IMPOSING TAX ON ADVERTISING BY MUNICIPAL CORPORATION - ultra vires

[Mr. M. GOVINDARAJAN]

Advertising is a marketing communication that employs an openly sponsored, non-personal message to promote or sell a product, service or idea. Sponsors of advertising are typically businesses wishing to promote their products or services.   The Municipal Corporation Acts empower the respective municipal corporation to levy tax on advertisement.  Section 172 of UP Municipal Corporation Act, 1959 gives powers to the municipal corporation to levy various types of tax in their jurisdictional limit.  One among them is tax on advertisement.  Section 172(2)(h) gives powers to the municipal corporation to levy a tax on advertisement not being advertisements published in newspapers.

List II of VII Schedule of the Constitution gives the list of tax that may be levied by the State Government.  Entry No. 55 of the List II of VII Schedule of the Constitution

55. Taxes on advertisements other than advertisements published in the newspapers and advertisements broadcast by radio or television.

This entry was omitted with effect from 12.09.2016 by the Constitution (101st Amendment) Act, 2016.   Therefore after this date the power of levy of tax on advertisement by the Municipal Corporation was taken away by the said amendment to the Constitution.

However the municipalities in UP imposed tax on advertisement in exercise of its powers under section 172(2)(h) of the UP Municipal Corporation Act, 1959 which enabled it to impose tax on advertisement not being advertisement published in newspapers.

In ‘Pankaj Advertising v. State of UP’ – Writ tax No. 577 of 2018 decided on 08.02.2019 [2019 (2) TMI 426 - ALLAHABAD HIGH COURT]  the petitioner filed the present writ petition with the prayer to declare the Nagar Palika Parishad Hathras (Vigyapan Kar Ka Nirdharan Aur Wasuli Viniyaman) Upvidhi, 2015 as ultra-vires of the provisions of Uttar Pradesh Goods and Service Tax Act, 2017; U.P. Municipalities Act, 1916 and Articles 14, 19, 21, 246, Seventh Schedule, List-II (State List – Entry-55 which has been amended and omitted by 101 Amendment w.e.f. 16.9.2016) and 265 of the Constitution of India.

The petitioner is an advertising firm based at Ghaziabad and started the work of advertising in the district Hathras. The petitioner had taken private properties, not belonging to the Nagar Palika Parishad at four places for putting hoardings on the roof of the said premises. However, in pursuance of the bye-laws framed by Nagar Palika Parishad, Hathras on 12.1.2017 and published on 19.8.2017, a demand of advertisement tax on Hoardings/Sign Boards/Glow Signs affixed at various places including on the private buildings was sought to be recovered from the petitioner.   The petitioner therefore challenged the legislative competence to the imposition, collection and realization of the Advertisement Tax under the U.P. Municipalities Act, 1916 alleging that when there is no provision to impose such a tax there can be no power to frame any bye-laws in that regard.

The Court has no hesitation in holding that after the omission of Entry-55 of the List-II of the Seventh Schedule to the Constitution of India having been omitted by the 101 Amendment Act, 2016 with effect from 16.9.2016, even the State Government did not have the legislative competence to levy or collect taxes on advertisement which was earlier available under Entry-55, this coupled with the fact that the power of taxation earlier vested with the municipalities under section 128(2)(vii) of the U.P. Municipalities Act, 1916 having been omitted by virtue of Section 173 of the U.P. Goods and Service Tax Act, 2017, the municipality did not even have the statutory competence to levy, impose or collect Advertisement Tax.

The Court has held the levy and collection of Advertisement Tax as ultra-vires, the amounts so collected from the petitioner are liable to be refunded. Accordingly, the Nagar Palika Parishad, Hathras is directed to refund all the amounts that it may have collected from the petitioner under the said Nagar Palika Parishad Hathras (Vigyapan Kar Ka Nirdharan Aur Wasuli Viniyaman) Upvidhi.

In ‘M/S DM ADVERTISERS AGENCY THRU. ITS MANAGING PARTNER AND 7 ORS. VERSUS STATE OF U.P. AND 3 ORS.’ – 2019 (2) TMI 1340 - ALLAHABAD HIGH COURT the petitioners challenged the vires of ‘Mathura Vrindhavan Nagar Nigam (Vigyapan Kar Ka Nirdharan and Wasuli Viniyaman) Upvihi, 2017’ as ultra vires to the provisions of the UP Municipal Corporation Act, 1959, Central Goods and Services Tax Act, 2017 and Articles 14 and 19 of the Constitution of India.

The petitioners put forth the following submissions before the High Court-

• The impugned bye-laws were notified in the Official Gazette and were enforced with effect from 06.01.2018 but on the said date the Municipal Corporation had no authority in law to impose any advertisement tax.
• The Advertisement tax has been levied in view of section 172(2)(h) of the UP Municipal Corporation Act, 1959 which stood deleted with effect from 01.07.2017 by virtue of UP Goods and Services Tax Act, 2017.
• The power of the State to legislate  to levy tax on advertisement under Entry No. 55 of List II of the VII Schedule of the Constitution of India also stood deleted with effect from 12.09.2016 by the Constitution (101st Amendment) Act, 2016.
• Article 265 of the Constitution of India mandates that no tax shall be levied or collected except by the authority of law.   Therefore the authority to levy any tax must be derived from some Statute.

The State stressed that the levy of tax on advertisement is legally valid.

           The Court heard the submissions of both the parties. The Court held that the Mathura Vrindhavan Nagar Nigam (Vigyapan Kar Ka Nirdharan and Wasuli Viniyaman) Upvidhi, 2017 to be ultra vires, in as much as, Entry 55 of list II of the VII Schedule to the Constitution empowering the State Government to make bye-laws in respect of tax on advertisement stood deleted vide Section 17 of the Constitution 101st Amendment Act with effect from 16.09.2016 and at the same time section 172(2)(h) of the UP Municipal Corporation Act authorizing framing of bye-laws in respect to the tax on advertisement also stood omitted by virtue of Section 173 of UP Goods and Services Tax Act, with effect from 01.07.2017.  Thus the Municipal Corporation on the relevant date lacked the necessary legislative competent to make and promulgate the said bye laws.