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Haryana Property Tax Conundrum: A Travesty Of Natural Justice And Right To Equality

Property tax in Haryana is governed by Urban Local Bodies Act 1994 as amended in Oct 2012 and Oct 2013 Govt Notification. The 1994 Act was drafted when standalone properties such as bungalows', shops was the norm as opposed to multi storey complexes consisting of many sub properties.

While the Act and subsequent amendments look fine on paper, its subjective implementation has been to the grave detriment of small property taxpayers. It has instead helped big builders and owners of large commercial complexes to secure unjustified tax concessions. The principle of natural justice and canon of Right to Equality have been given a go by in the name of revenue maximisation without sparing a thought about skewed ramifications created.

Prior to the Oct 2012 amendment, only the owners were taxed annually with tax being two and half percent or more of property value. The levy of fire tax was unconnected to the property tax. The amended Section 87 of the Act made either 'owners' or 'occupiers' liable for tax payment. It also did away with tax being a percent of property value and specified that it will be charged as per Govt notified rates. The amendment had no retrospectivity. Fire tax notification was issued in Jun 2012 again with no retrospectivity. It allowed fire tax to be charged as 10 % of property tax value.

The Oct 2013 notification specified for the first time the rates on per sq ft of carpet area basis for various types of properties. Though the notification was made applicable wef 2010-11 retrospectively, its para 4 had some benign provisions giving relief by way of rebate in tax dues and waiver of interest on dues for previous years.

The system of levy and payment of tax was hence in some sort of flux for the interim between 01 Apr 2010 and Oct 2013.

The ULBs eg MCG then hired private firms like 'Map my India' to prepare a data base of properties to generate unique property IDs and then tax invoices. This mode of generating invoices worked fine for standalone properties as ownership changed hands smoothly in one go, making it easier for both ULBs and taxpayers to determine liability dates and avoid disputes.

However, the system failed to fix correctly, liability dates in cases of sub properties within large complexes wherein the possession or ownership changed hands from the builder to sub property owners on different dates depending upon factors like when the possession was offered or taken and conveyance deed signed.

The date on which possession is taken itself depends on factors such as payment of outstanding dues, construction as per agreed norms, rectification of construction flaws pointed out by the buyer, and fulfilment of all other clauses. It is only when both the builder and the buyer mutually agree on all aspects that the possession or ownership or in other words tax liability changes hands.

It is thus axiomatic that the tax liability remains that of the builder prior to the date of taking over possession by the sub property buyer, as it is only then that he enjoys unfettered rights over the sub property and consequently becomes the occupier and party liable for tax payment.

Determining of such date on the basis of legal documents like possession letter, conveyance deed etc is obviously laborious, so the survey agencies instead of diligently contacting individual sub property owners and arriving at liability through scrutiny of documents, merely contacted the builders and perfunctorily prepared a database of such sub properties sometime in the year 2014-15 or later on present status basis alone. It had other flaws too viz the nature of the property ie self occupied or rented, which have different rates, was mentioned on present status basis rather than on rent deed. The carpet area too was erroneous.

The first tax invoices issued in Jan 2016 thus were faulty and reflected exorbitant dues for sub properties completed or handed over by builders to owners between 01 Apr 2010 and Oct 2013 eg a sub property in Baani Square in Sector 50 Gurugram valued approx 13 Lakh and handed over in Jul 2013 had tax dues amounting to approx Rs 30624/- and interest on it of Rs 18972/- for 2010-14.

Some diligent sub property owners chose to confront MCG over such exorbitant dues while others simply ignored the tax notices. Those who ignored were the lucky ones ultimately, as shall be covered later. Those who confronted were told to pay up to avoid sealing and take up case thereafter for adjustment on the basis of self assessment form. As the final date of payment was just a month away, the conscientious taxpayers had no option but to agree to the diktats of MCG.

The author being a conscientious taxpayer too paid the exorbitant dues in the hope that adjustments will be made in the due course. However, all hopes were belied as the MCG simply refused to take any action. He thus filed an appeal allowed under the Act after payment of dues specified, with the First Appellate Authority (FAA) ie Divisional Commissioner Gurugram.

