The Supreme Court has clarified that a motor vehicle tax cannot be imposed on vehicles that are not used or kept for use in a public place. The court stated that the tax is compensatory in nature, as it is intended to cover the cost of maintaining public infrastructure, such as roads and highways, and therefore applies only when vehicles actually utilise these facilities.

A bench of Justices Manoj Misra and Ujjal Bhuyan delivered the verdict while hearing an appeal filed by a logistics firm in Andhra Pradesh. The company, engaged in providing logistic support since 1985, was awarded a contract in November 2020 for handling and storage of iron and steel materials at the central dispatch yard of the Rashtriya Ispat Nigam Limited (RINL) steel plant in Visakhapatnam. For this work, the firm deployed 36 motor vehicles within the restricted premises of the plant.

The company argued that the vehicles were operated only inside the compound of the steel plant, which was enclosed by boundary walls, had entry and exit controlled through security gates, and was guarded by CISF personnel. Since the area was not open to the public, the vehicles were never used on public roads or in public spaces. Based on Section 3 of the Andhra Pradesh Motor Vehicle Taxation Act, 1963, the firm sought exemption from paying motor vehicle tax.

The Supreme Court upheld the company’s plea, noting that the “taxable event” under the law arises only when a vehicle is used or kept for use in a public place. It said that vehicles confined to private premises cannot be taxed, as they do not make use of public infrastructure. “Therefore, the said vehicles are not liable to be taxed for the period the said vehicles were used or kept for use within the restricted premises of RINL,” the bench said.

Earlier, a single judge of the Andhra Pradesh High Court had agreed with the company and ordered the state to refund ₹22.71 lakh. However, this order was later overturned by a division bench of the High Court. The Supreme Court has now restored the single judge’s order, allowing the appeal and ruling in favour of the logistics firm.