IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 30.07.2010 CORAM THE HONOURABLE MR.JUSTICE K.CHANDRU W.P.NOs.12272, 12494, 12495, 13039, 11854 to 11856, 12888 to 12891, 13766 and 13767 of 2002, W.P.NOs.5786 to 5801 of 2009 and 6304 to 6307 of 2010 and M.P.NOS.2 TO 2 OF 2009, 2 to 2 of 2010 M/s.Swabs India (P) Ltd. Rep. By its Managing Director Mr.M.M.Gupta, No.A-18, MEPZ, Tambaram, Chennai-45. .. Petitioner in W.P.No.12272 of 2002 M/s.Attar Mohd. Dawood & Bros (Madras) rep. By its Partner, No.A-13/A-14, MEPZ, Tambaram, Chennai-45. .. Petitioner in W.P.Nos.12494 and 12495 of 2002 M/s.Madras Knitwear Private Ltd., rep. By its Asst. General Manager, Phase I, Plot B-11, MEPZ, Tambaram, Chennai-45. .. Petitioner in W.P.No.13039 of 2002 M/s.Vestiments (India) Private Limited rep. By its Managing Director Mr.Prakash. C.Sacheti No.C-2b, MEPZ Tambaram, Chennai-45. .. Petitioner in W.P.No.11854 of 2002 M/s.Mercury Manufacturing Co. Ltd. Rep. By its President Mr.R.K.Shankar, Plot No,.D-3, Phase-II MEPZ Tambaram, Chennai-45. .. Petitioner in W.P.No.11855 of 2002 M/s.Bhandari Apparels Limited rep. By its Company Secretary Mr.G.S.Lakshmi Narasimhan No.B-16, Phase II, MEPZ, Tambaram, Chennai-45. .. Petitioner in W.P.No.11856 of 2002 https://hcservices.ecourts.gov.in/hcservices/ M/s.Vijay Garments Limited, rep. By its Manager, Plot No.D-3(2), MEPZ Tambaram, Chennai-45. .. Petitioner in W.P.No.12888 of 2002 M/s.All India Handloom and Nippon Apparels Corporation Private Limited, rep. By its Managing Director, No.D-2/A, MEPZ Tambaram, Chennai-45. .. Petitioner in W.P.Nos.12889, 12890 of 2002 M/s.Wellknit Apparels Private Ltd. Rep. By its Assistant General Manager, Phase II Plot A11 to A14 MEPZ, Tambaram, Chennai-45. .. Petitioner in W.P.No.12891 of 2002 M/s.Dalant Infant Products(India) Pvt.Ltd Rep by its Director Mr.Bhavneet P.S.Ahuja No.C-4,Phase II, MEPZ Tambaram, Chennai-45. .. Petitioner in W.P.No.13766 of 2002 M/s.Swabs India (P) Ltd. Rep. By its Managing Director Mr.M.M.Gupta, No.A-19, MEPZ Tambaram, Chennai-45 .. Petitioner in W.P.No.13767 of 2002 M/s.Team HiTech rep. By its Director, Plot No.C2/A, MEPZ, SEZ Tambaram, Chennai-45. .. Petitioner in W.P.No.5786 of 2009 M/s.Venture Power Systems India Ltd., rep. By its General Manager, Plot No.D6, Phase II, Zone B, MEPZ, Tambaram, Chennai-45. .. Petitioner in W.P.No.5787 of 2009 M/s.Venture Lighting India Limited, rep. By its Director, Plot No.A-30, D5, Phase II, Zone B, MEPZ, Tambaram, Chennai-45. .. Petitioner in W.P.No.5788 of 2009 https://hcservices.ecourts.gov.in/hcservices/ M/s.Celebrity Fashions Limited rep. By its Executive Director C2, 3rd Main Road, MEPZ, SEZ Tambaram, Chennai-45. .. Petitioner in W.P.No.5789 of 2009 M/s.Igrashi Motors India Ltd. Rep. By its Administrator B-12, B-15, Phase-II, MEPZ, SEZ, Tambaram, Chennai-45 .. Petitioner in W.P.No.5790 of 2009 M/s.Attar Mohamed & Co., rep. By its Director, A-12, MEPZ-SEZ, Tambaram, Chennai-45 .. Petitioner in W.P.No.5791 of 2009 M/s.SFP Sons India Pvt. Ltd. Rep. By its Assistant General Manager, A-19 Part, A-20, MEPZ-SEZ, Tambaram, Chennai-45. .. Petitioner in W.P.No.5792 of 2009 M/s.Nayaab Perfumes, rep. By its Partner, A-31, Phase II, MEPZ Tambaram, Chennai-45 .. Petitioner in W.P.No.5793 of 2009 M/s.Agile Electric Sub Assy Pvt. Ltd. Rep. By its Administrator, A-33 & A36, Phase-I, MEPZ-SEZ Tambaram, Chennai-45. .. Petitioner in W.P.No.5794 of 2009 M/s.IJT Plastics & Tools Pvt. Ltd., rep. By its Assistant General Manager, A17 & A18, Phase-II, MEPZ-SEZ Tambaram, Chennai-45. .. Petitioner in W.P.No.5795 of 2009 M/s.Agile Electric Sub Assy Pvt. Ltd. Rep. By its Administrator, B-3 & B-4, Phase-II, MEPZ-SEZ Tambaram, Chennai-45 .. Petitioner in W.P.No.5796 of 2009 M/s.SFP Sons India Pvt. Ltd. Rep. By its Director, A-24, MEPZ-SEZ Tambaram, Chennai-45 .. Petitioner in W.P.No.5797 of 2009 https://hcservices.ecourts.gov.in/hcservices/ M/s.IR India Private Limited, rep. By its Manager C-7, Phase I, MEPZ-SEZ, Tambaram, Chennai-45. .. Petitioner in W.P.No.5798 of 2009 M/s.Cephas Medical rep. By its Managing Director, B-13, MEPZ-SEZ, MEPZ, Tambaram, Chennai-45. .. Petitioner in W.P.No.5799 of 2009 M/s.SFP Sons