Commercial Auction Winner Collecting Market Fees Cannot

Commercial Auction Winner Collecting Market Fees Cannot Claim Municipal GST Exemption or Unconditional Pandemic Waiver

Issue

Whether a private contractor who acquires the right to collect weekly market fees via public auction from a Town Panchayat can claim GST exemption applicable to municipal functions under Article 243W, and demand a pandemic lease waiver without clearing outstanding statutory tax liabilities.

Facts

Lease Agreement: The petitioner’s father was the successful bidder in a public auction conducted by the 3rd respondent Town Panchayat for collecting fees from a weekly market (Period: 01.04.2018 to 31.03.2021) at a first-year lease amount of ₹30,44,444 with a 5% annual escalation.
Pandemic Closure & Waiver Orders: Due to the COVID-19 pandemic, the market remained closed for a considerable period. The Government issued G.O.(D) No.298 dated 02.09.2020 and G.O.(D) No.337 dated 16.06.2023, granting lease/rental waivers for affected pandemic periods.
Petitioner’s Stand: The petitioner asserted that collecting market fees is an exempt municipal function under Circular No.18088/2012/D3 dated 23.05.2012, and the authorities could not insist on clearing GST and Income Tax dues as a prerequisite for processing the lease waiver request.
Impugned Action: The Town Panchayat issued an order dated 30.03.2024 refusing the waiver until outstanding statutory taxes were cleared, as tender conditions mandated that the contractor pay all Central and State taxes.
Writ Petition Filed: The petitioner challenged the impugned proceedings, seeking a tax exemption, waiver of lease amounts, and refund of the security deposit.

Decision

Inapplicability of Municipal Exemption: The exemption for Article 243W municipal functions applies exclusively to services performed directly by local authorities, not to private auction winners commercially exploiting leasehold rights [Paras 12 & 15].
Commercial Nature of Transaction: Obtaining market collection rights via public auction is a purely commercial activity governed by tender terms, which explicitly mandate the payment of all Central and State tax liabilities [Para 15].
Pandemic Waiver Subject to Statutory Compliance: COVID-19 relief under G.O.(D) Nos. 298 and 337 cannot be claimed as a matter of right by an entity with default on statutory tax liabilities [Para 16].
Relief: No grounds were made out to interfere with the order dated 30.03.2024. Claims for lease refund and security deposit return were rejected, though the request for waiver may be considered once the GST and Income Tax dues are fully discharged [Paras 15 & 16].
Verdict: Decided in favour of the Revenue.

Key Takeaways

Privatized Municipal Contracts Lack Tax Exemption: Article 243W GST exemptions cover sovereign/statutory functions performed directly by local bodies; they do not automatically extend to private contractors who bid for commercial exploitation rights.
Tender Terms Govern Tax Liabilities: Where tender conditions place the burden of Central and State taxes on the contractor, the contractor cannot invoke local body exemptions to shirk statutory tax obligations.
Conditional Policy Relief: Administrative waivers or concessions granted under emergency orders (such as COVID-19 relief G.O.s) can legally be made conditional upon the contractor clearing all pending statutory tax dues.

HIGH COURT OF MADRAS

S. Thiruvenkadam

Commissioner of Municipal Administration

M. Dhandapani, J.

W.P. No. 29338 of 2024
W.M.P. No.31982 of 2024

JUNE 23, 2026

V.R. Shanmuganathan for the Petitioner. C. Prabakaran, Govt. Counsel for the Respondent.

ORDER

1. This writ petition has been filed seeking issuance of a Writ of Certiorarified Mandamus calling for the records relating to the proceedings of the 3^rd respondent in Na.Ka.No.38/2024 dated 30.03.2024, quash the same and consequently direct the respondents to refund a sum of Rs.17,06,990/- towards waiver of lease amount and refund of security deposit in terms of G.O.(D) No.298 dated 02.09.2020 and G.O.(D) No.337 dated 16.06.2023.

2. It is stated that the petitioner’s father participated in the public auction conducted by the 3^rd respondent-Kannivadi Town Panchayat for the right to collect market fees in the weekly market belonging to the Town Panchayat. The lease period was from 01.04.2018 to 31.03.2021. He was declared as the successful bidder and paid the security deposit of Rs.3,00,000/-. The lease amount for the year 2018-2019 was fixed at Rs.30,44,444/-. For the subsequent years, namely 2019-2020 and 2020-2021, the lease amount was increased by 5% every year. According to the petitioner, the right to collect market fees is exempted from payment of GST by virtue of Circular No.18088/2012/D3 dated 23.05.2012 issued by the Commissioner of Municipal Administration.