The MCG when confronted with a query in the appeal that as to how tax invoices have been issued with the liability date beginning 01 Apr 2010, even when the Occupation Certificate (OC) was issued by the DTCP Haryana for the Baani Square on 31 Jan 2011, realised the absurdity. However, as a face saver to justify their illogical actions so far, MCG then instead of rectifying the liability date as the date of possession or ownership, amended it to 01 Feb 2011 on the false and shaky premise that amended Section 87 made occupier ie the current sub property tax owner and not the builder liable for payment of tax dues wef OC signing date. The errors in the nature of property and carpet area too were adjusted against future liabilities without any interest.

The MCG instead of dwelling into the legal definition of 'occupier' merely substituted it with their own as 'he or she being the allottee of such sub property on the date of OC'. This reasoning is dubious as the OC per se only certifies that the building having been constructed as per safety and other norms is now fit for occupation.

It has no other legal connotation. Further, Section 94 of the Act clearly defines 'occupier' as someone who pays rent for use of the property. The MCG and even the FAA also did not venture into answering the query as to how ULBs arrive at the liability date for sub properties where owners have taken over possession from the builder but the OC is yet to be signed. Such properties abound in the jurisdiction of MCG. An RTI query in this regard obviously has gone unanswered.

Another question that pleads an answer is even if the current sub property owner being an allottee on OC date is liable for payment of tax dues since then, what justifies charging interest on dues from OC date, till notification of rates in Oct 2013? The charging of interest in this manner is akin to someone saying 'that you owe me some money, how much it is will not be told now, and when I tell it later, you will be charged an interest over what you owe'.

The prime reason given by FAA to deny relief isn't convincing enough. He stated that the general clause in conveyance deed that the liability for tax notices by municipal bodies arising in future will be that of buyer, shifts the liability on the allottee from the date of OC. The conveyance deed being a document entered into with a third party, has no relevance unless the ULBs had issued notices to the builders OC date onwards and the builders had contested these notices stating that it is the allottees who are liable to pay the dues.

The first tax notices in respect of sub properties of Baani Square were issued in end Jan 2016 ie much later than the OC date or conveyance deed and hence there were no outstanding dues to be paid by the buyers at the time of conveyance deed on the basis of previous tax notices by MCG.

RTI query to ascertain whether any tax notices for these sub properties were issued to the builder and paid for previously and if so till which date has gone begging for replies. Similarly, the query whether the builders of Baani Square informed the MCG of the change in possession or ownership of these sub properties before stopping tax payment, as mandated under Section 102 of the Act, has gone unanswered too.

Another specious plea given by the MCG that the sub property owner being the allottee could have paid the tax dues on a self assessment basis without waiting for the tax invoice and thus avoided interest was upheld by the FAA. It is necessary that for any payment of self assessed tax, an account viz unique property ID against which such payment will be reflected must first be created.

A RTI query wrt documents necessary for a sub property owner to get a property ID was replied by MCG as the trinity of OC, possession letter and conveyance deed implying that production of these three is sine quo non for such mode of payment. That the MCG has pleaded contrary to its stated position is baffling. The query made during the appeal that even if the appellant for some quirky reason had decided to make payment of self assessed tax in year 2010-11 without even taking over possession, into which account and how should he have deposited it, has gone unaddressed.

The foregoing clearly demonstrates that the implementation of the Oct 2013 notification by ULBs has burdened the small taxpayers disproportionately. The ULBs have neither prepared a proper database of properties nor have created property IDs or issued tax notices in time. Neither any notices have been issued to builders for timely payment by sub property owners to avoid interest nor have they insisted on production of any letter from the builder intimating change of ownership or tax liability of sub properties.

The actions of ULBs have thus grossly flouted the accepted legal maxims of Audi Alterem Parten that lays 'No man shall be condemned unheard' (by not providing opportunity for small taxpayers to be heard before insisting clearance of dues), Nova Constitutio Futuris Forman Imponere Debet, Non Praeteritis ie 'A new law ought to be prospective and not retrospective in its operation' and chiefly Nullus commodum capere potest de injuria sua propria meaning 'No man can take advantage of his own wrong'.

