Bharath Sanchar Nigam Limited v Narakal Grama Panchayat and State of Kerala

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE THE CHIEF JUSTICE MR.S.MANIKUMAR & THE HONOURABLE MR. JUSTICE SHAJI P.CHALY TUESDAY, THE 11TH DAY OF FEBRUARY 2020 / 22ND MAGHA, 1941 ## WA.No.1585 OF 2017 AGAINST THE JUDGMENT DATED 22.01.2016 IN WPC 14781/2011 OF HIGH COURT OF KERALA ## APPELLANT/PETITIONER: BHARATH SANCHAR NIGAM LIMITED, NARAKAL, REPRSENTED BY ITS DIVISIONAL ENGINEER (INTERNAL) PARUR, P.AMANULLA. BY ADV. SMT.S.K.DEVI,SC, BSNL ## RESPONDENTS/RESPONDENTS: 1 THE SECRETARY NARAKAL GRAMA PANCHAYAT,NARAKAL - 682 505. 2 STATE OF KERALA REPRESENTED BY ITS CHIEF SECRETARY,SECRETARIAT, THIRUVANANTHAPURAM - 695 001. R1 BY ADV. SRI.S.SHANAVAS KHAN R2 BY SRI. TEK CHAND, GOVT.PLEADER THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 11.02.2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: W.A. No. 1585/2017 : 2 : ## **'CR'** ## **Dated this the 11[th] day of February, 2020.** ## **JUDGMENT** ## **SHAJI P. CHALY, J** Petitioner in the writ petition has filed the appeal challenging the judgment of the learned single Judge declining interference to Ext.P6 demand notice dated 09.03.2011 issued by the Secretary, Njarakkal Grama Panchyat directing the appellant to pay service charge in accordance with Rule 21 of the Kerala Panchayat Raj (Building Tax and the Surcharge thereon) Rules, 1996 (for short 'Rules, 1996) amounting to Rs.9954/- from 2008-2009, to 2010-2011. 2. Brief material facts for the disposal of the writ petition are as follows: Appellant is a company incorporated under the Companies Act, 1956 on and with effect from 15.09.2000, and wholly owned by the Government of India. Appellant company took over the business of providing telecom services and network management from the Central W.A. No. 1585/2017 : 3 : Government Department of Telecom Services and Telecom Operations with effect from 01.10.2000 on “going concern” basis. The case put forth by the appellant is that it is a Government of India enterprises, which provide telecommunication services all over India. The properties and buildings acquired by the Department of the Telecom are still in the name of the Union of India and to be precise, in the name of the President of India. Though the said buildings and properties are now under the occupation of the appellant, they have not been transferred as such to the appellant and therefore, the appellant is entitled to get exemption from the payment of all kinds of taxes under Article 285 of the Constitution of India. However, in contravention to the protection granted under the Constitution, the Secretary of the Grama Panchayat has issued demand notice as per Exts.P5 and P6 claiming the aforesaid amount towards service charge. Eventhough appellant made a request to recall notice interfering with the privilege under Article 285 of the Constitution of India, same was not considered and issued Exts.P8 and P9 notices intimating that if the amount as demanded is not paid, W.A. No. 1585/2017 : 4 : steps will be taken for prosecution. It was under the said backdrop, the writ petition was filed by the appellant. 3. Learned single Judge, after taking into account the arguments advanced by the respective parties and appreciating Article 285 of the Constitution of India and Rule 21 of Rules, 1996, has arrived at a conclusion that the service charge is not exempted under Article 285 of the Constitution of India and the Central Government is liable to pay service charge to the Panchayat as provided under Rule 21 of the Rules, 1996. 4. The paramount contention advanced by the appellant is that the buildings are under the name of the President of India and therefore, the Grama Panchayat is not entitled to collect tax in the guise of service charges and mere change of the word 'tax' to 'service charges' will not enable the Grama Panchayat to collect the service charge overlooking the privilege conferred under Article 285 of the Constitution of India. 5. We have heard learned counsel for the appellant, Smt. S.K. Devi, learned Senior Government Pleader Sri. Tek Chand and Adv. S. Shanavas Khan for the Secretary of W.A. No. 1585/2017 : 5 : the Grama Panchayat, and perused the pleadings and documents on record. 6. The paramount contention advanced by the learned counsel for the appellant is that since properties belonging to the appellant is still in the name of the Government of India, the appellant is entitled to get protection under Article 285 of the Constitution of India. It is also submitted that the Grama Panchayat has issued demand towards the property tax in the guise of service charges and therefore, the demand raised is illegal and arbitrary and violative of Article 285 of the Constitution of India. It is also submitted that Rule 21 of Rules, 1996 is ultra vires Article 285 of the Constitution of India, since such a rule is constituted for imposing service charge overlooking the privilege conferred on the Government of India from not being taxed on its properties. 7. On the other hand, learned counsel appearing for the Grama Panchayat has fully supported the demand raised and the judgment rendered by the learned single Judge. In view of the contentions advanced by learned counsel on either side, it is better, Article 285 of the W.A. No. 1585/2017 : 6 : Constitution of India and Rule 21 of Rules, 1996 are discussed. Article 285 of the Constitution of India reads thus: “285. Exemption of property of the Union from State taxation (1) The property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State (2) Nothing in clause (1) shall, until Parliament by law otherwise provides, prevent any authority within a State from levying any tax on any property of the Union to which such property was immediately before the commencement of this Constitution liable or treated as liable, so long as that tax continues to be levied in that State” 8. On a reading of the said provision, it is quite clear and evident that what is exempted is the property of the Union of India from all taxes imposed by a State or by any authority within a State. Which thus means, the exemption under Article 285 of Constitution of India is only tax on the property alone and not any other levy imposed by a State on the basis of the properties held by the Union of India within the State. In the case at hand, the demand is raised by the Panchayat, in accordance with Rule 21 of Rules, 1996, which read thus: W.A. No. 1585/2017 : 7 : “21. Service charge is leviable in the case of buildings owned by the Central Government and exempted from building tax.