Municipal Body cannot Levy Advertisement Tax post-GST: Allahabad HC Quashes ₹2 Cr Recovery Certificate & Directs Deposit Refund [Read Order]

The Allahabad High Court recently held that municipal corporations have no authority to levy advertisement tax, since the introduction of the Goods and Services Tax (GST) regime in 2017.

The petitioner, Saffron Communication is a service provider that hosts advertisements through hoardings, signage etc. at various public places within the limits of Nagar Nigam, Ghaziabad. The petitioner entered into three agreements with the Nagar Nigam, Ghaziabad for the period 13.02.2017 to 12.02.2019, whereunder it was made entitled to put up advertisements in specific zones against payment of advertisement fee and tax.

For the purposes of conducting business, the petitioner deposited advance advertisement tax for the period 13.02.2017 to 12.02.2018.

However, during the first year itself, w.e.f. 01.01.2017, 101st Constitution Amendment was undertaken to enact the U.P. GST Act, 2017 - thereby revoking the legislative competence of the State legislature to impose advertisement tax.

Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here

In this present petition, Saffron Communication challenges a recovery certificate dated 12 June 2019 issued by the Ghaziabad Nagar Nigam seeking recovery of ₹2,55,78,080 towards advertisement tax, based on an earlier demand notice dated 20 September 2018. The petitioner had also sought a refund of amounts already deposited towards such tax for the period between 1 July 2017 and 12 February 2018.

Initially, the writ petition was dismissed by the High Court in 2019 on the ground that parallel civil suits concerning the same issue remained pending before the courts. However, the High Court decision was appealed before the Supreme Court, who remanded the matter back, noting that the relief sought in the writ petition was distinct from the ones in the civil suits.

Following the remand, the petitioner withdrew the civil suits, and the High Court proceeded to hear the matter on merits.

During the hearing, G.K. Singh and Saurav Pandey appeared for the petitioner, and referenced the decision of the High Court in Pankaj Advertising Prop. Vs. State of U.P (2019) and M/s DM Advertisers Agency Vs. State of U.P. (2019)

Meanwhile, Shambhavi Nandan and Shyam Mani Shukla represented the Nagar Nigam and Ankur Agarwal appeared for the State.

The Division Bench comprising Justice Saumitra Dayal Singh and Justice Indrajeet Shukla observed that the power to levy taxes on advertisements had been subsumed under the GST framework from 1 July 2017, making any parallel levy under the U.P. Municipal Corporation Act, 1959 impermissible.

The Court referred to the decision in Pankaj Advertising (supra) where it was held that post the implementation of GST, even state governments did not have the legislative competence to levy or collect taxes on advertisement which was earlier available under Entry-55

Accordingly, all local bodies lost legislative competence to impose such taxes independently.

Observing no contrary decision, the High Court quashed the impugned recovery certificate and the corresponding demand notices issued by the Ghaziabad Nagar Nigam. The Bench further directed the municipal authorities to refund the amount already deposited by the petitioner for the post-GST period, within a period of three months.

Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates