Read Time: 14 minutes

Synopsis

The Supreme Court has upheld the power of the municipal corporation to demand royalty on hoardings and advertisements, saying the imposition of royalty cannot be equated with imposition of tax/levy as royalty and tax are not one and same. 

A bench of Justices Vikram Nath and Ahsanuddin Amanullah relied upon a 9-Judge bench judgment of the top court in Mineral Area Development Authority Vs Steel Authority of India (2024), which by a majority of 8:1, had held that there are major conceptual differences between royalty and a tax.

Dealing with an appeal filed by the Patna Municipal Corporation, the court did not agree with the High Court's division bench decision which held that the appellant in the present case could not raise any demand of tax/fee/royalty on advertisements since it had been made without any legislative sanction and was, thus, violative of Article 265 of the Constitution. 

The division bench further directed that all amounts recovered by the appellants on the count i.e., by way of ‘tax’ on advertisements, be refunded to the concerned parties, as also that, as a consequence, there was no question of any imposition of penalty by the appellant, the Patna Municipal Corporation.

The appellant corporation submitted that the simple and basic issue was the payment of royalty, as agreed to and accepted by the parties. It claimed payments were also made, which now had been given the colour of being demand/imposition of tax, that was absolutely not the case. 

The respondents contended that the division bench rightly held that tax could not be levied by the Corporation, as such power could not be exercised by it on its own, as it was in the domain of the Legislature to confer such power, which had not been done. 

They also submitted that the Regulations for licensing for the purpose of advertisement were issued only on August 13, 2012 whereas the Demand Notice was dated February 11, 2012, i.e. much prior to the Regulations for licence being framed. 

They submitted that the charging Rs 10 per square foot irrespective of whether such hoardings were on private or public place was also arbitrary and unsustainable. 

After hearing both the parties, the bench opined that the judgment impugned warranted interference. Though the division bench had elaborated on the law relating to imposition of tax/levy, the court found that the issue was not examined in the manner required.

The bench also said that the law was no longer res integra that conduct of the parties and acquiescence would preclude a party from turning around and assailing a decision acquiesced to, except where there is an inherent lack of jurisdiction, or the exercise of authority is perverse or malafide, in law or in fact. 

The court noted only two advertising companies moved the High Court by way of letters patent appeals, whereas, a majority of the advertising companies complied with making payments at the rate of Rs 10 per square foot subsequent to the decision of the Corporation in 2007.

The advertising companies concerned had agreed to pay Re one per square foot royalty per year on such hoarding in 2005, court noted.

"We have no hesitation to hold that such revision of rate was within the power of the Corporation. However, at this very stage, we are also equally unhesitant to hold that the Resolution to charge enhanced royalty in exercise of purported power under Section 431of the Act was misplaced as royalty is not tax. It has been authoritatively clarified by this Court that royalty and tax are not one and same," the bench said. 

As such, the Corporation’s power to charge royalty cannot be interfered with on the ground that the same is not available, either in the Act or in the Regulations concerned, as there is no question of the said ‘royalty’ being a tax. Section 431 of the Act, therefore, would not come into the picture where royalty, that too by way of and under an agreement/understanding is concerned, the bench added.

"We are unable to maintain as tenable the argument that the demand made by the Corporation was a compulsory exaction. Equally, we are unable to state that the demand was/bore the hallmarks of a tax," the bench said.

The court also dealt with the proportionality/reasonableness in the enhancement of the rate from Re one per square foot to Rs 10 per square foot. 

"Whilst at first blush, the jump may seem high, being ten times, ultimately, it is subjective. Nothing has been canvassed before us to indicate that such rate was exorbitant or disproportionate, requiring judicial interdiction," the bench said.

The bench noted in the meeting held on August 29, 2005, the advertising companies did not object to payment of royalty, as sought by the Corporation. Hence, a challenge could, later be mounted on limited grounds to the quantum/rate of royalty, and not on the decision to charge royalty itself, it pointed out.

"Even otherwise, as we do not find that the ‘royalty’ was a tax/levy, the action of the Corporation cannot be struck down merely on the ground of having quoted Section 431 of the Act (wrongly), for, quoting the wrong provision of law, when the power to do an act otherwise exists, would not invalidate or render illegal the act in question," the bench said.

The court finally held that the decision of the Corporation, to charge Rs 10 per square foot with regard to hoardings/advertisements as communicated at the relevant point of time to the concerned parties needed no interference.

"However, the imposition of penalty for non-payment needs to be interfered with as no such power exists. It is held thus, but with the clarificatory caveat that the Corporation would not be precluded from charging interest over delayed payments. Obviously, interest on delayed payments would not be a ‘penalty’ but rather, in the realm of ‘compensation’ for late/delayed payment of amounts which were payable on/from an earlier date," the bench said.

In order to balance equities, the bench said that the enhanced rate of Rs 10 per square foot would be payable by the respective Respondents No 1/advertising companies and other similarly situated persons in terms of the Resolution of the Corporation from the date the same was made public/communicated to the concerned parties, whichever is later, with simple interest at the rate of 6% per annum. 

The bench directed the Corporation to furnish computation of amounts due to the parties concerned within four weeks and directed that the parties concerned would make the payments within 16 weeks thereafter, failing which they shall carry interest at the rate of 10% per annum and be recoverable as arrears under the Bihar and Orissa Public Demands Recovery Act, 1914. 

Case Title: M/s Tribro Ad Bureau & Ors