Food Corporation of India vs The Municipal Committee and Others

Rajive Bhalla, J.

By way of this order we shall decide CWP No. 3318 of 1995 and 5577 of 2002 as they involve adjudication of the same question. For the sake of convenience facts are being taken from CWP No. 3319 of 1995. The Food Corporation of India is before us praying for issuance of a writ of certiorari quashing orders dated 10.12.1993 and 31.8.1994 Annexures P-6 and P-8 respectively.

Counsel for the petitioner submits that as the petitioner is an instrumentality of the Union, its properties are exempted from payment of house tax etc. The levy of service charges, by the Municipal Committee now Municipal Corporation is without jurisdiction as the Municipal Committee did not provide Municipal services like electricity, water, goods etc. and therefore cannot levy "service charges", much less by reference to circulars issued by the Central Government, which even otherwise envisage payment of "service charges" for only such services as are provided by a Municipal Committee. A perusal of the assessment order as well as the order passed by the Appellate Authority reveals that both authorities have calculated "service charges" without reference to services to be provided by a Municipal Committee. The annual value has been calculated, at Rs. 3 crore, on the basis of rates furnished by the CPWD, but without associating the petitioner, or dealing with its objections and without following the formula set out in circular dated 24.3.1967 (Annexure R-2) as well as the definition of annual value, contained in Section 3(1)(b) of the Punjab Municipal Act, 1911, as applicable to the relevant assessment year.

Counsel for the Municipal Committee, now Municipal Corporation, Patiala submits that the Central Government issued circular dated 10.5.1954, directing that as Central Government properties are exempted from payment of property tax they shall be required to pay "service charges", to local bodies. The circular was followed by circular dated 24.3.1967 which sets out the mode and manner for calculating annual value, and service charges. The assessing authority as well as the appellate authority have assessed service charges in accordance with circulars, Annexure R-1 and R-2. The value of the building has been assessed on the basis of information supplied by the CPWD. The petitioner''s contentions that no services are provided or that the annual value of the building, has been wrongly assessed, are unfounded. It is also contended that the impugned order does not violate any circular or any provision of the Punjab Municipal Act, 1911.

We have heard counsel for the parties, perused the impugned orders and appraised the paper book. Admittedly, properties belonging to the Union are exempt from payment of house tax, to local bodies like Municipal Committee/Corporation etc. The Central Government has, however, vide circular dated 10.5.1954 (Annexure R-1), decided that such properties shall be liable to pay charges for services, provided by local bodies. The circular further clarifies that "service charges" shall not be treated as a tax but as compensation for specific services, provided. A relevant extract from circular dated 10.5.1954 reads as follows:--

"The Central Government will make payment in respect of their properties for specific services rendered by local authorities; but such payment of "service charges" shall be treated not as payment of taxes but of compensation payable in this context specific services will include not only direct service such as water and electric supplies scavenging etc. but also general services such as street lighting, town drainage and metalled roads connecting the Central Government Properties to. But such items as educational, medical or public health facilities will be included."

The Ministry of Finance (Department of Economic Affairs) after referring to letter dated 10.5.1954 has issued another circular dated 24.3.1967 (Annexure R-2) setting out the procedure for arriving at the quantum of "service charges" to be paid to a local body. A relevant extract of the circular, reads as follows:--

"(i) In respect of isolated Central Government properties where all services are availed of by the Central Government in the same manner as in respect of private properties, the Central Government will pay service charges equivalent to 75% of the property tax realised from private individuals.

(ii) XX XX XX

(iii) The net rateable value/annual value for the purposes of these instructions shall be 9% of the ''capital value'' of the property concern both in respect of residential and non-residential properties. The capital value shall include the cost of site, its preparation and any other capital expenditure incurred after acquisition or construction or when this is not known, the present value of the building including the value of site, as borne on CPWD record or those of Department concerned."

A perusal of letters dated 10.5.1954 and 24.3.1967 leaves no ambiguity that all Central Government properties, whether owned directly or through its instrumentalities, shall pay service charges for specific services provided by Municipal Committees/Corporations.

The questions, that remain are whether service charges are to be paid with or without reference to services provided, the mode and manner of their calculation, and whether the impugned orders are in consonance with the circulars? An answer to the first question lies in clause (i) of circular dated 10.5.1954 which provides that the Central Government shall make payment for services provided by a local authority but by reference to the nature and extent of services provided by a Municipal Committee/Corporation. The circular clarifies that "service charges" are not in the nature of a tax. At this stage it would be appropriate to point out that a tax is levied irrespective of any benefit accruing, to the assessee whereas a charge or a fee envisages some benefit accruing to the assessee. The Municipal Committee/Corporation is therefore required before demanding "service charges" to identify the nature and extent of services provided and only thereafter raise a demand for "service charges".

A perusal of the impugned order reveals that both the Assessing and the Appellate Authorities have treated the levy of service charges as a tax and though they have calculated service charges by referring to the method of calculation, set out in circular dated 24.3.1967 have calculated the annual value, unmindful of the fact that "service charges" must relate to and are to be calculated in relation to and the extent of specific services provided by the Municipal Committee/Corporation. The Municipal Committee/Corporation was required to identify the services provided and only thereafter calculate service charges in accordance with the method of calculation set out in circular dated 24.3.1967 (Annexure R-2). It would also be appropriate to point that the value of the godown was calculated at Rs. 3 crores, without affording an opportunity to the petitioner to raise any objection or to produce any relevant material to prove that this figure is incorrect.

Consequently, we allow the writ petition, set aside the impugned orders and remit the matter to the Assessing Authority, Municipal Corporation, Patiala to decide the quantum of service charges, for the relevant assessment year by taking into consideration letters dated 10.5.1954 and 24.3.1967 (Annexures R-1 and R-2). The assessing authority shall decide the controversy within six months of the petitioner putting in appearance before the Assessing Authority on 8.12.2014. The refund of any amount deposited as service charges shall be kept in abeyance to await final outcome of remand proceedings. No order as to costs.