SCA/12603/2005 1/60 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 12603 of 2005 With SPECIAL CIVIL APPLICATION No. 20881 of 2005 to SPECIAL CIVIL APPLICATION No. 20888 of 2005 With SPECIAL CIVIL APPLICATION No. 20970 of 2005 With SPECIAL CIVIL APPLICATION No. 20971 of 2005 For Approval and Signature: HONOURABLE MR.JUSTICE AKIL KURESHI ============================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge? ============================================================= OUTDOOR ADVERTISING OWNERS' ASSOCIATION OF AHMEDABAD & ANOTHER - Petitioners Versus STATE OF GUJARAT & OTHERS - Respondents ============================================================= Special Civil Application Nos. 12603 of 2005 with Special Civil Application No. 20881 of 2005 to 20888 of2005 Appearance : MR TUSHAR MEHTA for the Petitioners MR SIRAJ GORI, A.G.P.for Respondent No.1, MR SI NANAVATI, SENIOR ADVOCATE WITH SANJIV DAVE FOR Respondent Nos.2 and 3. ==================================================================== Special Civil Application No. 20970 of 2005 & 20971 of 2005 Appearance : MR ND NANAVATI, SR.ADVOCATE WITH A.H.DESAI for Petitioner(s) : 1 - 2. MR SIRAJ GORI, A.G.P.for Respondent No.1, MR SI NANAVATI, SR. ADVOCATE WITH SANJIV DAVE FOR Respondent No.2 and 3. SCA/12603/2005 2/60 JUDGMENT CORAM : HONOURABLE MR.JUSTICE AKIL KURESHI Date : 02/02/2006 ORAL JUDGMENT 1. In this group of petitions, the petitioners have challenged the action of Respondent Nos.2 and 3 in preventing the petitioners from exhibiting advertisements on private properties situated within the Municipal Corporation limits of City of Ahmedabad without payment of revised licence fees. In essence what is under challenge is the decision of Respondent Nos. 2 and 3 to increase the rates of collection of licence fees from the owners of private properties. The petitioners have also challenged decision on the part of respondent nos. 2 and 3 to collect huge amount from the agencies who are inter- mediators between the property owners and companies who are desirous of exhibiting their advertisements under the heading of registration charges. 2. Short facts leading to the present petition are as follows: SCA/12603/2005 3/60 JUDGMENT 2.1 In city of Ahmedabad on places of strategic importance, advertisements are being exhibited by various companies of their produces or services. Sites at which these advertisements are exhibited can be broadly classified into two categories. First category is the sites situated in properties belonging to Municipal Corporation of city of Ahmedabad and in the second category, are those sites on which advertisements are being exhibited on private properties. The present litigation concerns issues involving exhibition of advertisements on sites held by private individual property owners. The Municipal Corporation of Ahmedabad has been collecting licence fees from the owners or agencies where such advertisements are exhibited by private properties. This practice of collecting licence fees is going on since many years now. 2.2. The issues arising in this group of petitions are mainly pertaining to two aspects. One question is regarding collection of registration charges from the agencies who are dealing in the business of striking a deal between the property owners and the companies who wish to advertise their products or service. It is pointed out that respondent No.2 – Corporation has SCA/12603/2005 4/60 JUDGMENT formulated a policy whereby it is insisted upon that the agencies should get themselves registered before the Corporation and that they should pay registration charges to the tune of Rs. 1.50 lacs for a period of three years. This amount to be paid by the agents is not by way of refundable deposit but is to be appropriated by the Corporation as registration charges, meaning thereby that at the end of period of three years, the concerned agent would have to renew his application for registration and would have to pay the registration charges afresh as per the then prevailing rates. 2.3 Second controversy is with respect to the attempt on the part of Ahmedabad Municipal Corporation to revise the licence fees to be charged from the property owners and the agents. 2.4 Petitioners in this group of petitions are the agents who are engaged in this business and their Association. 