No Conflict With Levy of GST, Under KMC Act Municipal Corporations can Levy Advertisement Tax/ Fee: In Karnataka High Court
In the case of Hubballi Dharwad Advertisers Association vs State of Karnataka (writ petition no. 104172 of 2021), a single judge bench of Honourable Justice Suraj Govindraj declared that there is no conflict between the power to levy GST under the GST Act and the power of Municipal Corporation to levy advertisement fee or advertisement tax under Section 134 of the Karnataka Municipal Corporations Act.
The Karnataka High Court issued the declaration while dismissing a petition filed by Hubballi Dharwad Advertisers Association and others, which challenged the respondents’ demand notice dated 13.06.2018, which called on them to make advertisement tax on advertisement hoardings used by them.
Facts of the case: The petitioner is a registered association of advertising agencies, according to the facts of the case. The petitioner claims to be in the business of advertising on billboards licensed by respondent No.2- Hubballi Dharwad Mahanagara Palike. The petitioners are also said to be registered as dealers under Section 22 of the Karnataka Value Added Taxes Act, and Form 7 has been widely distributed.
The petitioners claim to be paying advertisement tax on a regular basis, but the respondents have issued a notice dated 01.12.2014 at Annexure-A requiring the petitioners to pay advertisement tax on advertisement hoardings used by them.
The petitioners have petitioned this Court for the following reliefs:
- issue a writ, order, or direction setting aside the respondents’ impugned demand notice, Annexure A7 dated 13.06.2018.
- issue a writ of prohibition, order, or direction to the respondents not to interfere with the petitioners’ advertisement displays and hoardings.
Advocate Zameer Pasha for the petitioners contended that with the passage of the Goods and Services Tax Act (GST), the respondents’ authority to levy or collect advertisement tax was removed. As a result, there may be no demand for advertisement tax following the implementation of the GST.
Furthermore, the respondents collected the advertisement tax in accordance with Section 134 of the Karnataka Municipal Corporations Act, 1976. The authority granted by Section 134 of the KMC Act stems from Entry 54, List II of Schedule VII of the Indian Constitution. As a result of the deletion of Entry 54, the aforementioned power has been relinquished. As a result, no advertisement tax could be imposed on that basis.
Furthermore, the respondents seek the aforementioned reliefs despite having no jurisdiction or authority to levy or collect advertisement tax following the enactment of the GST Act. The decision of the 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 on 01.07.2017, it is GST that is liable to be paid, was relied on. The power of the legislature to legislate with regard to advertisement tax had been deleted from the UP Municipal Corporations Act, and as of September 12, 2016, the State Government or the Municipal Corporation had no power to levy a tax on advertisement hoardings.
Respondents’ counsel, Advocate G.I.Gachchinmath, argued that respondent No.2 retains the authority to collect the advertisement tax under Section 134 of the KMC Act. The power was deleted in the decision relied on by the petitioner’s counsel, but no such deletion occurred in the KMC Act.
Furthermore, reliance was placed on the decision of the Gujarat High Court in R/Special Civil Application No.4538/2019 and related matters in the case of Selvel Media Services Private Limited vs. The Municipal Corporation, contending that advertisement tax is more of a fee than a tax, even though it has been termed as such. This fee is levied for the petitioner and its members’ license to display advertisements on the advertisement hoarding on respondent No.2’s and/or private parties’ land. The petitioner cannot display any advertisement without such a licence; a fee is charged for such display, and the fee has nothing to do with GST, as the petitioner claims.
The bench noted that the above-mentioned GST is levied on any supply of goods or services. The petitioners are in the advertising business and are required to collect GST from any of its/their clients and remit it to the authorities during the course of the said business. The petitioners are not making GST payments out of their own pockets.
“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 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 court stated. The transaction with HDMC refers to the permission and/or license granted by the HDMC to erect and/or use a hoarding on land owned by the HDMC or by a private party.”
The bench then expressed its opinion, “The incidence of advertisement tax or fee is on the licence granted by HDMC allowing the petitioner to put up hoardings or make use of the hoardings; this incidence of advertisement tax or fee has nothing to do with the petitioner’s supply of service or goods to its clients.”
As a result, it ruled, “In light of the foregoing, there are two distinct transactions. The tax implications of both transactions are distinct.”
In dismissing the petition, the court also stated, “By extending the analogy, the petitioners cannot claim that they are also paying income tax on the business they are conducting. As a result, GST cannot be levied, and vice versa. That would result in a ridiculous and completely untenable situation.”