TaxTMI 
TaxTMI 
TaxTMI 
2024 (10) TMI 973
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.... counsel for the parties. 2. Delay condoned. 3. Leave granted in both petitions. 4. As the issue involved in both cases is same, these appeals are dealt with collectively. For the sake of convenience, facts in the Civil Appeal arising out of Special Leave Petition (Civil) No.22592 of 2016 are noticed. 5. Challenge is laid to the Final Judgment and Order passed by a Division Bench of the High Court of Judicature at Patna (hereinafter referred to as the "High Court") in Letters Patent Appeal No.1391 of 2012 dated 26.04.2016 (hereinafter referred to as the "Impugned Judgment") by which the Judgment and Order passed by the Single Bench dated 29.06.2012 in Civil Writ Jurisdiction Case No.5108 of 2012 (hereinafter referred to as the "Single Bench Judgment") has been set aside and it has been held that the appellant(s) herein could not raise any demand of tax/fee/royalty on advertisement(s) since it has been made without any legislative sanction and is, thus, violative of Article 2653 of the Constitution of India, 1950 (hereinafter referred to as the "Constitution"). The Division Bench further directed that all amounts recovered by the appellants herein on this count i.e., by way of '....
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....ot having paid dues. On 11.02.2012, in terms of various Resolutions/decisions of the Corporation under the Act, a demand was raised towards royalty/fee/tax on the Respondent No.1 to the tune of Rs.64,50,040/- (Rupees Sixty-Four Lakhs Fifty Thousand and Forty). This demand, as also the Office Order dated 02.11.2007 was assailed by filing a writ petition under Article 226 of the Constitution before the Patna High Court, wherein the learned Single Judge ultimately went on to quash 'the order of demand of penalty by the Patna Municipal Corporation in all the cases' and directed 'that the Patna Municipal Corporation should accept the tax/royalty/rent payable by these petitioners in accordance with the 2007 rates fixed by the Patna Municipal Corporation.' On 18.07.2012, the Corporation sent a Demand Notice to the Respondent No.1 to pay Rs.21,98,000/-(Rupees Twenty One Lakhs Ninety Eight Thousand) as royalty/fee/tax in light of the Single Bench Judgment, to which the Respondent No.1 replied on 28.01.2013 contending that the same was calculated wrongly and, thus, a corrected Demand Notice ought to be sent. As the Corporation did not respond to this, the Respondent No.1 continued paying roy....
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....he proposal afore-noted. However, learned senior counsel contended that since the royalty was not being paid, in the year 2011, the Appellant No.2 recommended the imposition of penalty on the arrears due from the advertisers. 10. He further submitted that on 15.12.2010, in the General Meeting of the Corporation, it was decided that the registration of such defaulting advertising agency(ies) be cancelled, and this was followedup by the Corporation raising demand for payment of arrears of royalty from the concerned advertisers, including Respondent No.1, in whose case it was to the tune of Rs.64,50,040/- (Rupees Sixty Four Lakhs Fifty Thousand and Forty). Learned counsel further submitted that only at this belated stage, the Respondent No.1 preferred CWJC No.5108 of 2012, wherein Office Order dated 02.11.2007 as well as the Demand Notice dated 11.02.2012 were assailed. 11. Learned counsel submitted that by a detailed and comprehensive judgment, the learned Single Judge upheld the levy of charge by the Corporation and only the demand of penalty was interfered with. It was submitted that the learned Single Judge even observed that the writ petitioners before it, including Respondent ....
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....ppellate proceedings before the Division Bench. 13. Learned counsel submitted that "royalty" and "tax" have different connotations in law and royalty, unlike tax, is not based on any statutory provision, but on agreement between the parties. Further, it was stated that the enhancement of the rate of royalty to Rs.10 per square foot from Re.1 per square foot, notified under Office Order dated 02.11.2007 was challenged by the Respondent No.1 only in the year 2012. By its advertisement issued on 15.01.2007, the Corporation came out with fresh rates of royalty on advertisements which were accepted by the Respondent No.1 and were made effective from 02.11.2007 at the rate of Rs.10 per square foot. 14. Learned counsel in support of the above has relied upon the decisions of this Court in Indsil Hydro Power and Manganese Limited v State of Kerala, (2021) 10 SCC 165, the relevant being Paragraphs 50 to 564; Century Spinning and Manufacturing Company Ltd. v Ulhasnagar Municipal Council, (1970) 1 SCC 582, the relevant being Paragraph 115, and; Union of India v Indo-Afghan Agencies Ltd., (1968) 2 SCR 366, the relevant being Paragraphs 10 and 246. SUBMISSIONS BY THE RESPONDENT(S) NO.1: 15....