2.5 As noted earlier, respondent No. 2 – Ahmedabad Municipal Corporation has been regulating licence fees for permitting private property owners to put hoardings SCA/12603/2005 5/60 JUDGMENT carrying advertisements of different products and services. Rates of licence fees are being revised from time to time. In the affidavit-in-rejoinder filed in Special Civil Application No. 12603 of 2005, it is pointed out that before 1992 licence fees were recovered by the Ahmedabad Municipal Corporation at the rate in the vicinity of Rs. 100/- per Sq. Mts. per year. Between 1992 to 1997 this rate was revised to 200/- per Sq.Mts. per year and from 01-04-1997 to 31-03-2004 licence fees was being charged at the rate of Rs. 350/- per Sq. Mts. per year. After 01-04-2004 there was ad hoc increase in the licence fees and the petitioners were made to pay fees at the rate of Rs. 455/- per Sq.Mts. per year. Subsequently, however, Ahmedabad Municipal Corporation passed a Resolution dated 3rd December, 2004 by which it was decided to levy licence fees on the basis of rates offered by the tenderer for the nearby tender sites which Ahmedabad Municipal Corporation had given out through tenders for exhibiting advertisements. It was provided that for those of privately owned sites which are within the distance of 80 metres from the road junction, such sites would carry licence fees at the rate of 16% of the amount offered by the tenderer for the tender sites. For those sites, which are of private owners and which are SCA/12603/2005 6/60 JUDGMENT situated at a distance of more than 80 metres from the road junction, licence fees will be charged at the rate of 8% of the amount offered for tender site. In other words, instead of earlier policy of charging licence fees at a flat rate for the entire city of Ahmedabad, by the above mentioned resolution, the Corporation decided to rationalise the rates of licence fees to be paid by different private owners depending upon the rate offered by tenderer for the sites in the nearby vicinity. It is the case of the petitioners that this decision of the Corporation is wholly illegal and unlawful. The grounds on which such decision is sought to be assailed by the petitioners will be gone into at a later stage. Suffice it to say at this stage that the petitioners complaint that on account of new methodology adopted by the Corporation for fixing licence fees, rate at which the licence fee that is now required to be paid has under gone quantum increase which is not justified. It is the case of the petitioners that in the guise of so called fees the Corporation is collecting tax which is not permissible under the law. It is contended that if the Corporation desires to collect the fees for regulating the activities, the same must be reasonable and cannot be excessive and must be shown to have some co-relation with SCA/12603/2005 7/60 JUDGMENT the expenses being incurred by the Corporation for the facilities being provided to the petitioner out of the funds so collected. On the other hand broadly stated, the stand of the Corporation is that the Corporation has legal authority to collect the fees for permitting the private property owners to exhibit advertisements on hoardings situated on their sites. That the Corporation has to regulate such activity and that therefore, the charging of licence fees is fully justified. It is contended that fees being charged is regulatory in nature and not compensatory and therefore, the concept of quid pro quo cannot be applied. 3. Before noting the rival submissions at length, it would be necessary to take note of the materials produced on record by both sides through affidavits and documents. 4. Special Civil Application No. 12603 of 2005 has been treated as lead petition and I have, therefore, recorded the pleadings and noted the contents of the documents produced in the said petition. 5.1 The petitioner of Special Civil Application No. SCA/12603/2005 8/60 JUDGMENT 12603 of 2005 is an Association of Agents who are engaged in the business of displaying boards in and around city of Ahmedabad. It is stated that the members of the petitioner Association are companies or registered firms. It is pointed that up to the years 1997 – 1998, the rate at which the licence fee which was recovered from the private property owners by the Corporation was Rs. 350 Sq.Mts. per year. That this rate prevailed right up to year 2004. In the year 2004 Ahmedabad Municipal Corporation initiated the movement to increase such rates. The Commissioner initiated the proposal vide his letter dated 22-09-2004. Several recommendations were made for increase in the rate of licence fees to be charged. Ultimately, with certain modifications, the Corporation passed a Resolution adopting rate revision for licence fees. As noted earlier instead of flat rate of licence fees to be calculated for all hoardings exhibited in privately owned properties in the entire city of Ahmedabad, new formula was accepted. As per the new formula depending on the rate offered by the tenderer for the site belonging to the Ahmedabad Municipal Corporation in the near vicinity, private property owners or their agents had to bear burden of the licence fees to be paid to the