India Pvt. Ltd. Rep. By its Assistant General Manager, A-21, MEPZ-SEZ Tambaram, Chennai-45. .. Petitioner in w.P.No.5800 of 2009 M/s.Agile Electric Sub Assy Pvt Ltd. Rep. By its Administrator, A-34, Phase-I, MEPZ-SEZ Tambaram, Chennai-45. .. Petitioner in W.P.No.5801 of 2009 Avalon Technologies (Pvt) Ltd. No.B-7, MEPZ, Tambaram, Chennai-45. .. Petitioner in w.P.No.6304 of 2010 M/s.Manav Packaging (Pvt.) Ltd. Plot No.A-5, A-6, Phase-I, MEPZ-SEZ, Tambaram, Chennai-45. .. Petitioner in W.P.No.6305 of 2010 A.R.Exports, No.B-2,MEPZ Tambaram, Chennai-45. .. Petitioner in W.P.No.6306 of 2010 Dakshin Speaker Manufacturing (Pvt.) Ltd., No.B-4, Phase-II, MEPZ-SEZ, Tambaram, Chennai-45. .. Petitioner in W.P.No.6307 of 2010 Vs. 1.The Commissioner, Tambaram Municipality, Tambaram West, Chennai-45. https://hcservices.ecourts.gov.in/hcservices/ 2.Union of India, rep by Ministry of Commerce by its Development Commissioner Madras Export Processing Zone, Tambaram, Chennai-45. 3.State of Tamil Nadu, rep. By its Secretary to Government, Municipal Administration and Water Supply Department, Fort St. George, Chennai-9. .. Respondents in all Wps W.P.NOs.12272, 12494, 12495, 13039, 11854 to 11856, 12888 to 12891, 13766 and 13767 of 2002 are filed under Article 226 of the Constitution of India praying for the issue of a writ of certiorarified mandamus to call for the proceedings of the first respondent in ROC No.1593/2000/A2 dated 25.2.2002 in Assessment Nos.1416 in W.P.No.12494 of 2002, No.1446 in W.P.No.12495 of 2002, No.1449 in W.P.No.12889 of 2002, No.1426 in w.P.No.12890 of 2002, ROC No.1593/2000/A2 dated 10.4.2002 in W.P.Nos.12891, 13766 and 13767 of 2002 and to quash the same and consequently, forbear the first respondent from levying, assessing and recovering property tax in respect of the petitioner's factory situated in the above stated address in violation of Article 285 of the Constitution of India and without a legislative authority in violation of Article 265 of the Constitution of India under Section 82(2)(ii)(aa) of the Tamilnadu District Municipalities Act, arbitrarily enhancing the property tax in violation of Article 14 of the Constitution of India. W.P.NOs.5786 to 5801 of 2009 and 6304 to 6307 of 2010 are filed under Article 226 of the Constitution of India praying for the issue of a writ of certiorarified mandamus to call for the proceedings of the first respondent in Nos.24012, 8858, 221, 8859, 8860, 24033, 24041, 24039, 24014, 8856, 8857, 24004, 24035, 8, 24034, 9, 24020, 24037, 24022, Nil, 6, Nil and Nil in Assessment Nos.1420, 1472, 1035, 1576, 1577, 1464, 1479, 1476, 1423, 1623, 1624, 1433, 1441, 1440, 1465, 1441, 1431, 1473, 1437, 1771, 1435, 1432 and 1457 dated nil and to quash the same and consequently, forbear the first respondent from levying, assessing and recovering property tax in respect of the petitioner's factory situated in the above stated address in violation of Article 285 of the Constitution of India and without a legislative authority in violation of Article 265 of the Constitution of India under Section 82(2)(ii)(aa) of the Tamilnadu District Municipalities Act, arbitrarily enhancing the property tax in violation of Article 14 of the Constitution of India. For Petitioners : Mr.R.Sureshkumar for M/s. La Law For Respondents : Mr.K.R.Tamilmani for R-1 Mr.Velayutham Pichaiya, CGSC for R-2 Mr.M.Dhandapani,Spl.G.P. for R-3 https://hcservices.ecourts.gov.in/hcservices/ COMMON ORDER Heard Mr.R.Sureshkumar, learned counsel for petitioners, Mr.K.R.Tamilmani, learned counsel for the first respondent, Mr.Velayutham Pichaiya, learned Central Government Standing Counsel appearing for the second respondent and Mr.M.Dhandapani, learned Special Government Pleader appearing for the third respondent. 2.In these batch of writ petitions, the common question that arises for consideration is whether the petitioners, who have set up industrial units in the Special Economic Zone (SEZ) known as the Madras Export Processing Zone (for short MEPZ) formed under the Special Economic Zone Act, 2005, can be subjected to levy of property tax under Section 81 of the Tamil Nadu District Municipalities Act by the first respondent Tambaram Municipality? Whether the demand for such Tax is legal? and whether the demand notice issued after revising the property tax is liable to be set aside by this court? 