maybe notified by the State Government, shall be payable.

(4) The State Government may, by notification, increase bynot 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 theprovisions of Section 11—

(i) the tax payable under sub-section (1) of section 4 shallbe paid at the time of the registration of the vehicle under theMotor Vehicles Act, 1988:

Provided that in respect of an old motor vehicle, the taxshall be payable in advance on or before the fifteenth day of Januaryin 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 theregistration of the vehicle under the Motor Vehicles Act, 1988and thereafter on or before be fifteenth day of the first calendarmonth of the each year next following.

(iii) the tax payable under sub-section (2) of Section 4 shallbe payable in advance for one quarter at the time of registrationof the vehicle under the Motor Vehicles Act, 1988 and thereafteron or before the fifteenth day of the first calendar month of theeach quarter next following.”

(iv) (a) the tax payable under sub-section (2-A) of Section4 shall be payable in advance for one calendar month at the timeof registration of the vehicle under the Motor Vehicles Act, 1988and thereafter on or before the fifteenth day of each calendarmonth next following.

(b) the special tax payable under Section 4A in respect ofvehicles covered by temporary permit issued for the conveyanceof passengers on special occasions, such as to and from fairs andreligious gatherings or to carry marriage parties, tourist parties orsuch other reserved parties shall be paid at the time of issuanceof such temporary permit.

(2) When any person transfers a motor vehicle registeredin his name to any other person, then without prejudice to theliability of the transfer or in this regard, the transferee shall beliable to pay the arrears of tax, additional tax and penalty, if any, inrespect of the motor vehicle so transferred, due on or before thedate of its transfer, as if the transferee was the owner of the saidmotor vehicle during the period for which such tax, additional taxor penalty is due.

(3) Where the tax or additional tax in respect of a motorvehicle is not paid within the period specified in sub-section (1), inaddition to the tax or the additional tax due, a penalty at such ratenot exceeding the due amount as may be prescribed, shall bepayable, for which the owner and the operator if any shall bejointly and severally liable.

(4) In computing the amount of tax, additional tax or penaltyunder this Act the amount shall be rounded off to the nearestrupee, that is to say a fraction of a rupee being fifty paise or moreshall be rounded off to the next higher rupee and any fraction lessthan fifty paise shall be ignored.

10. Vehicles not to be used in Uttar Pradesh withoutpayment of tax— (1) Notwithstanding anything contained inSection 9, no transport Vehicle shall ply in Uttar Pradesh—

(a) under a temporary permit granted under the Motorvehicles Act, 1988 by an authority having jurisdiction outside UttarPradesh unless there has been paid in respect thereof a tax underSection 4 for its use or stay in Uttar Pradesh.

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(b) under a national permit granted under sub-section (12)of Section 88 of the said Act by an authority having jurisdictionoutside Uttar Pradesh unless there has been paid in respect thereofa tax under Section 4 calculated at the rate specified by the StateGovernment by Notification in the Gazette in the mannerprescribed.

(c) under a permit granted under sub-section (9) of Section88 of the said Act read with the Motor Vehicles (An India Permitfor Tourist Transport Operators) Rules, 1993 by an authority havingjurisdiction outside Uttar Pradesh unless there has been paid inrespect thereof a tax under Section 4 at the rate specified by theState government by notification in the Gazette in the mannerprescribed:

Provided that the State Government may, by notification,increase by not more than fifty per cent, the rates of tax or additionaltax, 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 anytwo weeks or part thereof shall be 2/13th of the rate specified inthe First Schedule.

(3) In such transport vehicle is found plying in Uttar Pradeshwithout payment of the tax or additional tax payable under thisAct such tax or additional tax along with a penalty, equivalent tofive times of the due tax shall be payable.

Provided that the tax under this section shall not be payablein respect of Motor Cabs plying exclusively within the notifiedarea of Noida, Greater Noida and Ghaziabad DevelopmentAuthority from Delhi on the basis of permit issued by the TransportAuthorities of National Capital Territory Delhi.

