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Excelsior English Medium Higher, Secondary School, Illickal, Managed by M/s. Excelsior Estates (P) Ltd., Represented herein by Its Director, N.J. Mathew v/s The Secretary, Kottayam Municipality & Others

    WP(C). No. 2137 of 2011 (N)

    Decided On, 19 March 2021

    At, High Court of Kerala


    For the Petitioner: N.N. Sugunapalan, Sr. Advocate, N.S. Nita, S. Sujin, Advocates. For the Respondents: R1, Philip J. Vettickattu, Siby Mathew, Advocates, R1-R2, Siby Chenappady, SC, Surin George Ipe, Senior Government Pleader.

Judgment Text

1. This writ petition is filed by an English Medium CBSE School within the limits of the Kottayam Municipality. The issues raised in the writ petition are twofold. First aspect is, Ext. P1 demand notice issued by the Municipality dated 19.05.2009 imposing service tax of Rs.2,36,406/- cannot be sustained under law, since it is imposed from the financial year 2001-2002 onwards and as per Section 539 of the Kerala Municipality Act, 1994 ('Act, 1994' for short), any amount due to the Municipality can be recovered only if it is within a period of three years. Therefore, according to the petitioner, through a notice issued on 19.05.2009, the service tax sought to be realised from the year 2001-2002 cannot be recovered. Which thus means, the recovery exceeding a period of three years is prohibited under law and therefore, interference is required, is the contention.

2. The second aspect is in respect of the property tax imposed as per Ext.P5 order dated 16.11.2010 directing the petitioner to pay an amount of Rs.33,740/- annually. According to the petitioner, as per Section 235 of the Act, 1994, as it originally stood, there was exemption from the property tax to all educational institutions. However, consequent to an amendment made in the year 2009, the exemption in regard to the schools was limited to the Government and the Government Aided Schools. But, the tax was imposed without providing sufficient opportunity of hearing and participation to the petitioner. Anyhow, to Ext. P5 notice, petitioner has submitted Ext. P6 reply, however apprehending coercive action before any orders are passed finally on the same, the petitioner has approached this Court by filing this writ petition.

3. This writ petition was pending before this Court from the year 2011, and the petitioner has secured an order of status quo from the date of admission of the writ petition.

4. A detailed counter affidavit is filed by the Secretary and the Municipality jointly refuting the allegations and the claims and demands raised by the petitioner and also submitting that the entire action initiated by the Municipality is in terms of the provisions of the Act, 1994 and therefore, the petitioner has not made out any case for interference with the demands raised, invoking the discretionary jurisdiction conferred on this Court under Article 226 of the Constitution of India.

5. I have heard the learned Senior Counsel for the petitioner Sri. N. N. Sugunapalan assisted by Sri. Navaneet Pai, Sri. Siby Chenappady appeared for the Municipality, and Sri. Surin George Ipe, learned Senior Government Pleader, and perused the pleadings and materials on record.

6. The discussion of facts made above would make it clear that the subject issue in respect of the recovery of service tax is guided by Section 539 of the Act, 1994, which reads thus:

“539. Limitation for recovery of dues.— (1) No distraint shall be made, no suit shall be instituted and no prosecution shall be commenced in respect of any sum due to a Municipality under this Act after the expiration of a period of three years from the date on which distraint might first have been made, suit might first have been instituted, or prosecution might first have been commenced, as the case may be, in respect of such sum:

Provided that in the case of assessments made under section 282 the said period of three years shall be computed from the date on which distraint might have been made, suit instituted, or prosecution commenced, after the assessment under the said section shall have been made.

(2) Where any amount due to the Municipality has been barred by limitation under sub-section (1) due to the default of not taking steps at the appropriate time, and it is found in a lawful enquiry that it was lost due to the default of any officer or officers, the amount so lost to the Municipality shall be realised with twelve per cent interest thereon from such officer or officers.”

7. Therefore, on a reading of Section 539, it is categoric and clear that the recovery initiated by the respondent Municipality against the petitioner exceeding a period of three years cannot be sustained under law. In fact, the petitioner has challenged the recovery action only based on Section 539 dealing with 'limitation for recovery of dues'. It is not disputed that the petitioner is liable to pay service tax. However, as pointed out above, the dispute was confined only to the question of limitation of recovery by virtue of Section 539 of Act, 1994.