3.The facts leading to filing of the present batch of writ petitions are as follows: The Parliament enacted the Special Economic Zones Act, 2005 (Central Act 28 of 2005). Under Section 3, the Central Government is empowered to set up the Special Economic Zones. The objects and reasons for making an enactment is set out in the objects and reasons appended to the Bill, which is as follows: "...In order to give a long term and stable policy framework with minimum regulatory regime and to provide expeditious and single window clearance mechanism, a Central Act for Special Economic Zones has been found to be necessary in line with international practice...." 4.Pursuant to the said enactment, the SEZ was set up in the area coming under the first respondent Municipality and it has named it as Madras Export Processing Zone (MEPZ). The properties were acquired for the said purpose from various land owners. Under the terms of the Act, the properties are owned by the Central Government and will be administered by its Development Commissioner, i.e. the second respondent who are appointed under Section 11 of the said Act. The Act provides for certain fiscal provisions in respect of the industrial units situated under the SEZ. The Act also empowered the Central Government to modify certain Central enactment in terms of Section 49 and also to declare certain provisions not to apply under Section 52 in respect of the enactment set out in the I Schedule. 5.Under Section 50 of the Act, power is delegated to the State Government, i.e. the third respondent to grant exemption for the purpose of giving effect to the provisions of the Act. Section 50 reads as follows: https://hcservices.ecourts.gov.in/hcservices/ "50.Power of State Government to grant exemption.- The State Government may, for the purposes of giving effect to the provisions of this Act, notify policies for Developers and Units and take suitable steps for enactment of any law- (a)granting exemption from the State taxes, levies and duties to the Developer or the entrepreneur; (b)delegating the powers conferred upon any person or authority under any State Act to the Development Commissioner in relation to the Developer or the entreprenuer." 6.It is an admitted case that the State Government either by its power under Section 50 or under the provisions of the Tamil Nadu District Municipalities Act, have not exempted any of the units in MEPZ from property tax payable by them. The first respondent Municipality is formed under the Tamil Nadu District Municipalities Act, 1920. Under Section 81, levy of property tax can be levied in respect of all buildings and lands situated within the respective Municipalities. Section 86 provides for exemption to certain buildings and lands from the property tax. The petitioners do not come under the general exemption granted under Section 86. Therefore, in the absence of any specific or general exemption, the petitioners are bound to pay property tax to the first respondent Municipality. 7.But, however what is contended in all these writ petitions was that though they had constructed factory sheds in the lands belonging to the MEPZ, they are on lease and the lease can be terminated on terms agreed to between the parties. Initially, lands were leased out for a period of 15 years. But subsequently, it was reduced to five years. Since the lands belonged to the second respondent Central Government, the first respondent is prohibited from charging any tax in terms of Article 285 of the Constitution. Article 285 reads as follows: "285.Exemption of property of the Union from State taxation.-(1)The property of the Union shall, save insofar 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." https://hcservices.ecourts.gov.in/hcservices/ 8.Alternatively it was contended that Section 82(2)(ii) will not apply to the industrial units. Section 82(2)(ii)(aa) reads as follows: "82.Method of assessment of property.