—A Service charge, on the buildings owned by the Central Government and exempted from tax under Article 285 of the Constitution of India may be levied from the Central Government, subject to the conditions mentioned below, towards sanitation, water supply scavenging, street light and drainage wherever the Village Panchayat has arranged such services. (i) If the services made available to the Central Government buildings or properties situated in a remote place of a Village Panchayat area are same as that of the services made available to a private institution or person., an amount that may be seventy five per cent of the tax collected from the private persons may be levied as service charge from the said Central Government Institutions. (ii) A service charge fixed as mentioned below shall be levied from the Central Government Institutions which acquired self sufficiency by virtue, of the services rendered by the Panchayat or for which the Central Government, themselves have provided any services and which are situated in an area having comparatively high density of population,— (a) if a Central Government Institution situated in a colony area having all modern services has, without utilising the services made available, arranged for itself, all services, the service charge leviable from such institutions shall be limited thirty three and one third per cent of the normal building tax. (b) if the Central Government Institutions situated in a colony area having modern services, are utilising only a part of such services, the service charge leviable shall be limited to fifty per cent of the W.A. No. 1585/2017 : 8 : building tax that may normally be leviable from such institutions. (iii) The annual rental value of the Central Government buildings shall be assessed as nine per cent of the capital expenditure. The capital expenditure includes value of the property, expenditure towards the developments made in the property and cost of construction of building. If the details of the capital expenditure is not available, the estimated cost that might have incurred for purchasing the property and for constructing the building as per the current price index or the amount as per the records of accounts maintained for the purpose by the Central Public Works Department or the department concerned shall be taken as base.” 9. On an appreciation of the said provision, it is clear that service charge is leviable on properties owned by the Central Government and exempted from building tax. So much so, in categorical terms, it is stipulated that service charge on the properties owned by the Central Government, exempted from tax under Article 285 of the Constitution of India, may be levied against the Central Government subject to the conditions mentioned thereunder, towards sanitation, water supply, scavenging, street light and drainage, wherever the Village Panchayat has arranged such services. 10. As discussed above, Article 285 only confers privilege on the property of the Union of India from W.A. No. 1585/2017 : 9 : property tax and all other taxes towards the properties. However, Rule 21 is incorporated in Rules 1996 only for the purpose of levying service charge on account of the services rendered by the Grama Panchayat to the property owners within the Panchayat area. The Rule also clearly specifies the manner in which the service charge is to be levied. 11. So also, it is very much relevant to consider some of the provisions of the Kerala Panchayat Raj Act, 1994 (for short 'Act, 1994') in this regard. Section 203 of Act, 1994 deals with property tax and sub-Section (1) thereunder stipulates that any Village Panchayat shall in accordance with the provisions of the Act and the rules as may be prescribed, levy property tax on every building (including the land appurtenant thereto) situated within the area of the respective village Panchayat and not exempted under the provisions of the Act. Sub-section (2) stipulates that for the purpose of levying property tax, the Government shall, by notification, fix the minimum and maximum limits of rates of basic property tax applicable to one square meter plinth area of the categories of building specified W.A. No. 1585/2017 : 10 : thereunder in accordance with the use, and the date on which they shall come into force. The buildings are categorised under the Act itself as the building (i) used for residential purpose; (ii) used for industrial purpose; (iii) used for Schools and Hospitals; (iv) used for amusement parks, mobile telephone tower etc. (v) used for commercial purpose; (vi) used for other purposes; and (vii) any other category of buildings notified by the Government. 12. Therefore, it is clear and evident that the property tax is calculated on the basis of the plinth area and other relevant considerations under Section 203 of Act, 1994 and the same is not fixed for any services rendered by the Grama Panchayat. Likewise, as per Section 207 of Act, 1994, certain categories of buildings are exempted from tax and cess. In our considered opinion, the demand raised by the Secretary of the Grama Panchayat in the instant case is not for realisation of the property tax or any other tax or cess in regard to the building or other properties owned/occupied by the appellant. **13.