M/S Raheel Communication vs. The Commissioner

Held

The Court held that the omission of Entry 55 of List II of Schedule VII to the Constitution of India has a significant impact on the legislative competence of the State to levy advertisement tax. The Court found that the amendment to the Karnataka Gram Swaraj and Panchayath Raj Act, 2017, which omitted provisions for advertisement tax in Panchayaths, created an anomaly. The Court noted the absence of advertisement tax provisions in the newly enacted Bruhat Bengaluru Mahanagara Palike Act, 2020, indicating legislative awareness of the constitutional change. Consequently, the Court declared Section 103(b)(vi) and Section 134 of the Karnataka Municipal Corporations Act, 1976, as unconstitutional and void, striking them down. Similarly, related provisions in Sections 135(1), 135(2)(ii), 135(3), 139, and Schedule VIII of the KMC Act, and corresponding provisions in Sections 94(1)(b)(xiii), 94(1-B), and related sections of the Karnataka Municipalities Act, 1964, were also declared unconstitutional and struck down to the extent they provided for the levy of advertisement tax. The demand notices in WP No. 9936/2019 were quashed, and authorities were directed not to raise future demands or take coercive action for advertisement tax. The Court also provided directions for the refund or adjustment of amounts collected after the 101st Amendment of the Constitution.

Facts

These three writ petitions concerned the levy of advertisement tax by municipal authorities in Karnataka. In WP No. 9936/2019, M/s. Raheel Communication challenged notices dated June 26, 2018, and October 3, 2018, demanding payment of advertisement tax from the Davangere Mahanagara Palike. WP No. 15016/2019, filed by the Outdoor Advertising Association Bangalore, challenged the constitutionality of various sections of the Karnataka Municipal Corporations Act, 1976, and the Karnataka Municipalities Act, 1964, related to the levy of advertisement tax. WP No. 15691/2019, filed by several advertising agencies, sought directions to municipal authorities not to raise demands for advertisement tax and to refrain from coercive action for non-payment. The common thread was the legality of advertisement tax levied by local bodies.

Key Issues

1. Whether Section 103(b)(vi) and Section 134 of the Karnataka Municipal Corporations Act, 1976, empowering municipal corporations to levy tax on advertisements, are unconstitutional and void, considering the omission of Entry 55 of List II of Schedule VII to the Constitution of India? The petitioner argued that the omission of this entry rendered the State Legislature incompetent to levy such a tax. The respondents contended that the Karnataka Municipal Corporations Act, 1976 (Second Amendment) Act, 2021, which sought to substitute 'tax' with 'fee', rendered the challenge to constitutionality unwarranted. 2. Whether Section 94(1)(b)(xiii), Section 94(1-B), and related provisions of the Karnataka Municipalities Act, 1964, empowering municipal councils to levy advertisement tax, are unconstitutional and void? The petitioner argued that similar to the KMC Act, these provisions are invalid post the constitutional amendment. The respondents' arguments, if any, are not explicitly recorded on this specific question. 3. Whether the demands for advertisement tax made against the petitioners in WP No. 9936/2019 are liable to be quashed? The petitioner sought quashing of the notices based on the alleged unconstitutionality of the underlying provisions.