Kerala High Court
Food Corporation Of India, Alleppey vs Alleppey Municipality And Ors. on 16 November, 1995
Equivalent citations: AIR1996KER241, AIR 1996 KERALA 241, ILR(KER) 1996 (2) KER 445
JUDGMENT Mohammed, J.
1. The dispute in these writ petitions is between the Alleppey Municipality, Corporation of Calicut and Corporation of Cochin (hereinafter together called 'Municipal Corporations as the context may require) on the one hand and the Food Corporation of India (for short 'FCI') on the other. The central theme of the context relates to the levy of property taxes and service charges by the 'Municipal Corporations' under provisions of the Kerala Municipal Corporations Act, 1961 and the Kerala Municipaliaties Act, 1960 and the claim of exemption by th 'FCI' under Article 285(1) of the Constitution of India.
2. The relevant facts involved in these cases are summarised here as below: O.P. No. 4653 of 1987 was filed by the FCI, Alleppey for a declaration that it is not liable to be assessed to any property tax or service charge under the provisions of the Kerala Municipalities Act, 1960. It also prayed for quashing Exts. P12(a),(b),(c), to (t), P13, P14, P16 and P17 bills and communications issued by the Alleppey Municipality levying service charges in respect of the building owned by it. In the regular course the Alleppey Municipality has made proposal to levy a sum of Rs. 56,954.70 towards the property tax for the years 1968-1969, 1969-1970, 1970-1971, 1971-1972 and 1972-1973 (first half). The said proposal was resisted by the FCI on the ground that it is not liable to pay the said tax in view of Article 285(1) of the Constitution. In spite of this objection. Alleppey Municipality issued demand notices for the subsequent years and therefore FCI filed suit. O.S. No. 301 of 1976 before the Munsiffs Court. Alleppey for an injunction restraining the first defendant -- Alleppey Municipality from recoverning any property tax by coercive processes or otherwise. The said suit was ultimately dismissed by the trial Court but in appeal, the Subordiante Judge's Court, Alleppey, by the Judgment dated 20-12-1980 in A.S. No. 41 of 1978 decreed the suit on the ground that the land and buildings belong to the Union of India. Though a Second Appeal was filed before this Court as S.A. No. 667 of 1982, it was dismissed by a learned single Judge as per judgment dated 19-11-1982. Thus decree for injunction passed by the Subordinate Judge's Court, Alleppey was confirmed. Thereafter the FC1 made a demand for refund of the tax already collected. The Municipality took the stand that "the amount would be refunded after deducting therefrom the service charges.' Subsequently the Municipality as per Exts. P8(a) and P8(b) intimated the petitioner that it is liable to pay an amount, of Rs. 87,178.50 towards service charges for the period 1968-1969 to 1972-1973 (first half) calculated at the rate of Rs. 19,373.00 per year and that after giving credit to Rs, 56,954.70 being the property tax already collected for the aforesaid period, the petitioner is liable to pay a further amount of Rs. 30,223.80. The FCI filed objections contending that no amount was recoverable from it and commutation of service tax was illegal. After considering the objections filed by the FCI the Municipality ultimately issued Ext. P12(a) and P12(b) demanding a sum of Rupees 1,31,080.80 after giving credit to Rupees 56,954.70 refundable to it. Exts. P13 and P14 are the bills issued by the Municipality demanding service charges for the year 1986-1987 (first and second half). As against these bills FCI filed revision petition as per Ext. P15(a). The said revision appears to have been rejected by the Municipality as per Ext. P16. Subsequently the Municipality issued Ext. P17 notice to the FCI demanding to pay the arrears of service charges for the aforesaid years. Thereafter the Municipality has issued 18 bills (Exts. P12(c) to P12(t)) for the period 1968-1969 to 1985-1986 (first half) under Rule 5(1) of Schedule II of the Municipalitiess Act. It was in that background FCI has filed this writ petition challenging the bills and notices referred to above.
3. In O.P. No. 5356 of 1992 filed against the Corporation of Calicut, the FCI has prayed for a declaration that it is not liable to be assessed to property tax or service charges under the provisions of the Kerala Municipal Corporations Act. There is also a prayer for quashing Ext. P7 distraint warrant and Ext. P 18 notice seeking to recover the arrears of service charges in respect of the buildings owned by the Government of India and property tax in respect of the buildings constructed by the FCI within the Calicut Corporation. The Corporation issued Ext. P4 letter dated 11-7-1985 intimating that a sum of Rs. 4.40,281.36 was due from the FCI towards service charges and property tax for the period up to 31-3-1985. It appears, there were discussions between the Officers of the Calcut Corporation and FCI on this subject. Later the Commissioner of the Corporation issued Ext. P5 notice dated 13-3-1991 to FCI demanding repayment of Rs. 1,75,596.15 which was stated to be outstanding as revealed from the statement enclosed therein. To that notice FCI replied as per Ext. P6 pointing out that the payments had already been made on the basis of demand notices issued during the years in question and the revised rate of tax could be effective only from the year 1988-1989. However, the Corporation issued Ext. P2 distraint warrant dated 17-3-1992 against the FCI seeking to realise the arrears. In reply to Ext. P16 letter of the FCI. the Corporation sent a detailed letter evidenced by Ext. P8 enclosing therewith a statement regarding the payment of service charges and property tax for the period from 1 -4-1965 to 31-3-1992. It was in that situation this writ petition had been filed by the FCI for the reliefs as abovesaid.
In O.P. No. 6588 of 1992 filed by the Corporation of Cochin, the main prayer urged is for a declaration that FCI is liable to pay to the Corporation service charge in respect of the buildings owned by the Union of India and property tax in respect of the buildings constructed by the FCI within the territorial limits of the Cochin Corporation. FCI is an assessee in respect of 83 buildings in Willingdon Island in Division No. 24 of the Corporation and out of this, 16 buildings constructed by it are presently assessed to property tax and the remaining 67 buildings owned by the Government of India to service charge. When the FCI was assessed to property tax by the Corporation during the year 1969 in respect of the above 67 buildings, the assessments were challenged by it in O.P. No. 1758 of 1970 and a Division Bench of this Court by Ext. P1 judgment dated 14-3-1973 allowed the writ petition, observing 'the buildings were put up by the Government of India and were given over to the Food Corporation for their occupation' and therefore, the provisions contained in Article 285(1) was a bar for levying property tax in respect of those buildings. However, the Cochin Corporation took the view that the FCI is liable to pay service charge in respect of the above 67 buildings at the rate of 75% of the property tax applicable with effect from 1-4-1954 as per Government of India circular letters No. 14(I)P/52-I dated 10-5-1954 (Ext. P2) and No. 4(7)P-65 dated 29-3-1967 (Ext. P3). By Ext. P4 the Government of India allowed the local bodies to take steps to obtain payment of service charges with retrospective effect from 1-4-1954. Pursuant to Exts. P2, P3 and P4,' the petitioner assessed the above 67 buildings to service charges only with effect 1-10-1968. The service charges bills in respect of the buildings owned by the Central Government and occupied by the FCI were issued by the petitioner to the FCI from time to time, but such bills were not honoured. However, Senior Regional Manager, FCI,' Trivandrum sent Ext. P7 letter to the petitioner stating that its District Manager has been directed to settle the claim for service charges at the rate of 33% of the property tax applicable, keeping in view of the period of limitation. In reply to this, the petitioner sent Ext. P9 letter to FCI stating that the bills demanding service charges with effect from 1-4-1968 were forwarded to the Madras office on 24-5-1984. Later, Ext. P11 notice for quinquennial revision of property tax and service charge with effect from 1-4-1989 was given to the FCI, calling for objections but no objections were filed. Though all the bills for property tax and service charge were accepted by the FCI, it did not care to make the payment. Therefore, by Ext. P 13 letter the petitioner informed the FCI that sums of Rupees 49,36,365.26 and Rs. 1,56,345.61 are due towards service charges and property tax respectively till 31-3-1989. However, the FCI did not pay the amount due to the petitioner as pointed out in Ext. P13. The FCI in Ext. P14 letter took the stand that it is not liable to pay the property tax or service charge in respect of the properties available in Willingdon Island. By Ext. P15 the petitioner re-iterated the liability of the FCI to pay the property tax and service charge and called upon it to clear the arrears within a period of ten days. However, the FCI sent Ext. P17 letter dated 10-7-1990 to the petitioner seeking refund of Rs. 12,02,545.38 remitted earlier erroneously towards service charge and property tax. As per the letter dated 23-8-1990 sent by the FCI to the petitioner a further sum of Rs. 5,25,321.05 was claimed towards interest on the amount sought to be refunded. The petitioner resisted the said claim and issued Ext. P19 lawyer's notice dated 7-12-1990 requiring the FCI to pay to the petitioner a total amount of Rupees 60,08,614.87 towards service charge and property tax up to 31-3-1991 within a period of fifteen days. In reply to the said notice the petitioner has received Ext. P20 letter from the counsel denying the liability of the FCI to pay the amount demanded. It was in that background the Corporation filed the writ petition praying for a declaration as aforesaid.
