Union Of India Thru' D.R.M., N.E. ... vs State Of U.P. And Others
2015 Latest Caselaw 5120 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

?AFR
 
Court No. - 10
 
Case :- WRIT TAX No. - 101 of 2012
 
Petitioner :- Union Of India Thru' D.R.M., N.E. Railway And Another
 
Respondent :- State Of U.P. And Others
 
Counsel for Petitioner :- Vivek Singh,Tarun Varma
 
Counsel for Respondent :- C.S.C.,B.P. Singh,Vivek Verma
 

 
Hon'ble Arun Tandon,J.

Hon'ble Harsh Kumar,J.

1. Heard Sri Tarun Verma, learned Special Counsel on behalf of petitioners and learned Standing Counsel for the State-respondents.

2. The Union of India through Divisional Railway Manager, North Eastern Railway, Varanasi, and the Divisional Railway Manager, North Eastern Railway, Varanasi, as petitioner nos. 1 and 2, have approached this Court against the demand of service charges raised by Nagar Nigam, Varanasi vide notices issued in December, 2011, which bears the subject "regarding payment of house tax" on property C-33/9-R. The Nagar Nigam, Varanasi has demanded an amount of Rs.2, 22, 37, 185/- as arrears of balance tax, surcharge and the current demand.

3. In Rajkot Municipal Corporation vs. Union of India 2010-CALHN (SC)-3-168 decided on 19.11.2009, the Supreme Court, while hearing an appeal against the judgment of Gujarat High Court, by which the High Court had quashed all the demands raised by the Municipal Corporation against the properties of the Central Government imposing property taxes on the ground that under Article 285 (1) of Constitution of India, no such demand can be raised by the State Government against the Central Government, held as follows:-

"(4) Article 285 of the Constitution provides that:

(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 is liable or treated as liable, so long as that tax continues to be levied in that State.

(5) In Union of India and ors, vs. State of Uttar Pradesh and ors, 2007 (11) SCC 324, this Court upheld the decision of the High Court that charges for supply of water or for other services rendered under any statutory obligation, is a fee and not tax. It was held that the Union of India was liable to pay such charges and should honour the bills served in that behalf. Referring to Section 52 of the U.P. Water Supply and Sewerage Act, 1975, it was held that the charges were loosely termed as "tax", that the nomenclature was not important and what was charged is a fee for the supply of water as well as maintenance of the sewerage system, and such service charges are to be considered as a fee and were not hit by Article 285 of the Constitution. It was further made clear that what was exempted by Article 285 was a tax on the property of Union of India but not a charge for service which were being rendered in the nature of water supply or for maintenance of sewerage system.

(6) When these appeals were earlier listed for hearing, both sides agreed that they will attempt a broad consensus on several pending issues and narrow down the areas of controversy and agree for a dispute resolution mechanism. We are told that in pursuance of it, discussions were held among various departments of the Government of India with the Department of Urban Development. In pursuance of it, an affidavit dated 9.4.2009 has been filed on behalf of Union of India crystallizing its stand on various issues. Union of India has now agreed in principle for the following: (i) It is liable to pay service charges to the municipal corporations for providing services like supply of water, conservancy/sewerage disposal, apart from general services like approach roads with street lights, drains etc. (ii) It will pay service charges to the Municipal Corporations, for the services, as stated in its circulars dated 10.5.1954, 29.3.1967, 25.5.1976 and 26.8.1986, but will not pay any taxes. (iii) Having regard to the fact that only service like supply of water could be metered and other services like drainage, solid waste management/approach roads, street lighting etc., could not be metered, the percentage of property tax will be worked out as service charges, on the basis of instructions issued by the Ministry of Finance. (iv) The concerned Ministry of the Union to which the property belongs will enter into separate contracts with the respective municipal corporation for supply of services and payment of service charges and pay the bills for annual service charges regularly. (v) Union of India and its departments will periodically review the arrangements with the respective municipal corporations, as suggested by its advisory committees and make modifications or revisions in the rates of service charges. (vi) Whenever properties of State Government are exempted, such exemption shall apply to properties of Central Government also. Under no circumstances, the service charges payable by the Union of India will be more than the service charges paid by the State Government, (vii) The arrangement will not affect the legal rights conferred by the appropriate laws, in regard to any property held by the union.

