IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA. CWP No.1538/2007 Decided on.16.6.2008 Bharat Sanchar Nigam Limited. …Petitioner. Versus State of Himachal Pradesh and others. …Respondents Coram The Hon’ble Mr. Justice Jagdish Bhalla, C.J. The Hon’ble Mr. Justice Rajiv Sharma, J. Whether approved for reporting ?1. For the Petitioner : Mr. Ratish Sharma, Advocate. For the respondent : Mr. R.K. Bawa, Advocate General with Mr. J.K. Verma, Deputy Advocate General for respondents No. 1 and 3. Mr. Shrawan Dogra, Advocate for respondent No.2. The petitioner i.e. Bharat Sanchar Nigam Limited (hereinafter referred to as ‘the petitioner-company’ for convenience sake) has approached this Court for the following reliefs: (i) set aside and quash the Warrant Kurkee for Rs. 1,07,108/- (Annexure P-5) issued by Assistant Collector 1st Class, District Shimla; 1 Whether the reporters of Local Papers may be allowed to see the judgment? 2 (ii) hold the demands made by respondents from BSNL of ‘taxes” or “service charges” as being bad in law, without jurisdiction and ultra vires the Constitution of India, and restrain the respondents from demanding such taxes/service charges from petitioner for periods prior to 1.10.2000 and for periods after 1.10.2000; (iii) declare as being bad in law, without jurisdiction and ultra vires the Constitution of India those provisions in H.P. Municipal Corporation Act 1994 (including provisions in section 89 wherein the Corporation has been given power for charging the service charges in lieu of services provided as per Government of India instructions) which are inconsistent with Article 285 of the Constitution of India; (iv) issue any other order or direction in favour of the petitioner which this Hon’ble High Court deems fit and proper in the facts and circumstances of the case. Mr. Ratish Sharma, Advocate strenuously argued on behalf of the petitioner-company that the demand raised by respondent No.2 is in contravention of Article 285 of the Constitution of India. He has relied upon Municipal Corporation, Amritsar v. Senior Superintendent of Post Offices, Amritsar Division & Another 2004 (3) SCC 92 to buttress his submission. The learned Advocate General and Mr. Shrawan Dogra, Advocate strenuously argued that the Municipal Council, Rampur has raised a demand for collection of service charges and have relied upon Union of India and others versus State of U.P. and others, 2007 (11) ( SCC 324. 3 We have heard the learned counsel for the parties at length. It will be apt at this stage to take note of Article 285 which reads thus: “285. Exemption of property of the Union from State taxation.- (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 liable or treated as liable, so long as that tax continues to be levied in that State.” The Legislative Assembly of Himachal Pradesh has enacted the Act called “The Himachal Pradesh Municipal Act, 1994” (hereinafter referred to as ‘the Act’ for brevity sake). Chapter - VI thereof deals with taxes. Section 65 is a charging section. Section 66 provides for the taxes that may be imposed by the Council. Mr. Ratish Sharma, Advocate has strenuously relied upon section 67 of the Act, which reads thus: “67. Nothing contained in sections 65 and 66 shall authorize a municipality to levy any tax, toll or fee which the State Legislature has no power to impose in the State under the Constitution of India: Provided that any tax, toll or fee which immediately before the commencement of the Constitution was lawfully being levied in any municipal area, may continue to be so levied until provision to the contrary is made by Parliament by law. 4 Explanation.- In this section ‘tax’ includes any duty or cess.” It will be pertinent to take note of few facts whereby the Municipal Council has raised the demand for the collection of service charges from time to time from the petitioner-company. The first demand was raised by the respondent-Council from the petitioner- company on 27th March, 2004 (Annexure P-3). The petitioner- company was directed to deposit a sum of Rs. 1,07,105/-. The reminder was sent by respondent No.2 to the Divisional Engineer (Telegraph) of the petitioner-company on 27.10.2004 under section 86 (2) of the Act. The petitioner-company sent a communication to respondent No.2 on 22nd December, 2004 mentioning therein Article 285 of the Constitution of India and the judgment of the Hon’ble Supreme Court rendered in Civil Appeal No. 6532 of 2002. Thereafter the respondent-Council again raised a demand on 28.2.2005 for service charges for the period up to 31.12.1998 which was reiterated on 30.3.2006. The petitioner-company informed the Executive Officer of the Municipal Council on 6.2.2007 that in view of Article 285, no service charge can be levied. The Municipal Council again sent a notice under section 86 (2) of the Act to the petitioner- company reiterating its earlier demand. The petitioner-company was directed to deposit a sum of Rs. 1,07,105/- within a period of seven days in the office. It appears from the record that when the service charges as demanded by the Council were not paid, appropriate proceedings were initiated against the petitioner-company under section 86 (2) of 5 the Act, which led to the issuance of warrant of attachment on 20.6.2007 (Annexure P-5). The case set out by respondent No.2 in its reply is that it is providing the facilities of roads, drains, street lights etc. and the petitioner-company is liable to pay service charges towards these services. This Court had directed respondent No.2 to file additional