Spices Board Stands On Different Footing From Central Govt, Cannot Claim Building Tax Exemption: Kerala High Court

The Kerala High Court has recently held that the Spices Board stands on a different footing than the Central Government and so the properties and buildings of the board cannot claim exemption from building tax by virtue of Article 285(1) of the Constitution. 

For context, Article 285 of the Constitution pertains to the Exemption of property of the Union from State taxation. Clause 1 states that the property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State.

A single-judge bench of Justice Basant Balaji referred to Section 19 of the Spices Board Act which deals with the Power of the Central Government to supersede the Board. 

The provision entails that if the Central Government is of the opinion that the board is unable to discharge its functions under the Act, "on account of grave emergency"; or if the board had persistently defaulted in complying with the Centre's directions as a result of which financial position or administration of the board has deteriorated; or such circumstances exist which render it necessary in the public interest so to do, then the Central Government, may, by notification in the Official Gazette, supersede the Board, for a period not more than six months. 

Justice Balaji thereafter said, "Though the grants and loans are by the Central Government and the Board had a separate fund, the Spices Board stands on a different footing than that of the Central Government". 

Background

The petitioner Board had challenged an order demanding property tax for various buildings owned by it. The Board claimed that it was exempted from paying tax as per Article 285 of the Constitution. The Board submitted that as per the provisions of the Spices Board Act, the Board is working under the control of the Central Government. It works as per the directions of the Government. The Annual reports and Performance of the Board is placed before the Government. Thus, the Board is a Central Government statutory body and its properties are the properties of the Central Government, it contended. 

The board contended that it had made representations in November 2020 to the Principal Secretary, Local Self Government Department, Kerala Government for necessary orders/clarifications to the local bodies to ensure that there are no illegal demands of property tax or building tax from the petitioner board; however, as till date, no such clarification has been issued it had approached the high court. 

Meanwhile, the respondent local body, the Vandanmedu Grama Panchayat countered these submissions by saying that the Board is constituted under the Act as a body corporate having perpetual succession, can contract, sue or be sued. It argued that the property against which demand notices are issued is not owned by the Union of India and therefore, the Board is not entitled to exemption under Article 285 of the Constitution.

It was further contended a Government department has to be an organisation which is not completely controlled and financed by the Government but also has no identity of its own. The money earned by such a department goes to the Government exchequer and the loss of the department is suffered by the Government; however here Spices Board is not such a body – it is autonomous and has the power to acquire and disposing of its properties, hence cant claim exemption. 

Findings

Justice Balaji referred to the High Court's judgment in Bharat Sanchar Nigam Limited, Thrissur v State of Kerala (2017) (which was relied upon by the respondent) where it was held that a company registered under the Company Act is a legal entity distinct from other entities that hold its shares. It was held that the BSNL property and building are not owned by the Government of India and therefore, they are liable to pay the building tax.

The Court also referred to the high court's Division Bench's decision in Food Corporation of India (FCI) v Thikkodi Panchayat (1994) where it was held that FCI is not a department of the Central Government and not immune to tax exemption under Article 285(1) of the Constitution.

It further took note of the Supreme Court's decision in Food Corporation of India v. Municipal Committee, Jalalabad (1999) where it was held that the Corporation is its body corporate having attributes of the company and cannot claim exemption of taxation imposed by the State of any authority within the State. 

It further noted that the Spices Board was constituted by The Spices Board Act for the development of the export of spices and for the control of cardamom. It is a body corporate by the name "having perpetual succession and a common seal with power" subject to the provisions of the Act, to contract and shall, sue and be sued in the name.

It noted that when the Act was enacted in 1986, the assets and liabilities of the Cardamom Board and Spices Export Promotion Council stood vested with the Board.

"All debts, obligations and liabilities and things engaged to be done by the Cardamom board or the Spices Export Promotion Council before the commencement of the Act, shall be deemed to be incurred or entered into and engaged to be done by, with, or for the Board," the court said. 

In view of the decisions particularly Food Corporation of India (FCI) v Thikkodi Panchayat and Food Corporation of India v. Municipal Committee, Jalalabad, the high court dismissed the petition saying that the property of the Board cannot be termed as one owned by the Central Government and hence cannot claim exemption from under Article 285(1) of the Constitution.  The court went on to dismiss the plea. 

Case Title: Spices Board v The Principal Secretary and Others

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