“Royalty and tax are not one and the same. The nomenclatures cannot be used interchangeably in law, both carrying starkly different imports and connotations.”
In a significant judgment delivered by the Supreme Court of India, the apex court upheld the decision of the Patna Municipal Corporation (PMC) to levy royalty on advertisements. The court clarified the distinction between royalty and tax, emphasizing that the levy of royalty on hoardings and advertisements is not equivalent to taxation, thus affirming the Corporation’s authority to charge fees for the use of public spaces for advertisements.
Background of the Case
The dispute in the case originated in 2007 when the PMC introduced revised rates of royalty for advertisements displayed within its jurisdiction. M/s Tribro Ad Bureau and M/s Kraft, along with other advertising agencies, challenged the PMC’s decision to enhance the royalty from Re.1 per square foot to Rs.10 per square foot for hoardings. The appellants argued that the PMC had no authority to impose such charges, as they were akin to a tax and lacked legislative sanction.
The PMC, in defense, contended that it was charging royalty for the use of public land for advertisements, a practice established through mutual agreement with advertising agencies as early as 2005. The dispute escalated when the Patna High Court’s Division Bench quashed the enhanced rates of royalty, terming them as taxes without legislative backing, and ordered refunds for the amounts collected by the Corporation. The PMC challenged this ruling in the Supreme Court.
Legal Issues Involved
1. Royalty vs. Tax: The central issue before the Supreme Court was whether the royalty charged by the PMC could be equated with a tax. According to Article 265 of the Constitution of India, no tax can be levied or collected without the authority of law.
2. Legislative Sanction: The advertising agencies argued that the levy lacked legislative backing, as the PMC had not framed regulations under the Bihar Municipal Act, 2007, specifically governing the collection of such charges.
3. Retrospective Enforcement of Rates: The court also had to decide whether the PMC’s decision to retrospectively enforce enhanced royalty rates from November 2007 was legally valid.
Observations and Decision of the Supreme Court
The judgment was delivered by by the bench of Justice Vikram Nath and Justice Ahsanuddin Amanullah in Civil Appeal No. 11117 of 2024. The bench upheld the PMC’s right to collect royalty, ruling that royalty and tax are fundamentally different. The court noted that royalty is a payment made for the use of property, in this case, public land, whereas tax is a sovereign imposition by the state. The bench clarified, “Royalty is paid in consideration of doing a particular action, that is, extracting minerals from the soil, while tax is generally levied with respect to a taxable event determined by law.”
The court rejected the High Court’s ruling that PMC’s imposition of royalty was akin to a tax and emphasized that royalty is a compensation for the privilege of displaying advertisements on municipal land, which was agreed upon by the advertising agencies in 2005. Importantly, the court observed, “The long and short of it is that ‘Whatever be the nomenclature, the charges … in the present cases were for the privilege enjoyed.’”
The court, however, struck down the PMC’s imposition of penalties for non-payment of the royalty, stating that while interest on delayed payments could be charged, penalties had no legal basis in this case. Justice Amanullah remarked, “Interest is not a penalty or punishment at all, but it is the normal accretion on capital.”
The court directed that the enhanced rate of Rs.10 per square foot would apply from the date it was communicated to the advertising agencies and must be paid with interest at a rate of 6% per annum. Additionally, the court ordered the PMC to compute the outstanding amounts due from the agencies and provide them with revised payment schedules.
Parties Involved
– Appellants: Patna Municipal Corporation (PMC) & Ors.
– Respondents: M/s Tribro Ad Bureau, M/s Kraft, and others.
The appellants were represented by the legal team of Senior Advocate Mr. Ranjit Kumar and Advocate-on-Record Mr. Ajay Sharma, while the respondents were represented by Senior Advocate Mr. Rakesh Dwivedi and Advocate Mr. Abhay Kumar.