Corporation. The formula adopted was that SCA/12603/2005 9/60 JUDGMENT for the properties which are within the distance of 80 meters of road junction, for exhibiting advertisements of hoardings on such properties, licence fees at the rate of 16% of the rate offered by the tenderer to the Corporation would have to be paid. On the other hand, for the properties which are situated beyond the distance of 80 meters from the road junction, rate at which licence fee was required to be paid was fixed at 8% of the tender rate. 5.2 It is the contention of the petitioners that new methodology adopted by the Corporation for collection of licence fees is wholly illegal and unlawful. It is suggested that on account of new methodology adopted by the Corporation, in some prime areas of the city such as Ashram Road and C.G.Road, licence fee rates have gone upward revision by many times compared to existing rates. It is contended that the new rate at which the Corporation wishes to collect licence fees, is excessive and cannot be justified by any standard. It is pointed out that licence fee was being paid at the rate of Rs. 350/- up to 31st March, 2004. By virtue of the new formula the petitioners are asked to pay licence fee at the rate ranging from Rs. 1000/- per SCA/12603/2005 10/60 JUDGMENT Sq.Mts. per year to Rs. 2700/- per Sq.Mts. per year on certain areas of the City of Ahmedabad. It is contended that this method of charing licence fee on the basis of potential of the site is not permissible under the law. It is contended that the Corporation cannot provide for different rates of licence fees for different areas of City of Ahmedabad. That such rates must be uniform and must be reasonable. It is contended that on account of unreasonable and excessive increase in the rates of licence fees, the petitioners suffer huge loss and damage and in some cases their business has become completely unavailable. Certain sites have to remain blank as there are no advertisers coming forward to put their advertisements on such hoardings in view of the increase in the licence fees. 6.1 On the other hand the case of the Corporation is that the rates for payment of licence fees had not been revised for many years. That on account of passage of time, on account of increase in infrastructure cost and on account of increase in commercial activities, it was necessary to revise the rates for licence fees. SCA/12603/2005 11/60 JUDGMENT 6.2 It is pointed out that under Sections 244 and 245 of the Bombay Provisional Municipal Corporations Act (hereinafter referred as “B.P.M.C. Act” for short), the Corporation has powers to regulate the exhibition of advertising even on private properties exhibited through sky-signs and on hoardings. In view of the provisions contained in Sections 244, 245 and 386 of the B.P.M.C. Act the Corporation can collect licence fees at an appropriate rate. It is contended that the licence fee being charged is regulatory in nature. To control and regulate the activity, the Corporation has to provide for machinery which includes maintenance of staff and establishment. It would be necessary to ensure that the activity is well regulated, for which the charging of licence fee cannot be objected to. 6.3 From the material on record, it is further the case of the Corporation that after undertaking the exercise of collecting proper material and examining all aspects of the matter, the Corporation decided to provide for different rates for collection of licence fees for different areas of City of Ahmedabad depending on the commercial potential of different sites. It is denied that the the licence fee being charged is excessive. It SCA/12603/2005 12/60 JUDGMENT is stated in affidavit-in-reply dated 15th July, 2005 filed by Shri Pritambhai Naranbhai Raut on behalf of Ahmedabad Municipal Corporation that the charge levied on hoardings form part of the income resources of the Corporation to meet its ever increasing expenses and to meet the infrastructure needs of the public. It is further contended that levy of licence fee is regulatory mechanism adopted keeping in view the public welfare. It is further contended that the Corporation has power to collect licence fee and at what rate should it be levied is a policy decision. In the further affidavit-in-reply dated 27th July, 2005 filed by Shri Pritambhai Naranbhai Raut, it is contended that the levy of licence fee by Ahmedabad Municipal Corporation is for the purpose of generating funds to be utilised within the City limits for creation, maintenance and betterment of basic amenities and facilities for commuting public. It is contended that the legislature by framing provisions under the Act, has empowered local authority to generate funds which is to be utilised for providing better