Pay More For BH Registration? Kerala High Court Ruling Explained

According to the Kerala Court, the tax rates by the Central Government cannot be enforced

Recently, the Kerala High Court issued an important judgment regarding Bharat (BH) number plate registration and their associated motor vehicle taxes. The Kerala High Court ruled that cars with BH number plates must pay motor vehicle tax according to the rates set by the state where they are registered, emphasizing that motor vehicle tax is a state statute and the Central Government cannot determine the tax rates. This decision has led to concerns regarding who has the right to set these taxes—the central government or the state. In this news, we’ll first break down BH number plate registration, what’s happening, and why it’s important.

Understanding BH Number Plate

The Indian government introduced the Bharat Series (BH) number plates to nullify the need for re-registration when a vehicle owner relocates to a new state due to job transfer or any other reason. This step saves both time and resources by facilitating seamless interstate vehicle movement.

Key Features of BH Number Plates:

• Eligibility:

-Defense Personnel

-Employees of the Central or State Government

-A person working in a private organization with offices in four or more states/UTs can apply for a BH number plate. 

It is important to note that the BH series is exclusively for personal passenger vehicles.

• No Re-registration required: 

-A vehicle with a non-BH number plate must be re-registered if relocated in another state for more than 12 months, according to section 47 of the Motor Vehicle Act. 

-BH number plate eliminates the need of re-registration in the new state, allowing uninterrupted vehicle movement.

• Cost and Time Efficiency: By eliminating the need for re-registration, the BH series makes interstate car movement easier, faster, and more cost-effective.

Tax Rates On BH Number Plates

The Central Motor Vehicles (20th Amendment), Rule, 2021, specifies the applicable motor vehicle tax rates for BH series vehicles. These rates depend upon the car’s invoice price. 

Note: Diesel cars will incur an additional 2% charge, while electric vehicles receive a 2% discount. 

Kerala’s Motor Vehicle Tax Explained

The Kerala Motor Vehicles Taxation Act, 1976, states the different tax brackets based on the invoice price– the price at which the vehicle is sold by the manufacturer. The tax rates increase progressively with the cost of the vehicles, ensuring that higher- priced vehicles contribute more in taxes. Here’s the breakdown: 

Note: EVs are taxed at a flat rate of 5%, irrespective of the invoice cost.

The Conflict: Who Decides the Tax?

The heart of the issue is whether the Central Government or the State Government holds the power to set tax rates for motor vehicle registration. The Kerala High Court pointed out the constitutional provisions: 

• Central Government authority

Though the Central Government has the competence to establish general taxation principles for mechanically propelled vehicles under Article 246 and Entry 35 of list III of the Indian Constitution.

• State Government authority

The States have exclusive power to impose specific taxation, which falls under article 246 and entry 57 of list II. 

Court Ruling:

Consequently, the Court decided that tax rates set by the Central Government on BH series 

vehicles are unconstitutional and invalid. Currently, Kerala State Government has the freedom to levy taxes according to their legislation. However, they must stick to the principal rules set by the Central Government. 

Outcome:

Finally, the petitioners were granted BH series registration but were required to pay taxes based on the Kerala Motor Vehicle Taxation Act 1976, reinforcing state autonomy in taxation while maintaining adherence to Central principles.  

Is Kerala’s Petition Correct?

According to the Indian Constitution, Kerala’s request is legally strong because only state governments can set and collect taxes on motor vehicles. 

However, this disagreement between Kerala and the Central Government could have the following implications: 

1. Increased/Reduced tax burden on Buyers: Since the tax rates in Kerala are higher, vehicle buyers there will need to pay more taxes compared to those in other states. On the flipside, Kerala’s petition is favorable to vehicle owners who reside in states like Himachal and Haryana, where the tax rate is lower than those imposed by the Centre charges. Here’s an example of the variation:

For example: 

We have considered the Tata Tiago XT petrol variant, which costs Rs 6 lakh (ex-showroom). Based on the tax brackets for this vehicle:

• Haryana buyers benefit from the lowest tax rate, resulting in the lowest on-road price.

• That said, buyers in Kerala face the highest tax amount, leading to the highest on-road price. 

Note: 

• Total tax payable under BH is split over 14 years. The owner pays every two years. Therefore, the payment of Rs 8000 has to be made every two years as road tax, till the 14th year. Whereas, the tax payment on regular registration is made once in the first fifteen years. 

• The insurance amounts mentioned above are illustrative and may vary. Insurance cost differs between dealerships and is influenced by other factors. 

2. Loss of uniformity: This disagreement will break the uniformity of tax rates that the BH series currently enjoy, leading to inconsistencies in vehicle registration cost.

3. Impact on State’s funds: While the tax pool for the Kerala Government would increase due to higher tax collection (as seen above in the example), the petition's core concern is based on reasonable logic. On the contrary, the tax pool for other states such as Haryana and Himachal would decrease as the registration rates are lower. That said, the tax pool would remain the same for all the states if the Central charges were followed.

In conclusion, how this disagreement is addressed will be a determinant factor as it would assess how much states would be able to manage their respective budgets. Hence, finding a balanced solution is crucial to maintaining both economic stability and the autonomy of each state in India.