Nagar Palika Parishad’s advertisement tax bylaws struck down as unconstitutional after GST implementation.

Case Name:

M/s. Pankaj Advertising Prop. Vs. State Of U.P. And 7 Others

Writ Tax No. 577 of 2018

Key Takeaways:

- The court held that the Nagar Palika Parishad, Hathras lacked the statutory power to levy and collect advertisement tax after the omission of relevant provisions from the U.P. Municipalities Act, 1916, and the introduction of the GST Act in 2017.

- The bylaws framed by the municipality to impose advertisement tax were declared ultra vires (beyond the legal power or authority) of the Constitution of India, the U.P. Municipalities Act, and the U.P. GST Act.

- The court’s decision reinforced the principle that no tax can be levied or collected without the authority of law, as mandated by Article 265 of the Constitution.

Issue:

Whether the Nagar Palika Parishad, Hathras had the legislative competence to levy and collect advertisement tax under its bylaws after the implementation of the Goods and Services Tax (GST) Act in 2017.

Facts:

The petitioner, an advertising firm based in Ghaziabad, had put up hoardings on private properties in Hathras. The Nagar Palika Parishad, Hathras, issued a demand for advertisement tax on these hoardings under its bylaws framed on 12th January 2017 and published on 19th August 2017.

The petitioner challenged the legislative competence of the municipality to impose, collect, and realize the advertisement tax, arguing that there was no provision in the U.P. Municipalities Act, 1916, to impose such a tax.

Arguments:

Petitioner’s Arguments:

- The U.P. Municipalities Act, 1916, did not contain any provision to impose advertisement tax, and therefore, the municipality lacked the power to frame bylaws for the same.

- After the implementation of the GST Act in 2017 and the omission of relevant provisions from the U.P. Municipalities Act, the municipality did not have the statutory competence to levy, impose, or collect advertisement tax.

Municipality’s Arguments:

The bylaws were framed based on directions issued by the Director on 30th May 2014, expressing an intention to frame bylaws for collecting advertisement tax.

The municipality tried to justify the levy on the ground that the bylaws were framed and published pursuant to these directions.

Key Legal Precedents:

Bharti Airtel Limited vs. State of U.P. and others (Writ Petition No. 7848 of 2010, decided on 21.10.2010):

The court held that Nagar Palika Parishads and Nagar Panchayats have no authority to impose tax on hoardings, sign boards, or glow signs.

Idea Cellular Limited and Another vs. State of U.P. and Others (Writ Tax No. 2300 of 2009):

The court ruled that the levy, imposition, and collection of advertisement tax by Nagar Palika Parishads and Nagar Panchayats were wholly illegal and without any sanction of law.

Anurag Bansal vs. State of U.P. and Others (Full Bench, decided on 24.04.2011):

The court held that the U.P. Municipal Corporation Rules framed under the U.P. Municipal Corporation Act, which provided for the procedure for levying and collecting advertisement tax, were ultra vires (beyond the legal power or authority) of the Act’s provisions.

Pepsico India Holdings (Pvt.) Ltd. vs. State of U.P. and others (2015 (1) ADJ 273, decided on 08.01.2015):

The court declared the bylaws framed by the Nagar Nigams of Lucknow, Allahabad, and Bareilly for levying advertisement tax as illegal, void, and inoperative.

U.P. Advertisers Association and others vs. State of U.P. and Others (2017 (5) ADJ 780 (DB), decided on 04.05.2017):

The court declared the bylaws framed by the Kanpur Nagar Nigam for levying advertisement tax as illegal.

Judgment:

The Allahabad High Court ruled that the Nagar Palika Parishad, Hathras lacked the legislative competence to levy and collect advertisement tax under its bylaws after the implementation of the GST Act in 2017. The court held that:

The omission of Entry 55 from List II (State List) of the Seventh Schedule to the Constitution of India by the 101st Amendment Act, 2016, took away the State Government’s legislative competence to levy or collect taxes on advertisements.

The omission of Section 128(2)(vii) from the U.P. Municipalities Act, 1916, by Section 173 of the U.P. Goods and Services Tax Act, 2017, removed the municipality’s statutory competence to levy, impose, or collect advertisement tax.

The Nagar Palika Parishad Hathras (Vigyapan Kar Ka Nirdharan Aur Wasuli Viniyaman) Upvidhi, 2015 (bylaws) were ultra vires (beyond the legal power or authority) of Article 265 of the Constitution of India, the U.P. Municipalities Act, 1916, and the U.P. Goods and Services Tax Act, 2017.

