2022 (12) TMI 1185 - HC - VAT and Sales Tax

High Court quashes circular altering tax collection basis. Demand notices invalidated. Future tax collections must comply.

The High Court ruled in favor of the appellants, quashing the circular dated 29th March 2016 issued by the Transport Commissioner. The Court held that the ... Validity of a circular dated 29th March, 2016 issued by the Transport Commissioner-cum- Chairman, State Transport Authority (STA) - direction to collect tax from the dealers/manufacturers of motor vehicles on the basis of total number of vehicles possessed and registered during the entire year by the dealer - Section 2 (8) of the Motor Vehicles Act, 1988 - HELD THAT:- There is merit also in the contention of the dealers that if the interpretation placed by the Transport Commissioner on Section 5 of the OMVT Act, as accepted by the learned Single Judge, were to be affirmed, then the requirement under Rule 7 of the OMVT Rules, 1976 of the dealers having to give a declaration regarding the number of vehicles possessed under the TC would become entirely redundant. Likewise, the declaration in Form-XIV of the OMV Rules 1993 which also contains a similar declaration would become redundant. The learned Single Judge does not appear to have, while upholding the circular dated 29th March, 2016, discussed either Rule 7 of the OMVT Rules 1976 or Form-XIV of the OMV Rules, 1993. The concept of a TC is that it can be used on several vehicles of the same make and model which are possessed by the dealer under the TC limited to the purposes specified in Rule 41 of the MV Rules. Since the purposes for which the vehicles are used is clearly specified in Rule 41 of the MV Rules, there can be no apprehension of misuse by the dealer of such vehicles for purposes other than Rule 41 of the MV Rules. It will have to be found as a fact that there has been such misuse for which there would have to be an enquiry of some sort preceded by a notice to the concerned dealer. This Court is unable to subscribe to the view of the learned Single Judge that the interpretation placed on Section 5 of the OMVT Act through the impugned instruction is correct and in consonance with the legislative intent behind Section 5 of the OMVT Act and the scope and ambit of that provision. In other words, this Court is of the considered view that the instruction dated 29th March, 2016 is ultra vires Section 5 of the OMVT Act and therefore cannot be sustained in law. Accordingly, this Court quashes the impugned instruction dated 29th March, 2016. Validity of the demand notices issued by STA to each of the Appellants on the basis of the impugned instructions dated 29th March, 2016 - HELD THAT:- The TC fees can be collected strictly only in terms of Rule 81 of the MV Rules and only in respect of the vehicles which the dealer has in his possession under the TC. Accordingly, all the impugned demand notices issued to the respective Appellants both for TC tax and TC fees in respect of vehicles ‘possessed and registered’ in excess of the vehicles covered by the TC issued, are hereby quashed. Refund of the excess TC tax and TC fees collected by the STA on the strength of the interim order passed by this Court - HELD THAT:- The question of refund of this excess amount to the dealer would arise only where that burden has not been passed on by the dealer to the customer. It is for this reason, this Court had in its order dated 18th October, 2022, called for an affidavit from the dealers. The affidavit filed by the dealers is not categorical in this regard. It merely states that “some dealers may have passed on the additional incidence to the customers whereas the others have paid it from their own resources” - it is not possible for this Court to direct refund of excess TC tax and TC fees collected by virtue of the impugned instruction issued by the STA to the RTOs. However, what is clear is that the collection hereafter of TC tax and TC fees on the basis of the impugned instructions dated 29th March, 2016 will have to cease forthwith. Section 5 is both the charging Section as well as the ‘machinery provision’. It indicates that TC tax will become payable in respect of the vehicles possessed by the dealer under the TC certificate and also specifies what is the tax payable if the number of vehicles found in possession under the TC certificate exceeds that number. It also clearly specifies that the tax is to be collected at an annual rate and in advance - Appeal allowed. Issues Involved:1. Validity of the circular dated 29th March 2016 issued by the Transport Commissioner.2. Interpretation of Section 5 of the Odisha Motor Vehicles Taxation Act, 1975 (OMVT Act).3. Authority of the Transport Commissioner to issue instructions altering the basis of tax collection.4. Constitutional validity of Section 5 of the OMVT Act.5. Validity of demand notices issued based on the impugned instruction.6. Refund of excess tax collected based on the impugned instruction.Issue-wise Detailed Analysis:1. Validity of the Circular Dated 29th March 2016:The appeals challenged the judgment of the learned Single Judge upholding the circular dated 29th March 2016, which directed Regional Transport Officers (RTOs) to collect tax from dealers/manufacturers based on the total number of vehicles possessed and registered during the entire year. The learned Single Judge had held that the circular was valid and in consonance with Section 5 of the OMVT Act. However, the High Court found that the circular altered the taxable event from vehicles possessed under a Trade Certificate (TC) to all vehicles possessed and registered during the year, which was beyond the authority of the Transport Commissioner and required an amendment to the statute.2. Interpretation of Section 5 of the OMVT Act:Section 5 of the OMVT Act imposes an annual tax on manufacturers or dealers in respect of vehicles in their possession under the authorization of a TC. The High Court emphasized that this section should be strictly construed as it is a charging section in a taxation statute. The learned Single Judge's interpretation that the tax should be levied on every vehicle possessed and registered during the year was found to be erroneous. The High Court held that the taxable event under Section 5 is the possession of vehicles under the TC, not the total number of vehicles sold or registered during the year.3. Authority of the Transport Commissioner:The High Court found that the Transport Commissioner exceeded his authority by issuing the circular, which effectively changed the basis of tax collection under Section 5 of the OMVT Act. The Commissioner could not alter the taxable event or the machinery provision of the statute through an instruction. The power under Rule 177 of the OMV Rules to issue instructions to RTOs did not extend to changing the basis of a charging section in a taxing statute.4. Constitutional Validity of Section 5 of the OMVT Act:The constitutional validity of Section 5 of the OMVT Act was upheld, referencing similar provisions in the Bihar Motor Vehicles Taxation Act, which had been affirmed by the Supreme Court. The High Court rejected the argument that the field of taxation for motor vehicles was occupied by the MV Act, a Central Act, and that the OMVT Act was beyond the legislative competence of the State.5. Validity of Demand Notices:The demand notices issued based on the impugned circular were found to be invalid as they were not preceded by a show-cause notice or an inquiry. The High Court emphasized that there must be an opportunity for the dealer to show cause why excess TC tax should not be collected. The demand notices were quashed as they were issued without proper procedure.6. Refund of Excess Tax Collected:The High Court noted ambiguity in whether the additional TC tax and fees were passed on to customers by the dealers. Due to the lack of clarity, the Court did not order a refund of the excess tax collected. However, it directed that future collections should strictly comply with Section 5 of the OMVT Act and Rule 81 of the MV Rules.Conclusion:The High Court quashed the circular dated 29th March 2016 and set aside the impugned judgment of the learned Single Judge. It held that the Transport Commissioner had no authority to alter the basis of tax collection under Section 5 of the OMVT Act through an instruction. The demand notices issued based on the circular were also quashed. The appeals were allowed, but no refund of the excess tax was ordered due to ambiguity in whether the tax burden was passed on to customers.