-(1)...... (2)The annual value of lands and buildings shall be deemed to be the gross annual rent at which they may reasonably be expected to let from month to month or from year to year [less a deduction in the case of buildings, of ten per cent of that portion of such annual rent which is attributable to the buildings alone, apart from their sites and adjacent lands occupied as an appurtenance thereto;] and the said deduction shall be in lieu of all allowance for repairs or on any other account whatever: ...... [(aa) in the case of any building in industrial estate wherein essential amenities including water-supply, drainage and lighting are not provided by the municipality but provided by the Industries Department of the State Government or by any other authority under the control of the State government, the annual value of such building shall be deemed to be four per cent of its capital value:" As they do not enjoy water supply, drainage and lighting by the Municipality and they are furnished by the second respondent, it was contended that the Tamil Nadu District Municipalities Act enacted by the State cannot empower the Municipality to tax the units situated in the MEPZ. 9.A counter affidavit is filed by the second respondent stating that under Section 80-A of the District Municipalities Act, the municipality has no power to levy tax which the State Legislature has no power to impose by the State Government under the Constitution. It was also stated that the industrial units are 100% export oriented units. As they are on leased lands owned by the Central Government, no property tax can be levied. It was also orally argued that under Section 81, the property tax can be levied both on lands and buildings. Since the land belonged to the Central Government, it cannot be taxed under Article 285 and hence no property tax can be levied on the buildings put up by petitioners on those lands. 10.These writ petitions were admitted on several dates. Pending the writ petitions, this court granted interim injunction on certain condition. The condition was that they will have to pay prerevised property tax along with 30% on revised tax. On finding that these conditions were complied with, the interim injunction was made absolute by further orders. An additional term was made that in case of violation of the interim orders, appropriate actions can be initiated by the first respondent Municipality. https://hcservices.ecourts.gov.in/hcservices/ 11.In the common counter affidavit filed by the first respondent Municipality, dated 13.12.2002, the revision of property tax was sought to be justified. It was contended that all along the industrial units were subjected to property tax which they were also paying. Subsequently, meetings were convened between the Municipality and the office bearers of MEPZ Manufacturing Association. In those meetings, the Association highlighed that its members should be taxed bearing in mind that basic amenities are not extended to these units by the Municipality and the value of the land should not be added for fixing the rate of Tax. Subsequently, the Association thanked the municipality for reducing the tax from 6% to 4%. But they requested the Municipality to make assessments with effect from 1.10.1993. When that was not possible, the same was also indicated and there was no protest from the industrial units. They had also paid the entire tax as revised from 1993 to 1998. It is only when a further revision was made during 1998, objections started forthcoming. It was stated that if there is any objection regarding revision, the Tamil Nadu District Municipalities Act provides for an appeal remedy and writ remedy cannot be a solution. 12.It was also stated that the fact that they are bound to hand over the vacant possession will not nonetheless made, they are not liable to pay property tax and in case building is pulled down, the assessment will also be cancelled. The buildings are not owned by the Union of India. Hence the question of claiming protection under Article 285 will not arise. In the annexure to this affidavit, huge dues payable by the units were also given. 