affidavit on 2.1.2008 to specify the rates of the house tax, sewerage, drainage, water charges etc. being charged from the private persons. The Council has filed the additional affidavit. It is evident from the contents of the affidavit that the Council does not separately charge under independent head for sanitation, street lights, drainage charges from the owners of private buildings located within the Municipal Council limits, but in fact, the building in question of a private individual is valued and such valuation is called capital value and the rental/annual value of such building is calculated as per the prescribed formula which is roughly around 10% of the capital value. The private individual is liable to pay property house tax @ 10% of the rental/annual value of the building. The question whether service charges can be levied for the property of the Union of India for providing services like sanitation, street lights, drainages etc. is no more res integra in view of the definitive pronouncements of law by their Lordships of the Hon’ble Supreme Court in Union of India and others versus State of U.P. and others, 2007 (11) SCC 324. Their Lordships have also considered in this judgment Municipal Corporation, Amritsar v. 6 Senior Superintendent of Post Offices, Amritsar Division & Another 2004 (3) SCC 92. Their Lordships have held as under: “From a perusal of Article 285 it is clear that no property of the Union of India shall be subject to tax imposed by the State, save as Parliament may otherwise provide. The question is whether the charges for supply of water and maintenance of sewerage is in the nature of a tax or a fee for the services rendered by the Jal Sansthan. There is a distinction between a tax and a fee, and hence one has to see the nature of the levy whether it is in the nature of tax or whether it is in the nature of fee for the services rendered by any instrumentality of the State like the Jal Sansthan. There is no two opinion in the matter that so far as supply of water and maintenance of sewerage is concerned, the Jal Sansthan is to maintain it and it is they who bear all the expenses for the maintenance of sewerage and supply of water. It has to create its own funds and therefore, levy under the Act is a must. In order to supply water and maintain sewerage system, the Jal Sansthan has to incur the expenditure for the same. It is in fact a service which is being rendered by the Jal Sansthan to the Railways, and the Railways cannot take this service from the Jal Sansthan without paying the charges for the same. Though the expression tax has been used in the Act of 1975 but in fact it is in the nature of a fee for the services rendered by the Jal Sansthan. What is contemplated under Article 285 is taxation on the property of the Union. In our opinion the Jal Sansthan is not charging any tax on the property of the Union; what is being charged is a fee for services rendered to the Union through the Railways. Therefore, it is a plain and simple charge for service rendered by the Jal Sansthan for which the Jal Sansthan has to maintain staff for regular supply of water as well as for sewerage system of the effluent discharge by the railway over their platform or from their staff quarters. It 7 is in the nature of a fee for service rendered and not any tax on the property of the Railways. From this it is not clear whether the impugned demand was a charge for some service rendered, such as that which is involved in the present case with regard to water supply or with regard to sewerage. As already pointed out, what is prohibited by Article 285 is taxation on the property of the Railways and it does not prohibit charge of a fee on account of some service rendered by the local bodies or instrumentality of the State like supply of water or maintenance of sewerage. Such a charge would be in the nature of a fee and not a tax. Therefore, from the perusal of these two decisions what emerges is that no property of the Union of India can be subjected to State taxation, but these decisions do not deal with a charge for services rendered by any State or an instrumentality of the State. In this connection, our attention was invited to a decision of this Court in New Delhi Municipal Council v. State of Punjab & Ors. [ (1997) 7 SCC 339]. This was also a case where Articles 289, 246(4), 245(1) and 1(2), 3(b) and 285 came up for consideration. As per the majority it was held that levy of property tax on such lands / buildings which are not used or occupied for the purpose of any trade or business carried on by the State Government with profit motive was invalid and incompetent by virtue of Article 289(1). But if the levy is on lands/ buildings used or occupied for any trade or business carried on by or on behalf of the State Governments, then by virtue of Article 289(2), the levy would be valid. It was also observed that it was for the authorities under the enactments to determine with notice to the affected State Governments, which land or building is used or occupied for the purposes of any trade or business carried on by or on behalf of the State Government. As against this, the minority view was that the States are entitled to exemption from levy of property tax on their lands/ buildings situated within 8 NCT including those occupied for trade or business purposes. This case also does not throw any light on the question whether the services which are being given by the State Government or its instrumentality or the local bodies like supply of water and maintenance of sewerage