The Supreme Court has ruled that motor vehicle tax is compensatory in nature and cannot be levied on vehicles that are not used or kept for use in public places. The decision came on August 29, when a bench of Justices Manoj Misra and Ujjal Bhuyan overturned a December 2024 Andhra Pradesh High Court judgment.
Rationale Behind the Ruling
The court explained that the rationale for levying motor vehicle tax lies in compensating the state for public infrastructure usage. Since roads and highways are public assets, tax is justified only when a vehicle uses or is intended for use in a public place. If a vehicle is confined to private premises, it is not benefiting from public infrastructure and therefore should not attract tax.
The Case: Firm vs. State of Andhra Pradesh
The verdict came in response to an appeal filed by a logistics firm that had deployed 36 vehicles exclusively within the Rashtriya Ispat Nigam Limited (RINL) premises in Visakhapatnam. The firm argued that since its vehicles never left the enclosed steel plant yard—guarded by CISF personnel and inaccessible to the public—motor vehicle tax should not apply.
Initially, a single judge of the Andhra Pradesh High Court sided with the firm and directed the state to refund ₹22.71 lakh in taxes. However, the decision was overturned by a division bench, leading to the Supreme Court appeal.
Court’s Interpretation of Section 3
The bench examined Section 3 of the Andhra Pradesh Motor Vehicle Taxation Act, 1963, which authorizes the state to impose taxes when a vehicle is “used or kept for use in a public place.” The court clarified that “public place” was a deliberate choice of the legislature, reinforcing the idea that taxation arises only when vehicles interact with public infrastructure.
Implications of the Judgment
This ruling provides much-needed clarity for businesses operating fleets within closed industrial zones or private premises. It sets a precedent that vehicles restricted to such areas are exempt from motor vehicle tax, potentially saving companies significant sums while aligning taxation strictly with infrastructure usage.
