Case Note & Summary
A registered association of advertising agencies and its members, engaged in the business of advertisement on hoardings licensed by the Hubballi Dharwad Mahanagara Palike, challenged a demand notice dated 13.06.2018 issued by the municipality for payment of advertisement tax under Section 134 of the Karnataka Municipal Corporations Act, 1976. The petitioners contended that after the enactment of the Goods and Services Tax Act, 2017, the respondents lost the authority to levy or collect advertisement tax, as the power flowed from Entry 54 of List II of Schedule VII, which had been deleted. They also argued that demanding both GST and advertisement tax amounted to impermissible double taxation. The petitioners relied on an Allahabad High Court decision in support. The respondents, on the other hand, asserted that the power under Section 134 remained intact as no deletion had occurred in the Karnataka Act. They submitted that the advertisement tax was more in the nature of a fee for the license to erect hoardings, involving a quid pro quo, and was distinct from GST. The Gujarat High Court's decision in Selvel Media Services Private Limited v. The Municipal Corporation was cited to bolster this argument. The court framed the question whether a municipal corporation can levy advertisement tax/fee after the GST Act came into force. Analyzing the two transactions, the court observed that the first transaction was the permission granted by the municipality to erect or use a hoarding, for which it charged a fee; the second was the supply of advertising services by the petitioners to their clients, which attracted GST. The incidence of tax fell on different transactions and different persons, and there was no double taxation. The court further held that the deletion of Entry 54 from List II did not affect the municipality's power, as Article 243X of the Constitution authorizes municipalities to levy taxes and fees. Following the Gujarat High Court's reasoning, it concluded that the charge was a fee for a license, not a tax on advertisements, and was valid. Consequently, the court dismissed the writ petition, upholding the levy.
Headnote
A) Taxation - Advertisement Tax - Nature of Levy - Karnataka Municipal Corporations Act, 1976, Section 134 - The court examined whether the advertisement tax levied by the municipal corporation is a tax or a fee. It held that the levy is more in the nature of a fee as there is a quid pro quo in the form of permission to erect hoardings. The charge is for the license and is distinct from GST which is on supply of services. Held that the advertisement tax/fee is valid (Paras 28-30). B) Constitutional Law - Legislative Competence - Article 246A and Article 243X - On deletion of Entry 54 of List II, the petitioners argued that the municipality's power to levy advertisement tax was divested. The court, following Gujarat HC, held that Article 243X empowers the municipality to levy taxes and fees, and Article 246A introduced GST but does not curtail that power. Held that the municipality retains the power to levy advertisement tax (Paras 28-30). C) Taxation - Double Taxation - Two Distinct Transactions - Goods and Services Tax Act - The court found that the transaction of obtaining a license from the municipality is independent of the supply of advertising services to clients. GST is on the latter, and advertisement tax is on the former, thus no double taxation. Held that the levy of both is permissible (Paras 22-27).
Issue of Consideration
Whether on coming into force of the GST Act a Municipal Corporation can levy advertisement tax/fee?
Final Decision
The court dismissed the writ petition, holding that the levy of advertisement tax under Section 134 of the Karnataka Municipal Corporations Act, 1976 is valid and not subsumed by GST. The court found that the advertisement tax is actually a fee for granting license to erect hoardings, and there are two distinct transactions: the license fee and the advertising services, each attracting separate taxes. No double taxation occurred. The court relied on Articles 243X and 246A, and the Gujarat High Court's decision in Selvel Media Services Private Limited v. The Municipal Corporation.
Law Points
- Legal points not extracted
- Advertisement tax under Section 134 of Karnataka Municipal Corporations Act
- 1976 is a fee for license to erect hoardings
- not a tax on services
- Article 246A introduced GST on supply of goods/services
- does not divest municipality's power under Article 243X to levy fees
- two distinct transactions: license fee by municipality and GST on advertising services
- no double taxation
- relying on Gujarat High Court decision in Selvel Media Services Private Limited vs. The Municipal Corporation.