** It is also relevant to identify the meaning of 'tax' as provided in the Black's Law Dictionary, 9[th] Edition, W.A. No. 1585/2017 : 11 : ## which is as follows: “A charge, usu. monetary, imposed by the government on persons, entities, transactions, or property to yield public revenue. Most broadly, the term embraces all governmental impositions on the person, property, privileges, occupations, and enjoyment of the people, and includes duties, imposts, and excises. Although a tax is often thought of as being pecuniary in nature, it is not necessarily payable in money.” ## 14. The term 'service charge' is defined in Black's Law Dictionary, 9[th] Edition, as follows: “A charge assessed for performing a service, such as the charge assessed by a bank against the expenses of maintaining or servicing a customer's checking account. The sum of all charges payable by the buyer and imposed by the seller as an incident to the extension of credit and charges incurred for investigating the collateral or creditworthiness of the buyer or for commissions for obtaining the credit.” 15. Therefore, evaluation of the meanings assigned to the respective phraseology 'tax' and 'service charge' would make it clear that both operates on different fields and they are not interchangeable so as to get the advantage of Article 285 of the Constitution of India. The Apex Court had occasion to consider the difference between 'tax' and 'service charge' in the decision in **Union of India (UOI) and ors. v. State of U.P and Ors** . [(2007) 11 SCC 324]. W.A. No. 1585/2017 : 12 : The question considered therein was whether as per Section 52 of UP Water Supply and Sewerage Act, 1975, Jal Sansthan can levy tax, fee and charges for water supply and for sewerage services rendered by it on the Union of India i.e., Railways. The Apex Court held that though charge loosely termed as 'tax', the nomenclature is not that important and in substance what is being charged from Railway is fee for supply of water and maintenance of sewerage system and such service charges are fee, which cannot be said to be hit by Article 285 of the Constitution of India. The Apex Court had undertaken a detailed survey of various judgments of the Apex Court and has held in paragraph 10 as follows: “10. The distinction has to be kept in mind between a tax and a fee. Exemption under Article 285 is on the levy of any tax on the property of the Union by the State, and exemption is not for charges for the services rendered by the State or its instrumentality which in reality amounts to a fee. In this connection, a reference was made to the decision of this Court in re Sea Customs Act (1878), Section 20(2) AIR 1963 SC 1760. This was a case in which a reference was made by the President of India with regard to levy of custom and excise duties on the State under Article 289 of the Constitution of India wherein Sinha, CJ, Gajendragadkar, W.A. No. 1585/2017 : 13 : Wanchoo and Shah,JJ answered the question at paragraph 31 as follows: (31) For the reasons given above, it must be held that the immunity granted to the States in respect of Union Taxation does not extend to duties of customs including export duties or duties of excise. The answer to the three questions referred to us must, therefore, be in the negative.” 16. The term 'direct tax' is defined in Black's Law Dictionary to mean 'a tax that is imposed on property, as distinguished from a tax on a right or privilege'. A direct tax is presumed to be borne by the person upon whom it is assessed, and not “passed on” to some other person. Ad valorem and property taxes are direct taxes. 17. The rule position being clear, the significant aspect we could gather is that, the rule is not violative of Article 285 of the Constitution of India since the service charge cannot be termed as a tax on property. Rather it is a levy of fee imposed by the local body compensatory and in lieu of the services rendered by it to the owner of the property. So also, taxation defined under Article 366(28) of the Constitution of India read thus: “ taxation includes the imposition of any tax or impost, whether general or local or special, and “tax” shall be construed accordingly”. W.A. No. 1585/2017 : 14 : A conjoint reading of the provisions discussed above, would make it clear that what is exempted under Article 285 of the Constitution is a direct levy of tax on the properties of the Union of India. 18. Though the appellant has raised various grounds in respect of the exemption enjoyed against the properties, being a Central Government undertaking or the Union Government itself, they do not merit consideration, since the buildings owned by the Union of India itself are liable to pay service charge as per Rule 21 of Rules, 1996. 19. The learned counsel for the appellant has also invited our attention to the judgment of the Apex Court in **Suraj Lamp and Industries Private Limited v. State of Haryana and another** [(2012) 1 SCC 656] to canvass the proposition that by mere agreement entered into by the Government of India and the appellant for transfer of the properties of the Government of India, will not make the transaction a sale so as to confer any rights on the appellant as an owner of the property. However, in our considered opinion, the said question will not arise for consideration in this case, since Rule 21 of Rules, 1996 W.A. No. 1585/2017 : 15 : itself imposes service charge on the properties of the Government of India itself for the services rendered by the Grama Panchayat on account of various factors. 20. Having regard to the facts, law and circumstances of the case, we are of the opinion that the learned single Judge has arrived at the conclusions rightly and in accordance with law, dissuading us from interfering with the judgment in an intra court appeal under Section 5 of the Kerala High Court Act. Needless to say, appeal fails, and accordingly, it is dismissed. sd/- **S. MANIKUMAR, CHIEF JUSTICE.** sd/- **SHAJI P. CHALY, JUDGE.** Rv W.A. No. 1585/2017 : 16 :