Holding

The demand was a tax, not a service charge, and it violated Article 285(1) of the Constitution, rendering it invalid.

Summary

The Municipal Corporation of Amritsar issued notices demanding "service charges" from the Posts & Telegraphs Department for water, lighting, drainage and road services to its buildings. The department contended that, as property of the Union, it was exempt from any tax under Article 285(1) of the Constitution. The corporation relied on circulars issued by the Ministry of Finance to justify the demand. The Punjab and Haryana High Court set aside the demand, holding it violated Article 285(1). On appeal, the Supreme Court held that the demand was in substance a tax, not a service charge, and that the municipal corporation had no statutory power to levy such a tax on Union property. The Court further ruled that administrative circulars cannot override constitutional provisions. Consequently, the appeal was dismissed, upholding the High Court’s decision.

Issues considered

Whether the demand made by the Municipal Corporation constitutes a 'service charge' or a 'tax'.
Whether a tax demand on property of the Union of India violates Article 285(1) of the Constitution.
Whether circulars issued by the Government of India can override the constitutional bar under Article 285(1).

Legislation cited

Constitution of Indias. Article 285(1)
Railways Acts. Section 135

Subjects

Article 285service chargetaxmunicipal corporationcentral government propertyconstitutional exemptionadministrative circularsmunicipal levy

Judgment

~.} MUNICIPAL CORPORATION, AMRITSAR A
v.
THE SENIOR SUPERINTENDENT OF POST OFFICES, AMRITSAR
DIVISION AND ANOTHER

JANUARY 2I, 2004
B
[S.N. VARIAVA AND H.K. SEMA, JJ.]

Constitution of India, 1950-Article 285(1)--Demand ofservice charge-
By Municipal Corporation-From Department of Union Government-Demand
made on the hasis of circulars issued by Union Government-No provision
c
under Municipal Corporation Act for levying service charges-Propriety of
demand-Held: The demand is violative of Article 285(/)--The Corporation
was demanding tax in the garb of service charge-The circulars issued by
Union Government being administrative in nature cannot override constitutional
provision. D
Appellant-Corporation issued notices to the respondent-Department
"'~ for payment of service charges for providing various services to the
buildings of the department falling within the limits of the Corporation.
Respondents did not make the payment on the ground that they being the
Department of Central Government, the properties owned by them were E
exempt from all taxes. Ultimately the Corporation made demand notice
which was based on letters/circulars issued by Government of India.
Aggrieved by the notice, respondents approached High Court which set
aside the notice and held that the demand of the service charges made by
the Corporation was violative of Article 285 of the Constitution of India. F
In appeal to this Court, appellant-Corporation contended that it was
entitled for service charges in view of the Circulars issued by Government
of India.

Dismissing the appeal, the Court G

HELD: I. It cannot be said that the Corporation was entitled for
" payment of service charges in view of the Circulars issued by the
Government of India. The Circulars, were administrative in nature. The
Government of India Circular was issued by one Deputy Secretary to the
913 H
)

914 SUPREME COURT REPORTS (2004] 1 S.C.R.

A Government of India. By no stretch of imagination such Circulars, issued
by the Deputy Secretary to the Government of India, can be said to have
any overriding effect over the mandate of Article 285(1) of the
Constitution. The Circulars so issued, do not alter the position with regard
to the bar imposed by Article 285(1) of the Constitution.
(917-G; 918-A-B]
B
2. 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, approach roads etc. Thus, the "tax" was sought to
C 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 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. (918-D-E(

D Union of India v. Purna Municipal Corporation and Ors.; [1992] 1 SCC
100 and Union of India and Anr. v. Rancni Municipal Corporation and Ors . ,
(1996) 7 sec 542, relied on.
'
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 6532 of
E 2002.

From the Judgment and Order dated 17.7.2001 of the Punjab and
Haryana High Court in C.W.P. No. 16030 of 2000.

Mahabir Singh, Rakesh Dahiya and Nikhil Jain for the Appellant.

F Ashok K. Srivastava, Ms. Indra Sawhney, S.N. Terdol and P.
Parmeswaran for the Respondents.