Provided further that the tax under this section shall not bepayable in respect of motor cabs (CNG operated) plyingexclusively with the limits of National Capital Region under thepermit granted as per agreement entered into with theGovernments of Uttar Pradesh, Haryana, Rajasthan and theNational Capital Territory of Delhi.

MAHINDRA AND MAHINDRA FINANCIAL SERVICES LTD. v.STATE OF U.P. AND ORS. [M. R. SHAH, J.]

12. Non-use of vehicle and refund of tax—(1) Whenany person who has paid the tax in respect of a transport vehicle,proves to the satisfaction of the Taxation Officer in the prescribedmanner that the motor vehicle in respect whereof such tax hasbeen paid, has not been used for a continuous period of one monthor more since the tax was last paid, he shall be entitled to a refundof an amount equal to one-third of the rate of quarterly tax or onetwelfth of the yearly tax, as the case may be, payable in respectof such vehicle for each thirty days of such period for which suchtax has been paid:

Provided that no such refund shall be admissible unless suchperson has surrendered the certificate of registration, the token, ifany, issued in respect of the vehicle and the permit, if any, to theTaxation Officer, before the period for which such refund isclaimed.

Provided further that where one time tax has been paid fora motor vehicle under sub-section (I-A) of Section 4, the amountequivalent to 1/120 for each month shall be refunded in respect ofsuch vehicle.

(2) Where the operator or, as the case may be, the ownerof a motor vehicle, does not intend to use his vehicle for a periodof one month or more he shall, before the date the tax or additionaltax, as the case may be, is due, surrender the certificate ofregistration, the token, if any, issued in respect of the motor vehicleand the permit, if any, to the Taxation Officer of the region wherethe tax or additional tax was last paid and on such surrender, notax or additional tax under this Act shall be payable in respect ofsuch vehicle for each complete calendar month of the period duringwhich the vehicle remains withdrawn from use and the aforesaiddocuments remain surrendered with the Taxation Officer:

Provided that in case such vehicle is found plying duringthe period when its documents as mentioned in this sub-sectionremain surrendered with the Taxation Officer, such owner oroperator, as the case may be, shall be liable to the tax and theadditional tax as if the documents were not surrendered and shallalso be liable to the penalty equivalent to five times of the tax andadditional tax.

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(3) Where the owner of a motor vehicle in respect whereofone-time tax has been paid under this Act proves to the satisfactionof the Taxation Officer in prescribed manner that such motorvehicle has not been used for a continuous period of one month ormore, he shall be entitled to a refund of such tax as may be specifiedby the State Government by notification in the Gazette for thesaid period:

Provided that no such refund shall be admissible, unless thecertificate of registration and the token, if any, issued in respectof the vehicle are surrendered by the owner with the TaxationOfficer:

Provided further that the total amount of refund under thissub-section shall not exceed the one-time tax paid under this Act.

(4) In calculating the amount of refund under sub-section(3) any portion of the period being less than a month, shall beignored.

(5) The owner of a motor vehicle other than a transportvehicle, in respect whereof one-time tax has been paid under thisAct shall be entitled to refund of such tax at the rates specified bythe State Government by notification in the Gazette on the groundthat he has, after payment of such tax, paid tax in respect of suchvehicle under any enactment relating to any tax on motor vehiclesin any other State or Union Territory as a consequence of suchvehicle having been brought over permanently to such other Stateor Union Territory or that such motor vehicle has been convertedinto a transport vehicle or that the registration of such motor vehiclehas 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 satisfactionof the Taxation Officer that the motor vehicle, in respect of whichsuch tax has been paid, has not been used for a continuous periodof 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 foreach complete calendar month of such period for which such taxhas been paid:

Provided that no such refund shall be admissible unless suchperson 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.

(7) An operator of a transport vehicle entitled to any refundof tax under sub-section (1), shall also be entitled to refund ofsuch portion of the additional tax paid under Section 6, as isattributable to the period for which he is entitled to refund undersub-section (1); and the amount of. such refund shall be calculatedon the same principle as is laid down in the said sub-section.

