Can Municipal Corporation Levy Urban Development Tax & Fire Cess Over Railway Properties? Rajasthan High Court Issues Notice

Justice Pankaj Bhandari and Justice Sameer Jain, observed,

"Issue notice to the respondents, returnable within two weeks. Additionally, extra sets are permitted to be served upon Additional Solicitor General and the concerned Additional Advocate General."

Essentially, the Railway Ministry in its Budget 2009-10 had announced development of Multifunctional Complex (MFC) in various States of India including Ajmer. The petitioner, which is a special purpose company (SPC), applied for the tender and was successfully awarded the contract for development of MFC at Ajmer Railway Station. In this regard, a sub lease agreement was entered on 31.03.2015 between Rail Land Development Authority (RLDA) and the petitioner-company.

Later, the petitioner company was served notice dated 31.05.2022 under section 130 of the Rajasthan Municipalities Act, 2009 raising a demand of Rs.13,41,311/- towards urban development Tax. The petitioner-company replied that Urban development tax was not applicable over the MFC in question for the reason that the property is owned by the Union of India, Ministry of Railways through RLDA.

Thereafter, the North Western Railway clarified to the Nagar Nigam, Ajmer that MFC Ajmer is the ownership of Railway Ministry and therefore, under Article 285 of the Constitution and also under section 184 of the the Railways Act, 1989 is exempted from taxes imposed by the State Government. Later, the Nagar Nigam issued a letter demanding amount of Rs.21,18,648/- as per the provisions of UD Tax Act and Fire Cess/tax and also directing that if the petitioner fails to deposit the said amount, necessary action under the Municipal Act 2009 will be taken. Aggrieved by the same, the petitioner-company has filed the present writ petition.

The plea alleged that the bare perusal of the lease agreement makes it clear that the MFC proposed to develop is to be done on land owned by the Union of India through the Ministry of Railways.

As per the plea, that urban development tax was introduced vide notification dated 24.08.2016 issued by the Department of Local Self, Government of Rajasthan promulgated under section 102 of the Rajasthan Municipalities Act, 2009 provided that UD tax shall be imposed on the properties owned by the Union of India, if the said properties are being used commercially.

It was also alleged that Article 285 of the Constitution as well as Section 184 of Railways Act, 1989 provides that the properties owned by the Union of India or its subsidiaries are exempted from the taxes levied by the Local authorities of the State Government or the State Government itself unless the Central Government provides for levy of tax.

Further, the section 107 of the Act of 2009 provides exemption from taxes levied by the Municipality under section 102 and section 103 and in the said exemption land, building belonging to the Central Government are exempted from the taxes imposed under sections 102 and 103. However, the plea states that no such proviso exists with regard to property vested in the Central Government and therefore, the property vested in Central Government irrespective of its uses and nature is exempted from any of the taxes levied by the Municipality under section 102 and 103 of the Act of 2009.

The plea stated that the petitioner has applied for Fire NOC in 2018, and the same is pending before the municipal authorities since then, whereas the notification for requirement of fire cess was introduced subsequently. As such, the plea noted that the notification cannot be applied retrospectively and nor any levy can be made or recovery can be made on retrospective application of the notification. Furthermore, it is the settled position that any law, especially taxation law or imposition of new levy/tax/cess is prospective only, added the plea.

In this regard, as per the plea, the demand of Fire Cess or tax (regardless of nomenclature) from the Petitioner regarding MFC/premises in question built over on Railway's land, belonging to the central government is illegal, bad in eye of law and deserves to be quashed being in contravention to the Article 285 of constitution of India, section 184 of Act of 1989 and also ultra vires to section 107 of the Act of 2009

Moreover, the plea mentioned that Article 285 and Article 289 vis-à-vis between Central and State Government is based on the doctrine that one sovereign cannot impose taxes on another sovereign and the impugned notification breaches the said doctrine.

The plea added that an identical controversy is pending adjudication in M/s Jodhpur Multi Functional Complex Private Limited v. State of Rajasthan [D.B. Civil Writ Petition no. 4166/2019], wherein the Jodhpur Bench Court had passed an interim order staying the recovery under section 130 of Act of 2009.

Adv. Nitish Kumar Bagri and Adv. Vineet R. Dave appeared on behalf of the petitioner-company.

Case Title: Taleda Sqaure Pvt. Ltd. v. State of Rajasthan

Click Here To Read/Download Order