will have the exemption under Article 285 of the Constitution? This was also a case with regard to levy on the property of the State. So far as we are concerned in the present case, there is no levy on the property of the Union of India. Therefore, this case also does not provide us any useful assistance. As against this, our attention was invited to a subsequent decision of this Court in Municipal Corporation, Amritsar v. Senior Superintendent of Post Offices, Amritsar Division & Anr. [(2004) 3 SCC 92]. In this case, their Lordships were directly dealing with charges for the water supply, street light, drainage services being rendered to P & T Department's buildings situated within the Municipal limits. In that context, their Lordships held as follows : “The demand so made was with regard to the services rendered to the respondents Department, like water supply, street-lighting, drainage and approach roads to the land and buildings. In the counter, the respondents averred that they are paying for the services rendered by the appellant Corporation by way of water and sewerage charges and power charges separately. It is also categorically averred that no other specific services are being provided to the respondents for which the tax in the shape of service charges can be levied and realized from the respondents. There is no provision in the Municipal Corporation Act for levying service charges. The only provision is by way of tax. Undisputedly, the appellant Corporation is collecting the tax from general public for water supply, street-lighting and approach roads etc. Thus, the tax was sought to be imposed in the garb of service charges. The interplay of the constitutional and legal provisions being well cut and well defined, it was clearly not within the 9 competence of the Corporation to impose tax on the property of the Union of India, the same being violative of Article 285(1) of the Constitution.” In this case, what is clear is that in fact the P & T Department was paying for water supply and sewerage separately and it was over and above that some service charges were levied under the garb of service charges which was exempted by the Constitution. In the present case, what is being charged is in fact water supply and sewerage. Therefore, so far as this part is concerned, it is affirmed by this Court in the aforesaid decision. But what is not accepted was that over and above the charges for supply of water and sewerage and power charges, the Municipal Corporation was levying service charges which were not contemplated under the Municipal Corporation Act for levying such service charges. Therefore, indirectly so far as demand for water supply, sewerage was concerned, it was accepted by the P & T Department and they were paying the same to the Municipal Corporation. Though these observations were in reference to Sales Tax Act but the reasoning equally applies in this case also. In this case what is being charged is for service rendered by the Jal Sansthan i.e. an instrumentality of the State under the Act of 1975. Section 52 of the Act states that the Jal Sansthan can levy tax, fee and charge for water supply and for sewerage services rendered by it as water tax and sewerage tax at the rates mentioned therein. Though the charge was loosely termed as tax but as already mentioned before, nomenclature is not important. In substance what is being charged is fee for the supply of water as well as maintenance of the sewerage system. Therefore, in our opinion, such service charges are a fee and cannot be said to be hit by Article 285 of the Constitution. In this context it is to be made clear that what is exempted by Article 285 is a tax on the property of the Union of India but not a charge for services which 10 are being rendered in the nature of water supply, for maintenance of sewerage system. Therefore, in our opinion, the view taken by the Division Bench of the Allahabad High Court is correct that the charge is a fee, being service charges for supply of water and maintenance of sewerage system, which cannot be said to be tax on the property of the Union. Hence it is not violative of the provisions of Article 285 of the Constitution. The petitioner-company came into existence on the basis of memorandum dated 30th September, 2000 whereby the Government of India had decided to transfer the business of providing telecom services in the country currently run and entrusted with the Department of Telecom Services (DTS) and the Department of Telecom Operations (DTO) as was provided earlier by the Department of Telecommunications to the newly formed company i.e. Bharat Sanchar Nigam limited with effect from 1st October, 2000. The company has been incorporated as a company with limited liability by shares under the Companies Act, 1956 with its registered and corporate office in New Delhi. It will be apt at this stage to reproduce sub-para (ii) of para 2 of the memorandum dated 30th September, 2000 which reads thus: “The assets and liabilities of the Department of Telecommunications, Department of Telecom Services and Department of Telecom Operations (the Government) will stand transferred to the Company, with effect from 1st October, 2000. The details of the assets will be worked out as per records available with the various Divisions and 11 other units as on 30th September, 2000 after records and accounts are finalized up to this period.” As per para 3 of the memorandum, the transfer of assets and liabilities of the company were subject to the following terms and conditions: (i) The company