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In a recent judgment, Supreme Court has upheld Kerala High Court judgment in holding that unless possession is handed over to the buyer of a motor vehicle after registration and observing requirement of Motor Vehicles Act and Rules, the vehicle remains as unascertained or future goods for sales tax purposes.

Case Law Details:
Civil Appeal No. 2446/2007
Commissioner of Commercial Taxes (Appellant) vs M/s K.T.C. Automobiles   (Respondent)
Date of Order : 29-01-2016
Coram: Justice Dipak Mishra and Justice Shiva Kirti Singh

Facts of the Case(s):
The respondent was a dealer of Hyundai Motors Limited, Chennai both at Kozhikode (Calicut), Kerala at its head office and also at Mahe within the Union Territory of Pondicherry where it had a branch office. The company was registered dealer and an assessee under the KGST Act, the Pondicherry Sales Tax Act as well as the Central Sales Tax Act. A penalty of Rs.1 crore under Section 45A by the KGST Act was imposed on the respondent assessee on the premise that the respondent had wrongly shown 263 number of cars as sold from its Mahe Branch, wrongly arranged for registration under the Motor Vehicles Act at Mahe and wrongly collected and remitted tax for those transactions under the provisions of Pondicherry Sales Tax Act. It was alleged that the sales were concluded at Kozhikode and hence the vehicles should have been registered within the State of Kerala. Therefore, by showing the sales at Mahe the respondent had failed to maintain true and complete accounts as an assessee under the KGST Act and had evaded payment of tax. The litigation was settled by the Kerala High Court in favour of the respondent assessee. However the appellant approached the Apex Court.

Question before the Court
The Apex Court noted that under the Motor Vehicles Act, 1988, application for registration of a motor vehicle is required to be made by or on behalf of the owner. Therefore the question was as to when the property in a motor vehicle actually passes to the buyer in the light of provisions of Motor Vehicles Act and the Rules framed there under as well as the other relevant provisions of law.

Contention of the Appellant:
The appellant contended that the dealer had created colorable device to evade sales tax in Kerala by adopting questionable means such as providing incorrect addresses of buyers for the purpose of facilitating registration of the motor vehicles at Mahe. The sales transactions stood concluded in Kozhikode, Kerala and hence the respondent should not have given any facilities to residents of Kerala in getting motor vehicles registered at Mahe. By adoption of such means, the respondent had derived advantage of paying sales tax in Pondicherry where the rate was lower and evaded payment of lawful tax under the KGST Act in Kerala. According to the appellant, Article 286(2) of the Constitution of India, Section 4(2) Central Sales Tax Act, 1956 and Sections 4, 19 and 20 of the Sale of Goods Act, 1930 are relevant in deciding the issue as to when and where sale takes place in respect of motor vehicle bought by a buyer from a dealer.

Contention of the Respondent:
The respondent argued that the situs of first sale of a motor vehicle by a dealer is only at the place of registration of the vehicle by the authority empowered to register motor vehicles under Chapter IV of the Motor Vehicles Act.  In other words, till the engine number, chassis number is ascertained by the registering authority on physical verification of the vehicle and entered into the prescribed form for showing registration, the vehicle continues as unascertained goods and cannot be identified as one belonging to the purchaser. Only upon valid registration, as per submissions, the vehicle is appropriated to the purchaser.

Excerpts from the Judgment:
From the above submissions and counter submissions of the parties as well as relevant statutory provisions in the Motor Vehicles Act, 1988, Central Motor Vehicles Rules, 1989, Section 4(ii) of Central Sales Tax Act, 1956, Sections 4, 19 and 20 of the Sales of Goods Act and relevant provisions of the KGST Act and Rules noticed earlier, we find no difficulty in accepting the submissions advanced on behalf of the appellant that the application of registration is by law required to be made by or on behalf of the owner whose name is to be mentioned in the registration form along with relevant particulars of the vehicle such as engine number and chassis number and hence, registration of a motor vehicle is a post-sale event.

