TaxTMI 
TaxTMI 
2017 (5) TMI 1659
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (III) Issue a writ, order or direction in the nature of mandamus commanding the respondents not to enforce the aforesaid Rules of 2016 and the amount realized by the respondents from the petitioners under new Rules, 2016 be directed to be refunded to the petitioners." 2. Though, in the prayer clause as also in the body of the writ petition, "Rules, 2016" are referred to as Rules, which are placed on the record as Annexure-1, from a perusal thereof, it is clear and is also not in dispute that these are not Rules framed under Section 540 of the Uttar Pradesh Municipal Corporation Act, 1959 (for short, "Act, 1959") but are Bye-laws made under Section 541 being the Kanpur Nagar Nigam Vigyapan Par Kar Nirdharan, Pratisedh, Viniyaman Va Vigyapan Kar Vasooli Upvidhi, 2016 (for short, "Bye-laws, 2016"). 3. Section 540 of the Act, 1959 empowers the State Government to make rules or model rules to carry out the purpose of the Act, whereas Section 541 confers powers on the Corporation to make bye-laws, not inconsistent with the Act and the rules, with respect to the matters mentioned therein, including in relation to fixing of fees for any licence, sanction or permission to be granted by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m and its authorities. They are also advertising agencies and carry on business of advertisement within the limits of the Nagar Nigam, Kanpur Nagar by displaying hoardings, kiosks, glow signs etc at the Nagar Nigam sites and private sites in accordance with the provisions of the Act, 1959. Petitioner nos. 11 to 13 are owners of the buildings/sites who have let out their land/building to the petitioner - advertiser under agreements to install hoardings and display advertisements on rent. They are not directly engaged in the business of advertisement. 6. Before the Bye-laws, 2016 were framed, the State Government, in pursuance of powers conferred under Section 227 read with Section 192, 219, sub-section (1) of Section 540 and Section 550 of the Act, 1959 and Section 21 of the Uttar Pradesh General Clauses Act and in supersession of all previous rules and orders with regard to advertisements, had notified the Municipal Corporation (Assessment and Collection of Tax on Advertisement) Rules, 2009 (for short, "Rules, 2009") on 27 February 2008. The Rules, 2009 were enforced from the date of its publication in the Official Gazette and were extended to every Municipal Corporation of Uttar ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Section 195 of the Act. 7. In Anurag Bansal (supra), the Full Bench considered, in depth, the relevant provisions of the Act, Rules and the Constitution and, in paragraphs 67 and 68, observed thus: "67. Accordingly, the power conferred on the State Government under Section 540 of the Act is subject to Sections 172, 192, 193, 194, 195 and 196 and 199 of the Act. However, the government has right to frame model rules or issue direction under Section 206 of the Act to impose certain taxes by publication in official gazette. Thus, the impugned rules seem to have been framed in contravention of statutory provision contained in the Act. Hence, the judgment in Taj Advertising (supra) seems to not lay down a correct law. 68. The other aspect of the matter is that the provisions contained in the Act with regard to imposition of tax seem to be an instance of conditional legislation. Consistent with their sovereign character, Legislatures in India have been held to possess wide power of delegation. This power is, however, subject to one important limitation. The Legislation cannot delegate essential legislative functions which consist in the determination or choosing of the legislati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n official gazette, required corporations to impose any tax mentioned in sub-section (2) of Section 172 of the Act, not already imposed at a specified rate. The Government may also increase, modify or vary the rate of tax in case the Corporation fails to carry out the order. 83. The Government may pass suitable order imposing, increasing, modifying, or varying the tax thereupon and in such event the order of the State Government shall operate as if it had been a resolution duly passed by the Corporation. 84. In view of above, the tax imposed by the State Government straightaway without exercising the power conferred by the Act i.e. issuance of direction by notification in gazette to impose tax seems to be an act of exceeding of jurisdiction. Impugned Rules have been framed by the Government in contravention of statutory provisions (supra) contained in the Act. By framing the impugned Rules, the State Government seems to have acted treating the Corporations of the State as its department which seems to not the aim and object of Article 243 (Q) of the Constitution. 85. It is a recognized canon of construction that an expression used in a rule, bye-law or form made in exercise o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....did not make any other submissions though, in the writ petition, he has made reference to several rules to demonstrate on merits that the Bye-laws deserve to be set aside. He did not make any submissions and confined his challenge only on the ground as aforestated. 