LEVY OF ADVERTISEMENT TAX AND GST – DOUBLE TAXATION?

[Mr. M. GOVINDARAJAN]

Article 243X of the Constitution

Article 243X of the Constitution gives powers to the State to impose taxes and funds of the Municipalities.  The said article provides that the State Legislature of a State may, by law-

• authorize a Municipality to levy, collect and appropriate such taxes, duties, tolls and fees in accordance with such procedure and subject to such limits;
• assign to a Municipality such taxes, duties, tolls and fees levied and collected by the State Government for such purposes and subject to such conditions and limits;
• provide for making such grants-in-aid to the Municipalities from the Consolidated Fund of the State; and
• provide for constitution of such Funds for crediting all moneys received, respectively by or on behalf of the Municipalities and also for the withdrawal of such moneys there from, as may be specified in the law.

Tax on advertisement

Section 134 of the Karnataka Municipal Corporations Act provides that every person who erects, exhibits, fixes or retains upon or over any land, building, wall 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 a public view, a tax calculated at such rates and in such manner and subject to such exemptions, as the corporation may, with the approval of the Government, by resolution determine.

GST

The Goods and Services Tax has been introduced with effect from 01.07.2017 pursuant to 101^st amendment to the Constitution which among other things has introduced Article 246A to the Constitution.  The GST Act has been introduced with the intention to simplify the process of collecting indirect taxes such as excise duty, sales tax, service tax etc. have been subsumed in the GST Act wherein GST is levied on the supply of services and or goods.

Issue

The issue to be discussed in this article is as to whether on coming into the force of the GST Act a Municipal Corporation can levy advertisement tax/fee with reference to the deciding case law in HUBBALLI DHARWAD ADVERTISERS ASSOCIATION (R) , M/S. POORNIMA ARTS, M/S. COLOUR POINT ADS C/O MOHAN'S DIGI PRINT, M/S. THE PRISM, M/S. THIRUMALA ADVERTISING SERVICE, ARIHANT ADS VERSUS STATE OF KARNATAKA DEPARTMENT OF REVENUE, HUBLI DHARWAD MAHANAGARA PALIKE, THE DEPUTY COMMISIONER REVENUE, HUBLI - 2022 (5) TMI 401 - KARNATAKA HIGH COURT

Facts of the case

In the above said case the petitioner is registered association of the advertising agencies.  The petitioners made payments of advertisement tax regularly.  The respondents issued a notice calling upon the petitioners to make payment of advertisement tax as regards advertisement hoardings used by them.  The petitioners filed the present writ petition before the High Court with the prayer to issue a writ or direction setting aside the impugned demand notice issued by the respondents. 

Contentions

The writ petitioners contended the following before the High Court-

• On the enactment of GS, the authority of the respondents to either levy or collect advertisement tax is ousted.  Therefore there could not be any demand for advertisement tax post the enactment of GST Act.
• The respondents collected the advertisement tax in terms of section 134 of the Karnataka Municipal Corporations Act, 1976, the power of which flows from Entry 54, List II of Schedule VII of the Constitution of India.  The said Entry 54 having been deleted the said power is divested.  Hence even on this ground no advertisement tax could be collected by the respondent.
• GST is liable to be paid with effect from 01.07.2017.
• The power of the legislature to legislate with regard to advertisement tax had been deleted from the UP Municipal Corporation Act with effect from 12.09.2016 there was no power left with the State Government or the Municipal Corporation for imposition of tax on the advertisement hoardings.

The respondent No. 2 contended the following before the High Court-

• The power of respondent No. 2 to collect the advertisement tax continues under section 134 of Karnataka Municipalities Act.
• The power of the legislature to legislate with regard to advertisement tax has not been deleted in the Karnataka Municipalities Act.
• The advertisement tax is more of a fee though it has been termed as tax, it would have to be construed as a fee. 
• The fee is levied for the licence granted to the petitioner and its members to exhibit advertisements on the advertisement boarding on the land belonging to the respondent No. 2 or private parties.
• Without licence the petitioner cannot display any advertisement.
• The fees is charged for such display and the same has nothing to do with GST as claimed by the petitioner.
• Both of them stand on different footings.
• If the petitioners are aggrieved by the levy of GST they have to challenge the same. 
• Insofar as the advertisement tax is concerned, the respondent No. 2 is authorized to levy and collect the same advertisement tax/fee.

The High Court considered the facts and circumstances of the case and also the contentions of the parties to the writ petition. The High Court analyzed the provisions of Article 243X and Article 246A of the Constitution of India and also section 134 of Karnataka Municipalities Act.

Observations of High Court

The High Court observed that the petitioners while doing their business are to collect GST and remit the same to the exchequer of the Government of India.  They did not pay GST out of their own pockets.  They collect the same from their customers and pay the same. In this case the petitioners are only a collecting agency who collects GST payable on the service rendered and deposits the same with the authorities.   The incidence of GST is on the service rendered by the petitioner to its clients and has nothing to do with the respondent No. 2.  The incidence of advertisement tax of advertisement fee is on the licence granted to the petitioner permitting them to put up hoarding or make use of the hoardings.  The incidence of advertisement tax or fee has nothing to do with the supply or the service or goods by the petitioner to its clients.  Therefore they are two distinct transactions.  The incidence of tax on both transactions is different.

Decision of High Court

Both the transactions are independent and distinct the incidence of both GST and advertisement fee.  The GST is not collected by the Municipal authorities and advertisement fee is not collected by GST authorities.  Therefore the High Court did not accept the contentions of the petitioners that there is a double taxation.   The petitioners cannot contend that on the business being done by them, they are also making payment of income tax.  Therefore GST cannot be levied or vice versa.  This would end up ridiculous situation that would be completely untenable.

In the present case there is no challenge either to section 134 of the Karnataka Municipal Corporation Act nor is there a challenge made to GST Act.  The only relief which has been sought for is for setting aside the impugned demand notice and writ of prohibition directing the respondents not to meddle with the advertisement display and the hoardings of the petitioners.

The High Court held that the transactions being independent the incidence of tax being independent the same would not amount to double taxation.  The High Court dismissed the petition and declared that there is no conflict between the power to levy GST under GST Act and power of Municipal Corporation to levy advertisement tax or fee under section 134 of Karnataka Municipal Corporations Act.