License Fee on Hoardings is Regulatory, Not Tax; GST Does Not Bar Municipal Levy: Bombay High Court

“The license fee collected by the municipal corporation for such purpose is a regulatory fee; the provisions permitting the municipal corporation to recover license fees do not stand obliterated by the Central/Maharashtra Goods and Service Tax Act, 2017 being brought into force”— In a seminal ruling the High Court of Judicature at Bombay, comprising Justice G. S. Kulkarni and Justice Advait M. Sethna, dismissed a batch of petitions challenging the Pune Municipal Corporation’s authority to levy and retrospectively enhance license fees for sky-signs and hoardings.

The Core Dispute: Tax vs. Fee and the GST Conundrum

The judgment addresses a significant challenge mounted by the Pune Outdoor Advertising Association and individual advertisers against the Pune Municipal Corporation (PMC). The petitioners contested the PMC's demand for license fees for the grant and renewal of permissions for sky-signs and hoardings under Sections 244, 245, and 386(2) of the Maharashtra Municipal Corporation Act, 1949 (MMC Act).

The dispute arose when the Municipal Commissioner enhanced the license fees from approximately Rs. 85 per sq. ft. to Rs. 222 per sq. ft. per annum, effective retrospectively from April 1, 2013. The petitioners argued that this levy was, in substance, a "tax" on advertisements. They contended that following the 101st Constitution Amendment Act, 2016, which introduced the Goods and Services Tax (GST) and deleted Entry 55 (Taxes on Advertisements) from List II of the Seventh Schedule, the State Legislature and Municipal Corporations lost the legislative competence to levy such charges.

“The distinction between a tax and a fee based upon the element of quid pro quo has been effaced... for regulatory fee quid-pro-quo is not necessary.”

Regulatory Fee vs. Compensatory Fee

The Court undertook a deep dive into the jurisprudential distinction between a tax and a fee. The petitioners argued that there was no quid pro quo (service rendered) for the fees charged, making it a tax. Rejecting this, the Bench relied on Supreme Court precedents, including Sona Chandi Oal Committee and Jalkal Vibhag Nagar Nigam, to hold that the traditional concept of quid pro quo has undergone a sea change.

The Court held that the license fee is a "regulatory fee" and not a compensatory one. The Corporation incurs significant costs in regulating the skyline, ensuring structural stability, traffic safety, and aesthetics. The Court observed that the existence of a specific service to the payer is not a condition precedent for a regulatory fee.

“A chaotic situation could be brought about... when sky-signs, hoardings, advertisements are imagined to be displayed at the unfettered discretion of those who intend to install them.”

Impact of GST and Constitutional Amendments

A pivotal aspect of the judgment was the analysis of the 101st Constitution Amendment. The petitioners argued that since "Taxes on Advertisements" (Entry 55, List II) was deleted and subsumed into GST, the PMC could no longer charge these fees.

The Bench termed this argument a "non-starter." It clarified that the legislative source for the license fee is not the deleted Entry 55, but Entry 5 (Local Government) and Entry 66 (Fees in respect of matters in the List) of List II, read with Article 243X of the Constitution. The Court noted that Section 173 of the Maharashtra GST Act repealed the Maharashtra Advertisement Tax Act, 1967, but did not repeal the licensing provisions of the MMC Act. Therefore, the power to regulate and charge fees for written permissions remains intact and distinct from the power to tax the content of the advertisement.

“What is not repealed or subsumed would obviously continue to operate and remain legal, valid and subsisting.”

Retrospective Sanction: "Sanction" vs. "Prior Sanction"

The petitioners vehemently challenged the retrospective application of the fee hike. The Municipal Commissioner had proposed the rate of Rs. 222 in 2013, but the General Body of the PMC formally ratified it only on September 28, 2018, granting ex-post facto approval effective from April 1, 2013.

Interpreting Section 386(2) of the MMC Act, the Court noted that the statute uses the phrase "with the sanction of the Corporation," omitting the word "previous" or "prior." Comparing this with other sections of the same Act (like Section 51(4) or 53(1)) where the legislature explicitly used "previous sanction," the Court applied the literal rule of interpretation. It held that in the absence of the qualifying word "previous," the General Body had the power to grant ex-post facto sanction or ratification, rendering the retrospective collection valid.

“The word ‘sanction’ would mean ratification and not ‘prior sanction’... The legislature has been mindful of the need to clearly express its intention by prefixing the expressions with ‘previous’ or ‘prior’ wherever mandatorily required.”

Reasonableness of Rates

On the issue of the quantum of fees, the Court refused to sit in judgment over the specific rate of Rs. 222 per sq. ft., stating that writ courts should not act as cost accountants. However, it noted that the rate was based on the highest bid received in a public tender process in 2011, reflecting the true market value. The Court also observed that the fees had not been revised for many years and, when compared to the rates in Mumbai (MCGM), the PMC rates were reasonable and not confiscatory.

The High Court dismissed all writ petitions, upholding the PMC's authority to levy the license fees, the validity of the retrospective ratification, and the quantum of the fees. The Court emphasized that the municipal corporation acts in public interest and that commercial entities cannot claim an entitlement to use public space for profit without adhering to the regulatory regime and paying the requisite fees.

Date of Decision: 10 December 2025