13.The third respondent has filed an adoption counter affidavit, dated 3.7.2007 adopting the counter affidavit filed by the first respondent. 14.The minutes of the various meetings held between the MEPZ manufacturing Association and the Municipality held in the presence of the second respondent Development Commissioner and the officials of the State Government were enclosed in the typed set. Further, a resolution of the Municipality passed in resolution No.157, dated 12.9.2001 authorising the Municipality to revise the tax and granting reduction from 6% to 4% in case of industrial units having their own facilities for water supply and lighting were also enclosed. 15.The learned counsel for the petitioners brought to the notice of this court the lease deed signed between the Development Commissioner in the name of the President of India and the industrial units and referred to various clauses. One such clause referred to is clause No.(r) which is as follows: "(r)At the expiration or sooner of the termination of the said term quietly to deliver upto the Lessor the vacant possession of the demised land after removing all erection buildings and structured erected on the said land and such delivery should https://hcservices.ecourts.gov.in/hcservices/ be given within a period of TWO months after the expiration or sooner of the termination of the said term provided always that in the event the Lessee fails to deliver vacant and peaceful possession of the land after removing the structure, building etc. as aforesaid, the said buildings, structures etc. shall belong to the Lessor and the Lessee shall not be entitled to any compensation therefore provided always that in case Lessee desires to sell the buildings, structures etc. to this Lessor and the Lessor is willing and agreeable to take over the said buildings structures etc. The Lessor shall pay to the Lessee such compensation as is mutually agreed to and the Lessee shall do all acts and things as are necessary for handing over the possession of such buildings and structures etc." 16.But this term does not make them get exempted from the provisions of the Tamil Nadu District Municipalities Act. Whether petitioners have put up structures on their own land or on the lease lands, they are certainly the owners of the building which is liable to property tax under Section 81. The contention that Article 265 forbids the Municipality has to be rejected because the property tax is liable to be levied by the Municipalities under the Tamil Nadu District Municipalities Act both before and after the Constitution was enacted. Further, a constitutional status has also been given to the Municipalities by virtue of an introduction of Part IX-A into the Constitution by 74th Constitution Amendment Act with effect from 1.6.1993. Under Article 243-X, the Legislature of State by law can authorise the Municipality to levy appropriate taxes. What was originally a statutory right has now been given a constitutional status by the insertion of Part IX-A into the Constitution. 17.Even otherwise, there is no provision under the Special Economic Zones Act either exempting the Municipalities Act or directing the State Government to grant appropriate exemption. Section 50 of the Special Economic Zones Act is only an enabling provision and so long as exemption is not conferred either under Section 50 of the SEZ Act or under Section 86 of the District Municipalities Act, the petitioners unit are bound to pay property tax as demanded by the respective Municipalities. Reliance placed on Article 285 is wholly inappropriate. 18.The effect of Article 285 came to be considered in relation to Local Bodies claiming taxes/service charges from such Central Government Establishments. The Supreme Court vide its Judgment in UNION OF INDIA AND ANOTHER Vs. RANCHI MUNICIPAL CORPORATION, RANCHI AND OTHERS reported in (1996) 7 SCC 542, after referring to its earlier Judgment in UNION OF INDIA v. PURNA MUNICIPAL COUNCIL reported in (1992) 1 SCC 100, has held as follows: "4. The controversy is no longer res integra. This Court in Union of India v. Purna https://hcservices.ecourts.gov.in/hcservices/ Municipal Council had held that Section 135 of the Railways Act is subject to the provisions of Article 285 of the Constitution. 