8.1 On the other hand, Mr Anil Tiwari, learned counsel appearing for the Nagar Nigam fairly submitted that the procedure contemplated under the provisions of Sections 199 to 206 of the Act, 1959 was not followed for making rules to impose a tax specified in sub-section (2) of Section 172. He submitted that for framing the Bye-laws, the procedure contemplated under this provision was followed and, therefore, the Corporation was justified in imposing tax by framing bye-laws under Section 541 of the Act, 1959. With his assistance, we have gone through the counter affidavit and the other material, to which he invited our attention in support. 9. We now proceed to look into the relevant provisions of the Act, 1959. Chapter IX of the Act, 1959 dealing with corporation taxation consists of Sections 172 to 227. Before we look into all relevant provisions, it would be relevant to have a glance at Sections 172 and 192 at this st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l, hoarding or structure any advertisement or who displays any advertisement to public view in any manner whatsoever, in any place whether public or private, shall pay on every advertisement which is so erected, exhibited, fixed, retained or displayed to public view, a tax calculated at such rates and in such manner and subject to such exemptions as may be provided by the Act or rules made thereunder: Provided that no tax shall be levied under this section on any advertisement or a notice- (a) of public meetings, or (b) of an election to any legislative body or the Corporation, (c) of a candidature in respect of such an election: Provided also that no such tax shall be levied on any advertisement which is not a sky-sign and which- (a) is exhibited within the window of any building, or (b) relates to the trade or business carried on within the land or building upon or over which advertisement is exhibited, or to any sale or letting of such land or building or any effects therein or to any sale, entertainment or meeting to be held upon or in the same, or (c) relates to the name of the land or building upon or over which the advertisement is exhibited, or the name of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ould be calculated at such rates and in such manner as may be provided by the Act or Rules made thereunder. Insofar as advertisement tax under Section 172 (2) (h) is concerned, the legislature has consciously deleted the word "bye-laws" from Section 192 of Act, 1959 thereby making its intent clear, that such a tax cannot be imposed by framing bye-laws. Section 193 empowers the Municipal Commissioner not to grant any permission in case an advertisement contravenes any bye-law made by the Corporation. Section 194 provides that a permission granted under Section 193 shall be void in case it contravenes any bye-law made by the Corporation. Section 196 provides that for contravention of any provision contained in the Act, as provided under Sections 192 and 193, the beneficiaries shall be held responsible for whom or for whose purpose the advertisement has been erected. 12. The legislature has delegated powers to the Corporation in respect of taxes mentioned in Section 172 of the Act, 1959. The delegation made to the Corporation under this provision is within the permissible limits of delegation. The Corporation is expected to impose taxes as may be provided by the Act and rules made th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he purposes of the Act and may also make model rules for the guidance of a Corporation in any matter connected with the carrying out of the provisions of this or any other enactment. Explanation.- The power conferred by this sub-section includes the power to make rules regulating the holding of meetings of the Corporation and its Committees and the conduct of business at such meetings till bye-laws are framed under the Act for the purpose. (2) The power of the State Government to make rules under this Act shall be subject to the condition of the rules being made after previous publication and of not taking effect until they have been published in the official Gazette. (3) Any rule made by the State Government may be general for all Corporations or may be special for any one or more Corporations to be specified. (4) [* * *]" 13.1 This provision of the Act, 1959 provides that the State Government may frame Rules for the purposes of this Act or may make model rules to be adopted by Corporations of the State. Section 219 in Chapter IX provides for regulating by rules matters such as assessment, collection and other matters as provided for under the said provision, whereas Sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oposals and, if necessary, revise draft rules along with a notice indicating that the proposals and rules (if any) are in modification of proposals and rules previously published for objection. (3) Any objections which may be received to the modified proposals shall be dealt with in the manner prescribed in sub-section (1). (4) When the Corporation has finally settled its proposals, the Municipal Commissioner shall submit them along with the objections (if any) made in connection therewith to the State Government. 201. Power of State Government to reject, sanction or modify proposal.