The bylaws were struck down as being without any legislative or statutory competence.

The Nagar Palika Parishad, Hathras, was directed to refund all the amounts collected from the petitioner under these bylaws within three months.

FAQs:

Q1: What was the significance of the court’s decision?

A1: The court’s decision reinforced the constitutional principle that no tax can be levied or collected without the authority of law (Article 265 of the Constitution). It also clarified that after the implementation of the GST Act and the omission of relevant provisions, municipalities in Uttar Pradesh no longer had the legislative competence to impose advertisement tax.

Q2: What was the impact of the GST Act on the municipality’s power to levy advertisement tax?

A2: The implementation of the GST Act in 2017 and the subsequent omission of Section 128(2)(vii) from the U.P. Municipalities Act, 1916, removed the statutory basis for municipalities to levy, impose, or collect advertisement tax.

Q3: Why were the bylaws framed by the Nagar Palika Parishad, Hathras, struck down?

A3: The bylaws were struck down because the court found them to be ultra vires (beyond the legal power or authority) of the Constitution of India, the U.P. Municipalities Act, 1916, and the U.P. Goods and Services Tax Act, 2017. The municipality lacked the legislative competence to promulgate these bylaws after the relevant legal provisions were omitted.

Q4: What was the court’s order regarding the advertisement tax collected from the petitioner?

A4: The court directed the Nagar Palika Parishad, Hathras, to refund all the amounts collected from the petitioner under the struck-down bylaws within three months.

Q5: What legal principles were established or reinforced by this case?

A5: The case reinforced the constitutional principle that no tax can be levied or collected without the authority of law (Article 265 of the Constitution). It also highlighted the importance of legislative competence and the need for municipalities to operate within the bounds of their statutory powers, which can be affected by changes in laws and constitutional amendments.

Heard Sri C.K. Parekh, learned counsel for the petitioner, Sri Avinash Chandra Tripathi, learned Standing Counsel and Sri Sahab Tiwari, learned counsel appearing for Nagar Palika Parishad, Hathras, (respondent nos. 2, 3 and 4).

The present writ petition has been filed seeking to declare the Nagar Palika Parishad Hathras (Vigyapan Kar Ka Nirdharan Aur Wasuli Viniyaman) Upvidhi, 2015 as ultra-vires of the provisions of Uttar Pradesh Goods and Service Tax Act, 2017; U.P. Municipalities Act, 1916 and Articles 14, 19, 21, 246, Seventh Schedule, List-II (State List – Entry-55 which has been amended and omitted by 101 Amendment w.e.f. 16.9.2016) and 265 of the Constitution of India.

This Court had also called the Additional Advocate General to ascertain whether the State Government was desirous on opposing the petitions with regard to vires of the levy of Advertisement Tax by the municipalities, however, Sri Manish Goel, Additional Advocate General, State of U.P. appeared and fairly stated that he had nothing to add or submit unless there

was a challenge to levy of Advertisement Tax under the U.P. GST.

Facts, in brief, in the present petition, are that the petitioner is an advertising firm based at Ghaziabad and started the work of advertising in the district Hathras. The petitioner had taken private properties, not belonging to the Nagar Palika Parishad at four places for putting hoardings on the roof of the said premises. However, in pursuance of the bye-laws framed by Nagar Palika Parishad, Hathras on 12.1.2017 and published on 19.8.2017, a demand of advertisement tax on Hoardings/Sign Boards/Glow Signs affixed at various places including on the private buildings was sought to be recovered from the petitioner.

The petitioner therefore challenged the legislative competence to the imposition, collection and realization of the Advertisement Tax under the U.P. Municipalities Act, 1916 alleging that when there is no provision to impose such a tax there can be no power to frame any bye-laws in that regard.

The issue relating to the power of the municipality to levy

and collect Advertisement Tax has a chequered history. Prior to

2011, the municipalities in exercise of their powers under the

U.P. Municipality Act 1916 sought to levy and recover

Advertisement Tax, which was challenged before the High Court,

Allahabad by means of Writ Petition No. 7848 of 2010 (M/B)

Bharti Airtel Limited through its Authorised Signature vs.

State of U.P. And others, the said petition came to be decided

on 21.10.2010 wherein the Hon'ble Court held that the Nagar

Palika Parishad and Nagar Panchayat have no authority to

impose tax on the Hoardings/Sign Boards/Glow Signs. A similar

view was taken by this Court in Writ Tax No. 2300 of 2009 (Idea

Cellular Limited And Another vs. State of U.P. And Others)

wherein this Court has held that levy, imposition and collection of

Advertisement Tax by the Nagar Palika Parishads/Nagar

Panchayats was wholly illegal and without any sanction of law.