(7) The Union of India has also stated that taking note of the relevant circumstances, it has decided to pay service charges at the following rates: (a) 75% of the property tax levied on private owners, where the properties of the Union are provided by the municipal corporations with all services/facilities as were provided to other areas within the municipal corporation; (b) 50% of the property tax levied on private owners, in regard to properties of the Union, where only some of the services/facilities were availed; and (c) upto a maximum of one-third (33 and 1/3%) of the property tax levied on private owners in regard to properties which did not avail any of the services provided by the municipal corporation, as they were self-sufficient on account of all services being provided by the Union itself.

(8) It was also clarified that where no services were availed from the municipal corporation, a rate within the ceiling of 33 and 1/3% of the property tax, will be negotiated and settled having regard to the relevant circumstances. In so far as properties of Indian Railways are concerned, it was stated that as it owns properties in virtually every municipal corporation in India and normally all its properties do not utilise the services provided by municipal corporations, Railways propose to pay only a token service charge of 5% or such other rate as may be agreed by mutual negotiations.

(9) Learned counsel for the appellants submitted that the appellant municipal corporations submitted that they were broadly in agreement with what has been stated and agreed by Union of India in the said affidavit. The appellant-Municipal Corporations also confirmed and agreed:

(i) that they will not levy or demand any "property tax" in respect of the properties belonging to Union of India and used for the purposes of the Government; (ii) that the demands will relate only to service charges for direct services like supply of water and conservancy/sewerage disposal services and other general services such as approach roads with street lighting, drainage etc.; (iii) that they broadly agreed to the rates of service charges agreed by Union of India; and (iv) that if there is defaults or if negotiations with the concerned departments for in regard to service charges fail they will not take any coercive steps for recovery (like cutting off supplies) nor resort to revenue recovery proceedings, but will take recourse to other remedies available to them in law for recovery.

(10) The appellants, however, expressed reservations only in regard to the stand of the Railways that it will only pay nominal service charges at 5% of the property tax. They point out that there can be no property of Railways which can be termed as 100% self sufficient in regard to services, as common indirect services provided by the Municipal Corporation (like approach roads with street lighting etc.) will be enjoyed by them. They also drew our attention to the fact that Ministry of Railways (Railway Board) had also issued a circular dated 24.7.1954, similar to the circulars issued by the Government of India, Ministry of Finance, providing for payment of part of the property tax, as services charges for water, scavenging etc. The learned Solicitor General however stated that she was not sure whether the said circular continues in force or was superseded by other circulars. Be that as it may.

(11). In view of the above, there is no need to consider the appeals on merits. We dispose of appeals and pending applications by recording the following broad agreement between the parties: (i) The Union of India & its departments will pay service charges for the services provided by appellant Municipal Corporations. They will not pay any property tax. The service charges will be paid at 75%, 50%, or 33 1/3% respectively of the property tax levied on property owners, depending upon whether Union of India or its department is utilising the full services, or partial services or nil services. The Union of India represented by its concerned department will enter into agreements/understandings in regard to service charges for each of its properties, with the respective municipal corporation. (ii) The above arrangement is open to modification or periodical revisions by mutual consent. In the event of disagreement on any issue, parties will resort to a dispute resolution mechanism by reference to a three Member Mediation Committee consisting of a representative of the Central Government, a representative of concerned Municipal Corporation and a senior representative (preferably the Secretary in charge of the department of municipal administration) of the State of Gujarat. (iii) If Railways or any other department of Union of India owning a property changes the agreement/understanding unilaterally, or fail to reach a settlement through the Medication Committee in regard to any disputes, or fails to clear the dues, it is open to the concerned Municipal Corporation to initiate such action, as it deems fit in accordance with law by approaching the Jurisdictional Courts/Tribunal for final and interim reliefs. (iv) The municipal corporations shall not resort to coercive steps (such as stoppage of services/services) nor resort to revenue recovery proceedings for recovery of service charges from Union of India or its departments. (v) The services charges payable by Union of India will under no circumstances be more than the service charges paid by State Government for its properties. Whenever exemptions or concessions are granted to the properties belonging to the State Government, the same shall also apply to the properties of Union of India. (vi) If the Railways does not abide by the four general circulars of the Union of India dated 10.5.1954, 29.3.67, 28.5.1976 and 26.8.1986 and the general consensus set out above, it is open to Municipal Corporation to take suitable action as is permissible in law."