- Upon receipt of the proposals and objection under the preceding section the State Government may either refuse to sanction the proposals or return them to the Corporation for further consideration or sanction them without modification or with such modification not involving an increase of the amount to be imposed, as it seems fit. 202. Resolution of Corporation directing imposition of taxes.- (1) When the proposals have been sanctioned by the State Government, the State Government, after taking into consideration the draft rules submitted by the Corporation, shall proceed forthwith to make....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he notification, and the Corporation shall thereupon act accordingly. (2) The State Government may require a Corporation to increase, modify or vary the rate of any tax already imposed and thereupon the Corporation shall increase, modify or vary the tax as required. (3) If the Corporation fails to carry out the order passed under sub-section (1) or (2), the State Government may pass suitable order imposing, increasing, modifying or varying the tax and thereupon the order of the State Government shall operate as if it had been a resolution duly passed by the Corporation." 13.2 Section 199 provides that when a Corporation desires to impose a tax specified in sub-section (2) of Section 172, which also includes an advertisement tax, it shall, by resolution, direct the Executive Committee to frame proposals and also draft rules in respect thereof. Sub-section (2) of Section 199 provides that upon a resolution being passed under sub-section (1), the Executive Committee is empowered to frame the proposals and also prepare a draft of the "rules" which it desires the State Government to make in respect of the matters referred to in Section 219. From a bare perusal of sub-section (1) an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Official Gazette and the imposition of the tax from the appointed date, shall, in all cases, be subject to the condition that it has been so notified. A notification of the imposition of a tax under sub-section (2) shall be conclusive proof that the tax has been imposed in accordance with the provisions of this Act. In the present matter, we are not concerned with Sections 204, 205 and 206 though we have reproduced them to only indicate the scheme of the provisions regarding imposition of taxes. 13.3 From the language employed in these provisions, in particular Sections 199, 200 and Section 202, which also uses the word "shall", the intent of the legislature is clear. By its very nature, it is mandatory and it is necessary to be complied with strictly before any tax under sub-section (2) of Section 172 can be imposed. In other words, the procedure specified in these provisions is mandatory considering its language, the purpose for which it has been enacted, the setting in which it appears and the intention of the legislature which, in our opinion, obviously is that no tax should be imposed without hearing the taxpayers. In any case, there is no serious general inconvenience or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uggestions and ultimately decided to place the same before the Corporation. The Corporation ultimately accepted the proposal/draft rules in its meeting held on 21 November 2015 and forwarded the same to the State Government for seeking its approval with its letter dated 18 January 2016. The affidavit states that the State Government has approved the rules vide its order dated 28 January 2016. 14.1 We have perused both the letters dated 18 January 2016 and 28 January 2016. Both the letters, as seen earlier, do not make any reference to 'Rules' as such and what was forwarded by the Corporation to the Government and what was considered by the State Government was the Bye-laws. From a perusal of the letter dated 28 January 2016, it appears that the Government did not grant approval as such but it simply conveyed its No Objection to the implementation of the impugned Bye-laws in place of the 2014 Bye-laws. 14.2 It is, thus, clear from the sequence of events that the Corporation purportedly made Bye-laws and not rules and claimed that for making the bye-laws, they followed the procedure contemplated under the provisions of Sections 199 to 206. Mr Anil Tiwari, learned counsel ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies that the procedure for imposing the liability to pay a tax has to be strictly complied with. Where it is not so complied with the liability to pay the tax cannot be said to be according to law. The objections which the assessees had filed in pursuance of the notification actually published by the Chief Municipal Officer were based upon the list published under S. 136 and not in pursuance of what the liability would be under the Resolution of the Municipal Council, dated April 28, 1963. Therefore, it cannot he said that the opportunity as contemplated by the Act was at all given to the assessees for lodging their objections as required by S. 137 of the Act. Moreover, Mr. Setalvad was not able to point out to us any provision of the Act or of the rules, except S. 78, whereunder the Council could delegate its function of hearing and deciding objections to a Sub-Committee. Section 