Rajasthan HC Upholds Tax on Manufacturers’ Factory Stock, Even If Vehicles Never Use State Roads

The petitioners, manufacturers of motor vehicles in Rajasthan, challenged assessments and demand notices imposing tax under Section 4(1)(d) of the Rajasthan Motor Vehicles Taxation Act, 1951, on vehicles held at their factories before despatch.

They contended that the vehicles did not use Rajasthan’s roads, that no trade certificate was required for stationary factory stock, and that the statutory provisions and notification authorising the levy were invalid.

The petitions also challenged the proviso to Section 39 of the Motor Vehicles Act, 1988 and Rule 33 of the Central Motor Vehicles Rules, 1989.

The petitions arose from assessments for multiple financial years and were heard together.

Entry 57 of List II authorises taxation of vehicles “suitable for use on roads”; actual road use is not, by itself, a constitutional prerequisite.

Under Section 4(1)(d) of the 1951 Act, read with its opening words and Explanation (2), the charge is on a dealer’s or manufacturer’s possession of vehicles in the course of business; the number is determined by the statutory method, including the number declared as likely to be possessed or vehicles sold in the preceding year, whichever is higher.

Section 39 of the 1988 Act prohibits driving an unregistered vehicle in a public place or “any other place”; Rule 33 provides a conditional exemption from registration linked to obtaining a trade certificate.

Jindal Stainless Ltd. v. State of Haryana rejects compensatory-tax theory as a constitutional limit under Part XIII.

Tarachand Logistic Solutions Ltd. v. State of Andhra Pradesh turned on a charging provision expressly confined to use or keeping for use in a public place; Ultratech Cement Ltd. v. State of Gujarat concerned equipment excluded from the definition of motor vehicle because it was adapted only for enclosed-premises use.

The Court also relied on Tata Motors Ltd. v. State of Jharkhand concerning taxation of manufacturers’ vehicles held under a trade-certificate scheme.

The Court read Section 4(1)(d) as imposing a charge on possession in the course of business, not on a vehicle’s journey or actual road use.

“Kept for use in the State” was held to refer to availability for use and to vehicles physically held in Rajasthan, irrespective of their eventual destination.

Section 39’s words “any other place” encompass factory yards and internal roads; accordingly, movement of an unregistered vehicle requires registration or the trade-certificate exemption, although a truly stationary vehicle does not require a certificate merely by being held.

The Court held the levy to be a tax on possession, not manufacture, and found that Jindal Stainless foreclosed the compensatory-tax objection.

The challenges based on double taxation and discrimination also failed.

The Court left objections to the assessment calculations and hearing process for the statutory appeal.

It declared that road use is not an ingredient of the charge and that factory yards and internal roads are “any other place” under Section 39.

The Court did not finally decide whether Rule 33 extends beyond the proviso to Section 39.

Petitioners were permitted to file or revive appeals within eight weeks on specified grounds concerning hearing, the basis for calculating vehicle numbers, and interest, surcharge or penalty; qualifying prior deposits were sufficient for the statutory appeal requirement, and recovery of the balance was stayed pending timely appeals.