The Judgment of the Court was delivered by

SEMA, J. This appeal, preferred by the Municipal Corporation, Amritsar
G is against the judgment of the High Court dated 17th July, 2001, allowing the
writ petition, filed by the respondents herein.
t(
The appeal arises out of the following facts:

The Posts and Telegraphs Department has nine buildings within the
H limits of Amritsar Municipal Corporation (hereinafter referred to as 'the
MUNICIPAL CORPN., AMRITSAR,, SR. SUPDT. OF P.O., AMRITSAR DIV. [SEMA, J.J9 I 5

Corporation'). The appellant Corporation had issued notices to the respondents A
for payment of service charges for providing various services like water
supply, street lighting, drainage and approach roads to the land and buildings
in the municipal area. However, the respondents did not make any payment
contending that the respondent-Department, being of Central Government,
the properties owned by them are exempt from all taxes. Several demand
notices, without any result, culminated in the notice dated 24. I 0.2000. Being B
aggrieved by the aforesaid notice, the respondents had taken the matter before
the High Court, which was allowed and the aforesaid notice was set aside.
The High Court, having noticed the earlier judgment of the Division Bench
dated 19th December, 2000, held inter-alia that the demand of service charges
made by th'e Municipal Corporation was violative of Article 285 of the C
Constitution.

We have heard learned counsel for the parties.

The questions revolve around for determination in this appeal are:

(a) Whether the demand for service charges, so made by the D
Corporation against the respondents is by way of 'service charge'
or by way of 'tax'?
(b) If it is held that the demand so made was by way of 'tax',
whether the same is violative of Article 285(1) of the Constitution
of India. E

Before we advert further we may, at this stage, peruse the demand
notice dated 24.10.2000. It reads:
"The Joint Commissioner
Municipal Corporation, F
AMRITSAR.
To
The Assistant Engineer, Civil
Postal Civil Sub Divisions,
Jalandhar City. G
No. J.C/LS./319 Dated 24.10.2000
Sub: Payment of Service Charges of the properties owned By P & T
Department, Amritsar.

Whereas a notice of demand in respect of service charges in lieu H
)

916 SUPREME COURT REPORTS [2004) I S.C.R.

A of tax on land and Buildings with regards to the following properties owned t· •
by P & T Department Amritsar for the period mentioned against each property,
was served on the Senior Superintendent of. Post Offices Amritsar vide letter
Nos. PT/IS/307 dt. 19.7.95, EO/TS/252 dt. 23.5.97, EO/TS/1274 dt. 19.3.97,
AC/TS/254 dt. 9.9.98 & No. AC/TS/627 dt. 6. 1.99:

B S.No. Name of Deptt. & Location Year Amount
I. General Post Office & Telegraph Office 1.4.67 2,33,296.65
& Quarters New/XIII, Amritsar to 3 l.3.2K

2. Post Office, Kt. Mohar Singh, Amritsar do 29,173.80

c 3. Post Office, KT Bhai Sant Singh, do 26,298.00
New/X, Amritsar

4. Post Office, Durgiana Mandi New/XVI, do 18,336.47
Amritsar
D
5. Post Office, Chhoharta, New XX!I, do 17,036.42
Amritsar
T
6. Post Office, Hide Market New/XV, do 14,492,95
Amritsar
E
7. Post Office, KT. Sher Singh, New/XII, do 38,114.41
Amritsar

8. Post Office, Kairon Market New/I, do 39,011.36
Amritsar
F J.

9. Post Office, Chowk Phagwara do 34,845.50
'

4,51, I 05.56
Whereas Service Charges in respect of properties of Central
G Government are payable by the respective Deptt. to the Municipal
Corporation of the rates varying from 33.1/25% to 75% as decided
by the Government of India, Ministry of Finance in its letter No. :(
14(l)P/52-I dated 10.5.54 and No. 4(7)P/65, dated 29.3.67 (copy
enclosed). According to para (ii)(c) of the letter dated 29.3.67, in
H respect of colonies where all the services normally are provided by
.~.

MUNIClrAL CORPN, AMRITSAR"· SR. SUPDT. OF P.O., AMRITSAR DIV. [SEMA. J.] 9 J 7

the Municipal Corporation to the residents of other areas are being A
·-J availed of, Service charges will be paid at 25% of the prope11y tax
rate realized from the private individuals. The next ratable value/
annual value for the purpose of these instructions shall be 9% of the
capital value of the property concerned both in respect of residential
and non-residential properties.
B
Whereas the office of P&T Department has failed to deposit the
a1hount as specified in the notice of demand raised vide letters
mentioned above amounting to Rs. 4,51, I05.56.