The U.P. Municipalities Act 1916 was amended by U.P. Act

No. 8 of 2011, published in the U.P. Gazette Extraordinary Part-1

Section (Ka) on 11.3.2011 whereby Section 128(2)(vii) was

introduced giving the municipality the power to impose the

advertisement tax. Section 128 after its amendment on

11.3.2001 is as under:

[128. Taxes to be imposed. - (1) Subject to the

provisions of this Act and of Article 285 of the

Constitution of India, a Municipality shall impose the

following taxes, namely :-

(i) a tax on the annual value of buildings or lands or

both.

(ii) a water tax on the annual value of buildings or lands

or both;

(iii) a drainage tax on the annual value of buildings

leviable on such buildings as are situated within a

distance, to be fixed by rules in this behalf for each

municipality from the rearest sewer line;

(iv) a conservancy tax for the collection, removal and

disposal of excrementious and polluted matter from

privies, urinals, cesspools;

(2) In addition to the taxes specified in sub-section (1),

the Municipality may, for the purposes of this Act and

subject to the provisions thereof, impose any of the

following taxes, namely :-

(i) a tax on trades and callings carried on within the

municipal limits and deriving special advantages from,

or imposing special burdens on, the municipal services;

(ii) a tax on trades, callings and vocations including all

employments remunerated by salary or fees;

(iii) a theatre tax which means a tax of amusements or

entertainments;

(iv) a tax on dogs kept within the Municipality;

(v) a scavenging tax;

(vi) a tax on deeds of transfer of immovable properties

situated within the limits of the Municipality;

(vii) a tax on advertisements not being

advertisements published in the newspapers;

(viii) a tax on vehicles and other conveyances plying

within the Municipality limit or on boats moored therein.

(ix) betterment tax.

(3) The municipal taxes shall be assessed and levied in

accordance with the provisions of this Act and the rules

and bye-laws framed thereunder.

(4) Nothing in this section shall authorize the imposition

of any tax which the State Legislature has no power to

impose in the State under the Constitution:

Provided that a Municipality which immediately before

the commencement of the Constitution was lawfully

levying any such tax under this section as then in force,

may continue to levy that tax until provisions to the

contrary is made by the Parliament.]

The sub-section 3 of Section 128 provide that the

municipal taxes shall be assessed and levied in accordance with

the provision of this Act and the Rules and bye-laws framed

thereunder.

The said amendment under section 128 was justified by

legislative competence in view of the Entry-55 of the State List-II

of the Seventh Schedule to the Constitution of India. The U.P.

Municipal Corporation Rules were framed under U.P. Municipal

Corporation Act which provided for the procedure for levy and

collection of the Advertisement Tax. The said rules came up for

consideration before the Full Bench in the case of Anurag

Bansal vs. State of U.P. And Others, which was decided on

24.4.2011 wherein the said rules were held to be ultra vires, the

provision of the Act as same were made without following the

procedure laid down under the Act. In a similar manner, bye-laws

framed by the Nagar Nigam, Lucknow, Nagar Nigam, Allahabad

and Nagar Nigam, Bareilly were challenged and were declared

as illegal, void and inoperative vide judgement of this Court in

the case of Pepsico India Holdings (Pvt.) Ltd. vs. State of

U.P. And others, 2015 (1) ADJ 273, decided on 08.1.2015. The

bye-laws framed by Kanpur Nagar Nigam were also challenged

and declared to be illegal by this Court in the case of U.P.

Advertisers Association and others vs. State of U.P. And

Others, 2017 (5) ADJ 780 (DB), decided on 04.05.2017.

The above being legal history of various attempts made for

levy and collection of Advertisement Tax by the municipalities in

the State of U.P.

Sri C.K. Parekh has argued that besides the judgements

referred to above, the controversy and the challenge to the levy

and collection of the Advertisement Tax is further narrowed on

account of the subsequent developments after coming into effect

of the 101 Amendment in the Constitution of India. The said

amendment has a major bearing on the levy and collection of the

Advertisement Tax as by the said amendment in the Constitution

of India with effect from 8.4.2016. Article 265(A) was inserted

and which provides for levy and collection of Goods and

Services Tax and by virtue of the said amendment in the

Constitution Entry-55 of the List-II which provided for taxes or

advertisement has been omitted with effect from 16.9.2016. In

pursuance of the 101 Amendment U.P. Goods and Service Tax

2017 (Act No. 1 of 2017) came into operation with effect from

01.7.2017.

