Facts of the Case

Petitioner No.1, a registered association of advertising agencies, and petitioner Nos.2 to 6, its member firms, displayed advertisements on hoardings licensed by respondent No.2, Hubballi Dharwad Mahanagara Palike (HDMC), and were also registered dealers under the Karnataka Value Added Taxes Act. Despite claiming to be regularly paying advertisement tax, the petitioners were issued a demand notice dated 13.06.2018 (Annexure-A) calling upon them to pay advertisement tax on the hoardings used. The petitioners approached the High Court of Karnataka, Dharwad Bench, under Articles 226 and 227, seeking to quash the demand notice and to restrain the respondents from meddling with their hoardings, contending that after enactment of the Goods and Services Tax Act, and following deletion of Entry 54, List II of the Seventh Schedule, the municipal authorities no longer had jurisdiction to levy advertisement tax.

Issues Involved

  1. Whether, upon the coming into force of the GST Act, a Municipal Corporation retains the power to levy advertisement tax/fee under Section 134 of the Karnataka Municipal Corporations Act, 1976.
  2. What relief, if any, follows on the challenge to the demand notice dated 13.06.2018.

Petitioner's Arguments

  • Subjecting the petitioners to both GST and advertisement tax amounts to impermissible double taxation; after the GST Act came into force, only GST is payable and no advertisement tax is leviable.
  • Deletion of Entry 54, List II, Schedule VII of the Constitution, the source of the municipal power to levy advertisement tax, divests the respondents of authority to levy or collect such tax.
  • Reliance was placed on the Allahabad High Court's decision in M/s Selvel Media Services Private Limited vs. State of U.P. (Writ Tax No.354/2018), where deletion of the corresponding UP Municipal Corporations Act provision was held to leave no power to levy advertisement tax.

Respondent's Arguments

  • The power of respondent No.2 to collect advertisement tax continues unaffected under Section 134 of the Karnataka Municipal Corporations Act, 1976, which, unlike the UP provision relied upon by the petitioners, has not been deleted.
  • Relying on the Gujarat High Court's decision in Selvel Media Services Private Limited vs. The Municipal Corporation (R/SCA No.4538/2019), advertisement tax was said to be, in substance, a fee for the licence to display advertisements, having nothing to do with GST; the two stand on different footings and the writ petition should be dismissed.

Court Order / Findings

  • The Court held there are two distinct transactions with independent incidences of tax: HDMC's grant of permission/licence to erect or use a hoarding (attracting advertisement tax/fee under Section 134 of the KMC Act), and the petitioners' supply of advertising services to their clients (attracting GST, which the petitioners merely collect and remit as an agency).
  • Since the transactions and their tax incidences are separate, the Court was not persuaded that there was double taxation.
  • On deletion of Entry 54, List II, the Court noted that under Articles 243-X and 243-ZF, the power to impose advertisement tax now vests in the Municipality itself, as also held by the Gujarat High Court.
  • No challenge had been made either to Section 134 of the KMC Act or to the GST Act; only the demand notice and a writ of prohibition were sought.
  • The writ petition was dismissed, and it was declared that there is no conflict between the power to levy GST and the Municipal Corporation's power to levy advertisement tax/fee under Section 134 of the KMC Act.

Important Clarification

  • GST on advertising services rendered by an advertising agency to its clients, and advertisement tax/fee levied by a Municipal Corporation for permitting use of a hoarding, arise from two independent transactions and do not overlap; payment of one does not exempt liability for the other.
  • The constitutional deletion of Entry 54, List II does not divest municipalities of the power to levy advertisement tax, since that power is separately sourced in Articles 243-X and 243-ZF read with the relevant municipal statute.

Sections Involved

  • Section 134, Karnataka Municipal Corporations Act, 1976 – empowers a Corporation to levy tax on advertisements erected, exhibited or displayed to public view.
  • Article 246A, Constitution of India – confers concurrent power on Parliament and States to legislate on GST.
  • Articles 243-X and 243-ZF, Constitution of India – source the Municipality's power to levy, collect and appropriate taxes, tolls and fees.

Decision – In Favour of

The decision is in favour of the Department (Municipal Corporation). The Karnataka High Court dismissed the writ petition, holding that GST and municipal advertisement tax/fee are distinct, non-overlapping levies and that the demand for advertisement tax could not be assailed on the ground of double taxation.

Related Case Laws

No related case laws on this specific issue are available on this site at present.

Case Details

  • Court: High Court of Karnataka, Dharwad Bench
  • Case No.: WP No.104172 of 2021 (LB-TAX)
  • Coram: Justice Suraj Govindaraj
  • Date of Order: 21.04.2022

Link to Download the Order

Download the full judgment (PDF)

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.