As mentioned earlier, the Oct 2013 notification had some benign provisions that allowed 30% waiver of outstanding dues for previous years. Further, the payment of dues was not to attract any interest. The excess tax deposited was to be adjusted against future property tax liabilities without interest. The objective of such benign provisions was assumedly to give relief owing to the flux generated by Oct 2012 amendment and subsequent notification.

Subsequently follow up notifications in continuum of Oct 2013 notification were issued in the year 2014-15, and 2015-16 retaining the benign provisions till at least Aug 2015. An amendment to para 4 of the notification was then issued vide notification dated 02 Feb 2017 by Principal Secretary ULB Haryana Govt, which allowed 25% rebate in tax dues since 2010-11 and 100% waiver of interest, if the dues are paid before 28 Feb 2017. It was uniformly applicable to all classes of taxpayers and had no mention of the restricted window period say for dues cleared between 'X' to 'Y' date only.

It is thus logical for taxpayers to assume that the contested clearance of dues between the period of last such notification to the one issued on 02 Feb 2017 will be covered by such notification too and they will be granted 25% rebate and 100% interest waiver by way of adjustment in future property tax liabilities.

The ULBs instead of honouring the logical spirit of such rebates/waiver policy compounded the miseries of taxpayers by way of a wholly illogical and unjust interpretation of such rebates/waiver allowable only to the defaulting taxpayers who had not cleared their dues since 2010-11 and now clear it within the restricted window of 02 Feb 2017 and 28 Feb 2017.
The 02 Feb 2017 amendment has been followed up with more amendments, one such having being signed on 20 May 20, which gave 25% rebate for the period 2010-11 to 2016-17 and 10% thereafter to all taxpayers who clear their dues by 31 Aug 20. 100% waiver of interest on outstanding dues since 2010-11 too was given. The ULBs particularly MCG have year after year consistently denied any relief to all the taxpayers who had cleared the contested tax dues from 2010-11 onwards with just hope of adjustment later and instead have given it to those who had consistently defaulted, waited for such amendments and cleared their dues within the restricted windows, as interpreted by MCG.

Such a restrictive implementation of the policy has created two unequal classes of taxpayers who were similarly placed before the policy took effect, as both had same tax dues since 2010-11 for the same size and nature of property. The conscientious ones who chose to pay immediately on receipt of first tax notice have suffered immensely by way of paying higher tax and those who have consistently defaulted whether by design or not have paid lower tax.

This creation of two unequal classes is in gross violation of Right to Equality under Article 14 of the Constitution wherein equal protection of law and privileges have to be conferred up on all citizens similarly placed and also under Article 14 and 21 from which flow 'Principles of Natural Justice' that protect citizens against such arbitrary interpretation and implementation of laws.

It would have been appropriate if such rebates or waiver were stopped altogether after issue of the first notification or for that matter the subsequent schemes had allowed it only for periods after the issue of last such notification but by continuing the scheme year after year with applicability wef 01 Apr 2010, the taxpayers who paid earlier are disadvantaged unless same quantum of rebates and waiver is given to them, as granted to those who paid later.

Peeved by the intransigent attitude of the MCG, the author by an appeal to FAA demanded the same rebate and waiver as given to those who paid later in terms of 02 Feb 2017 amendment as he too had cleared his dues since 2010-11 before 28 Feb 2017. However, the same was disallowed by the FAA on the basis of self founded reasoning.

He reasoned that all notifications were independent of each other. This reasoning is vague as all notifications being amendments to the Para 4 of Oct 2013 Notification are woven with a common thread. Had the notifications been independent, these wouldn't have been stated as amendments. Further, Govt in that case would have applied such rebate or waiver only in respect of the current year of taxation and not previous years to honour the Right to Equality.

