- (1.) THE Municipal Corporation of Rajkot, Ahmedabad, Jamnagar, and Vadodara in the State of Gujarat, which are statutory local municipal authorities under the Bombay Provincial Municipal Corporation Act, 1949 are the appellants in these appeals by special leave. THE issue in these appeals relates to payment of service charges relating to supply of water, conservancy/sewerage disposal and other indirect services like approach roads with street lighting, drainage etc. provided by the said municipal corporations to properties owned by Union of India and its departments.
(2.) THE appellant municipal corporations have been raising bills annually, in regard to the service charges payable by Union of India and its departments. When some of the bills were not paid, the municipal corporations resorted to attachment of the properties of Union of India, by invoking revenue recovery proceedings by treating the dues as arrears of taxes. Such actions of the appellants were challenged by Union of India in a batch of writ petitions before the Gujarat High Court which were disposed of by the impugned common order of the High Court dated 19.9.2002. THE High Court allowed the petitions holding as follows: "None of the impugned demand notices or recovery orders intimating attachment of the properties of the Union Government are referable to any contract and these have obviously been issued by the municipal corporation under the purported exercise of powers to recover service charges in lieu of property taxes. When the taxes themselves could not be levied except by removing the exemption by law made by the Parliament as contemplated by section 285(1), the embargo cannot be taken away by any implication arising from such administrative communications. Even if the respondents were entitled to recover any compensation on the basis of any alleged assurances of the Central Government, the nature of their demand would have been entirely different and not as has been made in ail these matters by way of recovery notices for tax dues and coercive action for recovery of such dues. THE attempt to base the contention now on quasi-contract theory and entitlement for compensation for services rendered, cannot cloud the nature of the demand notices and the orders of recovery which are issued under the provisions of the said Act and the Rules having bearing on the aspect of levy and recovery of municipal taxes. No exemption can be spelt out from the communications of 1954 and 1976 which can make any inroad in Article 285(1) of the Constitution. X X X X X X x It is thus clear to us that, in absence of any notification under section 184(1) of the Railways Act, 1989 or under the corresponding provision of section 135(1) of the Act of 1890, and in absence of any contract as contemplated under sub-section (4) of the corresponding provision of section 135 of the Act of 1890, it was not open to any of these corporations to impose any tax or service charges in lieu of tax under the said Act and effect recovery by issuing the impugned demand notices and other coercive orders. Admittedly, there is no law enacted by the Parliament, withdrawing the exemption from municipal taxes, as contemplated by Article 285(1) in respect of the properties occupied by the Postal Department or Office of the Accountant General. Obviously, therefore, the recovery of property taxes or service charges in lieu of such taxes as is sought to be done under the impugned demand notices and orders issued for the coercive recovery of the municipal taxes under the said Act, is ultra vires the powers of the municipal corporation. All the impugned notices, demand notices as well as other orders issued by these municipal corporations for effecting recovery of service charges in lieu of taxes are, therefore, hereby set aside. Rule is made absolute in each of these petitions accordingly, with no order as to costs. If any amount is deposited pursuant to the interim orders, that may be refunded to the Union of India." The said order was challenged by the appellant municipal corporations on the ground that the words "exempt from all taxes imposed by a State or by any authorities within the State" occurring in Article 285 of the Constitution of India do not include service charges claimed by them in respect of properties owned by the Union of India. They also contend that the arrangement arrived at and referred to in the communications / circulars the Government of India dated 10.5.1954, 29.3.1967, 28.5.1976 and 26.8.1986 were enforceable agreements between the Government of India and the municipal corporations, which had nothing to do with Article 285. The municipal corporations also contended that sections 135(1) and 184(1) of the Railways Act, 1989 exempted the Railways only from payment of taxes and not from payment of service charges, Article 285 of the Constitution provides that : "(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 is liable or treated as liable, so long as that tax continues to be levied in that State."
(3.) IN Union of INdia and Ors, vs. State of Uttar Pradesh and Ors., 2007 (11) SCC 324, this Court upheld the decision of the High Court that charges for supply of water or for other services rendered under any statutory obligation, is a fee and not tax. It was held that the Union of INdia was liable to pay such charges and should honour the bills served in that behalf. Referring to section 52 of the UP Water Supply and Sewerage Act, 1975, it was held that the charges were loosely termed as "tax", that the nomenclature was not important and what was charged is a fee for the supply of water as well as maintenance of the sewerage system, and such service charges are to be considered as a fee and were not hit by Article 285 of the Constitution. It was further made clear that what was exempted by Article 285 was a tax on the property of Union of INdia but not a charge for service which were being rendered in the nature of water supply or for maintenance of sewerage system. When these appeals were earlier listed for hearing, both sides agreed that they will attempt a broad consensus on several pending issues and narrow down the areas of controversy and agree for a dispute resolution mechanism. We are told that in pursuance of it, discussions were held among various departments of the Government of India with the Department of Urban Development. In pursuance of it, an affidavit dated 9.4.2009 has been filed on behalf of Union of India crystallizing its stand on various issues. Union of India has now agreed in principle for the following: (i) It is liable to pay service charges to the municipal corporations for providing services like supply of water, conservancy/sewerage disposal, apart from general services like approach roads with street lights, drains etc. (ii) It will pay service charges to the Municipal Corporations, for the services, as stated in its circulars dated 10.5.1954, 29.3.1967, 25.5.1976 and 26.8.1986, but will not pay any taxes. (iii) Having regard to the fact that only service like supply of water could be metered and other services like drainage, solid waste management/approach roads, street lighting etc., could not be metered, the percentage of property tax will be worked out as service charges, on the basis of instructions issued by the Ministry of Finance. (iv) The concerned Ministry of the Union to which the property belongs will enter into separate contracts with the respective municipal corporation for supply of services and payment of service charges and pay the bills for annual service charges regularly. (v) Union of India and its departments will periodically review the arrangements with the respective municipal corporations, as suggested by its advisory committees and make modifications or revisions in the rates of service charges. (vi) Wherever properties of State Government are exempted, such exemption shall apply to properties of Central Government also. Under no circumstances, the service charges payable by the Union of India will be more than the service charges paid by the State Government, (vii) The arrangement will not affect the legal rights conferred by the appropriate laws, in regard to any property held by the Union. ;