Motor vehicle tax liability cannot rest mechanically on registered ownership; authorities must determine actual possession and use.

The petitioner was the registered owner of mini-bus bearing registration No. CG-16-A-0482. She claimed that she sold the vehicle to respondent No. 4, Smt. Babita Shrivastava, under a sale agreement dated 25.04.2011 and handed over possession, with the purchaser agreeing to bear future tax liabilities.

The vehicle, however, continued to remain registered in the petitioner’s name. Relying on a communication dated 30.11.2011, in which the purchaser’s name was referred to and tax was assessed for May–November 2011, the petitioner contended that the authorities were aware of the sale.

After tax dues relating to the vehicle allegedly resulted in action against the petitioner’s other buses, she submitted a representation to the transport authorities. Pursuant to an earlier direction of the High Court in W.P.(C) No. 198 of 2017, the representation was eventually decided by respondent No. 2 on 09/12.12.2024, holding that the petitioner continued to be liable as the registered owner.

Respondent No. 3 consequently raised a demand of ₹5,21,141, comprising tax, penalty and interest. The petitioner challenged the order and demand, contending that liability after the sale could not be imposed upon her merely because the registration certificate had not been changed.

Whether the petitioner could be held liable for motor-vehicle tax under the Chhattisgarh Motoryan Karadhan Adhiniyam, 1991 merely because the vehicle continued to be registered in her name, despite the alleged sale and transfer of possession to respondent No. 4?

Whether tax, penalty and interest could be demanded from the petitioner for the period subsequent to 25.04.2011 without determining who actually possessed, used or operated the vehicle during that period?

Whether the authority was required to reconsider the levy after examining the sale agreement, the communication dated 30.11.2011, actual possession and use, and the effect of administrative delay in deciding the petitioner’s representation?

The Court applied the provisions and scheme of the Chhattisgarh Motoryan Karadhan Adhiniyam, 1991, under which motor-vehicle tax liability must be determined in accordance with the applicable statutory framework.

It recognized that statutory formalities for transfer of ownership under the Motor Vehicles Act ordinarily require compliance and that a private sale agreement, by itself, may not substitute the registered owner in statutory records or automatically bind the State.

However, the Court held that tax liability cannot be determined mechanically solely by reference to the registration certificate where contemporaneous material indicates sale, transfer of possession and cessation of possession or use by the registered owner; the actual possession and use of the vehicle during the relevant period must also be examined.

The petitioner relied upon Mahindra & Mahindra Financial Services Ltd. v. State of U.P., AIR Online 2022 SC 185, concerning the relevance of actual possession and control, but the Court ultimately remitted the matter for factual determination rather than conclusively applying the precedent to fix liability.

The Court found that the authority had proceeded principally on the fact that the vehicle remained registered in the petitioner’s name, without conducting an effective enquiry into her assertion that the vehicle had been sold and possession delivered on 25.04.2011.

The communication dated 30.11.2011 was significant because it emanated from the taxation authority itself and referred to the purchaser, demonstrating that the authorities had at least contemporaneous knowledge of the alleged transaction.

Although the Court acknowledged that a private agreement does not automatically effect statutory transfer of registration, it held that the authority was nevertheless required to determine whether the petitioner had ceased to possess or ply the vehicle and whether respondent No. 4 thereafter possessed or used it.

Since respondent No. 4 had not appeared, the Court declined to make a final finding regarding her liability and directed a fresh enquiry with notice to both parties.

The demand for tax, penalty and interest was therefore unsustainable in its existing form because it had been imposed without determining the relevant factual and legal questions.

The matter was remitted to respondents Nos. 2 and 3 to issue notice to the petitioner and respondent No. 4, examine the sale agreement dated 25.04.2011, transfer of possession, the communication dated 30.11.2011, actual possession and use of the vehicle, and determine the legally liable person after hearing the concerned parties.

If the petitioner was found to have sold the vehicle, transferred possession and ceased to possess or ply it, subsequent tax liability could not be recovered from her merely because her name remained in the registration records.

Penalty and interest were also to be reconsidered, including the effect of administrative delay.

The exercise was directed to be completed preferably within eight weeks, and the writ petition was disposed of accordingly.