Municipal corporations lose power to levy advertisement tax after GST rollout.

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Case Name:

M/s. Selvel Media Services Pvt. Ltd. Vs. State Of UP (High Court of Allahabad)

Writ Tax No. 354 of 2018

Date: 6th May 2019

Key Takeaways:

- Municipal corporations lost the power to levy advertisement tax after GST implementation on July 1, 2017.

- The state legislature also lost the power to legislate on advertisement tax from September 12, 2016 due to a constitutional amendment.

- Any tax can only be levied by the authority of law as per Article 265 of the Constitution.

- The court quashed all demand notices for advertisement tax issued by the Kanpur municipal body after July 1, 2017 and ordered refund of any tax paid during that period.

Issue:

Can municipal corporations like the Nagar Nigam in Kanpur impose and collect advertisement tax after the implementation of the Goods and Services Tax (GST) regime?

Facts:

- The petitioners were advertising companies aggrieved by the demand for advertisement tax raised by the Nagar Nigam (Municipal Corporation) in Kanpur for displaying advertisements through hoardings within its jurisdiction. Previously, the power to levy this tax was derived from Section 172(2)(h) of the Uttar Pradesh Municipal Corporation Act, 1916.

- However, this provision was deleted with effect from July 1, 2017 by Section 173 of the Uttar Pradesh Goods and Services Tax Act, 2017 after the GST regime came into force.

- Furthermore, the Constitution (101st Amendment) Act, 2016 deleted Entry 55 of List II (State List) of the Seventh Schedule from September 12, 2016, removing the State’s power to legislate on advertisement tax.

Arguments:

Petitioners’ Arguments:

After July 1, 2017, the Nagar Nigam in Kanpur did not have the legal authority to levy and collect advertisement tax as the enabling provision was removed from the state laws.

The demand notices for advertisement tax issued after this date were illegal and without jurisdiction.

Respondents’ Arguments:

The arguments from the respondents (State of UP and Nagar Nigam, Kanpur) were not explicitly mentioned in the judgment.

Key Legal Precedents:

The judgment did not cite any specific legal precedents.

Judgement:

The court allowed the writ petition filed by the advertising companies. It held that after September 12, 2016 or July 1, 2017, the Nagar Nigam in Kanpur ceased to have any jurisdiction to impose and realize tax on advertisements. The demand for advertisement tax from the petitioners after July 1, 2017 was declared illegal and without jurisdiction.

The court quashed the impugned demand notices to the extent they sought advertisement tax after July 1, 2017. It further ordered that any amount of advertisement tax deposited by the petitioners for the period from July 1, 2017 onwards shall be refunded to them.

FAQs:

Q1: What was the basis for the court’s decision?

A1: The court’s decision was based on the deletion of the legal provisions that empowered municipal corporations and state governments to levy advertisement tax. Specifically, Section 172(2)(h) of the UP Municipal Corporation Act, 1916 and Entry 55 of List II of the Seventh Schedule of the Constitution were removed, taking away the authority to impose this tax.

Q2: Does this judgment apply to all municipal corporations in India or only in Uttar Pradesh?

A2: The judgment directly applies to municipal corporations in Uttar Pradesh as it interpreted the state laws. However, the principles established, such as the need for a valid legal provision to levy any tax and the impact of the GST regime on existing tax laws, could have wider implications across India.

Q3: What is the significance of the court’s reference to Article 265 of the Constitution?

A3: The court cited Article 265 to emphasize the fundamental principle that no tax can be levied or collected without the authority of law. Since the legal provisions enabling advertisement tax were removed, the municipal corporation lacked the legal backing to continue imposing this tax.

Q4: Can the state government or municipal corporations take any action to regain the power to levy advertisement tax?

A4: Yes, the state government can potentially re-legislate on advertisement tax by seeking a suitable amendment to the Constitution to regain the power to make laws on this subject. Municipal corporations can levy advertisement tax only if the state enacts a new law empowering them to do so after following the due constitutional process.

Q5: What happens to any pending cases or demands related to advertisement tax before the cut-off dates mentioned in the judgment?

A5: The judgment does not provide specific guidance on pending cases or demands before the cut-off dates of September 12, 2016 and July 1, 2017. However, it can be inferred that any lawful demands or proceedings related to the period before these dates would likely remain valid, subject to the applicable laws and judicial interpretations at that time.

Heard Sri W.H. Khan, Senior counsel assisted by Sri Javed Husain Khan, learned counsel for the petitioners, learned Standing counsel for the State of U.P., and Sri Alok Mishra, learned counsel for Kanpur Nagar Nigam.

The petitioners are all advertising companies. They are aggrieved by the demand of advertisement tax imposed by the Nagar Nigam, Kanpur on displaying advertisement through hording within its jurisdiction. Basically, the challenge is to the realization of the advertisement tax w.e.f. 1.7.2017 on the ground that from the said date, as the provision to levy advertisement tax has been deleted and the U.P. Goods and Service Tax, 2017 has come into force, no advertisement tax can be levied.

There is no dispute to the fact that previously Nagar Nigam Kanpur framed U.P. Municipal Corporation (Assessment and Collection of Tax on Advertisement) Rules, 2009. These Rules were struck down by the Lucknow Bench of the Allahabad High Court in the case of Anurag Bansal Vs. State of U.P. & others 2011 (5) ADJ (LB) (FB). Thereafter, Kanpur Nagar Nigam made

another set of rules for the purposes of levying advertisement tax known as Kanpur Nagar Nigam (Vigyapan Kar Ka Nirdharan Aur Wasuli Viniyam) Upvidhi,

2016 which were enforced w.e.f. 2.4.2016. The said bye laws were also struck down vide judgment and order dated 4.5.2017 in writ petition no. 9389 of 2017.

Thereafter, no further rules or bye laws for levying advertisement tax have been made and enforced by the Nagar Nigam, Kanpur but even then demand for

advertisement tax has been raised against the petitioners. The power to levy advertisement tax was contained in Section 172 (2) (h) of the Municipal Corporation Act, 1916 which stood deleted w.e.f. 1.7.2017 by virtue of Section 173 of U.P. GST Act.

In addition to the above, even the power of the State Government to legislate regarding advertisement tax as provided under Entry 55 of List II of the VII Schedule of the Constitution of India also stood deleted w.e.f.

12.9.2016 by the Constitution (101 Amendment) Act, 2016.

Article 265 of the Constitution of India mandates that no tax shall be levied or collected except by the authority of law. Therefore, the authority to levy any tax much less the advertisement tax must be derived from the Statutes. Since the provision of Section 2 (h) of Section 172 of the Municipal Corporation Act was omitted vide Section 173 of the U.P. GST Act w.e.f. 1.7.2017 and even the power of the State legislature to legislate with regard to advertisement tax stood deleted w.e.f. 12.9.2016, there is

neither any power left with the State Government or the Municipal Corporation to legislate about the imposition of tax on advertisement.

In view of the above, after 12.9.2016 or from 1.7.2017 the Nagar Nigam, Kanpur ceased to have any jurisdiction to impose and realize tax on advertisement. Accordingly, the demand of tax on advertisement from the petitioners after 1.7.2017 is held to be illegal and without jurisdiction.

The notices of demand impugned in the petition to the above extent are quashed and the amount, if any of the advertisement tax deposited by the petitioners for the period 1.7.2017 onwards shall be refunded to the petitioners.

The writ petition is allowed and it is held that the Nagar Nigam, Kanpur shall not realize any tax on advertisement after 1.7.2017.

Order Date :- 6.5.2019