Supreme Court bars tax on industrial machinery not meant for public roads

The Supreme Court on Thursday held that heavy machinery designed for use within industrial sites cannot be subjected to motor vehicle tax merely because it is capable of limited movement.

 

The court clarified that specialised equipment deployed in factories, mines, and other industrial areas does not fall within the category of road-going vehicles unless it is actually suitable for use on public roads. 

 

The judgment has not been uploaded yet. 

 

A Bench of Justices Pankaj Mithal and Prasanna B Varale allowed an appeal filed by UltraTech Cement Ltd, overturning a 2011 Gujarat High Court judgment that had upheld the imposition of motor vehicle tax on construction equipment. The court underscored that the power of states to impose road tax flows from Entry 57 of List II of the Seventh Schedule to the Constitution, which is restricted to vehicles meant for use on public roads.

 

In its judgment, the court held that taxation under this entry cannot be extended to specialised equipment whose design and primary function are confined to industrial premises.

 

Observing that the machinery in question fell within the category of construction equipment vehicles, the Bench noted that they were intended to operate within industrial areas and not as transport vehicles on public roads.

 

The apex court also examined the Gujarat Motor Vehicles Tax Act and found that it does not provide for the levy of road tax on construction equipment vehicles.

 

On this basis, it concluded that such machinery could not be taxed under the state law either.

 

However, the Bench made it clear that this exemption is not absolute. If construction or industrial equipment is found to be operating on public roads, it would attract the provisions of the Motor Vehicles Act as well as the applicable state tax laws, including liability for road tax and penalties.

 

The controversy had its roots in demands raised by transport authorities in Gujarat, who began taxing heavy construction equipment on the premise that the relevant test was not actual road use but whether the machinery was “adapted for use upon roads”.

 

Industrial companies challenged this approach, arguing that such equipment is typically oversized, slow-moving, harmful to road surfaces, and often transported in dismantled form on trailers. They also contended that road tax, being compensatory in nature, could not be justified where there was no meaningful use of public roads.

 

Despite these arguments, the Gujarat High Court in 2011 largely accepted the state’s position, holding that even occasional or incidental road use was sufficient to attract tax. It rejected the plea that predominant use within industrial sites should be decisive and devised a classification that treated machines capable of road use as taxable, with borderline cases to be assessed through technical inspection.

 

Experts said the judgment is expected to provide significant relief to companies operating within factory and industrial zones across the country.

 

Commenting on the ruling, B Shravanth Shanker, advocate-on-record, Supreme Court of India, said the judgment decisively overturns the “capability of road use” test and limits taxation to vehicles genuinely meant for public roads.

 

“The court has recognised that these are vehicles of special types meant for industrial operations. By exempting such equipment from road tax when used off-road, the ruling provides major relief to companies and avoids compensatory taxes on machinery that does not meaningfully use public infrastructure,” he said.

 

From a legal standpoint, Raheel Patel, partner at Gandhi Law Associates, said the judgment materially narrows the scope of state taxing powers.

 

“The Supreme Court has rejected the presumption that specialised construction and mining equipment becomes a ‘motor vehicle’ merely because it can move. This restores the statutory focus on suitability and actual use on public roads under the Motor Vehicles Act,” he said.

 

Patel added that for companies operating equipment within factories, mines, and enclosed sites, the ruling is likely to reduce routine registration requirements, road tax demands, and coercive enforcement actions, while also curbing repetitive litigation with transport authorities.

 

However, Patel cautioned that the court’s clarification on liability arising from actual road use leaves a potential grey area.

 

“Equipment that intermittently crosses public roads between sites could become the next axis of dispute unless usage patterns are clearly regulated and demonstrably incidental,” he noted.

 

Explaining the broader implications, Rahul Hingmire, managing partner at Vis Legis Law Practice, said the court has interpreted the phrase “adapted for use upon roads” to mean inherent suitability and ordinary capability for public road use.