4. These writ petitions came up for hearing before us on a reference made by T.L. Viswanatha Iyer, J. in view of the very important questions relating to the nature of the service charges as also the scope of Article 285(1) of the Constitution. In so far as the payment of service charges, the learned judge, inter alia, observed: "particularly I must mention that the Central Government itself is of the view that it is stood by those Circumstances and they stand for payment of the service charges contemplated therein?
5. In order to answer the reference, first and foremost this court must have a glimpse on the constitutional history behind Article 285 and then to have a study on its ambit and scope. Article 285 of the Constitution is extracted below:
285. Exemption of property of the Union from State taxation-
(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 liable or treated as liable, so long as that tax continues to be levied in that State.
The corresponding provision of this Article is found in Section 154 of the Government of India Act, 1935, which reads thus:
154. Property vested in His Majesty for . purposes of the Government of the Federation shall, save in so far as any Federal law may otherwise provide, be exempt from all taxes imposed by, or by any authority within a Province or Federal State:
Provided that, until any Federal law otherwise provides, any property so vested which was immediately before the commencement of Part III of this Act liable, or treated as liable, to any such tax, shall, so long as that tax continues, continue to be liable, or to be treated as liable, thereto.
The above Section indicates that in substance the provision as to exemption of property of the Government from taxation by a Federal State or by any authority within the province was analogous to Article 285. No doubt, the drafting committee of the Constitution followed the Government of India Act as a model for framing various Arts, in the Constitution. Article 264 of the Draft Constitution was the correspinding provision to the present Article 285. The above draft Article came up for discussion before the constituent assembly on 9-9-1949 and there was an acrimonious debate on the question of granting immunity from taxation in so far as the properties of the Union. One of its members Sri R.K. Sidhava expressed: "Because the Union is the Supreme Government it does not mean taxes which are due to be paid to the local bodies which are weaker bodies in the matter of finance, should not even take their legitimate taxes to which they are entitled." The nature of the discussion in the constituent assembly indubitably reveals the far-reaching consequences which may follow on adopting the above draft Article.
6. We are probing little further into this question because this court is now faced with a devious problem of municipal taxation on Union properties in the absence of a Central enactment. The speech made by Sri Pandit Laxmi Kanta Maitra in the constitutent assembly, was passionate appeal to allow the local bodies to tax Union properties supported by vivid reasons. The following passage in his speech contains a fervent plea in favour of local bodies.
"But it is not railway property alone; Government of India has got a lot of other varieties of property. Take for instance the fertilizer factory at Sindhri. Do you mean to say that the local body there, whatever it be say the local board or Union board there would not be entitled to levy any local taxes thereon? Then there is the Mint, the Currency Offices. Post and Telegraph and Telephone Office buildings in different places; the Reserve Bank Offices. Numerous other central institutions are sprining up all over the country and if your make a sort of general provision that no Union property shall be subjected to local taxes, it will be very difficult for us to accept it, in view of the very delicate nature of the finances of the local self-governing institutions at present and the reaction it will inevitabley have on them, if these provisins are literally put into effect. But the only salient feature about the provision is that at least from the date of the commencement of this Constitution, these institutions will be entitled to levy these taxes as before, and I am thankful to the Drafting Committee for conceding that much. But I would have very much liked that this kind of statutory exemption for all forms of Union property, were not embodied in the Constitution. It could have been left out, it should not have found a place in the Constitution. The whole matter could have been left to the Parliament for decision one way or the other. But as the . Drafting Committee is closely following the Government of India Act, 1935 as a model. I have no quarrel. I would only sound a note of warning let not the authority in the future lightly deal with this question, because it affects the well-being and the very existence of local self-governing institutions, such as corporations, municipalities district boards, local boards, union boards etc. The fate of all these is inextricably bound up with the provisions contained here. If their taxation is allowed to be continued, it is all right. It will leave them some modicum of wherewithal to carry on. If this is withdrawn, it will mean nothing but disaster to the self-governing institutions?
The above plea was answered by Dr. B.R. Ambedkar with cogent reasons in favour of Union Government. In this context, the following passage from his speech is very relevant.
"I said then that it was difficult to give a carte blanche to the local authority to levy taxes on the properties of the Union without any kind of limitation or condition and the arguments were two-fold. First of all, I said and I say right now here that it is impossible theoretically to conceive of any property of a person who is not represented or whose interests are not represented in any particular organisation to allow that organisation a right ad infinitum to levy any tax upon the property of such persons. It is a principle contrary to the principles of natural justice and I said that so far as the local authorities are concerned, whether they are municipalities or local or district boards, there is practically no representative of the Central Government in those bodies. I said the same thing elsewhere. Secondly, I said that the taxing authority of a local body is derived from a law made by the local legislature, the legislature of the State. It is quite impossible for the Central two know what particular source of taxation, which has been made over by the Constitution to the State legislature, will be transferred by such State legislature to the local authority. After all, the taxing power of the local authority will be derived from a law made by the State Legislature. It is quite impossible at present to know what particular tax a local body may be authorised by the State Legislature to tax the property of the Central Government. Consequently, not knowing what is to be the nature of the tax, what is to be the extent of the tax, it is really quite impossible to expect the Central Government to surrender without knowing the nature of the tax, what is to be the extent of the tax, it is really quite impossible to except the Central Government to surrender without knowing the nature of the tax, the nature of the extent of the tax, to submit itself to the authority of the local body."
We have extensively quoted the speech of the members of the constituent assembly so as to understand what were the issues before it during the debate and how the members reacted to them. We also feel it appropriate inasmuch as the constitutent assembly debate was a pointer for an effective future debate in the Parliament on the subject.
7. Article 285 exempts the property of the Union from State taxation whereas Article 289 exempts the property and income of the State from Union taxation. Both the Articles are primarily concerned with taxes directly either on income or on property and not with taxes which may indirectly affect income or property. The Supreme Court in In re, Sea Customs Act (1878), AIR 1963 SC 1760 observed:
"Reading Article 289 and its complementary Article 285 together the intention of the Constitution makers was that Article 285 would exempt all property of the Union from all taxes on property levied by the State or any authority within the State, while Article 289 contemplates that all property of the State would be exempt from all taxes on property which may be leviable by the Union."