19.Insofar as buildings owned by the second respondent is concerned, this court in W.P.No.13990 of 2002 by its judgment rendered today i.e. 30.07.2010 held that they can enjoy immunity in terms of Article 285. But such immunity cannot be extended to the private industrial units which are owning the building standing on these leased lands. As the industrial units are the owners of their buildings and until such time their lease is terminated as per the terms of the lease deed and the Central Act 28 of 2005 and the Rules framed thereunder have not exempted such Tax, the petitioners are bound to pay property tax as demanded by the first respondent. The first respondent did not lack any legislative competence in demanding property Tax. 20.In fact the Supreme Court has held that exemption granted under Article 285 does not even extend to assessees, who are separate entities and distinct from the Union Government. Reference may be made to the Constitution Bench judgment of the Supreme Court in Electronics Corporation of India Ltd. And others Vs. Secretary, Revenue Department, Govt. of Andhra Pradesh and others reported in 1999 (4) SCC 458. In paragraph 22, the Supreme Court observed as follows: ""22....We have held that these provisions are not ultra vires because Article 285 does not apply when the property that is to be taxed is not of the Union of India but of a distinct and separate legal entity. Each of the appellants being companies registered under the Companies Act, they are entities other than the Union of India. The question of reading down does not, therefore, arise." Though the said judgment arose under the Andhra Pradesh Act 14/1963, the interpretation given by the Supreme Court is very much relevant to the case on hand. 21.Subsequent to the pronouncement of the said judgment, the very same case was considered by the Supreme Court vide its judgment in Food Corporation of India Vs. Municipal Committee, Jalalabad and another reported in 1999 (6) SCC 74. In that case, the Supreme Court considering the exemption claimed under Article 285 in respect of the FCI, after referring to the Electronics Corporation of India case (cited supra), in paragraphs 10 to 12 had observed as follows: "10.....This Court also did not accept the argument that the Corporation is a government department. It said : (SCC p.69, para 9) "A government department has to be an organisation which is not only https://hcservices.ecourts.gov.in/hcservices/ completely controlled and financed by the Government but has also no identity of its own. The money earned by such a department goes to the exchequer of the Government and losses incurred by the department are losses of the Government. The Corporation, on the other hand, is an autonomous body capable of acquiring, holding and disposing of property and having the power to contract. It may also sue or be sued by its own name and the Government does not figure in any litigation to which it is a party. It is true that its original share capital is provided by the Central Government (Section 5 of the FC Act) and that 11 out of 12 members of its Board of Directors are appointed by that Government (Section 7 of the FC Act) but then these factors may at the most lead to the conclusion (about which we express no final opinion) that the Corporation is an agency or instrumentality of the Central Government." 11.The Court further said that even if the Corporation is an agency or instrumentality of the Central Government, that did not lead to the inference that the Corporation is a government department. The reason is that the Act has given the Corporation an individuality apart from that of the Government. 12.Thus we hold that the Corporation is not exempt from taxation under Article 285 of the Constitution." 22.In the present case, the petitioners are not even remotely connected to the Central Government. They are private entrepreneurs enjoying various concessions available in the SEZ. Only because they are 100% export oriented units, though the Central Government may be empowered to grant exemptions from various enactments but in terms of Section