The Kerala High Court on July 2, 2019, in the case of Kerala Automobile Dealers Association v. State of Kerala has held that 'demo cars', which are kept by dealers to demonstrate a vehicle model to a prospective buyer, require registration under the Motor Vehicles Act, 1988.

The petitioners in this case filed a writ petition under Article 226 of the Constitution of India, seeking a writ of certiorari to quash circular dated 06.08.2018 issued by the Transport Commissioner, whereby the Deputy Transport Commissioner, the Regional Transport Officers and the Joint Regional Transport Officers were directed to take necessary steps to ensure registration of the vehicles kept by automobile dealers for test drive, on the ground that some of the automobile dealers are using such vehicles for test drive for longer periods and thereafter, selling those vehicles at a lower price causing revenue loss to the State Exchequer.

The petitioners contended that the demo cars kept by them for 'test drive purposes' were exempted from registration under Section 39 of the Act as they have 'trade certificates' as per Rules 33 and 35 of Central Motor Vehicle Rules, 1989.

The High Court, however, held that the benefit of 'trade certificate' was available only to vehicles which are in possession of dealer for the purposes of sale to customers and not to vehicles kept for test drive.

Justice Anil K. Narendran dismissing the writ petition observed that "A 'demo vehicle' purchased by an automobile dealer at a special cash discount or otherwise is not a vehicle intended for sale to the customer. It is a vehicle intended to be used by that dealer as 'demo vehicle' for a period of two years or three years, which cannot be treated as a vehicle bonafide in possession of that dealer in the course of his business, which can be can be driven in any public place or any other place under the authorisation of trade certificate granted under the CMV Rules. A vehicle intended for sale will be in the possession of an automobile dealer till it is sold to a consumer. Such vehicles alone are covered by the proviso to Section 39 of the MV Act, read with Rules 35, 39, 40 and 41 of the CMV Rules."

"A 'demo vehicle' purchased by an automobile dealer at a special cash discount or otherwise, which is not intended for sale to the customer, cannot be included in the stock list, in order to make it appear that it is a vehicle bonafide in possession of that dealer, in the course of his business, which can be driven in any public place or any other place under the authorisation of a trade certificate granted under the CMV Rules," the court said.

[Read Judgment]