BH Registered Vehicles Subject To Motor Vehicle Tax As Per State Law; Centre Can't Prescribe Tax Rates : Kerala High Court

In an important judgment, the Kerala High Court held that vehicles with Bharat (BH) registration have to pay the motor vehicle tax as per the rates prevailing in the State where the registration is sought. The Court held that the Central Government does not have the power to prescribe the rate of motor vehicle tax for BH series vehicles, as motor vehicle taxation is a subject falling within the domain of the States.

A single bench of Justice Dinesh Kumar Singh delivered this significant verdict in a batch of writ petitions filed by vehicle owners who were aggrieved by the Kerala Motor Vehicle Department's refusal to register their vehicles under the BH series without paying the State's tax.

What is BH Registration?

It was in 2021 that the Central Government introduced the “Bharat Series (BH-series)” to allow the seamless transfer of vehicles across States. The BH registration is available to Defense personnel, employees of the Central Government/ State Government/ Central or State Public Sector Undertakings and private sector companies/ organizations which have their offices in four or more State/Union territories. As per Section 47 of the Motor Vehicles Act, a vehicle registered in a State has to obtain re-registration in another State if it is to be kept there for more than 12 months.  BH registration obviates the need for re-registration for persons undergo frequent relocations due to transfers.  The vehicle bearing this registration mark shall not require the assignment of a new registration mark when the owner shifts from one State to another.

Tax slab prescribed by the Centre for BH registrations

The Central Motor Vehicles (Twentieth Amendment) Rules 2021 introduced Rule 51B specifying the principles of motor vehicle tax for BH series vehicles. Rule 51B(2) specified the rate of taxation as follows

1. Invoice price Below Rs 10 lakhs - 8% of invoice price

2. Rs 10-20 lakhs                             - 10%

3. Above Rs 20 lakh                        - 12%

2% extra charge shall be levied for diesel vehicles. Electric vehicles shall be charged 2% less tax.

Can the Centre prescribe the tax rates for vehicle registrations under BH series?

The issue before the Court was whether the Central Government, through its rule-making power, can prescribe the rate of tax to be charged by the State on motor vehicles.

The Court noted that the taxes on motor vehicles are the exclusive domain of the States under Article 246, read with Entry 57 of List II of the Seventh Schedule of the Constitution. However, the Central Government has the power to lay down the principles for taxation on mechanically propelled vehicles by the State as per Entry 35 of List III. However such power cannot extend to the specification of tax rates.

"The Central Government may lay down the principles by enacting a law or by subordinate legislation. However, the taxes on motor vehicles are the exclusive domain of the States under Article 246, read with Entry 57 of List II of the Seventh Schedule. The tax includes the rate of tax. Therefore, the Central Government would not have the power to prescribe for rate of tax on motor vehicles," the Court held.

Hence, the Court ruled that the tax rates specified by the Centre for BH series vehicles are not enforceable.

"In view of the aforesaid sub-rule (2) of Rule 51B of the Central Motor Vehicle Rules prescribing the rate of tax in respect of BH series non-transport vehicles is constitutionally unenforceable as it is beyond the legislative competence of the Centre. The States are free to levy tax at the rate prescribed under their respective Legislation. Therefore, the States are not bound to implement the rate of tax as prescribed in sub- rule (2) of Rule 51B of the Central Motor Vehicle (Twentieth Amendment) Rules 2021 for vehicles registered under the BH series."

At the same time, the Court held that the principles laid down by the Centre has to be followed by the States in respect of BH series vehicles.

"It may be, however, noted that sub-rule (1) and sub-rule (3) only provide the principles for motor vehicle tax. Therefore, sub-rule (3) does not transgress the legislative competence of the Centre in providing the principle for charging the motor vehicle tax on vehicles seeking BH series registration."

The Court directed the registration of the petitioners' vehicles under BH series but subject to the payment of the tax as per Kerala Motor Vehicle Taxation Act 1976.

"This Court is of the considered view that the petitioners are eligible for BH series registration. However, taxes are to be charged on their motor vehicles as per the provisions of the Kerala Motor Vehicle Taxation Act 1976 on the principles as prescribed under sub-rules (1) and (3) of Rule 51B of the Central Motor Vehicle (Twentieth Amendment) Rules 2021," the Court ruled.

Appearances :

Mr George Varghese (Perumpallikuttiyil), Mr Jaykar K S, Mr Satyendra Kumar Jha (party-in-person), Mr S Muhammed Haneeff, Mr K Shaj, Mr Peeyus A Kottam, Mr K J Manu Raj, Mr Thomas T Varghese, Ms Ambily Premkumar, and Mr T R Vishnu for the petitioners;

Mr T S Krishna DySolicitor General and Mr Muhammed Rafiq Special Government Pleader (Taxes).

Case : Harish Kumar KP v Union of India

Click here to read the judgment