78 reads thus: "Any powers or duties or executive functions which may be exercised or performed by or on behalf of the Council may, in accordance with the rules made under this Act, be delegated by the Council to the President or Vice-President or to the Chairman of the Standing or other Committees, or ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de and its nature, the intention of the legislature in making the provision, the serious general inconvenience or injustice to the persons resulting from whether the provision is read one way or the other, the relation of the particular provision to other provisions dealing with the same subject and other considerations which may arise on the facts of a particular case including the language of the provision, have all to be taken into account in arriving at a conclusion whether a particular provision is mandatory or directory. Applying this principle laid down by the Constitution Bench of the Supreme Court, we are satisfied that the procedure contemplated under the provisions of Sections 199 to 203 of the Act, 1959 is mandatory in nature. 18. The observations made by the Supreme Court in Visakhapatnam Municipality Vs Kandregula Nukaraju & Ors, (1975) 2 SCC 773 while considering the provisions of the Andhra Pradesh Municipalities Act, 1965, read thus: "11. Imposition of certain kinds of taxes is an obligatory function of municipal councils, under the Act. Section 81(1)(a) provides that every council shall, by resolution, levy a property tax, a profession tax, a tax on carriages a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the municipality not only to invite objections to the proposed tax but also to consider the objections received by it within the specified period. Such period has to be reasonable, not being less than one month. The policy of the law is to afford to those likely to be affected by the imposition of the tax a reasonable opportunity to object to the proposed levy." 19. We also would like to look at the provisions prescribing the procedure for framing rules under Section 540 from another angle. If the provisions of Sections 199, 200, 201 and 203 are seen carefully, it is left completely to the elected body of the Corporation to make rules. In other words, the delegation of imposition of tax and even to make a proposal to the State Government for framing rules has been made to an elected body responsible to the people including those who pay taxes, may be because councillors have to go for election every five years. This means that if they behave unreasonably and the inhabitants of the area so consider it, they can be thrown out at the ensuing elections. As a matter of fact, making the procedure mandatory, in our opinion, is a great check on the elected councillors acting unreasonably....
X X X X Extracts X X X X
X X X X Extracts X X X X
....23. We would now look into the provisions which provide for the procedure to be followed for making bye-laws under Section 541. This provision empowers a Corporation to make bye-laws with respect to the matters mentioned therein including "prohibition and regulation of advertisements". Sections 542, 543 and 544 provide the procedure for making bye-laws. It would be relevant to reproduce those provisions, which read thus: "542. Municipal Commissioner to lay draft bye-laws before the Corporation for its consideration.- It shall be the duty of the Municipal Commissioner from time to time to lay before the Corporation for its consideration a draft of any bye-law which he shall think necessary or desirable for the furtherance of any purpose of this Act. 543. Hearing by Corporation of objections to proposed bye-laws.- No bye-law shall be made by the Corporation unless - (a) a notice of the intention of the Corporation to take such bye-law into consideration on or after a date to be specified in the notice shall have been given in the official Gazette and in the Bulletin of the Corporation, if any, before such date; (b) a printed copy of such bye-law shall have been kept at the ch....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ses that a valid bye law comes into existence and is entitled to be enforced under the provisions of the Act. From the narration of facts noticed above and the averments taken in the counter affidavit it is evident that even this procedure was not followed. The bye laws dealing with subjects other than the levy of tax must also fall on this account. 25. At the cost of repetition, it needs to be noted that Section 541 of the 1959 Act does not empower the Corporation to frame Bye law levying a tax. While it enumerates the various subjects in respect of which Bye laws may be framed, none of them relate to the levy or imposition of a tax. The subject "prohibition and regulation of advertisements" as contained in sub clause (48) cannot be read as conferring an authority upon the Corporation to levy a tax. It is settled law that the power to levy a tax must be specifically conferred and cannot form part of a power to regulate especially when the issue is not one relating to the levy of a regulatory fee but a tax. This issue was eloquently dealt with by the Constitution Bench in State of West Bengal Vs. Kesoram Industries Ltd. [(2004) 10 SCC 201] wherein it was observed:- "General powe....