4. In compliance with the judgment of the Apex Court in Rajkot Municipal Corporation vs. Union of India (supra) the Central Government vide Office Memorandum dated 15/17.12.2009 issued by UCD/LSG Section, Ministry of Urban Development, Government of India provided, that the Union of India and its departments will pay service charges for the services provided by appellant Municipal Corporations. No property tax will be paid by Union of India but service charges calculated @ 75%, 50%, 33 1/3% of Property Tax levied on property owners will be paid, depending upon utilization of full or partial or nil services. For this purpose agreements will be entered into Union of India represented by concerned departments with respective Municipal Corporation. The arrangement will be open to modification or revision by mutual consent. In the event of disagreement, the same shall be resolved by a three Member Mediation Committee consisting of a representative of Central Government, a representative of concerned Municipal Corporation & a senior representative (preferably the Secretary in charge of department of Municipal administration) of the State.

5. The Railway Board has by its letter dated 9.3.2010 accepted the policy decision taken by the Central Government in compliance with the judgments of the Supreme Court.

6. The petitioners did not approach the Nagar Nigam, Varanasi protesting to the levy of service charges and requesting a Mediation Monitoring Committee to be constituted. It is only after the demand has been raised, the petitioners appear to have realised that they have to comply with the judgment of the Suprement Court, the decision taken by the Ministry of Urban Development, Government of India and Railway Board in accordance with the procedure set out and in case of any dispute in resolving the same through the Mediation Monitoring Committee.

7. Under the interim order of the Court dated 23.7.2012 the petitioners were called upon to deposit 1/3rd of the total demand, within one month of the order and the recovery of balance was stayed.

8. Counsel for the petitioners has referred to us another judgement of Division Bench passed in Tax Writ Petition No.1292 of 2011 "Cantonment Board, Varanasi Vs. Union of India and others", wherein the writ petition was disposed of vide order dated 03.10.2013 with the direction that parties will enter into agreement in accordance with the judgment of the Apex Court in the case of Rajkot Municipal Corporation Vs. Union of India (Supra) as well as the office memorandum of Ministry of Finance within one month and the amount already paid by the petitioners will be treated as payment of the first installment towards payment of the services charges calculated from the year as mentioned in the order. Remaining amount was directed to be paid by the petitioners in three equal monthly installments. It is stated that said order has been challenged before Apex Court by means of Civil Appeal No.10771 of 2014 by the Railway Department, wherein no interim order has been granted and the appeal is likely to be heard in near future.

9. It is submitted before us that similar arrangement may be made in respect of the service charges demanded by the Municipal Corporation, Varanasi.

10. Having heard learned counsel for the parties and examined the record of the present writ petition, we are of the considered opinion that as on date, the law as explained by the Apex Court in the case of Union of India and others Vs. State of U.P. and others 2007 (11) SCC 324 and that laid down in the case of Rajkot Municipal Corporation Vs. Union of India (Supra), stands on record. The petitioner railways cannot avoid the liability of payment of service charges, however, no property tax can be levied upon the property of the Railways.

11. Since the demand under challenge is stated to be for the year 2011-12, we deem it fit and proper to provide that the petitioners may deposit the entire money as demanded under protest within one month from today. Thereafter they may make an application before the Secretary of Nagar Vikas U.P. Shashan for constitution of Mediation Committee, on which the Mediation Committee comprising of a representative of Central Government, a representative of concerned Municipal Corporation and a Senior representative (preferably the Secretary In-charge of Department of Municipal Administration) shall be constituted within one month of the receipt of such request. The Committee shall determine the issues as may be raised by parties in the matter of levy and collection of service charges. The amount deposited by the petitioners in terms of the order passed by us today, shall abide by the decision to be taken by the Mediation Committee. The Mediation Committee shall finalize the proceedings within two months by means of a reasoned order.

12. The writ petition is disposed of.

13. Interim order, if any, stands discharged.

Order Date :- 7.12.2015

Tamang/Kpy