Supreme Court rules 'royalty' imposed by Municipal Corporation is not a 'tax'
The apex court set aside the Patna High Court's decision to refund the 'royalty' collected from advertising companies, clarifying that 'royalty' and 'tax' are distinct in law.
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In a significant ruling on October 16, the Supreme Court declared that the 'royalty' imposed by the Patna Municipal Corporation on advertising companies for placing hoardings and advertisements cannot be considered a 'tax,' as per reports.
A bench comprising Justices Vikram Nath and Ahsanuddin Amanullah overturned a Patna High Court Division Bench's decision, which had directed the Municipal Corporation to refund the collected 'royalty' on the grounds that the Corporation lacked the legislative competence to levy it under Article 265 of the Constitution.
The Supreme Court emphasized that the concept of 'royalty' does not meet the criteria for 'compulsory exaction' necessary to classify as a 'tax.'
Citing the recent nine-judge bench decision in Mineral Area Development Authority v. Steel Authority of India, the Court clarified that royalty and tax are fundamentally different and cannot be used interchangeably in legal contexts.
"It has been authoritatively clarified by this Court that royalty and tax are not one and same," stated the judgment authored by Justice Amanullah in a report. "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." The judgment further noted that both terms carry distinctly different legal connotations.
Context of the Case
The dispute arose when the Patna Municipal Corporation imposed a 'royalty' on advertising companies for using municipal spaces for hoardings.
The Division Bench of the Patna High Court had earlier ruled that the Corporation lacked the jurisdiction to levy and collect such charges. The Court's recent ruling, however, found that since the advertising company had consented to pay the royalty, it would be inappropriate to challenge its imposition post-facto.
The Court also observed that the jurisdiction of the Patna Municipal Corporation to levy the royalty was not in question, and there was no basis for labelling the charge as a 'tax.'
This effectively invalidated the lower court's ruling that the Corporation's demand constituted a form of compulsory exaction akin to a tax.
Implications and Further Directions
The Supreme Court held that a resolution to charge an enhanced royalty rate under Section 431 of the Patna Municipal Corporation Act, 1951, was misguided because Section 431 pertains to tax provisions and not royalty.
The distinction between the two categories was emphasized, thereby excluding royalty from the ambit of Section 431.
To balance equities, the Court directed that an enhanced rate of Rs. 10 per square foot would be payable by the advertising companies and similarly situated parties, effective from the date the Corporation's resolution was communicated.
The payment will include simple interest at 6% per annum, with the Corporation required to compute the outstanding amounts within four weeks. Payments are to be made within 16 weeks thereafter, failing which a 10% annual interest rate would apply, recoverable as arrears under the Bihar and Orissa Public Demands Recovery Act, 1914.
Any excess amount already paid beyond Re. 1 per square foot for the period in question would be adjusted towards the final liability determined by the Corporation.