These articles therefore should be read in the restricted sense of exempting the property or income of a State in one case and the property of the Union in the other from taxes directly either on property or on income, as the -case may be.
8. Clauses (1) and (2) of Article 285 are perspicuous in favour of framing a law by the Parliament in regard to the exemption of property of the Union from State taxation. Clause (1) provides that the property of the Union shall be exempt from all taxes imposed by a State or by any authority within the State save in so far as the Parliament may by law otherwise provide. However, Clause (2) does not prevent any authority within the State from levying tax on any property of the Union to which such property shall immediately before the commencement of the Constitution liable or treated as liable until the Parliament may by law otherwise provide. However, it is an admitted fact that the Parliament has not so far framed any law as contemplated in clauses (1) and (2) of Article 285.
9. A Division Bench of this court had occasion to consider the claim of the FCI in O.P. No. 1758 of 1970 (Ext. P1 in O.P. No. 6588 of 1992) regarding immunity from tax in respect of buildings occupied by it, in view of the provision contained in Article 285(1) of the Constitution. That writ petition was filed by the FCI, Cochin. In the affidavit filed by the FCI it was averred that the buildings occupied by it were put up by the Union of India and after the FCI was constituted, buildings were given over to it for its occupation. The Division Bench observed that there was no document to show that the buildings belonging to the Union of India were transferred to FCI. Therefore, it was held that the buildings were put up by the Union of India and were given over to FCI for its occupation and in that view of the matter the Division Bench further held that Article 285(1) is a bar for taxing the aforesaid buildings occupied by the FCI. What emerges from the above decision is that the buildings, which were constructed by the Union of India and transferred to FCI after its constitution are still the property of the Union in the absence of any document evidencing the transfer and therefore the immunity provided under Article 285(1) is applicable in respect of those buildings. Thus, it is apparent that there are two sets of buildings in the occupation of the FCI in the Municipal Corporations one being the buildings owned by the Union of India and transferred to the FCI for its occupation after its constitution and the other being the buildings constructed by the FCI which remained in its occupation.
10. Another Division Bench of this court in Food Corporation of India v. Thikkodi Panchayat, (1994) 2 Ker 513, after analysing the provisions of the Food Corporation Act, 1964 and relying on the decisions of the Supreme Court in State of Punjab v. Raja Ram, AIR 1981 SC 1694 and Western Coal fields Ltd. v. Special Area Development Authority, AIR 1982 SC 697 came to the conclusion that the properties of the FCI are not immune from tax under Article 285( 1) of the Constitution. The Division Bench observed:
"It is not possible to accept the contention of the appellant that it is a Government Department merely because its original capital was provided by the Central Government and majority of the Directors are appointed by that Government. At the most appellant is an agency or instrumentality of the Central Government coming within the purview of Article 12 of the Constitution of India. Merely because of that, individuality of the Corporation is not lost. From a proper construction of the Act, it can be discerned that the appellant has an individuality apart from that of the Union Government."
In Heavy Engineering Mazdoor Union v. State of Bihar, AIR 1970 SC 82 the Supreme Court held that an incorporated company has a separate existence and the law recognised it as a juristic person separate and distinct from its members. In State of Punjab v. Raja Ram, AIR 1981 SC 1694 the question that arose was whether the Food Corporation was a Government Department as argued by the counsel for the FCI in that case: The various provisions of the Food Corporation Act were examined by the Supreme Court and thereafter it held (at pp. 1696-97):
"Even the conclusion, however, that the Corporation is an agency or instrumentality of the Central Government does not lead to the further inference that the Corporation is a Government department. The reason is that the F-C. Act has given the Corporation an individuality apart from that of the Government."
We are, therefore, not persuaded to take a different view from that of the Division Bench in Thikkodi Panchayat's case, (1994) 2 Ker LT 513 (supra). We have also noticed the law laid down by the Supreme Court on this subject, in Ramana Dayaram Shelly v. The International Airport Authority of India, AIR 1979 SC 1628.
11. The counsel for FCI, Sri Jayakumar, however, contended that inasmuch as there was no vesting of the properties of the Union in the FCI under the provisions of the Food Corporation Act, it cannot be said that they lost the character of being the Union properties. Section 3 of the Food Corporations Act is as follows:
3. Establishment of Food Corporation of India-
(1) With effect from such date as the Central Government may, by notification in the Official Gazette, specify in this behalf, the Central Government shall establish for the purposes of this Act a Corporation known as the Food Corporation of India.
(2) The Corporation snail be a body corporate with the name aforesaid, having perpetual succession and a common seal with power subject to the provisions of this Act, to acquire, hold and dispose of property and to contract, and may, by that name sue and be sued.
Sub-section (1) of Section 3 authorises the Central Government to establish for the purpose of the Act a Corporation known as 'Food Corporation of India'. Sub-Section (2) thereof prescribes that the Corporation shall be a body corporate having perpetual succession and a common seal with power, to acquire, hold and dispose of property and to contract, and may, by that name, sue and be sued. It is axiomatic that this provision does not authorise the vesting of the properties of the Union Government in the Food Corporation on its constitution. The Food Corporation was constituted by the Government of India as per notification. G.S.R. 1809 dated 17-12-1964 with effect from 1-1-1965. That notification also does not provide any provision as to the composition of the Union properties after the constitution of the FCI. Counsel relying on the decision of the Supreme Court in Municipal Commr. of Dum Dum Municipality v. Indian Tourism Development Corporation (1995) 5 SCC 251 argued that in the case of International Airport Authority there is a provision for vesting of the properties of the Central Government. Clause (a) of Sub-Section (1) of Section 12 of the International Airports Authority Act, 1971 says that all properties and other assets vested in the Central Government for the purposes of airport and administered by Civil Aviation Department immediately before the date of issue of notification shall vest in the authority. That means all the properties and other assets of the Government of India were vested in the Airport Authority unlike in the case of F.C.I. Therefore, the counsel maintains that the buildings in the occupation of the FCI still belong to Union of India and therefore, immune from taxation. However, the Supreme Court in the aforesaid decision observed thus:
"For all the above reasons, we are of the opinion that the International Airport Authority of India is a statutory Corporation distinct from the Central Government and . that the properties vested in it by Section 12 of the Act cannot be said to have been vested in it only for proper management. After the date of vesting, the properties so vested are no longer the properties of the Union of India for the purpose of and within the meaning of Article 285. The vesting of the said properties in the Authority is with the object of ensuring better management and more efficient operation of the airports covered by the Act. Indeed that is the object behind the very creation of the Authority. But that does not mean that it is a case of limited vesting for the purpose of better management The Authority cannot, therefore, invoke the immunity created by Article 285(1) of the Constitution. The levy of property taxes by the relevant municipal bodies is unexceptionable."
(Underlings supplied) What we could discern from the above observation is even though there is a provision for vesting in the International Airport Authorities Act, 1971 the authority cannot invoke the immunity created by Article 285( 1) of the Constitution.
12. Under Sub-Section (2) of Section 3 of the Food Corporations Act, it could be seen that the power has been given to the Corporation to hold and dispose of the property. The said power of disposal given to the Corporation, will not include power for disposal of the properties of the Central Government which were transferred to the Corporation on its constitution, but not vested. There is no document transferring or conveying the property of the Union in favour of FCI and thus title thereof still stands in the name of the Central Government. In the absence of such document the power of disposal conferred on the FCI under Sub-Section (2) of Section 3 of the Food Corporations Act, can be enfoced only against the properties acquired by FCI after its constitution provided the title stands in its name alone. The Food Corporations Act does not provide any provision as to how the properties owned by the Central Government to be dealt with after the dissolution of the Corporation. The reason is that the FCI could be wound up only as provided in Section 43, which says that no provision of law relating to the winding up of the companies or corporations shall apply to FCI and it shall not be placed in liquidation save by order of the Central Government and in such manner as the Central Government may direct. This would indicate that the power to order winding up is totally left to the Central Government, and the method of winding up is also to be determined by the Government.
The absence of provision for vesting in Section 3 of the Act as noticed earlier is apt to be considered in this context. The anatomy of these provisions would draw this Court to conclude that the Parliament had never intended to assign or transfer the properties and assets held by Food Department of Government of India in favour of FCI. What is intended is to establish the FCI for the purpose of trading in foodgrains and other food stuffs hitherto carried on by the Food Department of the Central Government in implementation of the Government's food policy adopted in the year 1964.
13. In Dum Dum Municipality's case (1995) 5 SCC 251 supra, an argument appears to have been raised that only those properties which are vested by the Central Government in the Authority on the date of its constitution alone will continue to be the properties of the Union. While dealing with this contention the Supreme Court observed:
"But so far as the properties which have been acquired or constructed after that date by the Authority would be its own properties. It may happen that the properties which have been vested in the authority at its inception have been rebuilt, improved, expanded and developed beyond recognition. How is one to draw the line and where? Such a distinction would not only be artificial but difficult to operate in practice."
(Underlings supplied) The above practical difficulty foreseen by the Supreme Court in that case was unravelled by examining the Annual Report of the Authority for the year 1988-1989 which in unmistakable terms points out that the Authority claims to be the owner of all the properties without making any distinction between those that were vested in it at its inception and those which have been acquired and/or constructed later. This distinction sufficiently supports our view that there are two sets of properties and buildings in the occupation of the FCI. Thus the properties, buildings and other assets owned by the Union of India, in the occupation of the FCI, after its constitution, are still the properties of the Union of India. On the other hand, the properties' buildings and other assets acquired and constructed by the FCI after its constitution are the properties of the FCI. It does not matter as to how the properties were dealt with by the FCI after it came into being, for the transfer of ownership can only be made by executing documents in that behalf. The aforesaid conclusion inevitably drive us to hold that the properties and buildings owned by the Union of India, which were transferred to the FCI for its occupation are immune from taxation by the State or by any authority within the State as provided in Article 285(1) of the Constitution and hence those properties are liable for exemption from payment of property tax leviable by the 'Municipal Corporation'. At the same time, the properties and buildings acquired and constructed by the FCI after its constitution are its own properties and hence no immunity from taxation is available to them. Such properties of the FCI are liable for property tax assessment by the 'Municipal Corporation' under the provisions of the Kerala Municipal Corporations Act and the Kerala Municipalities Act, as the case may be.
14. The counsel for the Cooperation of Cochin, Mr. P. G. Chacko, advanced an argument that the property taxes or service charges claimed are not really a charge on the property of the Union, but a charge on the leasehold or occupancy right of the FCI and, therefore, such collection cannot be tabooed under Article 285(1) of the Constitution. Reliance was placed on the decision of a Division Bench of the Andhra Pradesh High Court in Electronics Corporation of India Limited v. The Secretary, Revenue Department, Govt. of A.P., AIR 1983 Andh Pra 239. He also specifically relied on the decisions in Smith v. Vermillion Hills Rural Council, (1916) 2 SC 569, and City of Montreal v. Attorney General for Canada, 1923 AC 136 in support of his case. The learned judge who referred these cases to the Division Bench also adverted to these decisions. In Electronic Corporation's case AIR 1983 Andh Pra 239 the Court was dealing with a case where certain extent of land out of the land granted to the Department of Atomic Energy, Government of India, was leased out to Electronic Corporation of India Limited and a part of the extent of land so leased out was covered by buildings and roads of the Corporation. There the question arose whether tax under the Andhra Pradesh Non-Agricultural Lands Assessment Act can be levied on the lessee Corporation. The writ petitioner-Electronic Corporation was served with a demand notice under the above Act and it was resisted by the petitioner on the ground that it was a leassee of the land which belongs to the Union of India and, therefore, tax cannot be levied by the State Legislature. After analysing the provisions of the Act the Division Bench came to the conclusion that in the case of lands owned by the Central Government, levy is upon the lessee's interest and, therefore, the tax is not levied upon the property owned by the Central Government but upon the interest of the lessee in such land. In the above decision, the decisions in Smith's case, (1916) 2 AC 569 and City of Montreal's case 1923 AC 136 supra were also discussed and considered at some length. First of the above two cases dealt with the provision contained in Section 125 of the British North American Act, 1867 which conferred immunity on property from the Canada State Taxation. In that case the lease had been granted in respect of the Government lands and the lessee was sought to be taxed in respect of its rights thereon by the local body. The argument was that the levy in respect of the said land was violative of Section 125 of the British North American Act. The Privy Council over-ruled this argument and held that what was brought to tax was not the ownership right of Canada but lesee's right in the property and therefore Section 125 did not stand as a bar to the levy of tax.
15. Agreeing with the reasoning in Smith's case (1916) 2 AC 569 the Andhra Pradesh High Court in Electronic Corporation's case AIR 1983 Andh Pra 239 supra held thus (at p. 244) :
"The assessment of non-agricultural land tax under Section 3(1) is made in this case not upon the property of Union of India (Central Government being the owner of the property) but, upon the interest of the lessee under the Central Government. As per the definition of the word 'owner' under Section 2(j) of the A. P. Non-Agricultural Land Assessment Act 1963, lessee under the Central Government is deemed to be the owner for the purpose of assessment of tax. Article 285 is therefore not attracted in such a case. The State Government can levy and collect the tax from the petitioner under Section 3(1) of the said Act only so long as he continues as lessee of the Central Government property. We make it clear that the tax can be levied only if the lease for any commercial, industrial or other non-agricultural purpose. Of course, in this case, there is no dispute that the lease is for an industrial purpose."
From the above, it would be evident that under the definition of the word 'owner' in Section 2(j) of the Andhra Pradesh Non-agricultural Lands Assessment Act, 1963, lessee under the Central Government is deemed to be the 'owner' for the purpose of the assessment of tax. But the definition of the word 'owner* contained in Section 2(26) of the Kerala Municipal Corporations Act, 1961, is as follows :
"a person who for the time being is receiving or is entitled to receive, the rent of any land or building whether on his own account or on account of himself and others or as an agent, trustee, guardian or receiver for any other person or who should so receive the rent or be entitled to receive it if the land or building or part thereof were let to a tenant; and
(b) the person for the time being in charge of the animal, vessel or vehicle in connection with which the word is used."
From the above definition it is apparent that the lessee or occupant of a building cannot be treated as 'owner' of the building under, the Kerala Municipal Corporations Act. The definition of the word 'owner' in Clause (j) of Section 2 of the Andhra Pradesh Non-agricultural Lands Assessment Act, 1963, includes a lessee if the land has been leased out by the Government for any commercial, industrial or other non-agricultural purpose. That being the position, the decisions referred to above will not render any assistance to the Municipal Corporations to levy property tax or service charge in respect of the building occupied by the FCI.
16. The next question which requires to. be considered is whether the buildings in respect of which exemption under Article 285(1) is allowed, service charges under the provisions of the Kerala Municipal Corporations Act and the Kerala Municipalities Act can be levied by the 'Municipal Corporations'. The counsellor the FCI contends that no service charge can be levied in respect of the properties exempted from levy of tax by virtue of Article 285(1) of the Constitution. Sub-Section (5) of Section 103 of the Kerala Municipal Corporations Act reads thus:
"(5) Notwithstanding anything contained in this Act or any other law, in the case of properties exempted from property tax under Sub-Section (I) the council shall be entitled to claim cost of services generally covered by the service taxes."
It is pointed out that Article 285(1) would come under 'any other law' contemplated in Sub-Section (1) of Section 101 as well as subsection (5) of Section 103. Even assuming so, the sevice charge can be claimed only in the case of properties exempted from payment of property tax under Sub-Section (1) of Section 103. The said Sub-Section deals with different kinds of buildings and lands which will be exempted from payment of tax. The 'lands and buildings' owned by the Union of India is not seen included in Sub-Section (1) of Section 103. The service charges cannot, therefore, be levied by the 'Municipal Corporations' under Section 103(5) of the Kerala Municipal Corporations Act. The position is not in any way different under the provisions of the! Kerala Municipalities Act.
17. As a matter of fact the 'Municipal Corporations' levied 'service charges' in respect of the buildings owned by the Union of India which are exempted from taxation under Article 285 (I) of the Constitution. Council for the 'Municipal Corporations' points put that service charges are demanded by virtue of the decisions of the Government of India contained in the Government letters (Exts. P2 and P3 in O.P. No. 6588 of 1992). Ext. P2 contains two letters sent by the Government of India, Ministry of Finance, Department of Economic Affairs, New Delhi dated 10-5-1954 and 7-5-1955 and Ext. P3 is also a letter sent by the Government of India to Secretaries of all the State Governments. Both Exts. P2 and P3 relate to payment of service charges to local bodies in respect of Central Government properties. 'Municipal Corporations' uniformly contend that these Government letters expressly authorised payment of service charges to local bodies. Ext. P2, inter alia, provides :
"Under Clause (1) of Article 285 of the Constitution, the properties of the Government of India are exempt from all taxes imposed by local authorities in the States. It has been represented to the Government of India that notwithstanding this Article the Government should agree at least to the payment of charges for services rendered by local authorities. The Government of India have given careful consideration to such representations in the light of the recommendation made by the local Financial Enquiry Committee in regard to taxes on Central Government properties, they have decided that payment should be made with effect from 1st April, 1954 to local bodies for service charges in respect of Central Government properties."
Clause (1) in Ext. P2 describes the payment of service charges as 'compensation payable in quasi-contract'. Clause (1) reads thus :
"The Central Government will make payment in respect of their properties for specified services rendered by local authorities but such payment of such 'service charges' shall be treated not as payment of taxes but as compensation payable in quasi-contract. Specific Services will include not only direct services such as water and electric supplies, scavenging etc. but also general services such as street lighting, town drainage, approach roads connecting the Central Government properties etc. But such items as educational, medical or public health facilities will be excluded."
The second letter contained in Ext. P2 is also from the Government of India, Ministry of Finance, Department of Economic Affairs on the same subject, which provides the following ;
"Under Article 285 of the Constitution (read with Section 154 of the Government of India Act, 1935) the Central Government cannot make full payment of local taxes in respect of their properties constructed after 1st April 1937 unless so empowered by Parliament. The question of undertaking such legislation will be examined by the Government of India with particular reference to the recommendations made in this behalf by the Taxation Enquiry Commission. Till such time, however, as any legislation is passed by Parliament, the payments to local bodies in respect of Central Government properties constructed after 1st April, 1937 have to be made in accordance with the orders contained in this Ministry's letter No. 14(1) P/ 52-1, dated 10th May, 1954. Any payments in excess would be illegal."
18. Ext. P3 referred to above, deals with the procedure for arriving at the quantum of service charges payable to local bodies. It authorises the collection of service charges at three different rates. Clauses (1) and (2) of paragraph 2 of Ext. P3 are ectyped here-under:
"2. The procedure for arriving at the quantum of service charges payable to the local bodies has been further examined by the Government of India and' it has now been decided that the service charges should be calculated in the following manner:--
(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 Govt. will pay service charges equivalent to 75 per cent of the property tax realised from private individuals.
(ii) In the case of large and compact colonies which are self-sufficient with regard to service of where some of the services are being provided by the Central Government Department themselves, the service charges wilt be calculated in the following manner:--
(a) In the case of colonies which do not directly avail of civic services within the area and are self-sufficient in all respects the payment of service charges will be restricted to 33 1/3 per cent of the normal rate of property tax applicable to private properties.
(b) In respect of colonies where only a partial use of the services is made, service charges will be paid as 50 per cent of the normal property tax rate,
(c) In respect of colonies where all the services normally provided by the Municipal body to the residents of other areas within its limtis are being availed of, service charges will be paid as 75 per cent of the property tax realised from private individuals."
19. The payment of service charges in respect of buildings of the Central Government is seen recorded in the Report of the Taxation Enquiry Commission 1953-1954. The Taxation Enquiry Commission in the aforesaid report, inter alia, observed:
"A specific exemption in respect of Central Government properties for the first time appeared in Section 154 of the Government of India Act, 1935. The exemption was from all State and local taxes and applied to all Central Government properties except such as were liable to those taxes immediately before 1st April, 1937. The same position continues under Article 285 of the Constitution. The effect of this is that the Union Government is liable to pay taxes, including services taxes, only in respect of bulildings which were asessed to local taxes prior to 1st April, 1937. Even in respect of these, till recently, the Government of India contended that they would not pay any amount greater than that paid immediately before 1st April, 1937, notwithstanding any increases in rates since effected by the local body or any increase in value that might have since taken place. Recently, however, the Central Govt. have agreed to make such additional payments as arise from either in increase in rate or an increase in valuation, The new arrangement has effect from 1st April, 1948."
However, it is pertinent to note that at page 384 of the said report the Government of India letter dated 10th May, 1954 (Ext. P2 in O.P. No. 6588 of 1992) is seen specifically mentioned. That the said official communication of the Government of India agreeing to make payment in respect of 'service charges' with effect from 1 -4-1954 is extracted in the report.
20. On behalf of the FCI, the counsel argued that if at all service charge is payable, it shall be paid by the Central Government and not by the FCI. He makes particular emphasise on a Clause contained in Ext. P2 that "The Central Government will make payment in respect of their properties for specified services rendered by the local authories. His case is that no demand notice shall be issued in the name of the FCI and it shall be issued only in the name of the Central Government because it is the Central Government which undertook to pay the service charges. In answer to the above contention, counsel for the Calicut Corporation, Sri K.P.G. Menon, has brought to our notice Ext. Rl (a) in O.P. No. 5356 of 1992. Ext. R l(a) is a letter from the Under Secretary to Government of India, Minister of Food and Agriculture dated 20-1-1966 to the Health and Labour Department, Kerala. The said letter reads as follows:
"I am directed to acknowledge the receipt of your letter No. 87926/KI-65-l/HLD, dated the 31 st December, 1965, on the subject mentioned above, and to say that the Regional Director (Food), Madras is being requested to expedite the payment due in respect of the period 1-4-1959 to 31-3-1965. It may be mentioned for your information that the godowns in question have been transferred to the Fopd Corporation of India with effect from 1-4-1965 and any payment due in respect of the period after this date may be claimed from that Corporation."
At any rate FCI cannot contend that demand notices should be issued to the Central Government when the buildings were transferred to the FCI after its constitution.
