G. Ravikumar v. Neyyattinkara Municipality (WP(C).28926/2007 (R) & WP(C).9552/2008)

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE ANTONY DOMINIC** **MONDAY, THE 18TH DAY OF JUNE 2012/28ND JYAISHTA 1934** ## **WP(C).No. 28926 of 2007 (R)** **------------------------------------------** **PETITIONER(S):** **-----------------------** **G.RAVIKUMAR,SREENILAYAM, AMARAVILA P.O., NEYYATTINKARA, (MANAGER "P.GOPALAN MEMORIAL VOCATIONAL HIGHER SECONDARY SCHOOL",AMARAVILA)** **BY ADVS.SRI.N.DHARMADAN (SR.) SMT.D.P.RENU** **RESPONDENT(S):** **--------------------------** **THE MUNICIPAL SECRETARY NEYYATTINKARA MUNICIPALITY, NEYYATTINKARA.** **BY ADV. SRI.PIRAPPANCODE V.SREEDHARAN NAIR BY ADV. SRI.PIRAPPANCODE V.S.SUDHIR** **THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 18-06-2012, ALONG WITH WPC. 9552/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **tss** ## **W.P.(C) NO.28926/2007** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:-** ## **P1:- COPY OF RECEIPT DTD. 30.8.07 .** **P1(a):- COPY OF THE ELECTRICITY BILL DTD. 26.9.07.** **P1(b):- COPY OF REPORT OF THE MUNICIPAL COUNCILOR.** **P2:- COPY OF JUDGMENT IN OP.2253/01 DTD. 15.3.04 OF THIS HONOURABLE COURT.** **P3:- COPY OF NOTICE DTD. 11.6.07 ISSUED BY RESPONDENT.** **P4:- COPY OF OBJECTION DT. 20.6.07 FILED BY PETITIONER .** **P6:- COPY OF THE ORDER DTD. 25.8.07 ISSUED BY RESPONDENT.** **P7:- TRUE PHOTOGRAPHS OF THE LOCALITY** ## **RESPONDENT'S EXHIBITS:-** **NIL** **//TRUE COPY//** **P.A. TO JUDGE** **tss** ## **ANTONY DOMINIC, J** ........................................ W.P.(C).28926/2007 & 9552/2008 .............................................. Dated this the 18[th] day of June, 2012 ## **JUDGMENT** Issues arising in these writ petitions are connected. Therefore these cases were heard together and are disposed of by this common judgment. 2. W.P.(C).28926/2007 is filed by the Manager of 'P.Gopalan Memorial vocational Higher Secondary School' Amaravila. Petitioner in W.P.(C).9552/2008 is the Principal of the School. The School was established in 1979 as an aided School. Neyyattinkara Municipality, the respondent in these cases, issued a demand notice to the Manager of the School demanding a total amount of Rs.41,879/- towards service tax, for the period 1998 to 2002. The Manager challenged that demand in O.P.22532/2001. 3. The main contention raised was that in view of the provisions contained in Section 235 of the Kerala Municipalities Act (in short 'the Act'), as it stood then, the educational institutions are exempted from property tax and W.P.(C)s.28926/07 & 9552/08 2 that the service tax is a component of the property tax and therefore, the demand for service tax is illegal. By judgment dated 15[th] March, 2004, this Court disposed of the Original Petition. In that judgment, insofar as the aforesaid contention is concerned, this Court held thus:- “The petitioner submits, he is running a school and the school buildings are exempted from payment of property tax under Section 235(1)(d) of the Kerala Municipality Act, service tax, being a component of the property tax, the same cannot be demanded separately. I find considerable force in the submission of the petitioner.” 4. On that basis, Municipality was directed to reconsider the matter adverting to the objections filed by the Manager treating the demand notice already issued as notices. Dealing with the objections thus filed, the Secretary of the Municipality issued Ext.P6. In that order, the Secretary relied on Section 235(5) of the Act as it stood then, which provided that, notwithstanding anything contained in the Act or any other law for the time being in force, in the case of properties exempted from property tax under section 235(1), the Municipality shall be entitled to claim the cost of services covered by the service tax. Referring to this provision of the W.P.(C)s.28926/07 & 9552/08 3 Act and also explaining the services provided by the Municipality, the Secretary held the petitioner in W.P.(C). 28926/2007 liable for service tax. It was at that stage, W.P. (C).28926/2007 was filed. 5. During the pendency of that writ petition, the Municipality issued notices dated 11.6.2007 and 11.3.2008 demanding `1,51,539/- and `1,93,410/- towards service tax for the period upto 2006-07 and upto 2007-08 respectively, from the Principal of the School. It was on receipt of these notices from the Municipality, the Principal of the School filed W.P.