will carry out the duties and responsibilities regarding establishing, maintaining and working all types of telecommunication services in the country in accordance with and under the terms and conditions of the licence granted by the Central Government under the Indian Telegraph Act 1885 and such other directions as may be given by the Central Government from time to time. (ii) The assets and liabilities of the Department of Telecommunications, Department of Telecom Services and Department of Telecom Operations (the government) will stand transferred to the Company with effect from 1st October 2000. The details of the assets will be worked out as per records available with the various Divisions and other units as on 30th September, 2000 after records and accounts are finalized up to this period. (iii) The assets and liabilities in respect of the business currently being carried out on account of the Government shall stand transferred to the Company on the book value thereof, which will be ascertained in the manner aforesaid. The book value of the assets comprising the business being transferred to the Company has been provisionally assessed as Rs. 63,000 crores. The said sum of Rs. 63,000 crores will be treated as the provisional value of the business being transferred to and taken over by the 12 Company subject to finalization of the transfer value by 31.3.2001 in consultation with Ministry of Finance. (iv) The assets are being transferred to the Company in consideration of Rs. 5,000 crore equity (for which the Company will issue five hundred crores Equity Shares of face value of Rupees Ten each fully paid up having aggregate value of Rupees Five Thousand crores to the VENDOR or his nominees), Rs. 1500 crores way and means advance and txhe balance as a mix of long term debt, free reserves and preference share capital. The accounting treatment of this mix shall be notified later. (v) The capital structure of Bharat Sanchar Nigam Limited will be finalized by the Ministry of Communications, Department of Telecommunications, in consultation with Ministry of Finance and the Comptroller and Auditor General of India, if necessary. (vi) The company, Bharat Sanchar Nigam Limited shall be liable to make repayment of bonds raised by MTNL for Dot/DTS/DTO which are now being transferred to the Company. (vii) The company as the successor company shall be responsible for all assets and liabilities and for satisfactory execution of all agreements, contracts and obligations in force which pertain the business being transferred to it. (viii) The company shall be solely responsible for honouring and performing all contracts/agreements and shall be liable for any defaults, delays or non- performance. The company shall keep for all times the Government indemnified from all claims. (ix) After finalization of assets and liabilities and assets to be retained by Dot regular transfer deed(s) will be 13 executed subsequently in respect of transfer of business to the company listing out specifically all the assets being transferred.” It is thus evident that with effect from 1st October, 2000, the petitioner-company is distinct legal entity and is distinct from the Central Government and not liable for exemption from taxation under Article 285 of the Constitution of India. Their Lordships of the Hon’ble Supreme Court in Food Corporation of India versus Municipal Committee, Jalalabad and another (1999) 6 Supreme Court Cases 74 have held that Food Corporation of India was liable to pay property tax being a separate distinct entity different from the Central Government. Their Lordships have held as under: “The question that arises before us is: If the property of the Corporation is property of the Union of India and, thus, exempt from taxation, imposed by the State or any authority within a State. Authority in the present case would include local authority. A Constitution Bench of this Court in Electronics Corporation of India Ltd. v. Secretary, Revenue Department, Government of Andhra Pradesh, (1999) 4 SCC 458 : (1999) 3 Scale 123 : (AIR 1999 SC 1734 : 1999 AIR SCW 1367) has held that a Government company is distinct from the Central Government and cannot claim exemption from taxation under Article 285 of the Constitution. The case of the Corporation cannot be any different. The Act under which it is constituted specifically makes the Corporation a body corporate having the attributes of a company.” The short question which now requires consideration by this Court is whether the petitioner-company is also liable to pay service 14 charges as demanded by the Municipal Council, Rampur for the period preceding 1st October, 2000 or not. It is evident from the reading of the office memorandum dated 30th September, 2000 in its entirety that the petitioner-company being a successor shall be solely responsible for honouring and performing all contracts/agreements and shall be liable for any defaults, delays or non-performance and the company shall keep for all times the Government indemnified from all claims. Consequently, the petitioner-company has to pay the service charges which were to be recovered from the Central Government before 1st October, 2000. In view of the definitive law laid down by the Hon’ble Supreme Court, there is no merit in the writ petition and the same is dismissed. It is held that the petitioner-company is liable to pay the service charges as demanded by respondent No.2 from time to time as well. There shall be no order as to costs. (Jagdish Bhalla), C.J. (Rajiv Sharma), J. June 16, 2008 *Awasthi*