New Delhi: Motor vehicle tax is compensatory in nature and if a vehicle is not used or not kept for use in a 'public place', then its owner should not be burdened with motor vehicle tax for such period, the Supreme Court has said.

A bench of Justices Manoj Misra and Ujjal Bhuyan delivered its verdict on an appeal challenging a December 2024 judgement of the Andhra Pradesh High Court. "Motor vehicle tax is compensatory in nature. It has a direct nexus with the end use. The rationale for levy of motor vehicle tax is that a person who is using public infrastructure, such as, roads, highways etc. has to pay for such usage," the apex court said.

Referring to section 3 of The Andhra Pradesh Motor Vehicle Taxation Act, 1963, the bench said the legislature has consciously used the expression ‘public place’ in this provision.

Section 3 of the Act deals with levy of tax on motor vehicles.

“If a motor vehicle is not used in a ‘public place’ or not kept for use in a ‘public place’ then the person concerned is not deriving benefit from the public infrastructure; therefore, he should not be burdened with the motor vehicle tax for such period,” the top court said in its judgement delivered on August 29.

It said section 3 of the Act is the charging provision and it authorises the state government to impose tax on motor vehicles.

The bench said the taxable event under section 3 is when a vehicle is used or kept for use in a ‘public place’ in the state.

“Therefore, the tax is on the user or intendment for use of motor vehicle in a ‘public place’. Thus, if a vehicle is actually used in a ‘public place’ or kept in such a way that it is intended to be used in a ‘public place’ then the tax liability accrues,” it said.

The top court said when admittedly the motor vehicles of the appellant firm in this case were confined for use within the Rashtriya Ispat Nigam Limited (RINL) premises which is a closed area, then question of the vehicles being used or kept for being used in a ‘public place’ does not arise.

The bench said in this case, the motor vehicles in question were used or kept for use only within the restricted premises of RINL which was not a ‘public place’.