24.05.2022- Power To Levy GST And Power To Levy Advertisement Tax Are Independent Of Each Other – Karnataka High Court

The Hon’ble High Court of Karnataka vide its order dated 21st April 2022 in the matter of Hubballi Dharwad Advertisers Association (R) & others Vs.  State of Karnataka & others in Writ Petition No. – 104172 of 2021 (LB – Tax) held that the power to levy GST and power to levy Advertisement Tax is independent of each other. There is no conflict between the power to levy GST under GST Act and power of Municipal Corporation to levy advertisement fee/advertisement tax under Section 134 of the Karnataka Municipal Corporations Act.

The petitioners preferred the writ petition before the Hon’ble High Court praying for setting aside the impugned Demand Notice dated 13.06.2018 issued by the respondents.  Further, directions were sought to the respondents not to meddle with the Advertisement Displays and Hoardings of the petitioner.

Facts:

  • The petitioners are in the business of advertisement through hoardings licensed by Hubballi Dharwad Mahanagar Palike (one of the respondents), and are registered dealers under Section 22 of the Karnataka Value Added Tax Act.
  • The petitioners are duly discharging their liability of advertisement tax despite which a notice dated 01.12.2014 (Annexure-A) asking petitioners to deposit advertisement tax regarding hoardings used by them.

Petitioners’ Submissions:

  • It was contended on the behalf of the petitioners that after the enactment of GST Act, the power/authority of respondents to levy or collect advertisement tax is ousted.
  • The advertisement tax has been collected 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. Further, the said Entry 54 having been deleted.  Thus, the said power is divested and the respondents do not have jurisdiction or authority to levy advertisement tax.
  • That if the petitioner is charged GST and Advertisement Tax both, it would amount to double taxation.
  • Further, relying on the decision of Allahabad High Court in M/s Selvel Media Services Private Limited and Others vs. State of U.P. and Others – Writ Tax No. 354/2018 Wherein it was held that ‘In terms of Section 173 of UPGST Act, the power of legislature to legislate with regard to advertisement tax had been deleted from Municipal Corporation Act’., prayed for quashing of impugned Demand Notice. 

Respondent’s Submissions:

  • On the other hand, it was submitted on the behalf of the respondents that the power to collect advertisement tax under Section 134 of the KMC Act continues as the deletion held in the decision relied upon by the petitioners, has not occurred in the KMC Act.
  • That relying on the decision of Gujarat High Court in Selvel Media Services Private Limited vs. The Municipal Corporation – R/Special Civil Application No.4538/2019, it was submitted that advertisement tax is more in the nature of fee though it has been termed as tax. This fee is levied for the license granted to the petitioner for exhibiting advertisements on the hoardings on the land belonging to the respondents, and has to do nothing with GST as contended by the petitioners.
  • That the respondents are authorized to levy and collect advertisement tax and if the petitioners are aggrieved with the levy of GST, they have to challenge the same. Thus, prayed for dismissing the writ petition. 

Held:

  • The Hon’ble High Court after considering the submissions from the both sides and considering the facts of the case observed that GST Act has been introduced pursuant to amendment to the Constitution which introduced Article 246(A) to the Constitution.
  • Further, GST was introduced with the intention to simplify the process of collecting indirect taxes and all indirect taxes like excise duty, sales tax, service tax, have been subsumed in the GST Act.
  • That considering the argument on behalf of the petitioner that ‘paying advertisement tax would amount to double taxation’ found that the petitioners have not been able to show any details of payment of GST as it was not paid.
  • It was observed that GST is payable on supply of goods and services and it’s not the petitioners who are paying it from their own pocket, it’s the service receivers from whom it has been collected by the petitioners while providing the service of advertisement, and ultimately the said GST collected is paid by the petitioners to GST authorities. Thus, the petitioners in the transaction are only acting as collecting agency and the obligation to pay GST is on the persons availing the service or receiving the goods.
  • Thereafter, it was found that the transaction with HDMC is with respect to grant of license to the petitioners to put up hoardings on the land belonging to HDMC or to the private parties, and the incidence of GST has to do nothing with HDMC. In the same manner, the incidence of advertisement tax or fee has nothing to do with supply of service or goods by the petitioners to its clients. Therefore, incidence of tax on both the transactions are different.
  • That the Hon’ble Court while observing that ‘both the transactions are independent and distinct, the incidence of both the GST and advertisement tax/fee are two distinct transactions, to the extent GST being not charged by HDMC and advertisement fee not being charged by GST authorities’, held that merely because GST may be charged on the Advertisement fee charged by HDMC, it cannot be said that there is double taxation.
  • That similarly on the basis of analogy, the petitioners may come up with a contention that they are also paying income tax while carrying on business. Therefore, GST cannot be levied or vice-versa and it would end up in a ridiculous situation which is not tenable. Thus, the transactions in the present case are independent and also the incidence of tax, the same would not amount to double taxation.
  • The Hon’ble High Court relying on the Gujarat High Court decision referred by the respondents in R/Special Civil Application No.4538/2019 wherein the said Court by ‘referring to Articles 243-X and 243-XF of the Constitution has held that the power to impose Advertisement tax is conferred on the Municipality who can collect and appropriate such taxes, duties and fees in accordance with the procedure and subject to such limits’ , disagreed with the contention raised on behalf of the petitioner that ‘due to deletion of Entry 54 to List II of Schedule VII of the Constitution the respondents cannot levy advertisement tax.’
  • The Hon’ble Court taking reference of Article 243 -X of the Constitution found that the Hon’ble High Court of Gujarat after examining all the aspects came to the conclusion that charges levied by Municipal Corporation for putting up an advertisement on hoarding is more in the nature of a fee than a tax.
  • Lastly, the Hon’ble Court referring to law stated in Section 134 of Karnataka Municipal Corporation Act found that in the present case there is no challenge to Section 134 and also there is no challenge to GST Act. The only reliefs which have been sought is setting aside of impugned demand notice at Annexure A and directions to respondents not to meddle with the advertisement display and the hoardings of the petitioners.

The Hon’ble High Court with the above findings dismissed the writ petition declaring that there is no conflict between the power to levy GST under GST Act and power of Municipal Corporation to levy advertisement fee or advertisement tax under Section 134 of the Karnataka Municipal Corporations Act.

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