2004 (1) TMI 695 - SC - Indian Laws

Service tax - services rendered by the appellant-Corporation by way of water sewerage charges and power charges separately - Whether the demand made by Municipal Corporation against the respondents is categorized as a 'service charge' or 'tax, need not detain us any longer - violation of Article 285(1) of the Constitution of India - HELD THAT - There is no provision in the Municipal Corporation Act for levying service charges. The only provision is by way of tax. Undisputedly, the appellant-Corporation is collecting the tax from general public for water supply, street lighting and approach roads etc. Thus, the tax was sought to be imposed in the garb of service charges . The interplay of the constitutional and legal provisions being well cut and well defined, it was clearly not within the competence of the Corporation to impose tax on the property of the Union of India, the same being violative of Article 285(1) of the Constitution. Furthermore, the issues raised herein are no more res-integra. This Court, in Union of India v. Purna Municipal Corporation Ors. 1991 (9) TMI 371 - SUPREME COURT considered an identical question and held that Section 135 of the Railways Act, being an Act of the Central Government and saved by clause (1) of Article 285 of the Constitution, clause (2) of Article 285 was not attracted, and the Municipal Corporation was restrained from demanding tax by way of service charges from railways. The same view was reiterated in 1996 (2) TMI 575 - SUPREME COURT Union of India Anr. v. Ranchi Municipal Corporation Ors. Thus, the appeal is devoid of merits and it is accordingly dismissed with no order as to costs.

Summary

Issues Involved:
The judgment involves determining whether the demand made by the Municipal Corporation against the respondents is categorized as a 'service charge' or 'tax', and if considered as 'tax', whether it violates Article 285(1) of the Constitution of India.

Issue (a) - Nature of Demand:
The Municipal Corporation issued notices to the respondents for payment of service charges for services like water supply, street lighting, drainage, and approach roads. The respondents argued that being a Central Government department, their properties are exempt from taxes. The High Court held that the demand for service charges was violative of Article 285 of the Constitution.

Issue (b) - Violation of Article 285(1):
The demand notice was based on circulars issued by the Government of India, Ministry of Finance, specifying rates for service charges. However, the Supreme Court ruled that administrative circulars cannot override constitutional provisions. The demand was considered to be in the form of a tax imposed on the properties of the Union of India, thus contravening Article 285(1).

The Court emphasized that the demand was for services provided to the department, and the respondents were already paying for specific services separately. The Corporation attempted to impose a tax disguised as service charges, which was deemed beyond its authority. Referring to previous judgments, the Court highlighted that Section 135 of the Railways Act, being a Central Government enactment, was exempt from local authority taxation under Article 285(1).

In conclusion, the appeal by the Municipal Corporation was dismissed as lacking merit, with reference to previous decisions, and no costs were awarded.