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....sel submitted that the charging Rs.10 per square foot irrespective of whether such hoardings are on private or public place is also arbitrary and unsustainable. In support of his contentions, learned counsel relied upon the decisions of this Court in Commissioner of Income Tax, Mumbai v Anjum M H Ghaswala, (2002) 1 SCC 633; Punit Rai v Dinesh Chaudhary, (2003) 8 SCC 204; Union of India v Naveen Jindal, (2004) 2 SCC 510, and; State of Kerala v Chandramohanan, (2004) 3 SCC 429. ANALYSIS, REASONING AND CONCLUSION : 22. Having given our anxious thought to the issue at hand, the Court finds that the judgment impugned warrants interference. Though the Division Bench has elaborated on the law relating to imposition of tax/levy, we find that the issue was not examined in the manner required. The core question confronting us, as it was before the Division Bench, is whether the demand is by way of a tax/levy or simply in the nature of royalty for permission for advertising through hoardings within the limits of the Corporation. The Court, at this juncture, would clarify that there can be no issue with the proposition of law as stands settled by the various earlier decisions of this Court ....
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....rstanding is concerned. As stated previously, royalty and tax cannot be equated - the nomenclatures cannot be used interchangeably in law, both carrying starkly different imports and connotations. For reasons above, we are unable to maintain as tenable the argument that the demand made by the Corporation was a compulsory exaction. Equally, we are unable to state that the demand was/bore the hallmarks of a tax. The long and short of it is that 'Whatever be the nomenclature, the charges ... in the present cases were for the privilege enjoyed .... ... the basis for such charges was directly in terms of, and under the arrangement entered into between the parties, though, not referable to any statutory instrument. ... For such benefit or privilege conferred upon them, the agreements arrived at between the parties contemplated payment of charges for such conferral of advantage. Such charges, in our view, were perfectly justified.'9 25. The decisions pressed into service by Respondent No.1, we are afraid, are of no aid to its case. As far as the 5-Judge Bench decision in Ghaswala (supra) is concerned, the question that arose for consideration therein was 'whether the Settlement Commissio....
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.... (supra)] held that the Flag Code was not a statute. It was also held that executive instructions, which the Flag Code was, were not 'law' within the meaning of Article 13 of the Constitution. This proposition is unassailable but does not carry Respondent No.1's case further in view of our findings and analysis. 28. Similarly, in Chandramohanan (supra), the Court [three-Judge Bench] placed reliance on Punit Rai (supra) and Naveen Jindal (supra) to conclude that Government Circulars issued by the State of Kerala were not 'law' within the ambit of Article 13 of the Constitution. This issue does not arise in the instant factual backdrop. 29. The other aspect, which we would like to cover, is the proportionality/reasonableness in the enhancement of the rate from Re.1 per square foot to Rs.10 per square foot. Whilst at first blush, the jump may seem high, being ten times, ultimately, it is subjective. Nothing has been canvassed before us to indicate that such rate was exorbitant or disproportionate, requiring judicial interdiction. There is no dispute that in the Meeting held on 29.08.2005, the advertising companies did not object to payment of royalty, as sought by the Corporatio....
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....and similar devices in any place within the jurisdiction of the Corporation. However, it cannot be said that these Regulations would have conferred the right to demand royalty by the Corporation, which we find was traceable to the agreement/arrangement between the parties. 33. Once again, at the cost of repetition, as there has been no serious attempt to challenge the enhancement in quantum from Re.1 per square foot to Rs.10 per square foot, we refrain from delving into that aspect, which as of now has also become very old as it pertains to the year 2007. At this juncture, the Court would refer to the Written Submissions filed on behalf of Respondent No.1, where at Paragraph No.19, following is the stand: "Without prejudice, to the preceding paragraphs and submissions, it is submitted that till no regulations are framed by the State Government, the respondent no.1 agrees to pay royalty to the Municipal Corporation at the enhanced rate of Rs.10 per sq. ft. per annum, prospectively. However, the same may be adjustable with the future demands ought to be raised by the Municipal Corporation after the Regulations under the Bihar Municipal Act, 2007, comes into effect." 34. To the a....