8. Therefore, I am of the considered opinion that so far as the contention raised by the petitioner in the writ petition with regard to the recovery of service tax is concerned, it is guided by a clear provision under Section 539, consequent to which the Municipality/Secretary is not entitled to proceed against the petitioner for a period exceeding 3 years in contemplation of the said provision of law. So far as the second aspect is concerned, the property tax is guided by Section 230 of the Act, 1994, which reads thus:

“230. Enumeration of taxes and duties.—(1) Every Municipality may levy

a) a property tax;

(b) a profession tax;

(c) a tax on animals and vessels;

(d) a show tax;

(e) a tax on advertisements;

(f) a tax on timber brought into the municipal area;

(g) a duty on certain transfers of immovable property in the shape of an additional stamp duty subject to the rules framed by Government.

(2) The Municipality may, for the purpose of providing any specific civic service or amenity levy a surcharge on any tax other than profession tax levied by the Municipality:

Provided that no surcharge shall be levied if a tax or cess is already being levied for the same purpose:

Provided further that such surcharge shall, in no case, exceed [fifty per cent], of the amount of the tax.

(3) The Municipality may in the manner prescribed levy a land conversion cess not exceeding rupees seventy five per are from the landholder in respect of a paddy field, marshy land, pond or watershed held by him which is converted into garden land or building site.

4. Municipality may levy service cess on sanitation, water supply, street light and drainage in all places for providing such new services at the rate fixed by the Council of the Municipality subject to the minimum rate prescribed for such services.”

9. It is an admitted fact that by a statutory legal fiction, the property tax payable by the educational institution and other such institutions as is provided under Section 235 were exempted from the payment of property tax till it was amended on and with effect from 07.10.2009, by which the exemption was confined to the Government and Government Aided institutions, in so far as the educational institutions are concerned. Therefore, it is an admitted fact that pursuant to the amendment, the petitioner is liable to pay property tax. However, the case projected by the petitioner is that tax was imposed without taking into account the provisions of Section 231 of Act, 1994, which reads thus:

“231. Resolution of Council deciding to levy tax.— (1) Any resolution of a Council determining to levy a tax shall specify the rate at which and the date from which any such tax shall be levied.

Provided that in the case of property tax, the rates and the date from which they shall come into force shall be fixed as per Section 233 and the rules made there under.

(2) Before passing a resolution imposing a tax for the first time or increasing the rate of an existing tax, a notice showing the intention of the resolution shall be published in the Gazette and at least in one newspaper published in the language of the locality having wide circulation in the Municipality, on the notice board of the office of the Municipality and in such other places within the municipal area as may be specified by the Council and in any other manner as it may determine, of its intention of the resolution, fix a reasonable period not being less than one month for submission of objections, and consider the objection if any, received within the period specified.

(3) Any resolution abolishing an existing tax or reducing the rate at which a tax is levied shall immediately be reported to the Government and it shall not be implemented without the sanction of the Government:

Provided that in the case of a Municipality which has an outstanding loan from the Government or from the Public or from any financial institution or from any other local body, the Government shall not accord sanction for such abolition or reduction.

(4) Where any resolution under this section has taken effect for a particular year, no proposal to alter the rate or date fixed in such resolution so far as that year is concerned shall be taken into consideration by the Council.”

10. After appreciating the contentions put forth by the learned Senior counsel for the petitioner relying upon Section 231 of Act 1994, I am of the considered opinion that the petitioner is not entitled to get any benefit of Section 231, since the property tax is already conceptualised under Section 230 of Act 1994, and what is contemplated in Section 231 is only a new tax, which is not conceivable as per the provisions of the Act, 1994. Therefore, I do not find much force in the said contention. However, I find force in the contention with respect to the action initiated by the Secretary of the Municipality imposing property tax without issuing an appropriate demand and consequential order. This I say because from Ext. P5 order itself, it is clear that the discussion made therein is in respect of service tax. However, ultimately it is stated that the petitioner is liable to pay the property tax amounting to Rs.33,740/-. In that view of the matter and since the petitioner has already filed an objection/reply to Ext. P5, it is only appropriate that the wr

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it petition is disposed of with suitable directions: 11. Accordingly, this writ petition is disposed of directing the Secretary of the Municipality to provide an opportunity of hearing to the petitioner in regard to Ext. P5 notice of demand in respect of property tax at the earliest and at any rate, within two months from the date of receipt of a copy of this judgment. 12. However, I make it clear that, though the petitioner has submitted Ext. P6 reply, due to the elapse of time, petitioner is at liberty to file any further objection or produce any documents so as to justify the stand adopted by the petitioner in Ext. P5 action of the Secretary of the Municipality. I further make it clear that the recovery, so far as the service tax is concerned, shall be limited to the statutory period of limitation prescribed under Section 539 of the Act, 1994 and in terms of the findings rendered above, and accordingly petitioner is directed to pay the admitted amount of service tax within a month from today, failing which the respondents shall be at liberty to take recovery action in accordance with law.