amenities and facilities for commuters. It is stated that the Corporation provides services to the members of the petitioner-Association who exhibit their advertisements on sites situated within the city limits. SCA/12603/2005 13/60 JUDGMENT It is therefore, contended that the Corporation provides for services to the members of the petitioner Association also. It is further pointed out that the tender has been granted to one Sambhav Media Limited for C.G.Road at the rate of Rs.2,01,00,117/- (Rupees Two Crore, One Lacs, One Hundred and Seventeen only) for a period of one year for the Corporation Sites. For Ashram Road, tender has been given to the same party for a sum of Rs. 1,41,00,117/- (Rupees One Crore, Forty One Lacs, One Hundred Seventeen only) for one year. It is stated that advance payment for six months is received by the Corporation for Ashram Road contract. It is suggested that on account of certain litigation contract for C.G.Road has not become operational. 7. On the basis of above pleadings, learned Advocates for the respective parties have made detailed submissions before me. On behalf of the petitioners, it is contended that any levy under Section 244, 245 and 386 of the B.P.M.C. Act must be fee and not tax. Such provisions empower the Corporation to levy fee and collection of tax is not envisaged therein. It is further contended that fee must be commensurate with the services rendered i.e., licence fees to be collected must be SCA/12603/2005 14/60 JUDGMENT comparable to the expenditure made by the Corporation for regulating the activity and at any rate such licence fee must not be excessive. It is next contended that the formula adopted by the Corporation for determining the rate at which the licence fee is to be paid is wholly arbitrary. It is contended that rate which the tenderer has offered for the tender sites belonging to the Corporation cannot be the basis for determining the licence fee to be charged from the petitioners. It is further contended that rate of licence fee must be uniform for the entire City. Even if the licence fee is found to be regulatory in nature, the Corporation does not have to spend higher amount for advertisements exhibited on sites with higher commercial potential. Therefore, to link the rate of licence fees to be charged from the petitioners with the tender amount offered by the tenderer to the Corporation can hardly be the correct yardstick for determining licence fees. 8. Reliance was placed on the decision in the case of Calcutta Municipal Corporation and Others v. Shrey Mercantile (P) Ltd. And Others reported in (2005) 4 SCC 245 wherein Hon'ble Supreme Court upheld the decision of SCA/12603/2005 15/60 JUDGMENT the High Court striking down the demand for payment of mutation charges on the ad valorem basis upon the valuation of the properties. 9. Reliance was also placed on the decision of the Hon'ble Supreme Court in the case of Vam Organic Chemical Ltd. And Another v. State of U.P. And others reported in (1997) 2 SCC 715, wherein Hon'ble Supreme Court made following observations: “The High Court has taken the view that in the case of regulatory fees, like the licence fees, existence of quid pro quo is not necessary although the fee imposed must not be, in the circumstances of the case, excessive. The High Court further held that keeping in view the quantum and nature of the work involved in supervising the process of denaturation and the consequent expenses incurred by the State, the fee of 7 paise per litre was reasonable and proper. We see no reason to differ with this view of the High Court”. On the basis of the said observations, it was sought to be canvassed that the Corporation must show reasonable co-relation between the licence fees being charged as compared to the expenditure which the Corporation is required to incur for regulating the activity. SCA/12603/2005 16/60 JUDGMENT 10. On the other hand, Senior learned Advocate Shri S.I.Nanavati appearing for the Ahmedabad Municipal Corporation contended that the power of the Corporation to levy fee cannot be disputed. Even the petitioners do not seriously contest the authority of the Corporation to impose licence fee. He contended that licence fee being charged is regulatory in nature and not compensatory. Therefore, establishment of quid pro quo is not necessary. It is further contended that the rate of licence fee has not been revised in the City of Ahmedabad since 1997. With passage of time and with increase in commercial activities and with increase in the expenditure for maintenance of establishment, it was necessary that the licence fee be revised. It was further contended that apart from spending substantial amount on maintenance of the establishment and staff for regulating the activity of