(C).9552/2008. 6. The contention raised by the learned senior counsel for the petitioners is that under Section 235(d) of the Act as it stood then, building recognized by the Government or registered with the Municipality under the Act and owned and occupied by the Educational institutions and used only for teaching are exempted from levy of property tax. He contended that under Section 233 as it stood then, property tax under Section 233(1) may comprise of tax for general purpose and a service tax. Therefore, he contended that W.P.(C)s.28926/07 & 9552/08 4 service tax is a component of property tax and so long as the educational institution is exempted from the property tax, service tax cannot be levied on the petitioners. Insofar as Section 235(5) is concerned, counsel contended that under this provision, the entitlement of the Municipality is to claim cost of services covered by the service tax. According to him, therefore, to recoup the cost of service from the petitioner, Municipality should have provided service to the petitioner and that in the absence of any such direct service rendered to the petitioner, service tax cannot be levied under Section 235 (5). 7. On the other hand, in Ext.P6 order in W.P.(C). 28926/2007 and in the affidavit filed, the case set up by the Municipality is that it is incurring expenses for maintaining public roads and cleaning public places and providing light in public streets. It is also stated that the Municipality is spending around `1 Crore only for public sanitation and street lightning and that, waste water coming out from the houses and institutions are flowing through drainages constructed and preserved by the Municipality. It is also stated that to construct and maintain all these facilities, huge W.P.(C)s.28926/07 & 9552/08 5 expenditure is incurred by the Municipality and that the petitioner which has set up the institution, is also a beneficiary of these facilities. Municipality therefore, contends that it is the service provided by it to the community that renders institutions like the petitioner liable for service tax. In other words, they contend that the petitioner need not be a direct beneficiary of the service rendered to be liable for service tax under Section 233 of the Act as it stood then. 8. I have considered the submissions made. Insofar as the first contention raised by the learned senior counsel for the petitioners that service tax is a component of the property tax and so long as the property tax is exempted, service tax cannot be levied, is concerned, it is true that while Section 233 of the Act provides for levy of property tax and service tax, educational institutions such as the one of which we are concerned with are exempted from property tax by virtue of Section 235(1) of the Act as it stood then. However, Section 235(5), being relevant in this context, reads thus:- “Notwithstanding anything contained in this Act W.P.(C)s.28926/07 & 9552/08 6 or any other law for the time being in force, in the case of properties exempted from property tax under [sub section (1)], the Municipality shall be entitled to claim the cost of services covered by the service tax” 9. From this provision, it can be seen that the provisions starts with a non-obstante clause and entitles the Municipality to realize the service tax from those persons who are exempted from the property tax as well. Therefore, even though the service tax is also a component of the property tax in the light of Section 235(5) referred to above, petitioners cannot resist the payment of service tax on the ground that they are exempted from the property tax. 10. Now what remains is the contention of the petitioners that they are not direct beneficiaries of the service provided and therefore, are not liable to pay the cost of service covered by the service tax as provided under Section 235(5). Section 233(2) provided that the property tax under sub section (i) may comprise of a tax for general purposes and a service tax. It is further provided that the service tax may comprise of:- W.P.