While upholding the provision of imposing levy of tax under the Bihar Motor Vehicles Taxation Act 1994, the SC said manufacturers are liable to pay tax for possession of chassis of motor vehicles manufactured by them before they are delivered to dealers and/or purchasers.

The Bihar government, under Section 6 of the 1994 Act, imposed penalty on Tata Motors for chassis of motor vehicles manufactured by it during the period the chassis was in its “possession”, i.e. before they are delivered to dealers and/or purchasers of the said vehicles.

While Section 5, which is the charging section, says that every owner of a registered motor vehicle is under an obligation to pay tax on such vehicle, liability under Section 6 is cast on the manufacturer or a dealer to pay tax in respect of motor vehicles in his possession in the course of his business under the authorisation of trade certificate granted under the Central Motor Vehicle Rules, 1989. The tax levied is 1/12th of the tax payable for the year for such vehicles.

“We are of the opinion that the appellants (Tata) are liable to pay tax under Section 6 of the Bihar Act. May be, Section 6 is not happily worded. But the intent is to convey that tax will not be payable as per Schedule I which is payable under Section 5, but in place thereof it would be payable as per Schedule III. Insofar as imposition of penalty is concerned, it is as per the provisions of Section 23 of the Act which mentions that for non-payment of tax under the Act, penalty can be imposed,” the judgment stated.

Tatas had challenged the vires of Section 6 on the ground that the state Legislature lacks competence to make a provision of this nature. It argued that the Bihar Act was enacted by the state Legislature under Entry 57 of List II (State List) of the VIIth Schedule of the Constitution, which does not empower the state Legislature to impose tax on vehicle merely on possession.

The Patna HC, however, rejected this contention saying under this entry, taxes on vehicles which are suitable for use on roads can be imposed. Therefore, the provision which stipulates the manufacturer or a dealer of a motor vehicle, in respect of the motor vehicle in his possession in the course of business as such a manufacturer or dealer shall pay tax, is within the legislative competence of Entry 57, the apex court said while confirming the HC’s view.