Section 17 of the 101 Constitutional Amendment Act is

quoted as under:

17. Amendment of Seventh Schedule - In the

Seventh Schedule to the Constitution,—

(a) in List I — Union List,—

(i) for entry 84, the following entry shall be

substituted, namely:—

"84. Duties of excise on the following goods

manufactured or produced in India, namely:—

(a)petroleum crude;

(b) high speed diesel;

(c) motor spirit (commonly known as

petrol);

(d) natural gas;

(e) aviation turbine fuel; and

(f) tobacco and tobacco products.";

(ii) entries 92 and 92C shall be omitted;

(b) in List II—State List,—

(i) entry 52 shall be omitted;

(ii) for entry 54, the following entry shall be

substituted, namely:—

"54. Taxes on the sale of petroleum crude, high

speed diesel, motor spirit (commonly known as

petrol), natural gas, aviation turbine fuel and

alcoholic liquor for human consumption, but not

including sale in the course of inter-State trade or

commerce or sale in the course of international

trade or commerce of such goods.";

(iii) entry 55 shall be omitted;

(iv) for entry 62, the following entry shall be

substituted, namely:—

"62. Taxes on entertainments and amusements

to the extent levied and collected by a Panchayat

or a Municipality or a Regional Council or a

District Council.".

Simultaneously with the constitutional amendment and the

coming into force of GST, Section 128(2) (vii) was also omitted

with effect from 01.7.2017 by virtue of Section 173 of the U.P.

Goods and Service Tax Act, 2017.

Section 173 of the U.P. Goods and Service Tax Act, 2017

is quoted as under:

173. Amendment of certain Acts. - Save as otherwise

provided in this Act, on and from the date of

commencement of this Act,-

(i) In the Uttar Pradesh Municipal Corporation Act, 1959

Clause (h) of sub-section 2 of Section 172 and

Sections 192, 193 shall be omitted.

(ii) In the Uttar Pradesh Municipalities Act, 1916

clause (7) of sub-section (2) of Section 128 shall be

omitted.

(iii) In the Uttar Pradesh Taxation and Land revenue

Laws Act, 1975, Chapter II shall be omitted.

Admittedly, the bye-laws by virtue of which the

municipalities intended to levy and collect tax on advertisement

were framed on 12.1.2017, however, the same were published

on 19.8.2017 i.e. after 01.07.2017 when the U.P. Goods and

Service Tax Act, 2017 came into being and after the omission of

Section 128(2) sub-section (vii) of the U.P. Municipalities Act.

That being the case, the narrow ground to be considered by this

Court is whether the bye-laws framed on 12.1.2017 by the

respondents and published on 19.8.2017, were beyond the

statutory power of the municipalities.

Learned counsel for the Municipality tried to justify the levy

on the ground that the bye-laws have been framed by virtue of

directions issued by the Director on 30.5.2014 directing all the

District Magistrates that there was intention to frame bye-laws

for collection of tax on advertisement and, pursuant to the said

directions, the bye-laws were framed and published on

19.8.2017.

This Court has no hesitation in holding that after the

omission of Entry-55 of the List-II of the Seventh Schedule to the

Constitution of India having been omitted by the 101 Amendment

Act, 2016 with effect from 16.9.2016, even the State

Government did not have the legislative competence to levy or

collect taxes on advertisement which was earlier available under

Entry-55, this coupled with the fact that the power of taxation

earlier vested with the municipalities under section 128(2)(vii) of

the U.P. Municipalities Act, 1916 having been omitted by virtue of

Section 173 of the U.P. Goods and Service Tax Act, 2017, the

municipality did not even have the statutory competence to levy,

impose or collect Advertisement Tax.

In the said view of the matter, the levy and collection of the

Advertisement Tax under the provisions of Nagar Palika

Parishad, Hathras (Vigyapan Kar Ka Nirdharan Aur Wasuli

Viniyaman) Upvidhi, 2015 is clearly without legislative or

statutory competence and is ultra-vires under Article 265 of the

Constitution of India, U.P. Municipalities Act, 1916 and U.P.

Goods and Service Tax Act, 2017. This Court has no hesitation

in holding that the said Nagar Palika Parishad, Hathras

(Vigyapan Kar Ka Nirdharan Aur Wasuli Viniyaman) Upvidhi,

2015 is without any legislative or statutory competence and,

thus, are hereby struck down.

In view of the fact that the Court has held the levy and

collection of Advertisement Tax as ultra-vires, the amounts so

collected from the petitioner are liable to be refunded.