(8) Where the operator, or as the case may be, the ownerof a motor vehicle is unable to use his motor vehicle due to anaccident of the said vehicle and the certificate of registration, thetoken, if any, issued in respect of the said vehicle and the permit,if any are surrendered to the Taxation Officer within a week fromthe date of such accident together with a copy of the firstinformation report, such surrender shall be deemed to have beenmade on the date of the accident.

20. Recovery of tax—(1) Arrears of any tax or additionaltax or penalty payable under this Act shall be recoverable as arrearsof land revenue.

(2) The tax, the additional tax and penalty payable underthis Act shall be first charge on the motor vehicle including itsaccessories, in respect whereof it is due.

(3) The Taxation Officer shall raise a demand in the formas may be prescribed, from the owner or operator, as the casemay be, for the arrears of tax and additional tax and penalty ofeach year, which shall also include the arrears of tax, additionaltax or penalty, if any, of preceding years.”

8.1 Section 2(30) the Motor Vehicles Act defines “owner”, whichreads as under:-

(30) “owner” means a person in whose name a motor vehiclestands registered, and where such person is a minor, the guardianof such minor, and in relation to a motor vehicle which is thesubject of a hire-purchase, agreement, or an agreement of leaseor an agreement of hypothecation, the person in possession of thevehicle under that agreement;”

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8.2 Section 51 of the Motor Vehicles Act provides for specialprovisions regarding motor vehicle subject to hire-purchase agreement,etc. Section 51(1) to Section 51(5) reads as under:- “51. Special provisions regarding motor vehiclesubject to hire-purchase agreement, etc.—(1) Where anapplication for registration of a motor vehicle which is held undera hire-purchase, lease or hypothecation agreement (hereafter inthis section referred to as the said agreement) is made, theregistering authority shall make an entry in the certificate ofregistration regarding the existence of the said agreement.

(2) Where the ownership of any motor vehicle registeredunder this Chapter is transferred and the transferee enters intothe said agreement with any person, the last registering authorityshall, on receipt of an application in such form as the CentralGovernment may prescribe from the parties to the said agreement,make an entry as to the existence of the said agreement in thecertificate of registration 2 and an intimation in this behalf shall besent to the original registering authority if the last registeringauthority is not the original registering authority.

(3) Any entry made under sub-section (1) or sub-section(2), may be cancelled by the last registering authority on proof ofthe termination of the said agreement by the parties concerned onan application being made in such form as the Central Governmentmay prescribe and an intimation in this behalf shall be sent to theoriginal registering authority if the last registering authority is notthe original registering authority.

(4) No entry regarding the transfer of ownership of anymotor vehicle which is held under the said agreement shall bemade in the certificate of registration except with the writtenconsent of the person whose name has been specified in thecertificate of registration as the person with whom the registeredowner has entered into the said agreement.

(5) Where the person whose name has been specified inthe certificate of registration as the person with whom the registeredowner has entered into the said agreement, satisfies the registeringauthority that he has taken possession of the vehicle from theregistered owner owing to the default of the registered owner MAHINDRA AND MAHINDRA FINANCIAL SERVICES LTD. v.STATE OF U.P. AND ORS. [M. R. SHAH, J.]

under the provisions of the said agreement and that the registeredowner refuses to deliver the certificate of registration or hasabsconded, such authority may, after giving the registered owneran opportunity to make such representation as he may wish tomake (by sending to him a notice by registered postacknowledgement due at his address entered in the certificate ofregistration) and notwithstanding that the certificate of registrationis not produced before it, cancel the certificate and issue a freshcertificate of registration in the name of the person with whomthe registered owner has entered into the said agreement:

Provided that a fresh certificate of registration shall not beissued in respect of a motor vehicle, unless such person pays theprescribed fee:

Provided further that a fresh certificate of registration issuedin respect of a motor vehicle, other than a transport vehicle, shallbe valid only for the remaining period for which the certificatecancelled 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 thehire-purchase agreement or an agreement of sell or an agreement ofhypothecation can also be said to be the “owner”. Therefore, a financierlike the appellant, who is in possession of the transport vehicle in questionowing to non-payment of the loan amount is an “owner” under the relevantprovisions of the Act, 1997 and Act, 1988.