21. Counsel for the FCI contended that circulars issued by the Central Government authorising the payment of service charges to local bodies in respect of buildings owned by the Government of India are only administrative directions and therefore they have no force of law. In support of the said contention counsel relied on the decision in State of Assam v. Ajit Kumar Sarma, AIR 1965 SC 1196 wherein it has been observed that there could be no right arising out of mere executive instructions much less vested right. The reliance is also placed in Union of India v. S.L. Abbas, AIR 1993 SC 2444 where the Court said that the guidelines regarding transfer issued by the Government do not confer upon a Government employee a legally enforceable right. On the other hand, counsel for the 'Municipal Corporations' argued that the Circulars in question have the force of law. To galvanise this point reliance was placed on Article 73 of the Constitution, which, inter alia, provides that the executive power of the Union shall extend to the matters with respect to which Parliament has power to make laws subject to the provisions of the Constitution. The present subject squarely falls within Item 32 of List I of Seventh Schedule which provides thus:
32. Property of the Union and the revenue l herefrom, but as regards property situated in a State subject to legislation by the State, save in so far as Parliament by law otherwise provides.
Articles 285 itself refers to a law by the Parliament in so far as the exemption of property of the Union from State taxation. The Parliament has not so far framed any law in so far as the taxation of the property of the Union as contemplated under Article 285. Ext. P2 Circular referred to above, inter alia, provides that the question of undertaking such legislation will be examined by the Government of India with particular reference to the recommendations made in this behalf by the Taxation Enquiry Commission. It is further provided that till such time, however, as any legislation is passed by the Parliament payment to local bodies in respect of Central Government properties constructed after 1st April, 1937, has to be made in accordance with the orders contained in the Ministry's letter No. 14(l)P/52/1 dated 10-5-1954. The letter dated 10-5-1954 authorises payment of service charges as compensation payable in quasi-contract. Therefore, the Circulars referred to above cannot be said to be not coming within the purview of Article 73 of the Constitution.
22. In Rai Sahib Ram Jawaya Kapur v. State of Pubjab, AIR 1955 SC 549 the Supreme Court held to the effect (para 7) :
"Neither of Articles 162 and 73 contain any definition as to what the executive function is and what activities would legitimately come within its scope. They are concerned primarily with the distribution of the executive power between the Union on the one hand and the States on the other. They do not mean that it is only when the Parliament or the State Legislature has legislated on certain items appertaining to their respective lists, that the Union or the State executive, as the case may be, can proceed to function in respect to them. On the other hand, the language of Article 162 clearly indicates that the powers of the State executive do extend to matters upon which the State Legislature is competent to legislate and are not confined to matters over which legislation has been passed already. The same principle underlies Article 73 of the Constitution."
While dealing with a question coming under Article 162 of the Constitution, the Supreme Court in State of Andhra Pradesh v. Lavu Narendranath, (1971) 1 SCC 607, at page 614 : (AIR 1971 SC 2560 at p. 2566) observed :
"The Executive have a power to make any regulation which would have the effect of a law so long as it does not contravene any legislation already covering the field....."
So also in State of M.P. v. Kumari Nivedita, AIR 1981 SC 2045 at page 2057, the Supreme Court observed:
"Under Article 162 of the Constitution the executive power of a State, therefore, extends to the matter with regard to which the legislature of a State has power to make laws. As there is no legislation covering the field of selection of candidates for admission to medical colleges, the State Government would, undoubtedly, be competent to pass executive ordersin this regard."
Therefore, we are of the view that the Circulars in question are not merely administrative instructions, but are executive orders having the force of law.
23. Now it is necessary to examine the very nature of the service charges agreed to be paid by the Government of India in view of the Circulars referred to above. It is certain that the payment is neither a tax nor a fee. Then what else is the question ? By Ext. P2 in O.P. No. 6588 of 1992 the Government have agreed to pay the service charges in respect of Government properties. That payment is in lieu of the specific services rendered by the local authorities. Ext. P2 would also indicate that the specific services will include not only direct services such as water and electric supplies, scavenging etc. but also general services such as street lighting, town drainage, approach roads connecting the Central Government properties etc. No doubt the Municipal Corporations are rendering services to FCI and therefore what is agreed to be paid by the Central Government is a compensation payable towards specific services rendered by the Corporations. It is, no doubt, true that there is no specific provision either in the Municipal Corporations Act or in the Municipalities Act to levy or collect such compensation for the services rendered by the Corporations. However, it is a compensation payable in quasi-contract as described by the Central Government in the Circular dated 10-5-1954.
24. Section 70 of the Indian Contract Act reads thus:
"Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered."
In order to attract Section 70 of the Contract Act, three conditions are required to be fulfilled before making a demand by a person who does anything for another person.
(i) The thing must be done lawfully.
(ii) It must be done by a person not intending to act gratuitously. (iii) The person for whom the act is done must enjoy the benefit of it.
The basis of compensation under Section 70 would be in proportion to the benefit enjoyed by the party and is not same as on contractual rights. In Mulamchand v. State of M.P., AIR 1968 SC 1218 the Supreme Court held thus (at p. 1222, Para 6):
"So where a claim for compensation is made by one person against another under Section 70 it is not on the basis of any subsisting contract between the parties but on a different kind of obligation. The juristic basis of the obligation in such a case is not founded upon any contract or tort but upon a third category of law, namely, quasi-contract or restitution."
25. Lord Wright in Fibrosa Spolka Akcyina v. Fairbaira Lawson Compe Barbour Ltd., 1943 AC 32 while dealing with 'unjust enrichment' observed thus:
"It is clear that any civilised system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is, to prevent a man from retaining the money of, or some benefit derived from, another which it is against conscience that he should keep. Such remedies in English law are generically different from remedies in contract or in tort, and are now recognised to fall within a third category, of the common law which has been called quasi-contract or restitution."
Subramonian Poti, J. (as he then was) in Annamma v. Ouseph Tressiamma, AIR 1975 Kerala 185 (FB), however, observed (Paras 7 and 8A):
"The rights must be founded on the theory of unlawful enrichment. It is not every gain or enrichment that is unlawful. Situations calling for redress for civil wrongs are conceived by the law of contracts as well as the law of torts. It is not easy to assume a moral code which covers all categories of cases, which fall outside the purview of these."
Cheshire, Fifoot & Furmston in the 'Law of Contract', (12th Edn.) at page 648 observed ;
"Academic, as well as judicial, opinion has been divided upon the merits of Lord Mans-fied's doctrine. But in the latest and most searching study of English quasicontract, Coff and Jones have accepted as its rationale the principle of unjust benefit or unjust enrichment. This principle 'presupposes three things' first, that the defendant has been enriched by the receipt of a benefit; secondly, that he has been so enriched at the plaintiffs expense; and thirdly, that it would be unjust to allow him to retain the benefit. The learned authors have also faced, and turned to profit, a contributory difficulty in the analysis and development of quasi-contract; the fact that it transcends the traditional demarcation between law and equity.
It is significant that both in Sinclair v. Brougham, (1914 AC 398} and in Re Diplock the judges were driven to examine both common law and equity; and Lord Wright said of the former case that it 'demonstrated a category of claims distinct from contract or tort or trust'."
The principles governing the quasi-contract as discussed herein above, are sufficiently attracted in the case of payment of service charges to Municipal Corporations for the services rendered by them. Thus we are of the view that payment of service charges contemplated under Exts. P2 and P3 in O.P. No. 6588 of 1992 is nothing other than the compensation payable under Section 70 of the Indian Contract Act.
26. The question now remains to be considered is whether compensation payable under Section 70 of the Contract Act can be recovered by enforcing the provisions contained in the Kerala Municipal Corporations Act and the Kerala Municipalities Act. Section 413 of the Municipal Corporations Act and Section 386 of the Kerala Municipalities Act deal with the payment of compensation to the Municipal Corporations. Section 413 of the Corporations Act is thus :
"All costs, damages, penalties, compensation, charges, fees, rents, expenses, contributions and other sums which under this Act or any rule, bye-law or regulation made thereunder or any other law or under any contract including a contract in respect of water supply or drainage made in accordance with this Act, and the rules, bye-laws and regulations are due by any person to the corporation shall, if there is no special provision in this Act for their recovery, be, demanded by bill containing particulars of the demand and notice of the liability incurred in default of payment and may be recovered in the manner provided by rules 30 and 36 of the rules contained in Part VI of Schedule II unless within fifteen days from the date of service of the bill such person shall have applied to the District Court having jurisdiction over the City."