Accordingly, the Nagar Palika Parishad, Hathras is directed to

refund all the amounts that it may have collected from the

petitioner under the said Nagar Palika Parishad Hathras

(Vigyapan Kar Ka Nirdharan Aur Wasuli Viniyaman) Upvidhi,

2015 within a period of three months.

The writ petition is allowed in the aforesaid terms.

No order as to costs.

Order Date :- 08.02.2019

Puspendra

(Per Hon'ble Pankaj Mithal,J.)

In concurring with the conclusion of my esteem brother that

the Nagar Palika Parishad Hathras (Vigyapan Kar Nirdharan Va

Vasuli Viniyam) Upvidhi 2015 promulgated w.e.f. 19.08.2017 are

ultra vires not only to the constitutional provisions but also to the

U.P. Municipalities Act, 1916 (hereinafter referred to as the

Municipalities Act) and U.P. Goods and Service Tax Act, 2017

(hereinafter referred to as the G.S.T. Act), I propose to add my

views to strengthen the opinion expressed by my brother.

Article 265 of the Constitution of India mandates that no

tax shall be levied or collected except by authority of law.

Therefore, the authority to levy any tax must be derived from

some Statute.

The Nagar Palika Parishad, Hathras framed the said bye-

laws in exercise of its powers under Sub-Section (2)(vii) of the

Section 128 of the Municipalities Act which enabled the

municipality to impose tax on advertisement not being

advertisement published in the news papers.

The aforesaid provision of Sub-Section (2)(vii) of the

Section 128 of the Municipalities Act was omitted vide Section

173 of the G.S.T. Act which was enforced w.e.f. 01.07.2017. It

may be pertinent to note that not only the G.S.T. Act was

implemented w.e.f. 01.07.2017 but even the provision of Section

173 thereof was enforced with effect from the said date. Thus,

Section 128(2)(vii) of the Municipalities Act stood omitted w.e.f.

01.07.2017.

In view of the aforesaid omission of Section 128(2)(vii) of

the Municipalities Act by the G.S.T. Act, all municipalities in the

State of U.P. were denuded of the power to impose tax on

advertisement after 01.01.2017. Once the said power of

imposing tax on advertisement itself was taken away, no bye-

laws in that regard could have been framed and promulgated.

The aforesaid bye laws were formulated by the Nagar

Palika Parishad Hathras on 12.01.2017 but were notified in the

gazette of the Uttar Pradesh dated 19.08.2017.

The aforesaid bye-laws in bye-law No.1(3) clearly states

that the said bye-laws would be enforced from the date they are

published in the gazette. Therefore, the aforesaid bye-laws

came into operation w.e.f. 19.08.2017 which was not possible as

by that time Sub-section (2) (vii) of Section 128 of the

Municipalities Act was omitted.

The mere framing of the said bye-laws prior to the

omission of Sub-section 2(vii) of Section 128 of the

Municipalities Act would not bring the said bye-laws within the

legislative competence as on the effective date the statutory

provision enabling the imposition of advertisement tax stood

already deleted. Even otherwise, mere framing of bye-laws is not

enough unless they see the light of the day which they saw for

the first time on publication in the gazette by which time power to

impose tax on advertisement was withdrawn.

Apart from the above, the State legislature was invested

with the power to make laws in respect of taxes on

advertisement vide Entry 55 of List II to the 7th Schedule of the

Constitution but the said Entry was deleted by the Constitution

(101st Amendment) Act, 2016 w.e.f. 12.09.2016. The said

Amending Act vide Section 17 amends 7th Schedule and

provides for the omission of Entry 55 of List 2 of the said

Schedule. Thus, deleting the power of the State to make laws in

respect of taxes on advertisement.

Accordingly, when the State was denuded of the power to

make laws in respect of tax on advertisement obviously the

municipalities also were divested of power to impose any tax on

advertisement.

In view of the aforesaid, the impugned bye-laws are also

ultra vires to Article 265 and List II of 7th Schedule of Constitution

of India.

In short, the Nagar Palika Parishad had no legislative

competence on 19.08.2017 to promulgate the aforesaid bye-

laws in view of omission of Section 128(2)(vii) of the

Municipalities Act by virtue of Section 173 of the G.S.T. which

was enforced on 01.07.2017 as also due to the omission of

Entry 55 of List II of 7th Schedule to the Constitution of India

empowering the State to make bye-laws in respect of tax on

advertisement vide Section 17 of the Constitution (101st

amendment) 2016 enforced w.e.f. 16.09.2016.

Accordingly, the aforesaid bye-laws are struck down as

ultra-vires.

Piyush

8.2.2019