Gram Panchayat Cannot Levy Property Tax On Industrial Establishment Within Notified Industrial Areas: Karnataka High Court
The Karnataka High Court has held that the Gram Panchayat cannot levy or collect property taxes in respect of Industrial establishments located within areas notified by the Karnataka Industrial Areas Development Board (KIADB). Mere execution of a lease-cum-sale agreement or any administrative communication cannot vest power in the Gram Panchayat to levy tax in the absence of express delegation...
The Karnataka High Court has held that the Gram Panchayat cannot levy or collect property taxes in respect of Industrial establishments located within areas notified by the Karnataka Industrial Areas Development Board (KIADB). Mere execution of a lease-cum-sale agreement or any administrative communication cannot vest power in the Gram Panchayat to levy tax in the absence of express delegation or statutory backing.
Justice Sachin Shankar Magadum held thus while allowing a batch of petitions and quashing the demand notices issued by the Sompura Gram Panchayat levying property tax on the industrial property of the petitioners located within the notified industrial area established and maintained by the respondent-Karnataka Industrial Areas Development Board (KIADB).
It said “The impugned demand notices do not pass the test of legality and are clearly unsustainable in law. In the absence of jurisdiction vested by a valid notification under Section 37 of the KIAD Act, the levy amounts to arbitrary exercise of power and is liable to be set aside.”
The petitioners relied on Section 37 of the Karnataka Industrial Areas Development Act, which stipulates that the provisions of the Karnataka Municipalities Act or the Panchayat Raj Act can apply to an industrial area only upon its withdrawal from the purview of the KIADB by way of an express notification issued by the State Government. No such notification has been issued.
Further reliance was placed on a letter issued by the Chief Executive Officer of respondent – KIADB addressed to the State Government, wherein it is stated that the power to collect property tax on land and buildings and levy license fees within KIADB industrial areas exclusively vests with respondent-KIADB.
However, the Panchayat opposed the batch of petitions, asserting that it is the local body providing basic civic amenities and infrastructure to the concerned industrial plots. Thus, it is authorised under Schedule-IV to the Panchayat Raj Act to levy property tax on industrial establishments. It is therefore contended that the impugned demand notices are lawful and do not warrant interference by this Court.
The pleas were opposed on the grounds of maintainability, stating the petitioners have an efficacious statutory remedy of appeal under Section 201 of the Panchayat Raj Act.
Findings:
The court noted that the amended Schedule-IV to the Karnataka Panchayat Raj Act, 1993, introduced by Act No.44 of 2015, recognises the authority of Gram Panchayats to levy property tax, including on buildings situated within industrial areas such as KIADB industrial estates. However, a critical reading of the Schedule shows that such power is not absolute or automatic.
It said “The language used in the Schedule is clear: the power to impose tax on properties within KIADB or other notified industrial areas is subject to Government notification. The phrase “subject to notification” is a legislative condition precedent and must be interpreted harmoniously with the provisions of the KIAD Act, particularly Section 37.”
Thus it held “In the absence of a statutory notification by the State Government withdrawing such area from KIADB and conferring jurisdiction upon the Gram Panchayat, the latter cannot unilaterally impose property 45 tax. Any such exercise would be ultra vires and without authority of law.”
It referred to the circular issued by state government dated 16.07.2024 wherein it is informed to all Panchayats, Municipalities, Municipal Corporations and other local bodies that they do not possess power to sanction development plans, layout plans, building plans, commencement certificates, occupancy certificates, etc. in areas designated as industrial areas, estates of SUCs approved by the KIADB.
Additionally, it was clarified that KSSIDC shall be the building plan approval authority for the industrial estates developed by KSSIDC.
The court thus held, “In view of the admitted position that no notification has been issued under Section 37 of the KIAD Act withdrawing the subject industrial area from the jurisdiction of KIADB, the jurisdiction of respondent – Gram Panchayat to levy property tax simply does not arise. The impugned demand notices issued by respondent No.2, therefore, lack statutory foundation and are liable to be 47 declared ultra vires and void.”
It added “The levy of tax in absence of a specific enabling provision or notification amounts to colorable exercise of power. The KIAD Act, being a special legislation enacted for the planned development and administration of industrial areas, will override general laws such as the Panchayat Raj Act in the event of conflict. Even if it is assumed arguendo that the Panchayat Raj Act purports to extend to such areas, the special provisions under the KIAD Act, particularly Section 47, will prevail due to the doctrine of generalia specialibus non derogant.”
The court also turned down the argument that petitioners have an alternative remedy, and said, “Since the tax demand is wholly without authority of law, relegating the petitioners to an appellate forum would be both futile and unjustified.”
Accordingly, it allowed the petitions.
Appearance: Mohammed Nasiruddin for Petitioner.
AGA Bopanna B FOR R1.
Advocate Ramesh Ananthan FOR R2.
Advocate P V Chandrashekar for R3.
Citation No: 2025 LiveLaw (Kar) 227
Case Title: M/S. KALPATHARU BREWERIES & DISTILLERIES PRIVATE LIMITED AND State of Karnataka & Others
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