8.4 Section 4 of the Act, 1997 is the charging section. As perSection 4, no motor vehicle other than a transport vehicle, shall be usedin any public place in Uttar Pradesh unless a one-time tax at the rateapplicable in respect of such motor vehicle has been paid in respectthereof. Section 4 (2-A) provides that no public service vehicle (transportvehicle) other than those referred in sub-section (1-A) and sub-section(2) SHALL BE USED in any public place in Uttar Pradesh unless amonthly tax at such rate as may be notified by the State Government ispaid in respect thereof. It further provides that in respect of a motorvehicle under Section 4(2-A) instead of monthly tax, a quarterly or ayearly tax at such rate as may be notified by the State Government maybe payable. Section 9 provides for payment of tax and penalty. As perSection 9(1)(iv)(a) the tax payable under sub-section (2-A) of Section 4

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Ashall be payable in advance for one calendar month at the time ofregistration of the vehicle under the Motor Vehicles Act, 1988 andthereafter on or before the fifteenth day of each calendar month nextfollowing. Section 12 provides for non-use of vehicle and refund of tax.As per Section12(1) when any person who has PAID THE TAX inrespect of a transport vehicle, proves to the satisfaction of the TaxationBOfficer in the prescribed manner that the motor vehicle in respectwhereof SUCH TAX HAS BEEN PAID, has not been USED for acontinuous period of one / month or more since the tax was last paid, heshall be entitled to a refund of an amount equal to one-third of the rate ofquarterly tax or one twelfth of the yearly tax, as the case may be payableCin respect of such vehicle for each thirty days of such period for whichsuch tax has been paid. However, Section 12(2) provides that where theoperator or, as the case may be, the owner of a motor vehicle, does notintend 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 respectDof the motor vehicle and the permit, if any, to the Taxation Officer of theregion 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 ofsuch vehicle for each complete calendar month of the period duringwhich the vehicle remains withdrawn from use and the aforesaidEdocuments remain surrendered with the Taxation Officer. As per provisoto sub-section (2) of Section 12 in case such vehicle is found plyingduring the period when its documents as mentioned in sub-section (2) ofSection 12 remain surrendered with the Taxation Officer, such owner oroperator, as the case may be, shall be liable to tax and additional tax asif the documents were not surrendered and shall also be liable to penaltyFequivalent to five times of the tax and additional tax.

9. On a conjoint reading of the aforesaid provisions, it can be seenthat in respect of a transport vehicle, the tax is to be paid in advance asmonthly tax or yearly tax, as the case may be, and only thereafter suchvehicle shall be put to use.G

Therefore, before any transport vehicle is put to use or used, theowner is liable to pay the tax in advance and only thereafter the vehiclecan be used or operated. The wordings of Section 4(2-A) are very clearthat no public service vehicle SHALL BE USED in any public placeunless a monthly tax at such rate as may be notified by the State H

Government is paid in respect thereof. As per Section 9(1)(iv)(a), thetax payable under sub-section (2-A) of Section 4 shall be payable inadvance on or before fifteenth day of each month next following.Therefore, the requirement under law is to first pay the tax in advanceas provided under Section 9 and thereafter to use the vehicle. In otherwords, 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 bepaid at the time of use or thereafter cannot be accepted. If such asubmission is accepted, in that case, Section 9(1)(iv)(a), which providesfor 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 Section4(2-A) read with Section 9, the vehicle is not used and there is non-useof the vehicle, the operator and/or the owner, as the case may be, mayapply and claim for refund as per Section 12 and may get the refundsubject to fulfilling all the requirements as provided under Section 12.The question of refund will come only when the tax is first paid andthereafter on non-use, the tax paid is to be refunded, of-course subjectto fulfilling the requirements of claiming the refund as provided underSection 12 of the Act, 1997.