The provisions contained in Section 386 of the Municipalities Act are more or less analogous. No doubt, compensation can be recovered under the aforesaid provisions. So 'any other law' contemplated under Section 413 of the Kerala Municipal Corporations Act as well as Section 386 of the Kerala Municipalities Act will take in Section 70 of the Indian Contract Act. As far as the recovery of compensation, there is no other provision in the abovesaid Acts. Therefore, compensation payable under Section 70 of the Contract Act shall be recovered under the aforesaid provisions. Thus compensation can be demanded by the Corporations by issuing a bill prescribing the particulars of demand and notice of liability incurred in default of payment.
27. The discussion herein above brings forth the following conclusions:
(1) The properties/buildings owned by the Union of India, which were transferred to FCI after its constitution are exempted from payment of property tax leviable by the Municipal Corporations under the provisions of the Kerala Municipal Corporations Act 1961 and the Kerala Municipalities Act, 1960.
(2) The properties/buildings acquired by the FCI after its constitution are liable to be assessed to property tax by the Municipal Corporation under the aforesaid Act.
(3) The Circulars in question (Exts. P2 and P3 in O.P. No. 6588 of 1992) containing the decisions of the Government of India regarding the payment of service charges to the Municipal Corporations in respect of the Union properties have the force of law.
(4) The service charges payable under the aforesaid Circulars is a 'compensation' payable in quasi-contract under Section 70 of the Indian-Contract Act.
(5) Section 70 of the Indian Contract Act will come within the ambit of 'any other law' contemplated under Section 413 of the Kerala Municipal Corporations Act and Section 386 of the Kerala Municipalities Act.
(6) The Municipal Corporations are entitled levy and collect service charges in so far as the buildings owned by the Government of India and transferred to FCI in respect of which exemption from payment of property tax is available.
(7) The procedure, laid down in Ext. P3 Circular (O.P. No. 6588 of 1992) shall be followed for levying service charges in respect of the properties/buildings owned by the Government of India.
28. Now it is necessary for us to examine individually each of these writ petitions on merits.
O.P. No. 4653 of 1987For the reasons discussed hereinabove, Exts. P12(a) to P12(t) bills-issued by the Municipality demanding service charges from the FCI in respect of the buildings owned by the Union of India and transferred to the FCI after its constitution, for the period 1968-1969 to 1985-1986 (first half) are legal and valid. Those bills appear to have become final and they are not liable to be quashed as prayed for in the writ petition. FCI filed Ext. P15(a) revision petition as against Exts. P13 and P14 bills relating to the year 1986-1987 (I and II half). The case of the FCI is that the said revision appears to have been disposed of by Ext. P16 proceeding of the Commissioner. Though Ext. P16 does not refer to the revision petition filed by the FCI, it is stated therein that the service charges levied by the Council is in order and does not deserve any revision. The buildings and lands occupied by the FCI enjoy all the services rendered by the Municipality as in the case of private individuals, as observed in Ext. P16. Hence we do not propose to interfere with the said order passed by the Commissioner. The writ petition is accordingly dismissed.
O.P. No. 5356 of 1992The main dispute in this case appears to be with regard to the quantum of the service charges levied by the Corporation and the liability to pay the same at the revised rate with effect from 1-4-1965, Ext. P6 is a copy of the letter dated 3-4-1991 sent by the FCI to the Revenue Office of the Corporation, wherein it is stated that the FCI had already made payments 'towards the 75% of the service charge on the actual amount of tax' in respect of the buildings owned by the Govt. of India. According to the said letter the revised rate of tax claimed by the Corporation is effective only from the year 1988-1989 and the revision cannot be made with effect from 1-4-1965. This appears to be a mis-apprehension as revealed from Exts. P4 and P8 letters sent by the Commissioner of the Corporation. Ext. P4 says that the Government of. India had informed the Municipal Corporation that the properties covered by assessment Nos. 248 to 255, and 61 still belonged to them and service charges alone claimed in respect of those properties with effect from 1-4-1965. It also reveals that the FCI had constructed buildings of its own at West Hill and those buildings had been brought to property tax assessment as per assessment numbers 290 and 425 to 428. After holding discussions with the officers of the FCI, Revenue Officer of the Corporation by Ext. P5 letter dated 13-3-1991 informed the FCI that a sum of Rupees 1,75,596.15 is outstanding towards service charges on the properties. It was in reply to that letter the FCI had sent Ext. P6 which was referred to above. The apprehension voiced by the FCI in Ext. P6 has been sufficiently cleared in Exts. P8 and P8(a). Ext. P8(a) is a statement showing the payment of charges and property tax by the FCI for the period, from 1-4-1965 to 31-3-1992. In Ext. P8 it is clearly stated that the bills for payment of service charges were issued at the rate of 75% of the property tax but the FCI had paid only 75% of the bill amount instead of paying the entire amount covered by the bills. The said short payments were brought to the notice of the FCI at the relevant times. Probably because of such short payments the FCI now claims that there is revision of tax with effect from 1-4-1965. Such short payment is sufficiently evident from Ext. P8(a) statement. In the counter-affidavit the Corporation has clearly stated that it had not enhanced the rate of service charges which has been fixed at 75% of the existing property tax. Thus there is no question of retrospective revision of service charges with effect from 1-4-1965 as urged on behalf of the FCI in this case.
In Ext. P6 the FCI has no case that it has not availed of the services rendered by the Corporation. The case in the writ petition is that the FCI should not have been assessed to service charge over and above 33-1 / 3% of the property tax which would have been payable but for the exemption under Article 285( 1) of the Constitution. In other words, the quantum of service charges levied by the Corporation at the rate of 75% of the property tax is disputed. In the counter-affidavit filed on behalf of the first respondent Commissioner, it is averred thus:
"Though the colonies of the Food Corporation of India are compact colonies, they are using the connecting roads and drains constructed and maintained by the Corporation. The waste and filth pushed by the inhabitants of the Food Corporation colonies are being removed by the scavenging staff of the Calicut Corporation. Large number of vehicles owned by the Food Corporation are being parked on the surrounding roads of the Food Corporation of India Depot and these vehicles are also making use of the roads maintained by the Calicut Corporation. The lightening services rendered by the Corporation of Calicut are also being availed by the Food Corporation of India. Since the Food Corporation of India is availing the general services of the Corporation of Calicut they are liable to pay service charges to the Corporation of Calicut."
What is relevant from the above averments is that the Corporation is supplying civic amenities which are being enjoyed by the FCI. Such services or amenities need not be confined within the complex of the FCI. Therefore, the argument that no service has been rendered by the Corporation does not appear to be correct. Sub-Clause (c) of Clause (2) of Circular dated 29-3-1967 (Ext. P3 in OP 6588/92) provides that in respect of colonies where all the services normally provided by the Municipal body to the residents of other areas within its limits are being availed of, service charges will be paid at 75% of the property tax realised from private individuals. This Clause would apply even if the colonies are compact and self-sufficient. We do not think, the Corporation has violated the norms provided in the aforesaid Circular in fixing the service charges in respect of the properties held by the Union of India. That being the position, Exts. P7 and P8 issued by the Corporation cannot be said to be illegal. They have become final and so we do not propose to re-open the matter at this stage. Exts. P7 and P8 are, therefore, not liable to be quashed. The petitioner in the O.P. is not entitled to any relief. The writ petition is dismissed.