exhibiting advertisements on private sites, the Corporation also requires funds for maintenance and for providing amenities on such roads. It was contended that it was essential to provide lights on the roads and to keep the roads clean. It was contended that only when such basic requirements are fulfilled, that private property owners would be in a position to fetch substantial amount by way of rent by SCA/12603/2005 17/60 JUDGMENT letting out their properties for putting hoardings and sky signs for exhibiting advertisements. It is contended that amount collected by the Corporation is utilised for above activities. These benefits are being received by the private property owners and therefore, they cannot contend that licence fee cannot be charged at revised rates. It is further contended that to provide for scientific and just formula for collection of licence fees, the Corporation accepted the new methodology. For the said purpose, it was decided that licence fee will be charged at certain percentage of the offer made by the tenderer for the nearby tender site belonging to the Corporation. It was further contended that the demarcation of the properties situated within 80 meters of road junction to be treated differently from those situated beyond the said distance is a reasonable classification. 11. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Sona Chandi Oal Committee and others v. State of Maharashtra reported in (2005) 2 SCC 345, wherein Hon'ble Supreme Court was pleased to uphold the revision of licence fees to be charged from money-lenders. SCA/12603/2005 18/60 JUDGMENT 12. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of B.S.E. Brokers' Forum, Bombay and others v. Securities and Exchange Board of India reported in (2001) 3 SCC 482, wherein Hon'ble Supreme Court was pleased to uphold the licence fees to be levied on the basis of annual turnover of the brokers negating the contention that since licence fee is related to annual turnover, the same is in nature of tax. 13. From the above discussion, it can be seen that the central controversy in the present group of petitions is with respect to the rate revision in the licence fee sought to be implemented by the Ahmedabad Municipal Corporation against the petitioners and property owners of the City of Ahmedabad. 14. Before resolving the said controversy, one aspect of the matter which deserves summary conclusion can be noted. As noted earlier, the petitioners have also questioned the insistence of the Corporation in requiring the agents to compulsorily register themselves upon payment of registration charges of Rs. 1.50 lacs for a period of three years. That charge is recurring payment and not refundable deposit. As noted earlier, learned SCA/12603/2005 19/60 JUDGMENT Advocate for the petitioners had submitted that there is no authority under the law permitting the Corporation to collect such registration charges that too at such an exorbitant rate. It was contended that it may be open for the Corporation to collect the refundable deposit to regulate activities of agents and may even provide for forfeitures of such deposit in case of serious default, however to collect registration fees of Rs. 1.50 lacs for three years and at the end of three years to collect fresh charges is legally not permissible. 15. To this contention, learned advocate Shri Nanavati appearing for the Corporation at the very outset submitted that under the provisions of the B.P.M.C. Act and the Rules made therein, such collection of registration fee cannot be justified. He conceded that there is no legal authority with the Corporation to collect the registration fee from the agents that too at such high rates, which is recurring in nature. On the basis of this legal concession made on behalf of the Corporation, it is not necessary to delve any longer on this aspect of the matter. The action of the Corporation in seeking to collect registration fees from the agents is quashed. To the extent such charges have already been SCA/12603/2005 20/60 JUDGMENT collected, the same shall be refunded to the persons concerned and the Corporation shall refund the same to the agents within a period of six weeks from the date of receipt of copy of this order. 16. This brings me to the main aspect of the controversy which is highly contested. 17. As noted earlier, though in the petitions it is contended that the Corporation does not have any power to collect the licence fee from the petitioners, this aspect was not pressed in service with any seriousness on behalf of the petitioners. However, what was sought to be suggested was that the Corporation though has power to collect the licence fee from the petitioners, any levy which partakes the character of tax is legally not justified. It is