(C)s.28926/07 & 9552/08 7 (i). A water and drainage tax to provide for expenses connected with the construction, maintenances, repair, extension or improvement of water or drainage work heretofore provide or hereafter to be provided. (ii). A lighting tax to provide for expenses connected with the lighting of the Municipal area by gas, electricity or any other means; (iii). Sanitary tax to provide for expenses connected with the general sanitation of the municipal area and the removal of rubbish, filth and carcasses of animals from the private premises. 11. A reading of the aforesaid provision shows that the elements which constitute service tax are water and drainage tax to provide for expenses connected with the construction, maintenances, repair, extension or improvement of water or drainage work and a lighting tax to provide for expenses connected with the lighting of the municipal area and sanitary tax to provide for expenses connected with the general sanitation of the municipal area and the removal of rubbish, filth and carcasses of animals from the private premises. All these therefore, show that it is not the service rendered to the person concerned which creates the liability for service tax. On the other hand, it is the general service provided by the Municipality to the community which is relevant. This is clear from clauses (i), (ii), and (iii) of Section 233(2) which are extracted above. W.P.(C)s.28926/07 & 9552/08 8 Therefore even if the petitioners are not the direct beneficiaries of the drainage or the street lighting, that does not absolve the petitioners from the liability to pay service tax as provided under Section 233 of the Act as it stood then. For this reason, I do not find any merit in the contention raised that since the petitioner is not a direct beneficiary of the service provided by the Municipality it should not be made liable for the service tax. 12. Learned senior counsel for the petitioners referred me to the judgments of this Court in **Commissioner of Central Excise v. Kerala State Electricity Board (2006 (4) KLT 749), All India Federation of Tax Practitioners v. Union of India (2007 (4) KLT SN.13 (C.No.12) SC,** and **Chackravarthy Hostel v. Municipal Commissioner ( 1995 (2) KLT 588).** 13. **Commissioner of Central Excise v. Kerala State Electricity Board (2006 (4) KLT 749)** , relied on by the learned senior counsel, was rendered by a Division Bench of this Court in the context of Rule 6(1) of the Service Tax Rules as it stood prior to 16.8.2002 provided for payment of service W.P.(C)s.28926/07 & 9552/08 9 tax. Similarly, the judgment in **All India Federation of Tax Practitioners v. Union of India (2007 (4) KLT SN.13 (C.No.12) SC,** talked about the constitutional validity of levy of service tax on the professionals. These judgments and the observations therein, in my view, are rendered in the context of the above facts which is totally incomparable in the fact situation arising in this case. In the judgment in **Chackravarthy Hostel v. Municipal Commissioner** **( 1995 (2) KLT 588)** this Court was concerned with the validity of a claim raised for exemption from building tax and in that case, this Court held that the claim will have to be examined in the light of the provisions of Section 101 of the Municipality Act, 1960. Considering the fact situation, I am not in a position to apply the principles laid down in **( 1995 (2) KLT 588)** as well, to this case. 14. Insofar as W.P.(C).9552/2008 is concerned, what is under challenge is Exts.P6 and P7 notices issued to the Principal of the School demanding property tax for the period upto 2006-07 and upto 2007-08. Under the aforesaid provisions of the Act, owner of a building is the person liable and it was therefore, that the demand was initially raised by W.P.(C)s.28926/07 & 9552/08 10 the Municipality against the Manager of the School. Such a demand in my view, could not have been raised against the Principal who is not the owner of the School and therefore, Exts.P6 and P7 produced in W.P.(C).9552/08 will have to be set aside and I do so. In the result, I dismiss W.P.(C).28926/2007 and dispose of W.P.(C).9552/2008 quashing Exts.P6 and P7 and leaving it open to the Municipality to raise a fresh demand in accordance with law. ## **Sd/- ANTONY DOMINIC, JUDGE** mrcs /true copy/ PA To Judge