The Hyderabad High Court issued a ruling that requires the lifetime tax paid on a vehicle can only be levied on the actual invoice value of the car and not the projected ex-showroom price. This ruling that comes on the heels of an incident in which a lawyer in Hyderabad bought a new car at a thoroughly marked down price but was forced to pay the full effect of taxes due on the ex-showroom value of the car. The Volvo XC60 was sold to him after a considerable discount and the buyer was forced by the authorities to pay the taxes on the difference between actual invoice value and the ex-showroom value.
He was then forced to issue a complaint, that argued as to why he was forced to pay taxes on the surplus 3 lakh that was not even paid to the showroom. The local authorities even threatened to cancel the registration number that had been allotted to the said car if the taxes were not paid. However, the court ultimately ruled in favour of the lawyer, asking authorities to pay the extra taxes back to the lawyer in 4 weeks from the date of order of the vehicle. The counsel for the revenue department later argued that discounts were offered to the customer by the dealer were apparently 'unethical and immoral' and was tantamount to fraud on the state exchequer as the state was being deprived of the tax collected on the difference between actual and ex-showroom price. Luckily, common sense prevailed on the fundamental duties of a tax with Hon'ble Judge, Justice M.S. Ramachandra Rao noted that the life tax is to be calculated on the cost of the vehicle and that there was no law prohibiting a dealer from giving a discount to their customers and such practices cannot be termed unethical or immoral
What does this mean for us? Well, technically, if this loophole is to be considered it could potentially open the door to a lot of grey area practices where dealers undervalue the invoice to save in taxes. This considering that it is a dealer-free right to over discounts and incentives on vehicles that are a continual process renewed every month.