O.P. No. 6588 of 1992The maintainability of this writ petition filed by the Corporation of Cochin was raised by the FCI. Since this O.P. was also referred, along with two other O.Ps by a learned single Judge, we do not propose to entertain this objection raised at this stage. What the petitioner seeks is only a declaration that FCI is liable to pay service charge in respect of the buildings owned by the Union of India as provided in Exts. P2 and P3 Circulars and the property tax in respect of the buildings constructed and owned by it. As far as the 16 buildings constructed by the FCI after its constitution, it is liable to pay property tax to the Cochin Corporation under the provisions of the Municipal Corporations Act. There cannot be any dispute on this question. As far as the remaining 67 buildings are concerned no property tax is leviable in view of Ext. P1 judgment. Exts. P2 and P3 circulars issued by the Central Government will apply in the case of the buildings owned by the Union of India. We have already found that Exts. P2 and P3 are enforceable and service charges can be recovered by the Corporation as compensation for the services rendered under Section 70 of the Indian Contract Act. The FCI cannot escape from his liability arising under S. 70 of the Contract Act inasmuch as it is bound by the orders of the Central Government as per Exts. P2 and P3. That being the position, the Cochin Corporation is entitled to get the declarations as aforesaid. The grant of declaratory relief is not uncommon in writ jurisdiction where there are warranting circumstances. This is a case where a civic body rendering civic amenities to the general public is faced with fantastic claims of refund of tax and service charge" already paid. We can very well perceive the litigating hurdles and diminishing resources that constrain the Corporation in developing civic consciousness and extending the amenities to all those who need them. In this context we do recall what William Black-, stone said as early as in the year 1876;
"This newly acquired municipal freedom, so long as the boroughs remained excluded from political existence, was, however subject to repeated encroachments by the successors of the conqueror chiefly to obtain pecuniary resources for their contests with the great vassals of the crown."
The power under Article 226 is neither a 'spent force' nor a 'closed shop'; it is all pervasive, lively and dynamic. We have therefore no hesitation in declaring that the Cochin Corporation is entitled to levy property tax or service charge, as the case may be, in respect of the buildings in the occupation of the FCI and FCI is liable to pay the same to the Corporation in view of what we have decided hereinbefore. We do so. The writ petition is disposed of as above.
29. Before parting with this case, we would be failing in our juridical duty if we put ourself in restraint in depicting what we have disquietly witnessed in this case. There is a pressing present necessity to have a comprehensive legislation by the Parliament on the topic of taxation on Union properties by the State or by an authority within the State, as contemplated under Art, 285 of the Constitution. The intricacies of municipal taxation and consequent infinite litigating processes are the agonising problems for the local bodies now to endure. The issues will have to be evaluated not only on legalistic sense but on economic imprint on the federal structure of India's polity. While discussing the issues of Federal Finance by Robert E.B. Lucas and Gustav F. Papanek in "The Indian Economy" they observed thus:
"The already difficult municpal finance situation is likely to be substantially com-pounded in future, by the rapid growth of urban population and the high cost of urban infra-structure. Solutions to this set of emerging strains are likely to require far-reaching reforms in existing systems of municipal taxation and cost recovery practices for urban infra-structure."
The framing of a comprehensive municipal taxation statute by the Parliament as aforesaid gets lively sustenance from the concluding speech of Dr. B. R. Ambedkar in the constituent assembly on draft Article 264. He said:
"Parliament voluntarily submitted itself by passing an Act to allow the properties of the Railways to be taxed by the local authorities. Any Parliament can voluntarily submit its properties to be taxed by local authorities and there is no reason to suspect that Parliament will not volunteer to allow its other properties also to be taxed in the same manner."
It cannot be said that the framers of the Constitution had never intended to have a detailed debate in Parliament on a future occasion on the topic of taxation on Union properties by the State or local bodies when the circumstances so warrant. We have said this only to propel the Government of India into constructive action towards the framing of a comprehensive legislation on the aforesaid topic.
Balakrishnan, J.
30. I have had the opportunity of seeing in draft the judgment that is about to be given by my learned brother Mohammed. J. and I fully agree with the conclusions he had reached.
31. The central issue in these original petitions is whether the local authorities have got a right to collect property tax or service charge from the buildings which are in the possession of the Food Corporation of India.
32. There are two types of buildings. Most of the buildings under possession of the FCI are owned by the Union Government and on the formation of the FCI, these buildings were given to FCI for the purpose of carrying out their business. Some buildings were constructed by the FCI in the land acquired by them. As regards the buildings owned by the Union Government, the local authorities are not entited to levy any property tax in view of the express provision contained under Article 285(1) of the Constitution, As regards the buildings owned and possessed by the FCI, the local authorities can levy property tax and the FCI cannot avail the benefit of exemption provided under Article 285(1) of the Constitution as FCI is only an "instrumentality of the Stall;."
33. Under Sub-Section (5) of Section 103 of the Kerala Municipal Corporations Act there is a provision for levy of service charge. But this power to levy service charge can be invoked only in respect of properties exempted from levy of property (tax under sub-section (I) of Section 103. As the buildings owned by the Union Government are not exempted under Sub-Section (1) of Section 103, there is no source of power to levy service charge in respect of these properties under Sub-Section (5) of Section 103.
34. The question for consideration is whether service charge could be levied in respect of properties owned by the Union Government and possessed by the FCI under any other law in force. Exts. P2 and P3 produced in O.P. 6588 of 1992 permitted the local authorities to recover service charges from such buildings. Exts. P2 and P3 have, been issued by the Union Government by virtue of powers conferred on the executive under Article 73 of the Constitution.
35. Article 73 of the Constitution is the source of power for the executive of the Union to make law in respect of matters to which Parliament has power to make laws. Similar power is given to the State executive under Article 162 of the Constitution. While analysing the powers of the executive of a State the Supreme Court in Ram Jawaya v. State of Punjab, AIR 1955 SC 549*held thus (at p.556);
"The executive indeed can exercise the powers of departmental or subordinate legislation when such powers are delegated to it by the legislature. It can also, when so empower-ed, exercise judicial functions in a limited way. The executive Government, however, can never go against the provisions of the Constitution or of any law. This is clear from the provisions of Article 154 of the Constitution, but it does not follow from this that in order to enable the executive to function there must be a law already in existence and that the powers of the executive are limited merely to the carrying out of these laws................
The executive function comprises both the determination of the policy as well as carrying it into execution. This evidently includes the initiation of legislation, the maintenance of order, the promotion of social and economic welfare, the direction of foreign policy, in fact the carrying on or supervision of the general administration of the State."
The dicta laid down in Ram Jawaya's case, were later followed in series of decisions of the Supreme Court.
36. Counsel for the FCI contended that the executive powers of the Union as well as the State are not unlimited and to be used only sparingly. We are only concerned whether Exts. P2 and P3 have got the force of law as it emanated from the executive in the form of legislation. Exts. P2 and P3 are not affecting the serious rights of the citizens nor do they meddle with their fundamental rights.
The Union Government voluntarily offered themselves to pay service charges and these two orders by the Central Government enabled the local authorities to recover service charges.
37. Counsel for the local authorities contended that the local authorities are entitled to levy service charges at the rate of 75% of the property tax, whereas counsel for the FCI contended that even if service charges are liable to be paid it shall be only at the rate of 35%. The Kerala Municipalities. Act, 1960 and the Kerala Municipal Corporations Act, 1961 are self-contained laws and procedure has been laid down to resolve any dispute that may arise. It is the duty of the aggrieved to move such authority.
38. I agree with the conclusions reached by my learned brother and that the original petitions are to be disposed of in the manner indicated in the judgment of my learned brother.