Municipal Corporations Can Levy Advertisement Fee/ Tax Under KMC Act, No Conflict With Levy Of GST: Karnataka High Court

A single judge bench of Justice Suraj Govindaraj gave the declaration while rejecting a petition filed by Hubballi Dharwad Advertisers Association and others, which had challenged the demand notice dated 13.06.2018 issued by the respondents calling upon them to make advertisement tax as regards advertisement hoardings used by them.

Petitioners submissions:

Advocate Zameer Pasha for the petitioners contended that on the enactment of the Goods and Service Tax Act (GST), the authority of the respondents to either levy or collect advertisement tax is ousted. Therefore, there could be no demand for advertisement tax post the enactment of the GST.

Further, the respondents have collected the advertisement tax in terms of Section 134 of the Karnataka Municipal Corporations Act, 1976. The power under Section 134 of the KMC Act 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 that ground no advertisement tax could be levied.

Moreover, the respondents having no jurisdiction or authority to levy or collect advertisement tax after the enactment of GST Act the aforesaid reliefs are sought for. Reliance was placed on the decision of Allahabad High Court in Writ Tax No.354/2018 in the case of M/s Selvel Media Services Private Limited and Others vs. State of U.P. and Others wherein it is held that in terms of Section 173 of the UPGST Act, 2017 which came into effect from 01.07.2017 it is GST which is liable to be paid. The power of the legislature to legislate with regard to advertisement tax had been deleted from the UP Municipal Corporations 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.

Respondents submissions:

Advocate G.I.Gachchinmath, submitted that the power of respondent No.2 to collect the advertisement tax continues under Section 134 of KMC Act. In the decision relied upon by the counsel for the petitioner, said power had been deleted, whereas no such deletion has occurred in the KMC Act.

Further, reliance was placed upon the decision of Gujarat High Court in R/Special Civil Application No.4538/2019 and connected matters in the case of Selvel Media Services Private Limited vs. The Municipal Corporation, contending that advertisement tax is more of a fee though it has been termed as tax, it would have to be construed as a fee. This fee is levied for the licence granted to the petitioner and its members to exhibit advertisements on the advertisement hoarding on the land belonging to respondent No.2 and or private parties. Without such a licence, the petitioner cannot display any advertisement, the fee is charged for such display and the same has nothing to do with GST as claimed by the petitioner.

Court findings:

The bench noted the GST as stated above is levied on any supply of goods or services. The petitioners carrying on advertisement business it is during the course of the said business that the petitioner is required to collect GST from any of its/their clients and remit it to the authorities. It is not that the petitioners are making payments of GST out of their own pockets.

Following which it observed, "In this transaction the petitioners are only a collecting agency who collects the GST payable on the service rendered and deposits the same with the authorities, the incidence of tax, i.e., GST being on the services rendered or goods supplied, the obligation of payment being on the person availing the service and or receiving the goods."

It then said,

"The incidence of GST is on the service rendered by the petitioner to its clients and has nothing to do with respondent No.2-HDMC. The transaction with HDMC is the permission and or license granted by the HDMC to put up hoarding and or use a hoarding either on the land belonging to the HDMC and or on land belonging to a private party."

The bench then opined, "The incidence of advertisement tax or advertisement fee is on the licence granted by HDMC permitting the petitioner to put up hoarding or make use of the hoardings, this incidence of advertisement tax or fee has nothing to do with supply or service or goods by the petitioner to its clients."

Accordingly it held, "In view of the above there are two distinct transactions. The incidence of tax on both transactions are different."

It added, 

"Both the transactions being independent and distinct the incidence of both the GST and advertisement fee being on two distinct transactions inasmuch as the GST not being charged by the respondent No.1- HDMC and advertisement free not being charged by the GST authorities, though of course there may be GST charged on the Advertisement Fee charged by the HDMC, I am unable to accept the submission of Sri.Zameer Pasha that there is double taxation."

The court also clarified that, "By extending the analogy 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. That would end up in a ridiculous situation that would be completely untenable."

Accordingly it dismissed the petition.

Case Title: HUBBALLI DHARWAD ADVERTISERS ASSOCIATION and others v. STATE OF KARNATAKA and Others

Case No: WRIT PETITION NO. 104172 OF 2021

Citation: 2022 LiveLaw (Kar) 144

Date of Order: 21ST DAY OF APRIL, 2022

Appearance: Advocate U G KATTIMANI a/w Advocate ZAMEER PASHA for petitioners; Advocate SHIVAPRABHU HIREMATH, AGA FOR R1 & R3; Advocate G.I.GACHCHINAMATH, FOR R2

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