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....the same was made public/communicated to the concerned parties, whichever is later, with simple interest at the rate of 6% per annum. The Corporation is directed to furnish computation of amounts due to the parties concerned within 4 weeks. Payments be made within 16 weeks thereafter by the parties concerned, failing which they shall carry interest @ 10% per annum and be recoverable as arrears under the Bihar and Orissa Public Demands Recovery Act, 1914. Needless to state, amount(s), if any, paid over and above Re.1 per square foot, for the period in question, shall be adjusted towards the final liability to be determined by the Corporation vis-a-vis the respective Respondents No.1 herein and all other similarly-situated persons. 38. Parties shall bear their own costs. 39. Both appeals stand disposed of in terms aforesaid. POST-SCRIPT : 40. After we reserved judgment, a 9-Judge Bench of this Court in Mineral Area Development Authority v Steel Authority of India, 2024 SCC OnLine SC 1796, by a majority of 8:1, has held as under, fully supporting our view hereinabove: '126. There are major conceptual differences between royalty and a tax: (i) the proprietor charges royalt....
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....vations in India Cement Ltd. v. State of T.N. [India Cement Ltd. v. State of T.N., (1990) 1 SCC 12] , and stated as under : (Kesoram Industries case [State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201] , SCC pp. 293-95 & 297, paras 59-61 & 71) "59. First we will refer to certain dictionaries oft-cited in courts of law: Words and Phrases, Permanent Edn. (Vol. 37-A, p. 597): '"Royalty" is the share of the produce reserved to owner for permitting another to exploit and use property. The word "royalty" means compensation paid to landlord by occupier of land for species of occupation allowed by contract between them. "Royalty" is a share of the product or profit (as of a mine, forest, etc.) reserved by the owner for permitting another to use his property.' Stroud's Judicial Dictionary of Words and Phrases (6th Edn., 2000, Vol. 3, p. 2341): 'The word "royalties" signifies, in mining leases, that part of the reddendum which is variable, and depends upon the quantity of minerals gotten or the agreed payment to a patentee on every article made according to the patent. Rights or privileges for which remuneration is payable in the form of a royalty.' Words and Phra....
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....for the area demised, the lessee is required to pay a certain amount in respect of the minerals extracted proportionate to the quantity so extracted. Such payment is called "royalty". It may, however, be that the mine is not worked properly so as not to yield enough return to the lessor in the shape of royalty. In order to ensure for the lessor a regular income, regardless of whether the mine is worked or not, a fixed amount is provided to be paid to him by the lessee. This is called "dead rent". "Dead rent" is calculated on the basis of the area leased while royalty is calculated on the quantity of minerals extracted or removed. Thus, while dead rent is a fixed return to the lessor, royalty is a return which varies with the quantity of minerals extracted or removed. Since dead rent and royalty are both a return to the lessor in respect of the area leased, looked at from one point of view dead rent can be described as the minimum guaranteed amount of royalty payable to the lessor but calculated on the basis of the area leased and not on the quantity of minerals extracted or removed.' In H.R.S. Murthy v. Collector [H.R.S. Murthy v. Collector, AIR 1965 SC 177 : (1964) 6 SCR 666] t....
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....v. State of T.N., (1990) 1 SCC 12] and that the said conclusion that royalty is a tax logically flew from the earlier paragraphs of the judgment." 51. In State of H.P. v. Gujarat Ambuja Cement Ltd. [State of H.P. v. Gujarat Ambuja Cement Ltd., (2005) 6 SCC 499] , a Bench of three Judges of this Court observed : (SCC pp. 530-31, paras 44- 46) "44. "Royalty" is not a term used in legal parlance for the price of the goods sold. It is a payment reserved by the grantor of a patent, lease of a mine or similar right, and payable proportionately to the use made of the right by the grantee as held in Titaghur Paper Mills Co. Ltd. case [State of Orissa v. Titaghur Paper Mills Co. Ltd., 1985 Supp SCC 280 : 1985 SCC (Tax) 538] . 45. In its primary and natural sense "royalty" in the legal world, is known as the equivalent or translation of "jura regalia" or "jura regia". Royal rights and prerogatives of a sovereign are covered thereunder. In its secondary sense, the word "royalty" would signify, as in mining leases, that part of the reddendum, variable though, payable in cash or kind, for rights and privileges obtained. (See Inderjeet Singh Sial v. Karam Chand Thapar [Inderjeet Singh S....
