NEW DELHI (Reuters) - India's Supreme Court handed a reprieve to the auto industry on Friday, ruling that new diesel vehicles can be allowed on the streets of the national capital as long as a 1 percent "green" tax is paid.
The news was welcomed by the auto industry after a series of lower court rulings banned diesel vehicles, both new and old, on concerns that their exhaust fumes were contributing to Delhi's deepening air pollution crisis.
The Supreme Court allowed the registration of large diesel vehicles with an engine capacity of 2 liters or more in Delhi and the surrounding National Capital Region, according to Harish Salve, a lawyer connected to the case.
India's highest court will decide later on whether to impose the so-called green cess on diesel vehicles with smaller engines, Salve added.
The Supreme Court had temporarily banned the sale of large diesel cars in Delhi last year and said it was mulling the additional tax, potentially hitting the sales of carmakers such as Toyota Motor Corp, Mahindra & Mahindra and Tata Motors.
Pravin Shah, CEO of Mahindra & Mahindra Motor, welcomed the Supreme Court ruling in comments to financial news channel CNBC-TV18.
In a recent ruling, India's top environmental court ordered the authorities to remove all diesel vehicles over 10 years old from the capital's streets.
Court-ordered restrictions on diesel vehicles, which experts say cause worse air pollution than other engine types, are often contradictory and poorly enforced in India, leading the industry to complain over lost sales and high compliance costs.
Shares in Tata Motors, Mahindra & Mahindra and Maruti Suzuki India, all ended the day higher on Friday, following the ruling.
(Reporting by Suchitra Mohanty; Writing by Douglas Busvine; Editing by Euan Rocha)