2023 (1) TMI 2 - HC - Indian Laws

Court declares Karnataka municipal tax laws unconstitutional, orders refunds

The court declared the provisions in the Karnataka Municipal Corporations Act, 1976, and the Karnataka Municipalities Act, 1964, unconstitutional and ... Levy of tax on advertisement - Constitutional Validity of Section 103(b)(vi), 134 containing the words 'after levy of tax under Section 134 has been determined by the Corporation' and in Sections 135(1), 135(2)(ii), 135(3), 139 and Schedule (viii) to the Municipal Corporations Act, 1976 along with bye laws framed by Municipal Corporation pursuant to the aforesaid provisions - Whether impugned provisions namely Section 94(1)(b)(xiii) including the explanation thereto, Section 94(1-B) containing the words 'after the levy of tax under Section 94 has been determined by Municipal council' in Sections 133(1), 133(2)(ii), 133(3), proviso (iv) to Section 142, Section 324(1)(ff) and Schedule 7 to the Karnataka Municipalities Act, 1964 along with rules/bye laws framed by Municipalities in the State pursuant to the said provisions are unconstitutional and ultra vires the constitution and require to be quashed? HELD THAT:- As could be seen from the provisions under KMC Act, 1976 and KM Act, 1964 power has been entrusted to the Corporation to levy tax on advertisement and the power to determine the rate of tax has been vested with the Corporation and the Municipal Council respectively. Thus, hitherto power to levy and demand the tax on advertisement was traceable to the aforesaid provisions of the Acts. In turn the legislative competence of the State was traceable to entry No.55 of List II of Schedule VIII to the Constitution of India which conferred power on the State to make laws with respect to advertisement tax - the Parliament brought 101st amendment to the Constitution by way of constitution (one hundred and one first amendment) Act, 2016 by which entry No.55 of List II of Schedule VIII to the Constitution has been omitted. Consequently the State has no power to make any laws with respect to advertisement tax. The amendment to the Constitution omitting entry No.55 and consequent promulgation of the Goods and Services Tax (compensation to States) Act, 2017 the power of the State Legislature to levy tax on advertisement is withdrawn. It is appropriate to refer to the Judgment of the Constitutional Bench of the Apex Court in the case of KOLUTHARA EXPORTS LTD. VERSUS STATE OF KERALA & ORS. [2002 (2) TMI 1314 - SUPREME COURT] wherein the Apex Court dealing with Judgment of the Division Bench of High Court of Kerala (Ernakulam) upholding the Constitutional Validity of Section 4(2) read with Section 2(d) of Kerala Fishermen Welfare Fund Act, 1985(Act 30 of 1985) (As amended by Act 15 of 1987) held that When any statute of a State or any provision therein is questioned on the ground of lack of legislative competence, the State cannot claim legitimacy for enacting the impugned provisions with reference to the provisions in part IV of the Constitution; the Legislative competency must be demonstrated with reference to one or more of the entries in List II and III of the Seventh Schedule of the Constitution. Thus, it is clear that on and after implementation of Goods and Service Tax Act, 2017 consequent upon the 101st amendment to the Constitution certain taxes including the taxes and advertisement which were levied by the respective States and the Union are subsumed into goods and service tax. The authority to levy tax which was available under entry No.55 List II (State List) of the Seventh Schedule to the Constitution has been omitted. Consequently, the Municipal Corporations and the Municipalities which are the inferior corporate bodies of the State do not have power to levy and collect the tax on advertisement. As rightly contended by learned Senior counsel for the petitioner that amendment to the Karnataka Gram Panchayath and Panchayath Swaraj Act has already been made vide Karnataka Gram Swaraj at Panchayath Raj (Amendment) Act 2017 as seen in the notification dated 12.07.2017 as per Annexure-R whereby provisions similar to Section 94 of KM Act and 103 of KMC Act that existed in Section 199(3) of the Karnataka Gram Swaraj and Panchayath Raj act, providing for levy of tax and advertisement the Panchayath has been omitted in view of omission of entry No.55 in List II of Schedule VII of the Constitution - The amendment made by the State Government to the Panchayath Raj Act has, as contended by the petitioner has lead to anomaly wherein the tax on advertisement is being levied and collected within the limits of Municipal corporation and Municipalities while no such levy is being made within the limits of Panchayaths. This Court is of the considered view that the petitioner has made out a case for grant of relief as sought for - Petition allowed. Issues Involved:1. Validity of demand notices for payment of advertisement tax.2. Constitutionality of specific provisions in the Karnataka Municipal Corporations Act, 1976.3. Constitutionality of specific provisions in the Karnataka Municipalities Act, 1964.4. Authority of State bodies to collect advertisement tax post the 101st Constitutional Amendment.5. Relief for refund of amounts collected as advertisement tax.Detailed Analysis:Issue 1: Validity of Demand Notices for Payment of Advertisement TaxThe court examined whether the respondent authorities were justified in issuing demand notices for the payment of advertisement tax. The petitioners argued that the demand notices were invalid due to the 101st Constitutional Amendment, which omitted Entry No.55 in List II of Schedule VIII, removing the State's authority to levy advertisement tax. The court agreed that post-amendment, the State lacked the legislative competence to impose such taxes, rendering the demand notices invalid.Issue 2: Constitutionality of Provisions in the Karnataka Municipal Corporations Act, 1976The court reviewed the constitutionality of Section 103(b)(vi), Section 134, and related sections in the Karnataka Municipal Corporations Act, 1976. These sections authorized municipal corporations to levy advertisement taxes. The court found these provisions unconstitutional and void, as the legislative competence for such taxes was removed by the 101st Constitutional Amendment. The court struck down these provisions, emphasizing that the authority to levy taxes must be explicitly conferred by the Constitution.Issue 3: Constitutionality of Provisions in the Karnataka Municipalities Act, 1964Similarly, the court examined Section 94(1)(b)(xiii) and related sections in the Karnataka Municipalities Act, 1964. These sections also empowered municipalities to levy advertisement taxes. The court declared these provisions unconstitutional and void for the same reasons as those in the Karnataka Municipal Corporations Act, 1976. The court emphasized that the power to levy taxes must be derived from the Constitution, and with the omission of Entry No.55, such power no longer existed.Issue 4: Authority of State Bodies to Collect Advertisement Tax Post the 101st Constitutional AmendmentThe court addressed whether state bodies had the authority to collect advertisement taxes after the 101st Constitutional Amendment. The petitioners argued that the amendment subsumed advertisement taxes into the Goods and Services Tax (GST), eliminating the state's power to levy such taxes. The court agreed, citing the Allahabad High Court's decision in Pankaj Advertising Vs State of UP and other relevant case law. The court concluded that municipal corporations and municipalities no longer had the authority to levy or collect advertisement taxes.Issue 5: Relief for Refund of Amounts Collected as Advertisement TaxThe petitioners sought a refund of amounts collected as advertisement tax post the 101st Constitutional Amendment. The court allowed the petitioners to make a representation to the respondent authorities detailing the amounts paid. The authorities were directed to either refund the amounts or adjust them against other levies. If no such adjustments were possible, the amounts were to be refunded within six weeks of the representation.Conclusion:The court allowed the writ petitions, declaring the impugned provisions in the Karnataka Municipal Corporations Act, 1976, and the Karnataka Municipalities Act, 1964, unconstitutional and void. The demand notices for payment of advertisement tax were quashed, and the authorities were directed not to raise further demands or take coercive actions regarding advertisement taxes. The petitioners were granted relief to seek refunds or adjustments for amounts paid post the constitutional amendment.