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....eral sense, are included within it. It is said that the essence of taxation is compulsion, that is to say, it is imposed under statutory power without the taxpayer's consent and the payment is enforced by law.... The second characteristic of tax is that it is an imposition made for public purpose without reference to any special benefit to be conferred on the payer of the tax. This is expressed by saying that the levy of tax is for the purposes of general revenue, which when collected forms part of the public revenues of the State. As the object of a tax is not to confer any special benefit upon any particular individual there is, as it is said, no element of "quid pro quo" between the taxpayer and the public authority,... Another feature of taxation is that as it is a part of the common burden, the quantum of imposition upon the taxpayer depends generally upon his capacity to pay.' " 53. It is true that as a result of order passed by this Court in Mineral Area Development Authority v. Steel Authority of India [Mineral Area Development Authority v. Steel Authority of India, (2011) 4 SCC 450] , certain questions concerning "royalty" as determined under the provisions of th....
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....llowing observations from the decision of a Bench of three Judges of this Court in Union of India v. Motion Picture Assn. [Union of India v. Motion Picture Assn., (1999) 6 SCC 150] , where the payment of fee was under the terms of a contract between the parties : (SCC pp. 169-71, paras 31-32) "31. The exhibitors also contend that the charge of one per cent on the net recoveries is a compulsory exaction in the form of a tax. Neither the Act nor the provisions of the licence stipulate payment of any such tax. Hence imposition of this amount is in violation of Article 265 of the Constitution. It is true that neither the relevant Act nor the notification nor the rules nor the terms and conditions of the licence stipulate the payment of any rental. This amount is required to be paid under an agreement which the exhibitors individually enter into with the Films Division for the supply of these films. It is a payment under the terms of a contract between the two parties. It cannot, therefore, be viewed as a tax at all. The exhibitors contend that because they are required to enter into these agreements, any payment under the agreement is a compulsory exaction and is, therefore, tax. We....
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....medabad Urban Development Authority v. Sharadkumar Jayantikumar Pasawalla, (1992) 3 SCC 285] this Court has said that an express authorisation for the levy of a fee is necessary. In the present case, however, the rental is charged by the Films Division by virtue of an agreement between the Films Division and the individual exhibitor. This is in consideration of the Films Division supplying films to the exhibitor, packing the film and arranging for its delivery. This is clearly an agreed fee charged for rendering services. It cannot be viewed as a compulsory exaction or as a tax. There is a statutory obligation which is cast on the exhibitors to exhibit certain films. To carry out this statutory obligation, if the exhibitors enter into an agreement with the Films Division and agree to pay a certain amount of rental for procuring the films from the Films Division to comply with the statutory obligation, the levy must, since it is correlated with the Films Division discharging certain obligations under the contract, be viewed, at the highest, as a fee and not as a tax. It is an agreed payment, and is not unreasonable. The High Court [Motion Picture Assn. v. Union of India, 1995 SCC On....
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....d, he is entitled to rely on their having the authority which they assume. He does not know, and cannot be expected to know, the limits of their authority, and he ought not to suffer if they exceed it." It may be sufficient to observe that in appeal from that judgment (Howell v. Falmouth Boat Construction Co. Ltd.) Lord Simonds observed after referring to the observations of Denning, L.J.: "The illegality of an act is the same whether the action has been misled by an assumption of authority on the part of a Government officer however high or low in the hierachy. * * * The question is whether the character of an act done in force of a statutory prohibition is affected by the fact that it had been induced by a misleading assumption of authority. In my opinion the answer is clearly: No."' 6 '10. This observation is, "clearly very wide and it is difficult to determine its proper scope" : Anson's English Law of Contract, 22nd Edn., p. 174. It may also be noticed that before Rowlatt, J., the applicants claimed enforcement of a contract against the Crown, and the learned Judge came to the conclusion that there was no contract and no damages could be awarded. In Robertso....
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....ed and that the Textile Commissioner and the Joint Chief Controller of Imports and Exports be directed to issue to the respondents import certificates for the total amount equal to 100% of the f.o.b. value of the goods exported by them, unless there is some decision which fails within clause 10 of the Scheme in question.' 7 '146. Licence for use of site for purpose of advertisement.-(1) Except under, and in conformity with, such terms and conditions of a licence as the Municipality may, by the regulations, provide, no person being the owner, lessee, sub-lessee, occupier or advertising agent shall use, or allow to be used, any site in any land, building or wall, or erect, or allow to be erected, on any site any hoarding, frame, post, kiosk, structure, vehicle, neon-sign or sky-sign for the purpose of display of any advertisement. (2) For the purpose of advertisement, every person- (a) using any site before the commencement of this Act, within ninety days from the date of such commencement, or (b) intending to use any site, or (c) whose licence for use of any site is about to expire. shall apply for a licence or renewal of licence, as the case may be, to the Chief Muni....