10. The sum and substance of the aforesaid discussion would bethat the owner or operator has to first pay the tax in advance andthereafter if the transport vehicle is not used for a continuous period ofone month or more since the tax was last paid, he may have to apply forthe refund, which may be granted subject to compliance of the necessaryrequirements as per first proviso to Section 12 and subject to satisfactionof the Taxation Officer that the transport vehicle has not been used fora 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 taxunder the Act, 1997 shall be payable namely under sub-section (2) ofSection 12, where the operator or, as the case may be, the owner of amotor vehicle, does not intend to use his vehicle for a period of onemonth or more, he shall, before the date the tax or additional tax, as thecase may be, is due, surrender the certificate of registration, the token, ifany, issued in respect of the motor vehicle and the permit, if any, to theTaxation Officer of the region where the tax or additional tax was lastpaid and only on such surrender, no tax or additional tax under Act, 1997shall be payable in respect of such vehicle for each completed calendar AB

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Amonth of the period during which the vehicle remains withdrawn fromuse and the aforesaid documents remain surrendered with the TaxationOfficer.

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 withBthe financier/owner and they remain with the registered owner andtherefore such a financier/owner may not be able to get the refund undersub-section (1) of Section 12 or exemption from payment of tax as persub-section (2) of Section 12 is concerned, on the aforesaid ground, theliability of the owner/financier to pay the tax will not cease. It is for thefinancier to acquire the documents such as original registration certificate,Cpermit, token etc. from the registered owner at the time of seizure of thevehicle. If, for any reason, the financier/owner is not able to secure thedocuments, then he has to follow the procedure for getting fresh certificateof registration as provided under Section 51 of the Act, 1988. Therefore,before seeking refund under sub-section (1) of Section 12 or before heDis 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.

11.1 An identical question came to be considered by the GujaratHigh Court in the case of Abdul Samad Abdul Hamid Shaikh (supra),Ewhere in paragraphs 5.3 and 5.4, it is observed and held as under:- “5.3………………………..If the vehicle is repossessed bythe financier subsequently, in that case the remedy available tosuch financier would be by submitting an appropriate applicationbefore the appropriate authority of non-use of such vehicle andFfor the period of such non-use the liability to pay the tax shall notarise. Otherwise, the liability to pay the tax continues.

5.4 Section 4(1) of the Act, 1958 provides that the tax is requiredto be paid in advance by every registered owner, or any personhaving possession or control, of such motor vehicles. Section 8 ofGthe Act, 1958 provides that if the tax leviable in respect of anymotor vehicle remains unpaid by any person liable for the paymentthereof, and such person before having paid the tax has transferredthe ownership of such vehicle or has ceased to be in possessionor control of such vehicle, the person to whom the ownership ofthe vehicle has been transferred or the person who has possession H

or control of such vehicle shall also be liable to pay the said tax tothe Taxation Authority………………….”

12. In view of the above discussion and for the reasons statedabove, it is held that a financier of a motor vehicle/transport vehicle inrespect of which a hire-purchase or lease or hypothecation agreementhas been entered, is liable to tax from the date of taking possession ofthe 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 mayapply for refund under Section 12 of the Act, 1997 and has to complywith all the requirements for seeking the refund as mentioned in Section12, and on fulfilling and/or complying with all the conditions mentioned inSection 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 / operatorshall not be entitled to the full refund but shall be entitled to the refund ofan amount equal to one-third of the rate of quarterly tax or one twelfthof the yearly tax, as the case may be, payable in respect of such vehiclefor 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 12and subject to surrender of the necessary documents as mentioned insub-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 passedby the Full Bench of the High Court does not warrant any interferenceby this Court. The appeal stands dismissed accordingly. However, in thefacts and circumstances of the case, there shall be no order as to costs.

Nidhi Jain and Amarendra Kumar(Assisted by : Iram Jan, LCRA)

Appeal dismissed.

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