3. It is further averred that during the COVID-19 pandemic, the markets remained closed for a considerable period. Subsequently, the Government issued G.O.(D) No.298 dated 02.09.2020 and G.O.(D) No.337 dated 16.06.2023 granting waiver of lease/rental amounts for certain periods during the pandemic. Thereafter, he submitted a representation seeking refund of the proportionate lease amount and return of the security deposit. The 3^rd respondent, by proceedings dated 30.03.2024, rejected the request on the ground that GST and Income Tax dues payable by the lessee had not been remitted. Challenging the same, the present writ petition has been filed.

4. Learned counsel for the petitioner submitted that the activity of collection of market fees falls within the functions entrusted to municipalities under Article 243W of the Constitution and therefore the activity is exempted from GST. Reliance was placed on the Circular dated 23.05.2012 as well as the advance ruling relating to exemption of market fees collected by local bodies. He further submitted that in view of G.O.(D) Nos.298 and 337, the petitioner is entitled to waiver of lease amount for the COVID period and consequently refund of a sum of Rs.14,06,990/- together with the security deposit of Rs.3,00,000/-.

5. Per contra, the learned Government Counsel appearing for the respondents submitted that the petitioner is a defaulter in payment of GST and Income Tax dues. Reiterating the counter affidavit, more particularly, para Nos.6 to 11, he submitted that the tender conditions further authorize the Town Panchayat to adjust the amounts payable to the contractor towards outstanding dues.

6. Learned Government Counsel also invited the attention of this Court to Clause 20 of the General Conditions contained in the tender notification dated 08.02.2018 issued in Na.Ka.No.30/2018, which stipulates that if the contractor violates any of the conditions of the licence, the Executive Officer is empowered to impose penalty and recover the losses sustained by the Town Panchayat. The Town Panchayat is also entitled to adjust any loss or expenditure from the amounts payable to the licensee.

7. Further, relying upon Clause 29 of the tender conditions, he submitted that the contractor is liable to pay all taxes imposed by the Central and State Governments. Therefore, the petitioner cannot seek refund or waiver without first discharging the statutory liabilities. On the aforesaid score, it is contended that unless the statutory dues are cleared, the petitioner cannot seek the benefit of waiver or refund. Accordingly, he prayed for dismissal of this writ petition.

8. Heard the learned counsel appearing on either side and perused the materials available on record.

9. Admittedly, the petitioner’s father was the successful bidder in respect of the right to collect fees from the weekly market belonging to the 3^rd respondent for the period from 01.04.2018 to 31.03.2021. It is also not in dispute that the lease amount was fixed at Rs.30,44,444/- for the first year and thereafter enhanced by 5% for the subsequent years.

10. The principal claim of the petitioner is that the activity of collecting market fees is exempt from GST and therefore the respondents cannot insist upon payment of GST and Income Tax dues as a condition for considering the request for waiver.

11. The Circular dated 23.05.2012 relied upon by the petitioner grants exemption in respect of certain activities undertaken by local authorities in discharge of municipal functions. The exemption contemplated therein relates to services rendered by local authorities in relation to functions entrusted to municipalities under Article 243W of the Constitution, such as bus stand fees, slaughter house fees, stand tax, market fee and pay and use toilet facilities.

12. In the present case, the petitioner is not the local authority performing a municipal function. The petitioner’s father had obtained the leasehold right through a public auction to commercially exploit the right to collect market fees. The activity undertaken by the successful bidder pursuant to the auction is essentially a commercial activity governed by the tender conditions.

13. Further, the tender conditions specifically provide that the contractor shall pay all taxes levied by the Central and State Governments. The respondents have also placed materials indicating the GST and Income Tax dues payable by the petitioner. The impugned order proceeds on the ground that the statutory dues have not been discharged.

14. The benefit contemplated under G.O.(D) Nos.298 and 337 cannot be claimed as a matter of right by a person who has outstanding statutory liabilities. The respondents have specifically stated that upon payment of GST and Income Tax dues, the request can be considered in accordance with law.

15. This Court is therefore of the view that the petitioner has not made out any ground to interfere with the impugned proceedings dated 30.03.2024. The claim for refund of lease amount and security deposit cannot be granted in the facts and circumstances of the case and thus the same stands negativated.

16. In view of the aforesaid observations, the writ petition stands dismissed. No costs. Consequently, connected miscellaneous petition is closed.