The other reason given was that Govt comes up with such amnesty schemes from time to time to boost compliance and shore up revenues. This is based on a surmise as giving rebate and waiver in this manner will in all probability have quite the opposite effect than boosting compliance and shoring revenue. It is clear from the manner in which repeated amendments have come up right up to year 2019-20 that tax defaulters were not enthused by such schemes and considered themselves better off without payment of taxes, due to immunity from prosecution and lesser tax outgo. A RTI query to the MCG as to how much revenue was foregone and details of top ten taxpayers' rebate/waiver wise under different amendments went unanswered.

Giving immunity from prosecution in a welfare state to boost compliance is one thing and giving monetary reward in the form of lesser tax outgo to defaulters who pay up later is entirely different. Never in the annals of history of taxation, has such unjust and discriminatory policy been instituted by any Govt. The FAA also alluded to rebate in IT and electricity dues without considering that the slab wise levy of IT or electricity charges is not discriminatory and is allowed to all tax and bill payers.

Even Voluntary Disclosure Schemes of IT never rewarded defaulters with lower tax outgo but merely provided immunity from prosecution. In case of IT defaults, Govt cannot fathom the amount of tax dues with ease in absence of voluntary declaration by the taxpayer but in cases of property tax default, the property being of immovable nature; it is with considerable ease that Govt can fix the tax dues. Electricity bills of some socially disadvantaged classes or farmers have been waived but these have a distinct social purpose.

It may well be argued that the Govt functionaries with insider information about the timing of issue of such discriminatory policies are the ones who have derived immense monetary benefits at the cost of honest small time taxpayers. In the same breath it can also be argued that Govt functionaries by timing such policies have allowed big property owners to benefit to the tune of Lakhs, if not Crores in tax dues at the expense of small taxpayers as such big players usually have larger access to the power corridors.

The FAA said that "Article 14 of the Constitution allows different classes to be treated differently provided such classification is reasonable. This is well evident by the manner in which citizens belonging to socially and economically disadvantageous categories have been provided reservations". However, the correctness of his reasoning ends there as he further reasoned that there is a class of vigilant defaulters who want to come clean during limited window and hence must be rewarded. He terms the second class as non-vigilant defaulters who though had deposited the complete contested dues earlier than the former class, must pay more.

Nothing can be more absurd as this classification is neither based on reasons of benefitting socially or economically disadvantaged group nor is it based on any sound public interest criteria. The public interest is served by rewarding the early taxpayers and not the later ones. The manner in which two unequal classes of taxpayers have been created is evidenced by a simple calculation.

The author who first paid the tax dues from 2010-11 onwards in Mar 2016 and regularly thereafter has paid Rs 95352/- up to 31 Jul 20 whereas those who had same dues as in Mar 2016 for same size and class of property and paid for the first time in Feb 2017 and regularly thereafter have paid only Rs 58284/- till 31 Jul 20 and most strangely those who made the first payment in Jul 20 paid the least.

Implementation of the policy in this manner also presents a grave danger of taxpayers interpreting it as a signal to stop timely payment of dues and wait for the opportune moment of policy announcement in future, it being beneficial both financially and prosecution immunity wise.

A second appeal allowed under the Act too did not bear any relief. It was dealt by the same authority ie Principal Secretary ULB Dept who being the issuer of such policy had direct interest in the case. The plea for referring the matter to another authority in keeping with the legal maxim 'Nemo judex in causa sua' meaning that 'no one is a judge in his own cause' was brushed aside.

A democratic Govt shouldn't be seen as extortionist to selectively and arbitrarily deny the benefits of a benign and just taxation policy to conscientious taxpayers who have always supported the Govt in tax revenues realization. It should pay heed to what Kautilya had to say about taxation in 'Arthashastra'; 'In a perfect world, the Govt should gather charges like a bumble bee that sucks only the perfect measure of nectar from the blossom so that both can survive'.

There is an option to file writ petition for violation of fundamental rights in High or Supreme Court but can a small property tax payer with limited resources muster the time, energies and finances to do so unless some Samaritan comes to his rescue by representing pro bono on his behalf, is a moot question.

The author is a serving Army officer. The views and experiences expressed though personal might find resonance with others.

He can be contacted on [email protected]

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