Now, I, Gurwaryam Singh, PCS, Joint Commissioner, Municipal
Corporation, Amritsar exercising the delegated powers of C
Commissioner, Municipal Corporation, Amritsar conferred on me vide
office order No. C/242 dated 4.8.1999 direct that the Service Charges
of the buildings owned by P&T Department may be paid within 30
days failing which the moveable property lying in the said properties
wou Id be attached and retained to be sold in order to recover the D
arrears of service charges by public auction.

Encl: As above Sd/-
(Gurwaryam Singh)
Joint Commissioner,
Municipal Corporation, Amritsar E
Exercising the powers of Commissioner
Municipal Corporation, Amritsar."
Article 285(1) provides that 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. F
As observed from the impugned notice, the whole basis of the demand
notice was in pursuance of the letters/circulars issued by Government of
India, Ministry of Finance being Nos. 14[1]-P/52/l dated 10.5.54 and 14(7)-
P/65 dated 29.3.67. It is argued by Mr. Mahabir Singh, learned counsel that
the Corporation is justified and entitled for payment of service charges in G
view of the circulars issued by the Government of India, as referred to above.
We are unable to countenance with this contention of the learned counsel.
) The circulars, aforesaid, issued by the Union of India were administrative in
nature. It is now settled principle of law that administrative circulars cannot
override the constitutional provisions. The Government of India circular, as H
)

918 SUPREME COURT REPORTS [2004) I S.C.R.

A referred to above, was issued by one Deputy Secretary to the Government of
India. By no stretch of imagination such circulars, issued by the Deputy
Secretary to the Government of India, can be said to have any overriding
effect over the mandate of Article 285( I) of the Constitution. We are, therefore,
of the view that the circulars so issued, as noticed above, do not alter the
position with regard to the bar imposed by Article 285( I) of the Constitution.
B The interplay of the constitutional and legal provisions being well cut and
well defined requires no marked elaboration to stress the point.

The question, whether the demand so made was by way of 'service
charge' or 'tax', need not detain us any longer. The demand so made was
C 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 ayerred that they are paying for the
services rendered by the appellant-Corporation by way of water & 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
D 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
E 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 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.

Furthermore, the issues raised herein are no more res-integra. This
F Court, in [1992) I SCC 100 Union of India v. Purna Municipal Corporation
and Ors., considered an identical question and held that Section 135 of the
Railways Act, being an Act of the Central Government and saved by clause
(I) of Article 285 of the Constitution, clause (2) of Article 285 was not
attracted, and the Municipal Corporation was restrained from demanding tax
by way of service charges from railways. This is what this Court has said in
G para 5 of that judgment:
"The aforesaid provisions, existing as it is, in terms permits taxation
of railways by the local authority in the manner given therein; the
Central Government being the controlling and the regulating authority
permitting liability at a given point of time, its extent and manner.
H
MUNICIPAL CORPN., AMRITSAR v. SR. SUPDT. OF P.O., AMRITSAR DIV. [SEMA . .LJ 919

\
t _.I The Indian Ra'ilways Act being a central enactment has no role to A
play in sub-article (2) of Article 285, for that is a sphere in which the
State legislation operates. The reasoning of the High Court to oust the
applicability of Section 135 of the Indian Railways Act on the test of
sub-article (2) of Article 285 ·was totally misplaced, as also in not
venturing to create room for it in sub-article (I) of Article 285. The
interplay of the constitutional and legal provisions being well cut and B
well defined requires no marked elaboration to stress the point.
Accordingly, we allow this appeal, set aside the judgment and order
of the High Court and issue the writ and direction asked for in favour
of the Union of India restraining the respondent council from raising
demands on the railway in regard to service charges." c
The same view was reiterated in [ 1996] 7 SCC 542 Union of India and
Anr. v. Ranchi Municipal Corporation and Ors.

For the aforesaid reasons, the appeal is devoid of merits and it is
accordingly dismissed with no order as to costs. D
K.K.T. Appeal dismissed.