But this legal proposition does not take the appellant far. It must be carefully seen as to when the properties, particularly possession of a motor vehicle passes or can pass legally to the purchaser, authorizing him to apply for registration. Only after obtaining valid registration under the Motor Vehicles Act, the purchaser gets entitled to use the vehicle in public places. Under the scheme of Motor Vehicles Act, 1988 and the Central Motor Vehicles Rules, 1989 the dealer cannot permit the purchaser to use the motor vehicle and thus enjoy its possession unless and until a temporary or permanent registration is obtained by him. Only thereafter, the vehicle can safely be said to be no more under possession of the dealer. Clearly, mere mentioning of engine number and chassis number of a motor vehicle in the invoice of sale does not entitle the intending purchaser to appropriate all the goods, i.e. the motor vehicle till its possession is or can be lawfully handed over to him by the dealer without violating the statutory provisions governing motor vehicles. Such transfer of possession can take place only when the vehicle reaches the place where the registering authority will be obliged to inspect for the purpose of finding out whether it is a roadworthy and register-able motor vehicle and whether its identification marks tally with those given in the sale invoice and the application for registration. The possession can lawfully be handed over to the purchaser at this juncture because law requires the purchaser as an “owner” to make an application for registration but at the same time the law also prohibits use of the motor vehicle by the owner until it is duly registered by the Registering Authority. Hence, in order to satisfy the requirement of law noticed above, the dealer can deliver possession and owner can take possession and present the vehicle for registration only when it reaches the office of Registering Authority. With the handing over of the possession of a specific motor vehicle just prior to registration, the dealer completes the agreement of sale rendering it a perfected sale. The purchaser as an “owner” under the Motor Vehicles Act is thereafter obliged to obtain certificate of registration which alone entitles him to enjoy the possession of the vehicle in practical terms by enjoying the right to use the vehicle at public places, after meeting the other statutory obligations of Insurance etc. Hence, technically though the registration of a motor vehicle is a post-sale event, the event of sale is closely linked in time with the event of registration. Neither the manufacturer nor the dealer of a motor vehicle can permit the intended purchaser having an agreement of sale to use the motor vehicle even for taking it to the registration office in view of the statutory provisions already noticed. Hence lawful possession with the right of use is permissible to be given to the intended owner only after reaching the vehicle to the office of Registering Authority. Thus seen, in practical terms though sale precedes the event of registration, in normal circumstances and as the law stands, it is co-terminus with registration of a new motor vehicle.

Although on behalf of the respondent, it has been vehemently urged that motor vehicles remain unascertained goods till their engine number or chassis number is entered in the certificate of registration, this proposition does not merit acceptance because the sale invoice itself must disclose such particulars as engine number and chassis number so that as an owner, the purchaser may apply for registration of a specific vehicle in his name. But as discussed earlier, on account of statutory provisions governing motor vehicles, the intending owner or buyer of a motor vehicle cannot ascertain the particulars of the vehicle for appropriating it to the contract of sale till its possession is handed over to him after observing the requirement of Motor Vehicles Act and Rules. Such possession can be given only at the registering office immediately preceding the registration. Thereafter only the goods can stand ascertained when the owner can actually verify the engine number and chassis number of the vehicle of which he gets possession. Then he can fill up those particulars claiming them to be true to his knowledge and seek registration of the vehicle in his name in accordance with law. Because of such legal position, prior to getting possession of a motor vehicle, the intending purchaser/owner does not have claim over any ascertained motor vehicle. Apropos the above, there can be no difficulty in holding that a motor vehicle remains in the category of unascertained or future goods till its appropriation to the contact of sale by the seller is occasioned by handing over its possession at or near the office of registration authority in a deliverable and registrable state. Only after getting certificate of registration the owner becomes entitled to enjoy the benefits of possession and can obtain required certificate of insurance in his name and meet other requirements of law to use the motor vehicle at any public place.

In the light of legal formulations discussed and noticed above, we find that in law, the motor vehicles in question could come into the category of ascertained goods and could get appropriated to the contract of sale at the registration office at Mahe where admittedly all were registered in accordance with Motor Vehicles Act and Rules. The aforesaid view, in the context of motor vehicles gets support from sub-section (4) of Section 4 of the Sale of Goods Act. It contemplates that an agreement to sell fructifies and becomes a sale when the conditions are fulfilled subject to which the properties of the goods is to be transferred. In case of motor vehicles the possession can be handed over, as noticed earlier, only at or near the office of registering authority, normally at the time of registration. In case there is a major accident when the dealer is taking the motor vehicle to the registration office and vehicle can no longer be ascertained or declared fit for registration, clearly the conditions for transfer of property in the goods do not get satisfied or fulfilled. Section 18 of the Sale of Goods Act postulates that when a contract for sale is in respect of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained. Even when the contract for sale is in respect of specific or ascertained goods, the property in such goods is transferred to the buyer only at such time as the parties intend. The intention of the parties in this regard is to be gathered from the terms of the contract, the conduct of the parties and the circumstances of the case. Even if the motor vehicles were to be treated as specific and ascertained goods at the time when the sale invoice with all the specific particulars may be issued, according to Section 21 of the Sale of Goods Act, in case of such a contract for sale also, when the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof. In the light of circumstances governing motor vehicles which may safely be gathered even from the Motor Vehicles Act and the Rules, it is obvious that the seller or the manufacturer/dealer is bound to transport the motor vehicle to the office of registering authority and only when it reaches there safe and sound, in accordance with the statutory provisions governing motor vehicles it can be said to be in a deliverable state and only then the property in such a motor vehicle can pass to the buyer once he has been given notice that the motor vehicle is fit and ready for his lawful possession and registration.

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Unless possession handed over to buyer, after registration the motor vehicle remains as unascertained/future goods for sales tax purposes | 31-01-2016 |

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