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Mahindra and Mahindra Financial Services Ltd. vs The State of Uttar Pradesh and Ors.

Civil Appeal · 2022 INSC 221Decided 22 Feb 2022
Civil Appeal No. 1217 of 2022

Background

A finance company had lent money for the purchase of a transport vehicle and took possession of it after the borrower defaulted on repayment. The Uttar Pradesh Motor Vehicles Taxation Act, 1997 required tax to be paid on transport vehicles, and a full bench of the Allahabad High Court had ruled that the financier-in-possession was liable to pay this tax even though the registration certificate was still in the original owner's name. The financier appealed, arguing tax should only be payable once the vehicle is actually put to use.

Decision Breakdown

The Supreme Court held that a financier in possession of a vehicle under a hire-purchase, lease or hypothecation agreement qualifies as an "owner" under the Act and the Motor Vehicles Act, and is therefore liable to pay tax from the date it takes possession, regardless of whether the vehicle is actually being used. The Court explained the statutory scheme requires tax to be paid in advance and only afterward can a refund be claimed under Section 12 if the vehicle is later shown not to have been used; it rejected the "use first, pay later" argument as it would make the advance-tax provision meaningless. The appeal was dismissed with no order as to costs.

Lesson Learnt

A financier who repossesses a vehicle after a loan default steps into the shoes of an "owner" for tax purposes and must pay the statutory tax up front, later claiming a refund (subject to conditions) only if the vehicle genuinely goes unused.

Official source (sci.gov.in)View Judgment (PDF)

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