The court held that demo vehicles used for demonstration purposes under trade certificates are exempt from registration, rejecting the circular that contradicted statutory provisions.

JUDGMENT :

(A.K. Jayasankaran Nambiar, J.)

[WA Nos.1939/2019 & 2134/2019]

As both these writ appeals impugn a common judgment of the learned Single Judge dated 02.07.2019 in WP(C) No.32847/2018, they are taken up together for consideration and disposed of by this common judgment.

2. The brief facts necessary for the disposal of these writ appeals are as follows:

The petitioners in WP(C) No.32847/2018 are the appellants in W.A.No.1939/2019. W.A.No.2134/2019, on the other hand is filed by an independent automobile dealer, after getting the leave of this Court to maintain the writ appeal against the judgment dated 02.07.2019 of the learned single judge referred above. The challenge in the writ petition was against Ext.P2 circular dated 6.8.2018 of the Senior Deputy Transport Commissioner (Taxation) by which the dealers of motor vehicles were required to register even those vehicles, that were covered by trade certificates and used for demonstration purposes, with the Motor Vehicles Department, since it was noticed by the Department that there were instances of misuse of the 'demo' vehicles by the dealers and also because there was revenue loss sustained by the Department on account of the said use of the motor vehicles.

3. While Ext.P2 circular is vaguely worded in its terms, through a statement filed on behalf of the 5^th respondent in the writ petition, it was clarified that Ext.P2 circular was issued to curb the practice of vehicles being used by the dealers without sufficient documents, including trade certificates. It was alleged that under the guise of reasonable trial as contemplated under Rule 41 of the Central Motor Vehicles Rules, 1989, the vehicles were being continuously used on the road by persons other than dealers without registering the same indefinitely, thereby causing loss to the State on account of non-payment of tax for the period the vehicles were so used. It is further stated that it had come to the notice of the Department that dealers were selling the 'demo' vehicles at a reduced price which was also causing loss to the State by way of reduced tax paid on the reduced price, notwithstanding the fact that the original price of that model of the vehicle was significantly higher when sold directly to customers. In essence, the purport of the circular appears to have been to curb the alleged practice of misuse of the provisions of the Central Motor Vehicles Rules that enabled dealers to claim exemption from the requirement of registration, as also motor vehicles tax, when a vehicle was covered by a trade certificate that enabled the use of the vehicle for demonstration purposes.

4. The learned Single Judge, who considered the matter, took note of the provisions of the Central Motor Vehicles Rules and found that the 'demo' vehicles purchased by automobile dealers at a special cash discount or otherwise and which were intended to be used by them for demonstration purposes, could not be seen as vehicles intended for sale to the customers. Axiomatically, it was found that a 'demo' vehicle could not be termed as a vehicle in possession of the dealer in the course of his business as a dealer and could not be driven in a public place or any other place under the authorisation of a trade certificate granted under the Central Motor Vehicles Rules. After referring to the provisions of the Income Tax Act, 1961, which defined 'capital assets' as including any stock-in-trade, the learned Single Judge was of the further view that a 'demo' vehicle purchased by an automobile dealer at a special cash discount or otherwise, and which was not intended for sale to a customer, could not be included in the stock list, in order to make it appear that it is a vehicle in bona fide possession of that dealer in the course of his business and which could be driven in any public place or any other place under the authorisation of a trade certificate. The writ petition was, therefore, dismissed by upholding Ext.P2 circular and consequential procee